The requirement was, it appeared to Firstpoint, that Firstpoint’s fee be repayable in the event of the client student athlete not succeeding in obtaining a sports scholarship and academic place to a US academic institution either a university or college which provides tertiary education to the equivalent degree or HND level of UK academic institutions, (which will be referred to as US colleges throughout for convenience).

That it became an extremely sophisticated argument of complex proportions became apparent to the Tribunal because no proper consideration of the law had been made when the change of mind occurred.  This, given Firstpoint did not receive any proper or clear explanation at the time, was puzzling and disadvantageous for Firstpoint.  This business provides employment, trades in a complex market with budding talent of juvenile client student athletes and ambitious parents, and has had severe difficulties to overcome using lawyers, accountants and finally counsel for representation over two days at a hearing which the Tribunal regrets.  HMRC do make mistakes but one which came from a change of mind seems harsh indeed.

Preliminary Matters

Legislative Framework

Section 6 VATA 1994 – Time of Supply

(1) The provisions of this section shall apply……, for determining the time when a supply of goods or services is to be treated as taking place for the purposes of the charge to VAT.

(4) If, before the time applicable……, the person making the supply issues a VAT invoice in respect of it or if, before the time applicable………, he receives a payment in respect of it, the supply shall, to the extent covered by the invoice or payment, be treated as taking place at the time the invoice is issued or the payment is received.

Section 7A VATA 1994 – Place of Supply of services

(1) This section applies for determining, for the purposes of this Act, the Country in which services are supplied.

(2) A supply of services is to be treated as made –

in a case in which the person to whom the services are supplied is a relevant business person, in the country in which the recipient belongs, and

otherwise, in the country in which the supplier belongs.

(5) Subsection (2) has effect subject to Schedule 4A

(Subsection 5 provides that the general rule is subject to a number of special rules in Schedule 4A).  Those which are relevant are

[PART 3: EXCEPTIONS RELATING TO SUPPLIES NOT MADE TO RELEVANT BUSINESS PERSON

Intermediaries

10(1) – A supply of services to which this paragraph applies is to be treated as made in the same country as the supply to which it relates.

(2) This paragraph applies to a supply to a person who is not a relevant business person consisting of the making of arrangements for a supply by or to another person or of any other activity intended to facilitate the making of such a supply.

COUNCIL DIRECTIVE 2008/8/EC

Preamble paragraph (1)

“The realisation of the internal market, globalisation, deregulation and technology change have all combined to create enormous changes in the volume and pattern of trade in services.  It is increasingly possible for a number of services to be supplied at a distance.  In response, piece-meal steps have been taken to address this over the years and many defined services are in fact at present taxed on the basis of the destination principle”.

Preamble paragraph (5)

“Where services are supplied to non-taxable persons, the general rule should continue to be that the place of supply of services is the place where the supplier has established his business”.

Preamble paragraph (6)

“In certain circumstances the general rules as regards the place of supply of services for both taxable and non-taxable persons are not applicable and specified exclusions should apply instead.  These exclusions should be largely based on existing criteria and reflect the principle of taxation at the place of consumption, while not imposing disproportionate administrative burdens upon certain traders”.

Article 46

“The place of supply of service rendered to a non-taxable person by an intermediary acting in the name and on behalf of another person shall be the place where the underlying transaction is supplied in accordance with this Directive”.

(This will be referred to throughout the decision as Article 46).

HMRC Guidance

VAT Place of Supply of Services (POSS Manual)

09100 – Intermediary Services:  Intermediaries

The term intermediary refers to a person who makes arrangements for or facilitates a supply to be made between two other persons.  They can provide services to customers who may be either the suppliers or the recipient of the supply which is being arranged, or to both.  Intermediaries may be referred to as brokers, buying or selling agents or go-betweens.

Payments in respect of supplies made by intermediaries are often described as commissions, but this is merely consideration for the services and in no way indicates the type of supply being made.

09300 – Intermediary Services:  Identifying the place of supply

To determine the place of supply of the B2C service of an intermediary you must establish exactly what supply is being arranged and the place of supply of that service.  The supply by the intermediary will then follow the place of supply of the service being arranged.

VAT Notice 741A Place of Supply of Services – effective from 01/01/2010

2.6 – What does “B2C supplies” mean?

