Topps Tiles plc

The issue was one that was not provided for in the legislation and for which there was no precedent authority, namely the method of dealing with fractions of a penny when accounting for VAT on tax-inclusive amounts.

The appellant, a well-known high street retailer, had historically accounted for VAT on the basis that sales to each customer were treated as a single transaction, and VAT was calculated by mathematical rounding so that decimals to 0.499 were rounded down to the nearest penny and decimals from 0.5 were rounded up. For two quarters in 2003 an adjustment was made whereby the appellant rounded down or up in respect of each price unit, such as each tile. Subsequently, price unit adjustments were made but in each case the rounding was down only. This resulted in a reduction in output tax due of approximately £200,000 for each quarter. The commissioners issued assessments totalling £822,210 and refused to repay sums claimed as overpaid tax amounting to £389,918.

At the hearing, the appellant informed the tribunal that its claim was now being restricted to one based on the proposition that each SKU line, rather than each price unit, was a separate supply. ‘SKU line’ was the term used to describe an item of merchandise in the appellant's inventory, so that a box of 36 matching tiles would have a single SKU code, as opposed to 36 price units. The appellant contended that it was entitled to round down to the nearest whole penny the VAT on each SKU line. It submitted that, since the law does not provide for rounding up, and as rounding up would be wrong in principle because it would result in a VAT rate higher than the standard 17.5 per cent provided for by statute, then the correct method is to round down.

The commissioners accepted that, for the purposes of this case, but not as a general rule of thumb, the SKU line could be used as the basis for the supply unit. However, they argued that although multiple supplies could be included in an invoice it could be argued that only one rounding should occur and that would be when the total of the invoice was calculated. The commissioners relied on art. 2 of EC Directive 67/227, the first VAT directive, which referred to VAT as a ‘general tax on consumption exactly proportional to the price of the goods and services’ and on the recitals of the directive which spoke of simplicity and neutrality. In the commissioners’ view, there was no authority for rounding down in the manner proposed by the appellant.

The tribunal dismissed the company's appeal.

1. The legislation, although not relating specifically to the issue under appeal, supported the commissioners’ contention that tax cannot be calculated by isolating each supply at whatever level of detail the taxpayer chooses. It pointed to the need for a system that achieves a fair result, and that result is one which produces an amount of tax payable of 17.5 per cent of the value of standard-rated supplies made.
2. Mathematical rounding marginally favoured the commissioners because in each calculation to three decimal places there was one additional thousandth that required rounding up. However, this method achieved as close to a perfect result as possible.
3. The correct method to be applied in the present case was calculation of output tax at the SKU line level but with mathematical rounding both up and down.
4. Subject to agreement of any adjustments required to the assessments and the appellant's claims for repayment, the appeal was settled in the commissioners’ favour.

No. 19,751

Newcastle United plc

The issue was whether VAT paid on players’ agents’ fees was deductible as input tax, the supplies having been made to both the appellant and the individual players. The term ‘players’ agent’ referred to both agents who act for players and those who act for football clubs.

The appellant is a Premier League football club employing 32 professional footballers, most of whom deal with the appellant through players’ agents. The Football Association (FA), of which the Premier League is a member, licenses players’ agents and the agents’ conduct is regulated by the Players’ Agents Regulations of the world governing football body (FIFA).

