Paypoint Collections Ltd and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 May 2017 |
| Neutral Citation | [2017] UKFTT 424 (TC) |
| Date | 16 May 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge John Brooks, Ruth Watts Davies
David Milne QC and Zizhen Yang, instructed by PayPoint Plc, appeared for the appellant
Kieron Beal QC instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Provision of system to enable customers of utility and other services to pay bills at shops and other retail outlets – Whether standard-rated or exempt supply – Standard-rated – Appeal allowed.
The First-tier Tribunal (FTT) allowed an appeal by PayPoint Network Ltd against a decision of HM Revenue & Customs (HMRC) that services it supplied to clients were exempt. The FTT found that the services fell outside the exemption and were standard-rated.
PayPoint Network Ltd (Network) and PayPoint Collections Ltd (Collections) are wholly owned subsidiaries of PayPoint plc an international supplier of payment solutions. Network contracts with clients across a wide range of industries including utilities and telecoms to provide payment terminals allowing customers of the clients to make payments or top-up devices. Network engages with retail agents with approximately 29000 locations across the UK including major national retailers and smaller independent shops. Network provides the infrastructure including tills, software and interface with a data centre. Collections collects cash from the agents by way of direct debit arrangements and arranges for settlement with clients.
The main issue concerned a ruling by HMRC that post-payment services by Network were exempt under the Value Added Tax Act 1994 (VATA 1994), Sch. 9, Grp. 5, item 1. Both Network and Collections had separate contractual arrangements with clients reflecting their different roles although a standard template is used. The written agreements formed the basis of the FTT's approach as adopted by the Supreme Court in Secret Hotels2 Ltd v R & C Commrs VAT[2013] BVC 26 and Airtours Holidays Transport Ltd v R & C Commrs VAT[2016] BVC 17.
Network contended that it provided its clients with the facilities and infrastructure, including the retail outlets enabling customers to make payments to clients – see para. 33–35 of the decision. This fell short of an electronic payments system and did not constitute a payment collection service. When a customer made a payment to an agent the money did not belong to Network but rather to the client, for example the telecoms or utility provider.
HMRC viewed Network as providing a payment system involving the collection of cash, a netting -off procedure and an electronic transfer to clients that a payment has been made, see para. 38. The FTT agreed with Network that it provided a payment system but not a service of receiving, collecting, or transferring payment such a service was provided by Collections, see para. 42.
The FTT then considered the VAT analysis in line with European Union (EU) provisions as found in Council Directive 2006/112 EC, the Principal VAT Directive, art. 135(1)(d). The UK interprets this at VATA 1994, Sch. 9, Grp. 5, item 1 – the issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money.
Collections had challenged a ruling in the same decision that its services were standard-rated debt collection, although it agreed they were standard-rated. The FTT confirmed them to be standard-rated but declined to opine further, following R & C Commrs v AXA UK plc ECASVAT(Case C-175/09) [2011] BVC 35.
This is a case in a long line involving the process of payments by an intermediary. If HMRC's ruling had been upheld Network's business model would have been compromised by its inability to recover VAT against its exempt supplies. The importance of contracts and in particular their wording against commercial reality was considered against the tests established in the courts. The fact that monies never came under the control of Network was a key factor in the FTT's decision.
[1] The appellants, PayPoint Collections Limited (“Collections”) and PayPoint Network Limited (“Network”), are wholly owned subsidiaries of PayPoint plc, an international provider of payment solutions and other services. PayPoint operates a payment scheme which enables customers (the “Customers”) of utility companies, mobile telephone companies and others (the “Clients”) to make credit top-ups, eg for mobile phone services, and charge up pre-payment devices for electric or gas to be supplied by the Clients, (“pre-payment” transactions or services) and/or pay invoices or bills issued by the Clients (“post-payment” transactions or services), over the counter at shops or other retail outlets (the “Agents”).
[2] Collections and Network appeal against the decision of HM Revenue and Customs (“HMRC”) of 30 December 2014, which was upheld on 10 April 2015 following a review, that:
1) post-payment services supplied by Network are exempt under item 1 of Group 5 of Schedule 9 to the Value Added Tax Act 1994 (“VATA”);
2) pre-payment services supplied by Network are standard-rated; and
3) services supplied by Collections constitute debt collections and are standard-rated on that basis.
