The First-Tier Tribunal (FTT) has ruled that booking fees charged to customers purchasing tickets for events, such as concerts and the like, for which the customer pays by using a credit card or debit card, are exempt from VAT as this constitutes consideration for an exempt supply of payment-handling services.
The National Exhibition Centre (NEC), a UK taxpayer, rented out its venues to third party event promoters and sold, on behalf of those promoters, tickets for concerts and other performances to customers via its website. As such, the NEC acted as disclosed agent in selling the tickets to those customers. As soon as the customer bought a ticket through the NEC website, the ticket sale contract would be entered into between the event promoter and the customer. However, payment for those tickets would be handled by the NEC.
In addition to the ticket price, the NEC charged the customer a booking fee on its own behalf where said customer would pay for the tickets with their credit card or debit card; the NEC passed on the price of the tickets to the event promoter and kept the booking fee that was separately disclosed to the customer. The terms and conditions were unclear as to what exactly the NEC did in return for the booking fee but according to the FAQ section on the NEC website, the booking fee was charged to offset operational costs such as postage, credit card commission, labour, telephony and IT. In any event, it was clear that the booking fee was charged only when a customer paid for its tickets with a credit card or debit card.
Under EU law (and UK domestic law), a payment service is exempt from VAT (i.e., no VAT is chargeable on a service of transferring money from one party to another). The NEC argued that it was providing a payment transfer service—i.e., allowing the customer to pay by credit card or debit card - which means it should not have to account for any VAT in respect of the booking fees charged to the customer.
Essentially, Her Majesty's Revenue & Customs (HMRC) introduced three principal arguments against the view of the NEC. Firstly, it argued that the booking fees were consideration for a single taxable supply made by the promoter to the customer. Secondly, if the first argument was not accepted, HMRC argued that the booking fee was simply consideration for a single taxable supply of "booking" services (i.e., enabling the customer to obtain tickets by providing them with information on event availability, seat availability, seat pricing and timing information) supplied by the NEC to the customer. As a final argument, HMRC noted that whilst the supply made by the NEC was one of "card-handling," this was not exempt from VAT as, according to earlier case law, the NEC did not obtain the necessary authorisation codes and could not therefore be providing a "financial" service.
The FTT quickly dismissed HMRC's first argument as it was clear to the customer that they were charged a separate booking fee by the NEC which was not related to the ticket sales contract entered into between the customer and the promoter. The second argument was rejected by the FTT as these "booking" benefits were available to anyone as there was no charge to access the website. Therefore, it could not be said that these benefits were paid for by the customer through the booking fee.
Based on the evidence available, the FTT accepted that the NEC's agreeing to accept payment by card carried commercial risks, even where the strict contractual position was that the NEC were liable only if they were negligent. Furthermore, the FTT did not find it necessary for the NEC to justify the level of the booking fees charged, as they were set with respect to what the competitive market would bear.
The FTT allowed the NEC's appeal by deciding that the information (i.e., the relevant card details) transmitted by the NEC to its merchant acquirer was all that was needed to trigger the transfer of funds and as such that the booking fee was exempt from VAT as it constituted consideration for a payment handling service. In addition, the FTT held that the service provided by the NEC in exchange for the booking fee was not debt collecting because the service was supplied to the customer, not to the merchant. If the service had been debt collecting, it would have been subject to VAT.
The FTT is the court of first instance for tax appeals in the UK, which means it has no binding authority. However, the decision is based on rulings by the Court of Justice of the EU which have been applied to other cases in the UK (e.g., SEC, Bookit). As such, it remains to be seen whether HMRC will appeal.