19124
VALUE ADDED TAX – Deductibility of output tax – Taxpayer supplying goods by mail order – Change for postage and packing – Whether vale added tax payable on postage element – Case of Customs & Excise Commissioners v Plantiflor Ltd considered – Appeal dismissed

LONDON TRIBUNAL CENTRE

	OSBORNE’S BIG MAN SHOP	Appellant

-	and –

	HER MAJESTY’S  REVENUE AND CUSTOMS 	Respondents

				Tribunal:	MISS J C GORT (Chairman)
						M JAMES

Sitting in public in Plymouth on 12 April 2005

Mr Raymond Shaw, a partner in the Appellant business, for the Appellant

Mr David Manknel of counsel, instructed by the Solicitors of Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1	This is an appeal against an assessment for a total of £16,756 contained in a notice issued on 26 March 2001 in relation to the quarterly accounting period ended February 2000.

2.	The amount in dispute relates to output tax in respect of  charges made by the Appellant to its customers for delivery of  mail-order goods.

The facts

3.	The Tribunal heard evidence from Mr Shaw himself and from Mr Ian James Hayter, a VAT officer from Thornton.  The Commissioners produced a bundle of documents.

4.	The Appellant was a partnership between Mr & Mrs Shaw and was registered for VAT from 1 October 1988 until 4 August 2001.  The partnership owned two shops, one in Beer and one in Plymouth, and in addition they supplied mail-order clothing from a warehouse in Seaton.

5.	Up until March 2000 the Appellant had always accounted for value added tax in respect of the post and packaging charges incurred in respect of the mail-order business.

6.	It was Mr Shaw’s evidence that value added tax had been accounted for in relation to the post and packaging because the partnership had been advised by the local VAT office that it was necessary that they should account for it.  It was his opinion throughout that the partnership was not liable for such tax.

7.	In February 1997 the Tribunal heard the case of Palantiflor Ltd, ((No.14848) decision which was released on 15 April 1997.  That case concerned a wholly-owned subsidiary of a Dutch group of companies, which carried on the business of selling garden plants by post.  The Tribunal held inter alia  that, although the Appellant made a non-exempt supply in arranging postage for the goods by Parcelforce, the consideration was included in the price of  purchase and the packaging of the goods, so that no additional VAT was due.  That decision was appealed to the High Court on 6 November 1998 when Laws J allowed an appeal by the Commissioners of Customs and Excise.  The Court of Appeal heard an appeal against that decision in October 1999 and February 2000.  They allowed Plantiflor Ltd’s appeal, and refused leave to appeal to the House of Lords.  On 19 October 2000 the House of Lords gave the Commissioners leave to appeal, and the appeal was heard in the House of Lords in February 2002, that decision was promulgated on 25 July 2002.   

8.	In the House of Lords the Commissioners’ appeal was allowed.  These dates are relevant because the Appellant had at some point become aware of the case of Plantiflor and,  following the decision of the Court of Appeal, he had adjusted his return for February 2000 reclaiming VAT in the sum of £16,756.92, being the sum which the business had accounted for in relation to post and packaging charges over the previous six years.  This adjustment was not disputed by the Commissioners at that time, and, because the Appellants VAT liability on that return was only some £12,000, a cheque for £4,000 was sent to the Appellant.  On 29 March 2000, Mr Shaw had written to the Commissioners setting out that he had repeatedly queried his liability to pay value added tax on the postage and packing and stating that, following the Court of Appeal decision in Plantiflor, he had deducted from his last returns what he considered to be the overpaid tax.  He set out the amounts on a year by year basis from the year 1993/1994 up until 1998/1999.  It is this sum which the Respondents are now reclaiming by way of an assessment.

9.	Following this letter the Appellant heard nothing from the Commissioners until 19 December 2000 when Mr Hayter visited the Appellant’s premises.  In the course of that visit a series of questions were asked and the Commissioners’ Business brief 7/00 was issued to the Appellants.  The Business Brief is dated 19 May 2000 and refers to the Court  of Appeal decision in Plantiflor.  However, in it the Commissioners iterate their view that postal charges are properly subject to VAT  at the standard rate, and state:

“Where VAT is not accounted for on the charges, our officers will issue assessments for the tax we think is due.  No action will be taken to enforce payment of such assessments until the final outcome of the 
case in the House of Lords.  If the final decision is in Customs’ favour, 
we will require payment of the tax and interest in all cases without 
exception.”

