F & I Services Ltd v Commissioners of Customs and Excise

UK VAT voucher provisions must be read within the Community scheme, preserving fiscal neutrality and taxing the consideration actually obtained for the final supply. A provision disregarding consideration for a voucher applies to a voucher granted for payment which gives a right to specified goods or services, reflecting prepayment. It does not extend to a money-off or discount card merely because the card has a nominal value. A marketing benefit to a retailer is consideration only where there is a sufficiently direct link with the particular supply. Payment made to an intermediary cannot be treated as prepayment to retailers where it never reaches them. A voucher worthless to the retailer does not evidence an exempt financial transaction. A tax clearance cannot create a legitimate expectation that tax will be administered unlawfully, but can support fair notice against retrospective change.

F&I Services Ltd operated a scheme under which voucher books produced by Entertainment Publications Ltd were sold to car dealers and then to customers. Participating retailers agreed to honour the vouchers, but received no payment or reimbursement when they were redeemed. The Commissioners initially confirmed F&I’s proposed VAT treatment, then reversed that view by letter dated 24 June 1998 and allowed a 30-day moratorium.

The VAT Tribunal dismissed F&I’s appeal. Carnwath J dismissed both the statutory appeal and the judicial review application, while allowing the negligence claim to continue as a private law claim: [2000] STC 364. The central issues were the application of Schedule 6, paragraph 5 of the Value Added Tax Act 1994, prepayment, financial-services exemption, and legitimate expectation.

The Court of Appeal unanimously dismissed the statutory appeal and the judicial review appeal. Robert Walker LJ gave the principal judgment. Sedley LJ agreed and added observations on judicial review. Lightman J agreed with both judgments.

1. VAT framework. VAT is a Community tax. National legislation must be construed consistently with the First and Sixth Directives, fiscal neutrality and the avoidance of distortion. Consideration may be non-monetary or supplied by a third party, but a sufficiently direct link with the relevant supply is required. The court must analyse composite transactions as a whole while identifying their separate taxable or exempt components.
2. Voucher treatment. Schedule 6, paragraph 5 of the Value Added Tax Act 1994 is directed to vouchers granted for consideration which confer a right to goods or services for a stated amount. Its obvious operation is in prepayment schemes. It must not be construed so broadly that the general Community VAT scheme is distorted. The alternative ground in C&E Commissioners v Granton Marketing [1996] STC 1049 was correct: a discount card conferring only an entitlement to pay less does not fall within the provision. The distinction between discount vouchers and payment vouchers is economically and fiscally real.
3. Application to F&I. The Tribunal was entitled to find no direct link between general marketing benefits and the particular retail supplies made on redemption. The customer’s payment to the car dealer could not be treated as prepayment to the retailers because it never reached them. The vouchers were worthless in the retailers’ hands and did not evidence an obligation to pay. The financial-services exemption therefore did not apply, unlike the materially different arrangement in Kingfisher plc v C&E Commissioners [2000] STC 992.
4. Judicial review. The Commissioners had no general dispensing power and could not be required to administer VAT unlawfully. The clearance created, at most, an expectation that a change in legal view would not be applied retrospectively and that fair notice would be given. The 30-day period was reasonable, particularly because a longer period would have disadvantaged competing traders. No reference under Article 234 was necessary because there was no real doubt requiring clarification.
5. Order. Appeal dismissed with costs. Permission to appeal to the House of Lords refused.

1. Court of Appeal (Civil Division): [2001] EWCA Civ 762 — dismissed the statutory appeal and judicial review appeal, with costs.
2. High Court, Chancery Division: Carnwath J, [2000] STC 364 — dismissed the appeal from the VAT Tribunal and the judicial review application, but directed that the negligence claim continue as a private law claim.
3. VAT Tribunal: decision dated 26 February 1999 — dismissed F&I’s appeal from the Commissioners’ decision of 24 June 1998.