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News
Tax Case
All in the contract
Debenhams operated a charging system with regard to certain credit and debit cards, including its own, whereby it charged a 2.5 per cent handling fee on payments made using these cards. The fee was paid to Debenhams Card Handling Services Ltd, with the balance of the purchase price going to Debenhams Retail plc. Notices were included in Debenhams stores to this effect, and card receipts had these printed on them. Customers paid the same total price regardless of how they paid.
News
Tax Case
All in the contract
Debenhams operated a charging system with regard to certain credit and debit cards, including its own, whereby it charged a 2.5 per cent handling fee on payments made using these cards. The fee was paid to Debenhams Card Handling Services Ltd, with the balance of the purchase price going to Debenhams Retail plc. Notices were included in Debenhams stores to this effect, and card receipts had these printed on them. Customers paid the same total price regardless of how they paid.
Customs said that VAT was payable on the entire price paid by the customer, but the company appealed. The VAT tribunal held that there was one contract only, i.e. the sale of the goods between the customer and the taxpayer, and that it was 100 per cent of the ticket price. There was no contract between the customer and Debenhams Card Handling Services. The taxpayer appealed to the High Court.
Mr Justice Lindsay disagreed with the tribunal. He said that the combination of information provided to customers sufficiently indicated that where a particular method of payment was to be used, the processing would be done by the handling company for a fee of 2.5 per cent of the purchase price, but that the overall price to the customer would be unaffected. At this point, there was no contract, but once the customer signed the slip and the assistant pressed the 'accept' button, two contracts were formed and completed.
VAT was payable only on the amount payable for the goods in such transactions, namely on 97.5 per cent of the price.
The appeal was allowed.
This decision is somewhat surprising, and has massive connotations for the many other stores who operate similar arrangements on credit and debit cards. However, unsurprisingly, Customs are appealing the decision to the Court of Appeal.
(Debenhams Retail plc v Commissioners of Customs and Excise, Chancery Division, 29 June 2004.)
