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All Over £1.63
Were both delivery charges and postage chargeable to VAT in Commissioners of Customs and Excise v Plantiflor?
A mail order business arranged delivery of goods, and accounted only for the packing in its VAT calculations. Customs said that the postage should also be accounted for, as it was a cost component of the total paid by the customer to the business. The Court of Appeal disagreed with Customs, saying that it was a separate payment from the main purchase price.
The facts
Were both delivery charges and postage chargeable to VAT in Commissioners of Customs and Excise v Plantiflor?
A mail order business arranged delivery of goods, and accounted only for the packing in its VAT calculations. Customs said that the postage should also be accounted for, as it was a cost component of the total paid by the customer to the business. The Court of Appeal disagreed with Customs, saying that it was a separate payment from the main purchase price.
The facts
All Over £1.63
Were both delivery charges and postage chargeable to VAT in Commissioners of Customs and Excise v Plantiflor?
A mail order business arranged delivery of goods, and accounted only for the packing in its VAT calculations. Customs said that the postage should also be accounted for, as it was a cost component of the total paid by the customer to the business. The Court of Appeal disagreed with Customs, saying that it was a separate payment from the main purchase price.
The facts
Plantiflor traded as a mail order business selling plants, bulbs and other horticultural products. As part of its service, it arranged delivery at a cost of £2.50: £1.63 for postage, and 87 pence for packing. The order catalogue stated: 'We will happily arrange delivery on your behalf via Royal Mail Parcelforce if requested, in which case please include the postage and handling charge on your order. We will then advance all postal charges to Royal Mail on your behalf'.
The company included the 87 pence in its VAT calculations, but not the postage. The intention of the arrangement was that the customer would benefit from the facility agreed between Plantiflor and Parcelforce, and that Plantiflor acted as agent for its customers in arranging delivery services to be supplied direct to the customer. Plantiflor wrote to Parcelforce in September 1993 informing Parcelforce that it would make use of Parcelforce's services as agent for the retail customers. Customs agreed that the postal expense could be treated as a disbursement, and shown as such on any VAT invoice, and so not treated as subject to output tax.
Plantiflor was surprised therefore when Customs changed their opinion in April 1996, and appealed to the tribunal. The tribunal found for Plantiflor, so Customs went to the High Court, where Mr Justice John Laws held that Plantiflor did not act as agent for Parcelforce, and the postage charged was a cost component of the total paid by the customer to Plantiflor.
Plantiflor appealed to the Court of Appeal.
(Roderick Cordara QC and Perdita Cargill-Thompson for the appellant; Nicholas Paines QC for Customs.)
The Court of Appeal judgment
Lord Justice Ward described the two essential questions before the court as follows:
Who supplied what goods or services to whom?
What was the consideration for each supply obtained by the supplier from the purchaser?
Customs submitted that the tribunal had misdirected itself by adopting the test of whether or not one supply was physically and economically dissociable from the other. However, Lord Justice Ward said that the tribunal had also looked at the matter in the light of Commissioners of Customs and Excise v Wellington Private Hospital Ltd [1997] STC 445, i.e., whether one supply was incidental or ancillary. The judge could not fault the tribunal's reasoning, and refused to interfere with its conclusion: delivery was quite separate from sale.
It was necessary to look at what Parcelforce did in return for postal charges of £1.63. The answer, said Lord Justice Ward, was that it delivered the parcels, and nothing else. The service of delivery was therefore by Parcelforce rather than Plantiflor; the only consideration paid to Parcelforce was the delivery charge, and the only supply was to the customer as no other consideration was paid to Parcelforce. The fact that the customer sent money for postage, rather than actual stamps was irrelevant: the answer to the question as to who was getting something from Plantiflor could not depend upon who bought the stamps.
The judge then looked at the consideration for each supply obtained by the supplier from the purchaser of that supply. He said while the customer may not have known that the £1.63 related to postage, the postage charge was a certain figure at all material times. It did not matter that the customer did not know the precise price, because the actual postage charge could be determined as the consideration for the supply. Plantiflor contended that the amount it received to arrange delivery was 87 pence, and that if the £1.63 were also deemed to be part of the consideration it received, then as a matter of theory VAT could be paid twice on this amount, if postal supplies by Parcelforce were not exempt.
In conclusion, Lord Justice Ward said that £1.63 was received as a repayment of an expense to be incurred, i.e., a disbursement. It was paid out in the name of the person appearing as the addressee and for his account. The money was entered in the books in a separate account. Customs had been happy with the arrangement for some years, and there was no justification for their change of heart.