10.	At the outset of the business the Appellant’s practice was in some cases
to send goods cash on delivery.  However, in the later years this facility ceased, and the goods that were sent were paid for, either by cheque or credit card, before they were sent out.  In the Appellant’s catalogue it is stated that £4 will be charged for goods over 1 kilogram in weight, and up to 1 kilogram charges will be calculated according to weight.  The practice was that where the exact postage cost was less than £4, the exact charge was written on the order form.  If a customer paid by credit card, only the actual cost was debited, if he paid by cheque, a credit was given for the overpayment and offset against the next order.  Customers were only told the exact postage charge if they telephoned to ask.  

11.	The Appellant had a one year contract with Parcelforce which meant that there was some reduction in the cost of postage.  It also on occasion used Business Post and Business Express.  The customer could chose whether he wanted a fast service or not.  The Appellant did not keep a separate accounting record of the cost, although a postage book was kept.  The Tribunal did not see this book.  These were all matters which were established by Mr Hayter in the course of his visit.  Mr Hayter informed the Appellant that its claim might be rejected, and that the part of the claim that related to periods more than three years earlier, i.e. anything prior to 1 December 1996, was out of date and would not met in any event.

12.	By a letter dated 18 January 2001 Mr Hayter asked a further series of questions.  The Appellant replied to these questions by a letter dated 28 February 2001.  It was clear from Mr Hayter’s letter that he had not entirely understood the Appellant’s business to the extent  that he asked whether or not the customers when ordering by mail order were asked whether or not they wanted the Appellant to arrange delivery on their behalf, and he also appears to have considered that the charges included packing charges, which they did not.  One question asked whether or not the customers had the choice of  whether or not to have the goods delivered.  [Mr Shaw did not accept that the Appellant should only be allowed to reclaim VAT in respect of the previous three years because the Appellant had only paid VAT because  he had been told by the local VAT inspector that it had to pay in respect of the postal charges.]

13.	By a letter dated 16 March 2001  the Commissioners rejected the Appellant’s claim and stated inter alia that since the original adjustment made was for more than £2,000, it was not proper for this to have been made on a VAT return.  Accordingly the output tax for the VAT period 02/00 was deemed to have been under-declared in the amount of £16,756.92 which would be assessed.  Mr Hayter informed Mr and Mrs Shaw that exceptionally interest would be inhibited due to the time taken to                  advise them of the erroneous adjustment.  He informed them that the case was considered to be materially different from that of Plantiflor in the following ways:

	1.	Customers were not always told the exact amount of the postal 
charges

	2.	Customers were not asked when ordering whether or not they wanted 
delivery arranged on their behalf

	3.	Delivery was not always undertaken by Parcelforce or the Post Office 

	4.	Postage monies were separately identified in the accounts.

The assessment was then issued on 26 March 2001.

14.	By letter dated 5 April 2001 Mr Shaw disputed the facts as set out by the Commissioners and stated in that the customers were aware of the amount of the delivery charge, it was implicit in the mail order business that the orders were sent by mail, Mr Hayter was wrong to consider the issue of delivery by other carriers than Parcelforce or the Post Office since those charges did not form part of the claim and it  was possible to identify the delivery charges from the Appellant’s records.   This letter was treated as an application for a reconsideration by the Commissioners.  This reconsideration was carried out by a Mr Mills and noted to the Appellant by a letter dated 23 May 2001 in which the assessment was upheld.  The reason for upholding the assessment was stated to be as follows:

		“A claim such as the one you are making cannot be incorporated in to 
a VAT return.  You are making a claim to overpaid VAT as covered 
by Section 80 of the Value Added Tax Act 1994.  The section allows 
the Commissioners to prescribe by Regulation the form and manner 
in which such claims must be made, and this has been done in Regulation 37 of the VAT Regulations 1995, and detailed in part 2 of our Notice 
700/45.
“Your adjustment of a VAT return does not comply with the 
Commissioners’ requirements for claims of this nature…”

Mr Mills went on to refer to the case of Plantiflor and to state that if the Appellant was able to demonstrate that the business operated in precisely the same way as Plantiflor, then an acceptable claim for overpayments would be considered, subject to the three-year capping provisions and also subject to future recover depending on any eventual House of Lords’ decision.

