18701

03 0577 HPAS LTD t/a Safestyle UK Lady Mitting  Manchester 1 July Mr A Brearey, for the Appellant Mr C Sefton QC, of counsel, instructed by the Solicitor's Office of HM Customs and Excise, for the Respondents 
06/07/2004 DRAFT MAN/03/0577
	SUPPLY OF GOODS — Retailer offering option of paying for goods on interest free credit — customer repaying amount of loan from finance company by way of monthly instalments — finance company pursuant to oral agreement with retailer deducting a charge from the full amount payable to the retailer — whether retailer required to account for VAT on the full sales price or only on the sums paid to it by the finance company — Primback Ltd — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	HPAS LTD T/A SAFESTYLE UK	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Lady Mitting (Chairman)

Sitting in public in Manchester on 1 July 2004

Mr A Brearey, for the Appellant

Mr C Sephton, QC, of counsel, instructed by the Solicitor’s Office of HM Customs and Excise, for the Respondents

	© CROWN COPYRIGHT 2004

DECISION

1.	The Appellant company (“Safestyle”), which carries on the business of selling new and replacement windows to the public, appeals against an assessment to tax in the sum of £20,595 plus interest.  The assessment was dated 18 July 2003 and covers the periods 10/00 to 01/03 inclusive.
2.	As one of a number of incentives to customers to secure sales, Safestyle offers interest-free credit.  The core of such an arrangement is that Safestyle contracts with its customer to supply and fit windows.  The customer also enters into a consumer credit agreement with a finance provider under which the customer agrees to repay, by instalments, to the finance company the contracted price for the goods.  The finance company, in turn, pays Safestyle the contract price less a sum which is in effect the finance company’s charge for the finance.  The issue before us concerns the VAT treatment of this sum and the question is whether Safestyle should account for VAT on the full price of the goods, as contended by the Commissioners, or only on the amount it actually received from the finance provider, as had been the Appellant’s practice.  We heard oral evidence from Safestyle’s finance director, Mr N Lilburn, the Commissioners calling no oral evidence.
3.	Mr Lilburn took us through a specimen transaction for a customer called Mark Bennett which I understand to be representative of all such transactions.  It was immediately clear on the face of Mr Bennett’s documentation that the documents had been incorrectly completed, lacking both, in places, date and signature but as it was the principle which was to be elicited from this transaction, both Mr Brearey and Mr Sephton agreed we should ignore these deficiencies.  In practice, I was told, a representative would have been sent back to Mr Bennett with fresh forms to be properly completed.
4.	The system  described to us by Mr Lilburn was that a representative would call at the home of a potential customer, normally by appointment.  If the customer wished to proceed with the purchase, the customer and the representative would agree a price and the method of payment.  The customer would make an immediate down payment of the survey fee.  The customer would also complete the necessary documents which the representative would have been carrying with him and which he would complete at the meeting.  All customers would sign the “purchase contract” and if the customer wished to avail himself of the interest-free credit scheme, he would also sign an agreement with a finance company.
5.	Mr Bennett’s purchase contract was completed on 3 August 2001.  It showed the price agreed for his windows to be £3,500 (this would be inclusive of VAT).  The survey fee was £75 and the “balance due on installation” was stated to be £3,425.  The survey was to be carried out on 7 August and the installation on 7 September.  The purchase contract contained a box which the customer would complete to indicate his desired method of payment.  The box is in the following terms:
“I agree that the balance will be paid by cash or crossed cheque immediately the installation has been completed or delivered.  I have read and understand the conditions of sale overleaf.  I/we confirm that I/we did/did not request the representative to call
Signed 	[Signature appears here]
OR
I wish to pay the balance due by personal loan for which I ask you to supply the necessary application forms.  I understand that I will have to pay interest on the balance.  I have read and understood the conditions of sale overleaf and have now received a cover copy of my credit agreement.
Signed …”
6.	Mr Bennett had signed the first option and crossed through the second.  There is no reference on the contract to any discount or charge for credit.
7.	Mr Bennett’s finance agreement was with First National Bank (FNB).  Safestyle was not a party to this agreement.  The agreement described a goods as “replacement windows” and showed the price of the goods to be £3,500 less “a deposit” of £75 and the “amount of credit for the goods” to be £3,425.  The interest was said to be 0% and repayment was by 6 monthly instalments each of £570.83.  A £45 acceptance fee was payable with the first repayment.  Other than the acceptance fee there was no reference to any charge for the credit.
8.	After the installation has been carried out, the customer signs a satisfaction note indicating he is happy with the work undertaken.  The satisfaction note is forwarded by Safestyle to a finance company who then transfer the funds into Safestyle’s bank account.  The amount transferred and thus paid by the finance company to Safestyle is the contract price less the survey fee and also less the finance company’s charge for providing the finance.  Safestyle does not therefore receive the full contract price for the goods.
9.	14 days after completion of the work, Safestyle’s computer generates a VAT invoice which is forwarded to the customer.  Mr Bennett’s invoice was dated 21 September 2001 and was set out as follows:
Stock Code	Description	VAT	Supplied    Pack			Total	
							
