The issue was whether a charge levied by the appellant on its customers represented consideration for an exempt supply under VATA 1994, Sch. 9, Grp. 5, item 1, being a financial service separate from its supply of mobile telephone services.

The appellant operated as the UK network of T-Mobile International and provided services to 16.9 million customers. The 27.65 per cent of customers paying their monthly bills other than by direct debit or Bankers Automated Clearing System (BACS) were charged £3, referred to as a separate payment handling charge (SPHC). This was identified, applied and billed separately from other services supplied. VAT was accounted for on the SPHC but, on review, the appellant formed the opinion that the supply should be exempt from VAT. It submitted a claim for overpaid output tax for a period of three years in the sum of £4m and the commissioners' refusal of the claim was the subject of this appeal.

The appellant asked the tribunal to consider, first, whether the supply was exempt from VAT under Grp. 5 of Sch. 9 of VATA 1994 and art. 13(B)(d) of the sixth directive. It submitted that the services of transmitting, or facilitating the transmission of, money from one person's account to another person's account has long been accepted as exempt. The appellant further submitted that the provision of negotiation services concerning payments and transfers was exempt under art. 13(B) and, in the context of UK law, exemption applied under item 1 of Grp. 5 to the services of acting in an intermediary capacity. Further, since persons who handle payments by credit card in return for a separate fee are providing exempt negotiation services, the SPHC was consideration for an exempt supply.

On the basis that the services supplied in return for the SPHC were exempt financial supplies, the appellant submitted that these were separate and distinct from the telecommunications service provided. A separate charge was made for the separate service of processing an inconvenient form of payment. The service was separately identified, itemised, billed and paid for irrespective of the volume, nature or type of telecommunications service supplied. In the view of the appellant, by applying the principles established in Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] BVC 155, it became clear that there was a separate supply of the payment processing service and that the service was not merely an element of a larger composite supply. In particular, customers choosing to pay separately for the service were not required, contractually or commercially, to purchase any other services from the appellant. Each service was provided separately and was not merely a better way of enjoying other services.

The commissioners' principal argument was that the SPHC was not consideration for a separate and distinct supply, but was part of the consideration received by the appellant for its single supply of telecommunications services. In support of this contention, the commissioners relied on College of Estate Management v C & E Commrs [2005] BVC 704, Card Protection Plan Ltd and Levob Verzekeringen BV v Staatssecretaris van Financin (Case C-41/04) [2007] BVC 155. In the commissioners view the SPHC was simply part of the ‘taxable amount’ as defined in art. 11(A)(1) of the sixth directive. In the alternative, the commissioners submitted that to the extent there were any payment handling services supplied to the customers, the supply was ancillary to the principal supply of telecommunications services. If, contrary to the opinion of the commissioners, the SPHC was found to be consideration for a separate and distinct supply, the commissioners submitted that the supply was not, in any event, exempt as a financial transaction within Grp. 5 of Sch. 9.

The tribunal decided that dismissed the company's appeal.

1. The appellant, in providing a service, in return for the SPHC was doing nothing materially different from other traders with a substantial turnover. The ‘payment handling services’ were not by their nature exempt financial services. The appellant was not negotiating payment terms; it was simply accepting payments previously agreed with its customers.
2. From the customer's point of view, he was merely purchasing a supply of telecommunications services and the SPHC was part of the price paid for that service. The charge was a minor part of the price of the transaction as a whole and did not constitute for customers an aim in itself.
3. The appellant made a single supply of telecommunications services.
4. The tribunal held that if it were wrong in holding that there was a single supply, then, in its judgment, the SPHC was payment for an ancillary supply which took on the VAT treatment of the main supply. The service was not an end in itself and was simply a means by which the appellant administered its receipt of payments for telecommunications services.

No. 20,521