15.	Considerable correspondence followed.  At the end of July or early August 2001 Mr and Mrs Shaw retired.  They submitted final accounts to the Inland Revenue and deregistered for value added tax.  Subsequently in December 2001 Mr Shaw had a telephone conversation with a Mr Tucker of the Commissioners’ Debt Management Unit who informed him that his appeal against payment of the sum of £16,756 had been successful.  Subsequently by a letter dated 20 December 2001 Mr Tucker wrote to Mr Shaw informing him that this information was incorrect.  The Appellant was informed of the possibility of appealing to the VAT Tribunal.  No action appears to have been taken at that time.  By a letter dated 1 October 2002 Mr Shaw wrote a letter of complaint to the Commissioners in Southampton following a pro forma demand for the money dated 26 September 2002.  By letter dated 14 February 2003 a Mr Harris of the Commissioners’ Southampton Office Complaints Unit wrote to Mr Shaw stating that his complaint about the matter of outstanding VAT liability was not upheld, but he did up-hold that part relating to unnecessary delay, and he further stated that there had been an regrettable period of inactivity for which he apologised.  Also in that letter he informed Mr Shaw of the Commissioners’ successful appeal in the case of Plantiflor to the House of Lords.

16.	The Appellant’s case was essentially that at the time the return was adjusted to reclaim the VAT on the postal charges the Court of Appeal had decided  in the case of Plantiflor that VAT was not chargeable on postal services.  Mr Shaw also referred the Tribunal to the dissenting speech of Lord MacKay of Clashfern, and to the status of the Chairman of the Tribunal hearing the appeal who had allowed Plantiflor’s appeal.  He submitted that the Appellant had been disadvantaged at the time the business closed down because the VAT debt did not appear in the final accounts.

17.	The Respondent’s case was that the matter was governed by the decision of the House of Lords in Plantiflor and value added tax was properly payable on the postage element.  Because Plantiflor was at the most liberal end of the mail order business, the decision was directly applicable to the present case.  In this case title to the goods had passed prior to their despatch, and it was only public postage which was exempted.

18.	The tribunal was referred to the House of Lords decision in Plantiflor at paragraphs 23-34 and 56-58.  At paragraph 23 Lord Slynn of Hadley stated as follows:

	“If, as I consider in Customs and Excise Commissioners v British Telecommunication Plc [1999] 1WLR 1376, 1382-1383, and as I still, the appropriate question is whether one act (here arranging the delivery) is ‘ancillary or incidental to another’ (here the supply of bulbs) or is ‘a distinct supply’, it seems to me on the contractual documents between Plantiflor and the customer which are before House that these arrangements constitute a single supply.  What the customer wanted and what the Plantiflor agreed to provide was bulbs delivered to the home.

24.	“There was a separate supply consisting of delivery of the bulbs from Plantiflor to Parcelforce, under a distinct contract.  However, under the contract between the customer and Plantiflor arranging the delivery is ancillary to the making available of the bulbs.  We do not consider that the answer to this question will vary according to, or depend on, the precise event or time when as a matter of English contract law the property in the bulbs passed to the customer.  The reality is Ms Brierley paid one total sum for one supply of delivered bulbs.

25.	“On the basis, however, that in the contractual documents between Plantiflor and its customers properly construed there were two supplies, the question arises whether the money received by Plantiflor for postage can constitute consideration received by Plantiflor or whether it is simply money that is channelled through Plantiflor but never became Plantiflor’s property so that it cannot amount to consideration passing to Plantiflor.”

19.	Lord Slynn went on to dismiss Plantiflor’s contention that there is no supply by Plantiflor to the customer in return for the postage and its submission that it was acting as agents for its customer and the only consideration received by Parcelforce was received from the customer.  Lord Slynn held that Plantiflor’s argument did not take into account the terms of its agreement with Parcelforce.  There was nothing in that agreement to express or even indicate that the two contracting parties were not acting as principles, in other words that Plantiflor was acting as agent for its customers.  There was no link between Parcelforce and the customer.  Even though Parcelforce supplied the service for delivery of the goods, there was no consideration passing from the customer to Parcelforce, Plantiflor agreed to arrange delivery including paying Parcelforce for the postage and the customer paid Plantiflor for that.  He then concluded that looking at the written terms of both contracts it was not shown that the sums paid became on payment to Plantiflor the property of Parcelforce.  They were part of the receipts by Plantiflor as part of its turnover.