4	UPVC Windows and Doors – 0%	1	1   EACH	188.38	3425.00	3236.63	
8	Survey Fees	1	1  EACH		75.00	75.00	

						2818.41	
					Survey Fee Control		-75.00	

VAT RATE	GOODS TOTAL	Deliver To:			GOODS TOTAL		2743.41	
17.50%	2818.41	BENNETT			VAT TOTAL		493.22	
0.00%	  -75.00		2743.41	493.22		INVOICE TOTAL		3236.63	
					OUTSTANDING BALANCE		0.00	
	Terms	days from Document Date						
	    HM CUSTOMS & EXCISE REQUIRE THAT THIS INVOICE IS SENT TO YOU FOR VAT PURPOSES ONLY		

10.	Mr Lilburn told us that stock code 4 was Safestyle’s interest-free credit supply code.  The figure of £188.38 was FNB’s finance charge.  VAT was calculated therefore and accounted for on the balance only.  Mr Lilburn did not know how the figure of £188.38 was calculated.  The computer software would have made the calculation when it produced the invoice.
11.	Mr Lilburn himself was not aware of the terms of the agreement between Safestyle and FNB.  The agreement had been negotiated by Safestyle’s principals with FNB’s Chief Executive and had not been committed to writing.  Mr Lilburn accepted in cross-examination that Mr Bennett was actually paying nothing for the credit facility.  He also accepted that it was not the customer who had agreed to pay the finance charge but Safestyle.  Equally he accepted that Mr Bennett would have had no idea what the figure of £188.38 on his invoice represented as it would never have been explained to him.
Submissions
12.	Despite Mr Lilburn’s concession, it remained the Appellant’s case that it was the customer who was obliged to and did pay the finance charge direct to the finance provider, the charge being free of VAT because it was exempted by the provisions of Group 5 of Schedule 9 VAT Act 1994 (VATA).  The reality of the arrangement, argued Mr Brearey, was that the customer did pay the finance charge.  In Mr Bennett’s case, he had paid FMB £188.38.  The invoice issued to Mr Bennett was accurate in that it accurately reflected the amount which Safestyle had received from FNB, this being the contract price less the finance charge.  It was Mr Brearey’s contention that the invoice crystallised both the tax point (Section 6 (5) VATA) and the value for VAT (Section 19(2) VATA).  To Mr Brearey, it was the invoice which was critical.  Because the document showed a “discount” of £188.38, this represented a separate exempt supply and VAT was payable only on the balance.
13.	It was Mr Brearey’s further contention that in reality there was no such thing as interest-free credit.  A customer should know that he can get a discount if he paid cash and by entering into a finance agreement and thus paying the full amount he was therefore paying FNB for the ability to defer payment.
14.	Mr Sephton’s case was that the invoice did not represent actuality.  To that extent it was a “bad” invoice which bore no relation to the underlying transactions.  The case was to Mr Sephton virtually indistinguishable from that of Customs & Excise Commissioners v Primback (CJEC 2001 STC 803) and I was referred specifically to paragraph 49:
“In view of all of the foregoing considerations, the answer to the questions submitted must be that on a proper construction of art 11A(1)(a) of the Sixth Directive, where a supply of goods for consideration has the following features: (i) a retail trader sells goods in return for payment of the advertised price which he invoices to the purchaser and which does not vary according to whether the customer pays in cash or by way of credit; (ii) should the purchaser so request, the acquisition of the goods is financed by the provision to him of interest-free credit by a finance company distinct from the seller; (iii) the finance company gives an undertaking to the purchaser that it will pay to the seller on the purchaser’s behalf the sales price advertised and invoiced by the seller; (iv) the finance company in fact pays to the seller, pursuant to agreements concluded with the seller but of which the purchaser is unaware, a sum less than the price advertised and invoiced; and (v) the purchaser repays to the finance company a sum equal to the price advertised and invoiced, the taxable amount for purposes of calculated the VAT payable on that sale consists of the full amount payable by the purchaser.”
