.png)
.png)
HMRC have revised their policy on the VAT liability of credit and debit card handling services supplied by agents. This follows the House of Lords' refusal to allow HMRC to appeal the Court of Appeal judgment in Bookit Ltd and HMRC's subsequent decision not to seek leave to appeal the judgment of the Court of Session in Scottish Exhibition Centre Ltd [2006].
The effect of the end of litigation in these two cases is that debit and credit card handling services provided by agents are VAT exempt where a key identified component is present in the service. Claims held pending the outcome of these cases will now be reviewed for payment and any assessments raised by HMRC for under-declared tax will be withdrawn where appropriate.
The Court of Appeal, in upholding the High Court judgment, found that the supply by Bookit to the customer included the following components:
- obtaining the card information with the necessary security information from the customer;
- transmitting that information to the card issuers;
- receiving the authorisation codes from the card issuers; and
- transmitting the card information with the necessary security information and the card issuers' authorisation codes to Girobank.
The court found that the tribunal had been correct in finding the first three components to be taxable, but because the fourth component was part of Bookit's service to the customer, and had the effect that funds were transferred to its account with Girobank, exemption was available to Bookit. The SEC judgment was based on this decision.
The judgments have provided further guidance on when a service of credit or debit card handling by an agent is VAT exempt. If an agent, acting for the supplier of the goods or services, makes a charge to the customer over and above the price of the actual goods or services, for a separately identifiable service of handling payment by credit or debit card, and that service includes the transmission of the card information with the necessary security information and the card issuers' authorisation codes to Girobank, then the additional charge will be exempt under VATA 1994, Schedule 9 Group 5 item 1. Otherwise, the charge is taxable at the standard rate of VAT.
Charges levied on the cardholder for payment by credit and debit card in any other circumstances will not fall within the exemption for financial services and the normal VAT treatment will apply.
The judgments do not alter the general principle that the taxable amount for a supply of goods or services includes all payments which the supplier requires the customer to make as a condition of receiving the supply. If, for example, a supplier of goods or services requires a customer to pay an additional charge, above that of the price of the actual goods or services, for payment by credit or debit card, that charge is further consideration for the purchase of those goods or services and VAT is payable on that amount in accordance with the VAT treatment of the goods or services.
Agents supplying card handling services that meet the criteria set out above, and who have been treating the charge as taxable at the standard rate, should exempt such services from 30 October 2006. Conversely, agents supplying card handling services that do not meet the criteria set out above, and who have been treating those services as exempt, should now charge tax.
There is no requirement to make adjustments in respect of earlier supplies.