20.	Lord Millet at paragraph 62 stated:

	“Plantiflor is contractually liable to Parcelforce to pay the postal charges, and the customer is not.  Parcelforce cannot look to the customer for payment.  It does not even know his identity unless he happens to be the addressee.  When it delivers the customers’ goods pursuant to its contract with Plantiflor, therefore, Parcelforce gives credit to Plantiflor, not Plantiflor’s customers.”

21.	Lord Millet concluded at paragraph 67:

	“To sum up – there were three distinct supplies in the present case, and it is necessary to identify the particular supply for which the payment made by the customer was the consideration. (i) The supply by Parcelforce to Plantiflor of the service of delivering its customer’s goods.  This was supplied pursuant to a contract for delivery made between Parcelforce and Plantiflor and was for a consideration payable by Plantiflor.  It is (or would if Parcelforce were a private carrier be) a taxable supply.  (ii)  The supply by Parcelforce to the customer of the service of delivering his goods to him or his order.  This supply was also made pursuant to the contract for delivery between Parcelforce and Plantiflor.  It was made in circumstances in which the customer incurred no liability to Parcelforce to pay a consideration and was not (and would not even if Parcelforce were a private carrier be) a taxable supply.  (iii)  The supply by Plantiflor to the customer as an arrangement service for which Plantiflor charge £1.63 per parcel.  Whatever else was included in this supply, it was not the service of actual delivery.  That was supplied by Parcelforce.  What the customer received for his money was the benefit of the arrangements which Plantiflor had made with Parcelforce to delivery its customers goods to his order without charging him in the normal way.  Since Plantiflor made the supply for consideration, it was a taxable supply.”

22.	Mr Manknel further submitted that the Appellant could not legitimately make a claim for repayment of an alleged overpayment simply by making a VAT return.  It was also submitted that the claim by the Appellant for recovery VAT covered a six year period, and therefore a significant part of the sum was outside the three year time limit.  The tribunal was referred to regulation 34 of the VAT Regulations 1995 in respect of the former argument and Section 80 of VAT Act 1990 4 in respect of the latter argument.

Reasons for Decision

23.	We can see no basis for distinguishing the Appellant’s case from that of Plantiflor Ltd.  At the time the Appellant closed down his business and did not account for his outstanding VAT liability when submitting closing accounts to the Inland Revenue, the House of Lords’ decision had been made.  In any event the Appellant had been fully warned by the Commissioners that they did not accept the judgement of the Court of Appeal in Plantiflor and were applying for leave to appeal.  There was no obligation on the Commissioners to inform the Appellant as had been claimed by Mr Shaw, either when leave to appeal to the House of Lords was granted by the Lords, or when the Lords finally announce their decision.  The obligation is always on the taxpayer where value added tax is concerned to inform himself properly as to the state of the law, difficult though this undoubtedly is in some circumstances, and particularly in the present case.

24.	Although the law relating to value added tax is statutory, interpretation of the statues is a matter of common law.  The Court of Appeal declared what the common law relating to postal charges was at the time they delivered their judgment in Plantiflor, however the House of Lords subsequently decided that the Court of Appeal was wrong and the law had always  been that postal charges in the circumstances of Plantiflor were subject to value added tax.  

25.	Because we find that the Appellant’s situation is indistinguable from that of Plantiflor, it is not necessary for us to consider the matters of the method in which the Appellant made his claim for repayment, or the fact that part of the claim related to a period that was outside the three year time limit.  For all the above reasons this appeal is dismissed.

21.	The Appellant made various complaints about the behaviour of the Commissioners, and undoubtedly there was some delay on their part.  This delay was never such as to disadvantage the Appellant with regard to the subject. matter of the appeal itself.  The relevant delay was the Appellant’s initial delay in not appealing immediately.  Had he done so, he would have been in a position to rely on the decision of the Tribunal in Plantiflor and it may be that the Commissioners would not have appealed in the Appellant’s favour at that time.  The Commissioners informed Mr Shaw that they will consider recompense with regard to such delay as was caused by them, once the Tribunal had heard the appeal.  If Mr Shaw receives no satisfaction from the Commissioners, it would be open to appeal further to The Adjudicator.

22.	No order for costs

.
MISS J C GORT
CHAIRMAN

RELEASED: 16 June 2005

LON/03/811