Commissioners of Customs and Excise v Plantiflor Limited

The House of Lords held that the sums charged by Plantiflor to its mail‑order customers for postage formed part of the consideration for taxable supplies and so were subject to value added tax. The court analysed the contractual arrangements between Plantiflor, its customers and Royal Mail Parcelforce against the framework of the Sixth VAT Directive (77/338/EEC) and the Value Added Tax Act 1994, in particular article 11(A) of the Directive and section 19(2) of the 1994 Act. The majority concluded that the payments for postage were not repayments of expenses ‘‘paid out in the name and for the account of’’ the customers within article 11(A)(3)(c) and therefore could not be excluded as disbursements; accordingly VAT was chargeable.

The dispute concerned whether a postal charge shown on Plantiflor's invoice to a mail‑order customer was part of the taxable consideration or a mere disbursement. The commissioners sought VAT on the postage element; Plantiflor treated the postage as a pass‑through disbursement or as amounts received as agent for the customer and not subject to VAT.

Background and parties:

• Plantiflor (trading as "Bakker Holland") sold bulbs by mail order and charged customers a single total including price, a contribution to post and packing and optional insurance.
• Parcelforce (part of Royal Mail) delivered parcels pursuant to a five‑year contract with Plantiflor under which Parcelforce invoiced and expected payment from Plantiflor at agreed bulk rates.
• The Commissioners of Customs and Excise treated the postage element charged to customers by Plantiflor as part of Plantiflor's taxable consideration and assessed VAT accordingly.

Procedural history: The issue was first determined as a representative particular assessment. The VAT and Duties Tribunal (Mr P M F Horsfield QC) allowed Plantiflor's appeal. Laws J (High Court) reversed and held VAT payable. The Court of Appeal reversed Laws J and held no VAT was payable. The Commissioners appealed to the House of Lords.

Issues framed:

• Whether the postage amounts paid by customers to Plantiflor were part of Plantiflor's consideration for a supply to the customer (and therefore taxable) or whether they were repayments of expenses paid out in the name and for the account of the customer (and therefore excluded under article 11(A)(3)(c) of the Sixth Directive).
• Whether the contractual and factual matrix established that Plantiflor acted merely as agent receiving and remitting postage to Parcelforce, or that Plantiflor received the sums as its own receipts forming part of its turnover.

Court’s reasoning:

• The majority examined the contractual documents between the parties and the contract between Plantiflor and Parcelforce. It was plain that Parcelforce contracted with Plantiflor as principal and invoiced and looked to Plantiflor for payment; there was no contractual relationship between Parcelforce and the end customer. Plantiflor therefore bore contractual liability to Parcelforce and the sums received from customers were part of Plantiflor's receipts.
• The court applied article 11(A) of the Sixth Directive (taxable amount rules) and section 19(2) of the 1994 Act: the taxable amount includes everything which constitutes the consideration obtained by the supplier. The exception for amounts ‘‘paid out in the name and for the account of’’ the customer (article 11(A)(3)(c)) did not apply because the payments were not made in the name of and for the account of the customer from the recipient's perspective; Plantiflor contracted as principal with Parcelforce and used the receipts as part of its turnover.
• Different analytical approaches were taken by the judges: Lord Slynn preferred to treat the customer contract as a single supply of delivered bulbs so postage formed part of the consideration; Lords Millett, Hobhouse and Scott analysed the arrangements as comprising distinct supplies but nonetheless concluded that the customer’s payment for postage formed taxable consideration in respect of Plantiflor’s supply (an arrangement service) rather than being a disbursement. Lord Mackay dissented and would have dismissed the appeal.

Relief sought: The Commissioners sought to recover VAT on the postage element charged to customers; Plantiflor sought to resist VAT on that element.

Appeal allowed. The House of Lords (majority) held that the postage element charged to customers was part of Plantiflor's taxable consideration and not an excluded disbursement under article 11(A)(3)(c) of the Sixth Directive. The contractual relationship between Plantiflor and Parcelforce showed that Parcelforce contracted with Plantiflor as principal and looked to Plantiflor for payment; accordingly the postage monies were Plantiflor's receipts and subject to VAT.

VAT and Duties Tribunal (Mr P M F Horsfield QC) allowed Plantiflor [1997] V & DR 301; Laws J (High Court) reversed and held VAT payable; Court of Appeal reversed Laws J and held no VAT payable; Commissioners appealed to the House of Lords and the appeal was allowed ([2002] UKHL 33).