The decision took effect from 2 March 2015 and is prospective only. To date no assessments for VAT have been raised by HMRC.
[3] Mr David Milne QC and Ms Zizhen Yang appear for the appellants. Although they question the reasoning behind the decision, they agree with HMRC that the supplies made by Collections to its clients and Network's pre-payment services are standard-rated. However, they contend that the supplies relating to post-payment transactions made by Network to its clients are not exempt but standard-rated. For HMRC, Mr Kieron Beal QC contends that as Network is providing a payment system to its clients its post-payment supplies are exempt.
[4] The issue between the parties, therefore, is whether Network's supplies to its Clients, in relation to its post-payment transactions, should be standard-rated or exempt. Although we have referred to the respondents throughout this decision as HMRC, this should be read, where appropriate, as a reference to HM Customs and Excise.
[5] We heard oral evidence from Mr Timothy Watkin-Rees who, in 1996, was a founder director of PayPoint. He is now the Business Development Director of PayPoint plc which has had a premium listing on The London Stock Exchange since October 2004. Mr Watkin-Rees leads the commercial function at PayPoint and is responsible for the commercial activities of Network and Collections. He is also a member of the board of directors for both Network and Collections.
[6] In addition, we were provided with documentary evidence including correspondence between the parties, copies of contracts between Network and selected Clients, copies of contracts between Collections and selected Clients, draft sample contracts between Network and Clients, Collection and Clients, the PayPoint Handbook July 2012, PayPoint Agent Retail Agreement Pack Sign Up Documents including the PayPoint Retail Agent Master Agreement, sample Retail Agent Agreement and Financial Statements of both Network and Collections for the year ended 28 March 2010, 27 March 2011 and 25 March 2012.
[7] On the basis of this evidence we make our findings of fact on which, although there was not a statement of agreed facts, there is little, if any, dispute between the parties.
[8] PayPoint plc, as already mentioned, is an international provider of payment solutions and other services. Mr Watkin-Rees described it as “fundamentally a network of retail locations” with systems that operate within that network “to facilitate the payments that happen” through it. He explained that PayPoint had terminals at Agents premises through which payments are entered:
Then we have host computer systems to bring the transaction data in centrally. Then we have a sorting and clearing operation that takes the payments that have come in and divides them up between the different Clients and then we send transaction files to the Clients. [Who] … will receive those into their billing systems and post them to their Customer ledgers.
[9] PayPoint's Clients include major consumer service organisations in the utility, housing, water, telecoms, media, financial services, transport, retail, e-commerce, gaming, postal and public sectors for which PayPoint provides services and processes consumer payments through its retail networks, internet and mobile phone channels. Annually, it handles over £9 billion from over 540 million transactions for more than 1,500 Clients. Customers of its Clients are able to use the PayPoint network for a wide range of services which include paying bills, topping up mobile telephones, collecting parcels and transferring money although, for present purposes, we are concerned with post-payment service or transactions such as the payment of utility bills through PayPoint's retail network of Agents.
[10] This retail network of Agents comprises approximately 29,000 local shops across the United Kingdom. These include the Co-op, Spar, McColls, Costcutter, Sainsbury's Local, Tesco Express, One Stop, Asda, Londis and thousands of independent retailers. PayPoint terminals, which are prominently branded with point of sale material provided by PayPoint, are located within an Agent's premises. A Customer wishing to use a PayPoint facility to pay a utility bill is required to bring either a magnetic swipe card that identifies his or her utility identification number or a bar coded bill (which contains the same information as that on the swipe card) and hand it to an Agent together with the amount to be paid in cash. The Agent scans the bill or swipe card on the terminal which prints a receipt that is issued to the Customer.
[11] Originally the PayPoint business was carried on by one company. However, as the result of a corporate...
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Allpay Ltd
...the ECJ decision in the Bookit Ltd v R & C Commrs (Case C-607/14) [2016] BVC 21 and the FFT decision in Paypoint Collections Ltd [2017] TC 05888. Allpay responded that HMRC could not rely on the Bookit and Paypoint decisions because the “payment services” issue had not been included in the ......