The tribunal examined specimen contracts under which agents were appointed by individual players to act exclusively on their behalf for a specified period. The agents were concerned with three types of transaction when dealing with football clubs: (1) the transfer of a player from one club to another; (2) the negotiation or re-negotiation of a player's contract; and (3) the negotiation of terms on which a player's contract with a club was terminated. A director of the appellant outlined the procedures for negotiation of new contracts of employment offered to players by the appellant, usually taking place no later than the penultimate year of the players’ existing contracts. He stated that, typically, the appellant would approach an individual player's agent and invite him to act jointly for the club and the player in negotiating the terms of the player's new contract. If the agent accepted the invitation, he would then agree with the appellant the terms of his appointment including the fee he would receive if the player were to sign the contract, but the player was not made aware of those terms. The agent was considered to act exclusively for the player in all matters other than the negotiation of new contracts but, in relation to the contract, notwithstanding the alleged joint instructions, the agent and the appellant would act as if the agent had been instructed solely by the appellant. Following negotiations, said by the appellant to be between the agent acting for it and the player, a new contract would be drawn up by the appellant and signed by the player. The appellant would then complete various forms to be lodged with the FA together with the player's new contract, one of the documents specifying that the agent was involved in the registration and had acted for the appellant. Details of the agent's fee would be disclosed and a declaration would be completed by the appellant to the effect that the agent had acted for the club and his fee was to be paid in accordance with a written agreement between the club and the agent. The agent would then resume his former role as agent for the player in all matters. In the appellant's view, the agents supplied their services to it, or to it and the players jointly, for the purposes of its taxable business and the appellant was, therefore, entitled to recover the VAT paid to the agents as input tax.

It was the opinion of the tribunal that the agent neither supplied services to the appellant nor acted for the appellant, either jointly or solely, in the negotiation of contracts. The agent had no written contract with the appellant, which breached art. 12.1 of the Players’ Agents Regulations. More importantly, he was contracted to act exclusively for the player. The agent was legally obliged to act in accordance with this contract and only the player had the power to give binding instructions to the agent. No other party was permitted to remunerate the agent and to do so was a breach of art. 12.4. The appellant, for its part, was in breach of clause 5 of its contract with the player, having failed to observe the rules of the FA, as represented by the Regulations. Further, the appellant was guilty of falsely declaring that it had a written contract with the agent and that he had acted exclusively for the club in the transaction. Both the agent and the appellant had falsely stated that the player did not use the services of a players’ agent, but the appellant did use those services. By behaving untruthfully, the agent breached art. 14a of the Regulations and, in paying the agent's fee by instalments, the appellant breached art. 12.9. The tribunal decided that none of the documents completed by the appellant could be relied on as being true and correct.

An alternative argument of the appellant was that even if there was no supply to it by the agents it, nevertheless, gained the right to deduct input tax because it engaged the agents, it exercised control over the provision of the agents’ services, it paid for those services and it received the benefit of the agents’ services. This was sufficient to bring the supply within the principles established in C & E Commrs v Redrow Group plc [1999] BVC 96. In that case, a property developer was found to be entitled to input tax credit on fees attributable to the sale of house buyers’ existing homes. Estate agents were instructed, and their fees were paid, by Redrow and the House of Lords found that the company's role in the transactions was sufficient for it to be regarded as the recipient of the supply for the purposes of recovering the VAT paid.

The tribunal drew a distinction between the circumstances in Redrow and those in the present case. In that case, the estate agents had real obligations to Redrow, but here the players’ agents had no such obligations to the appellant, since they were exclusively contracted to the individual players. The appellant maintained that the agent acted in both its interests and those of the player and, since their interests were not mutually exclusive, there was mutuality of interests in using the agent's services, so that the services were supplied to both the appellant and the player. However, the tribunal referred the appellant to the general principle of law of agency that an agent may not put his duty in conflict with his interest. Since the agent did not inform his client, the player, of the terms on which he was said to be appointed by the appellant he failed to make full disclosure to the player of his interest, and did not obtain the player's consent to his double employment. Subject to services shown on six invoices identified by the commissioners and three further invoices identified by the tribunal being accepted as supplies to the appellant, the VAT on which was accepted as input tax, the commissioners’ assessments, reduced to £475,252, were upheld.

The tribunal dismissed the Club's appeal.

1. Given players’ agent's duty to act exclusively for their clients, an agent cannot be engaged as agent of the football club and cannot supply his services to the club for a consideration.
2. Players’ agents did not supply services to both the appellant and their clients, the players, in a manner consistent with the principles established in Redrow.
3. Notwithstanding that the appellant obtained a benefit from the services of the players’ agents, the VAT charged by the agents was not input tax of the appellant.

No. 19,718