15.	In response Mr Brearey did not recognise the distinction between a good and bad invoice.  The presence of the invoice alone, detailing the discount of £188.38 was sufficient to distinguish the case from Primback.
Conclusions
16.	As Mr Sephton pointed out, as in Primback, there are three separate transactions.  In our specimen example, one between Safestyle and Mr Bennett, one between Mr Bennett and FNB and the third between Safestyle and FNB.  We are concerned only with that between Safestyle and the customer.  The nature of this transaction, again using Mr Bennett as an example, is quite clear both from the documents and from Mr Lilburn’s oral evidence.  Safestyle supplied Mr Bennett with windows for which the price to be paid by Mr Bennett was £3,500.  This is precisely what Mr Bennett did pay.  He paid it by way of an immediate down payment of the £75 for the survey and the balance of £3,425, he paid to FNB.  There is no reference in either of the two contractual documents to any further payment or indeed to any apportionment of the price to be paid by Mr Bennett between the value of the goods and the cost of the credit.  He paid £3,500 and from his subjective view this was the price purely, simply and wholly for the supply of windows.  That was the consideration which he paid for that supply.  There is in any event no evidence in the contractual documents to any obligation on the part of Mr Bennett to pay a finance charge.  His only obligation was to pay £3,500 for the supply of windows which is what he did.  As Mr Sephton contended, the mere fact that Mr Bennett was later sent an invoice which purported to split the price paid by Mr Bennett cannot alter the nature of the underlying transaction.  It should be noted that the invoice gives no indication whatsoever of what the £188.38 was for.
17.	Two further points should be mentioned.  First, even if there were two separate supplies, one of credit and one of goods, the former would be ancillary to the latter (paragraphs 44 and 45 Primback).
18.	Secondly, as again Mr Sephton pointed out, Schedule 9, Group 5, Item 2 exempts “the making of any advance or the granting of credit”.  However the exemption is subject to the Notes to that Group.  Note 3 restricts the operation of the exemption by expressly requiring that the separate charge is disclosed to the customer.  In this case, as Mr Lilburn agreed, the customer would not be told that any separate charge was to be made and further that the customer would have no idea what that item on the invoice referred to.  The conditions for the exemption are therefore not in any event met.
19.	For all these reasons, I reject the Appellant’s contention that there was an exempt supply of credit from Safestyle to its customers.  VAT is payable therefore on the full amount of the contract price paid by each customer.  The amount of the assessment, which was calculated by the Commissioners from information supplied by the Appellant detailing all similar transactions, was not in dispute.
20.	The appeal is therefore dismissed.  Mr Sephton made no application for costs and I make no order.

LADY MITTING
CHAIRMAN
Release Date:16/07/2004
MAN/03/0577
££HPAS Ltd (t/a Safestyle UK) v Customs and Excise [2004] UKVAT V18701 (16 July 2004)