Plantiflor's appeal was allowed.
Decision for the appellant
(Reported at [2000] STC 137.)
Commentary by Allison Plager
Although £1.63 is in itself a tiny amount of money, it becomes significant when multiplied up to the level of a large scale mail order business. Other mail order businesses should therefore ensure that they can take advantage of the judges' decision in Plantiflor, by checking their postage arrangements and terms.
Were both delivery charges and postage chargeable to VAT in Commissioners of Customs and Excise v Plantiflor?
A mail order business arranged delivery of goods, and accounted only for the packing in its VAT calculations. Customs said that the postage should also be accounted for, as it was a cost component of the total paid by the customer to the business. The Court of Appeal disagreed with Customs, saying that it was a separate payment from the main purchase price.
The facts
Plantiflor traded as a mail order business selling plants, bulbs and other horticultural products. As part of its service, it arranged delivery at a cost of £2.50: £1.63 for postage, and 87 pence for packing. The order catalogue stated: 'We will happily arrange delivery on your behalf via Royal Mail Parcelforce if requested, in which case please include the postage and handling charge on your order. We will then advance all postal charges to Royal Mail on your behalf'.
The company included the 87 pence in its VAT calculations, but not the postage. The intention of the arrangement was that the customer would benefit from the facility agreed between Plantiflor and Parcelforce, and that Plantiflor acted as agent for its customers in arranging delivery services to be supplied direct to the customer. Plantiflor wrote to Parcelforce in September 1993 informing Parcelforce that it would make use of Parcelforce's services as agent for the retail customers. Customs agreed that the postal expense could be treated as a disbursement, and shown as such on any VAT invoice, and so not treated as subject to output tax.
Plantiflor was surprised therefore when Customs changed their opinion in April 1996, and appealed to the tribunal. The tribunal found for Plantiflor, so Customs went to the High Court, where Mr Justice John Laws held that Plantiflor did not act as agent for Parcelforce, and the postage charged was a cost component of the total paid by the customer to Plantiflor.
Plantiflor appealed to the Court of Appeal.
(Roderick Cordara QC and Perdita Cargill-Thompson for the appellant; Nicholas Paines QC for Customs.)
The Court of Appeal judgment
Lord Justice Ward described the two essential questions before the court as follows:
Who supplied what goods or services to whom?
What was the consideration for each supply obtained by the supplier from the purchaser?
Customs submitted that the tribunal had misdirected itself by adopting the test of whether or not one supply was physically and economically dissociable from the other. However, Lord Justice Ward said that the tribunal had also looked at the matter in the light of Commissioners of Customs and Excise v Wellington Private Hospital Ltd [1997] STC 445, i.e., whether one supply was incidental or ancillary. The judge could not fault the tribunal's reasoning, and refused to interfere with its conclusion: delivery was quite separate from sale.
It was necessary to look at what Parcelforce did in return for postal charges of £1.63. The answer, said Lord Justice Ward, was that it delivered the parcels, and nothing else. The service of delivery was therefore by Parcelforce rather than Plantiflor; the only consideration paid to Parcelforce was the delivery charge, and the only supply was to the customer as no other consideration was paid to Parcelforce. The fact that the customer sent money for postage, rather than actual stamps was irrelevant: the answer to the question as to who was getting something from Plantiflor could not depend upon who bought the stamps.
The judge then looked at the consideration for each supply obtained by the supplier from the purchaser of that supply. He said while the customer may not have known that the £1.63 related to postage, the postage charge was a certain figure at all material times. It did not matter that the customer did not know the precise price, because the actual postage charge could be determined as the consideration for the supply. Plantiflor contended that the amount it received to arrange delivery was 87 pence, and that if the £1.63 were also deemed to be part of the consideration it received, then as a matter of theory VAT could be paid twice on this amount, if postal supplies by Parcelforce were not exempt.
In conclusion, Lord Justice Ward said that £1.63 was received as a repayment of an expense to be incurred, i.e., a disbursement. It was paid out in the name of the person appearing as the addressee and for his account. The money was entered in the books in a separate account. Customs had been happy with the arrangement for some years, and there was no justification for their change of heart.
Plantiflor's appeal was allowed.
Decision for the appellant
(Reported at [2000] STC 137.)
Commentary by Allison Plager
Although £1.63 is in itself a tiny amount of money, it becomes significant when multiplied up to the level of a large scale mail order business. Other mail order businesses should therefore ensure that they can take advantage of the judges' decision in Plantiflor, by checking their postage arrangements and terms.
