Bookit Ltd v HM Revenue & Customs

Under Article 13B(d)(3) of the Sixth Directive, a service may qualify for the exemption for payments or transfers where, viewed broadly, it forms a distinct whole performing specific and essential functions of the exempt transaction. Mere technical assistance, or an essential step alone, is insufficient. The exemption may nevertheless apply where the service has the effect of transferring funds and changing the legal and financial situation, even though the supplier does not itself effect the transfer. The customer’s indifference to the payment mechanism does not alter the character of the service.

Bookit, an Odeon subsidiary, charged customers a handling fee for advance cinema-ticket bookings made by telephone and internet. HMRC treated the fee as a standard-rated booking service. The VAT and Duties Tribunal dismissed Bookit’s appeal in decisions [2004] UKVAT V18626, also reported at [2004] V&DR 421, and [2004] UKVAT V18856. The Vice-Chancellor allowed Bookit’s statutory appeal: [2005] EWHC 1689 (Ch). The issue before the Court of Appeal was whether Bookit’s receipt and transmission of card data, including card-issuer authorisations, constituted a transaction concerning payments or transfers exempt under Article 13B(d)(3) of the Sixth Directive.

1. Disposition. The Commissioners’ appeal was dismissed. The Vice-Chancellor had correctly allowed Bookit’s appeal.
2. Nature of the supply. Reading the tribunal’s two decisions together, the services supplied by Bookit included obtaining card and security information, transmitting it to the card issuers, receiving authorisation codes, and transmitting the relevant information and codes to Girobank. The tribunal’s first description of the supply was not exhaustive. The fourth component necessarily resulted, under clause 3.1.1 of the Merchant Services Agreement, in Girobank crediting Bookit with the ticket price and handling fee. The Vice-Chancellor was entitled to take that consequence into account. He had corrected an error of law inherent in the tribunal’s findings, rather than made a new factual finding or trespassed on the tribunal’s fact-finding function. The approach in Edwards (Inspector of Taxes) v Bairstow and another [1956] AC 14 and Furniss (Inspector of Taxes) v Dawson [1984] AC 474 did not prevent that correction.
3. Article 13B(d)(3). The exemption must be construed strictly. Applying Sparekassernes Datacenter v Skatteministeriet Case C-2/95, [1997] STC 932, a service qualifies only where, viewed broadly, it forms a distinct whole fulfilling specific and essential functions of the exempt payment or transfer. An essential constituent step is not enough, and a mere physical or technical supply is insufficient. Data-handling services may qualify where they extend to specific and essential aspects of the transaction. Bookit’s transmission of the relevant information to Girobank had the effect of transferring funds to Bookit’s account and changing the legal and financial situation. It was unnecessary for Bookit itself to effect the transfer. The customer’s lack of interest in the payment machinery was irrelevant.
4. Alternative grounds. Having upheld the exemption under Article 13B(d)(3), the court did not determine the alternative arguments based on Article 13B(d)(1) or items 2 and 5 of Group 5 in Schedule 9 to the Value Added Tax Act 1994.

• Court of Appeal (Civil Division). HMRC appealed from the Vice-Chancellor’s order and the appeal was dismissed.
• High Court, Chancery Division. On an appeal under section 11 of the Tribunals and Inquiries Act 1992, the Vice-Chancellor allowed Bookit’s appeal from the tribunal decisions: [2005] EWHC 1689 (Ch).
• VAT and Duties Tribunal. The tribunal dismissed Bookit’s appeal in its first decision, [2004] UKVAT V18626, reported at [2004] V&DR 421. After receiving further evidence, it issued a second decision, [2004] UKVAT V18856, maintaining its conclusion.