For place of supply of services purposes B2C supplies means supplies to:

·     a private individual

·     a charity, government department or other body which has no business activities, or

·     a ‘person’ who receives a supply of services wholly for private purposes.

2.4.2 – The B2C General Rule

The B2C general rule for supplies of services is that the supply is made where the supplier belongs.

12.  B2C Intermediary Services

The law on B2C intermediary services covered by this section is in the VAT Act Schedule 4A paragraph 10.

12.1.  When am I an intermediary for the purposes of this section?

You are an intermediary for the purposes of this section if you act as a third party in arranging, or even simply facilitating the making of supplies.  An intermediary arranges supplies between two other parties; a supplier and that supplier’s customer.  Intermediaries may be referred to as brokers, buying or selling agents, go-betweens, commissionaires or agents acting in their own name (undisclosed agents).  Payments for their services are often described as commission.

In this section, your customer is the person to whom you supply your intermediary services.  This can be either the supplier or the recipient of the arranged supply (and in some cases may even be both).

Other References

Oxford English Dictionary Volume 7 – Definition of an Intermediary

A. adjective 1 – acting or of the nature of action between two persons, parties, etc; serving as a means of interaction; mediatory

B. substantive 1 – one who acts between others an intermediate agent; a go-between middleman, mediator.

Cases referred to

(1)  Firstpoint’s Representation Agreement (December 2009 version) pages 53-62.

(2)  Firstpoint’s Representation Agreement (July 2010 version) pages 63-74.

(3)  Client Information Booklet – pages 75-138. 

(4)  Firstpoint’s Potential Applicant Brochure – pages 139-162.

Note clean copies were supplied where necessary.

Facts Common to 2010 Appeal and 2011 Appeal

(1)        Firstpoint is a private limited company incorporated in Scotland on 14 February 2001 under companies number SC215763.  Firstpoint was registered for the purposes of VAT under registration number 842 6761 12 with effect from 1 July 2004 and the registration remains extant.  Firstpoint operates from premises at Scottish Legal House, 145 North Street, Glasgow G3 7DA.

(2)        Firstpoint’s services are set out firstly in short in their VAT registration application form set out at page 32 et seq dated 25 June 2004 namely “to provide help and guidance to people to find sport scholarship in USA” (sic).  They are set out more fully in the further information requested by HMRC at page 42 of the bundle as “consultancy providing guidance & advice to students pursuing sports scholarships in the USA – to US colleges & universities”.  When Firstpoint was first VAT registered it was supplied with a note to account to the Commissioners of Customs and Excise (now HMRC) for VAT on taxable supplies of their services. 

(3)        Firstpoint services are supplied under its standard form Representation Agreement but in both cases these services are further explained. 

(4)        The services in terms of the December 2009 Agreement are:

“the Services” means consultancy/representation services which will be comprised of calculation of approximate grade point average, research and short-listing of universities and sports programmes in the United States, SAT “mock” papers and advice, NCAA clearinghouse advice, profile creation and production and meeting with a Company consultant to review the above; release of promotional materials to indentified US colleges coaches, regular contact with interested coaches, update releases to coaches and colleges regarding the Client, meeting with the Client to discuss progress, review and filing of all Client/coach communication, review and advice regarding scholarship offers (if any) and, in the event that scholarship offers are received, decision making assistance, assistance with all relevant application forms for university admission and scholarship acceptance; and

·        Dedicated Consultant managing file

·        Calculate approximate GPA

·        Creation of online Sporting & Media profile

·        Compliance, Eligibility & Clearing

·        SAT Exam preparation and registration

·        The Clearing Department

·        Bespoke marketing & promotion

·        Negotiation of scholarship offers

·        Admissions assistance

·        US Visa & SEVIS process

(5)        The services as described in the July 2010 Agreement are:

“the Services” means consultancy/representation services which will be comprised of calculation of approximate grade point average, research and short-listing of universities and sports programmes in the United States, SAT “mock” papers and advice, NCAA clearinghouse advice, profile creation and production and meeting with a Company consultant to review the above; release of promotional materials to identified U.S College Coaches, regular contact with interested Coaches, update releases to Coaches and Colleges regarding the Client, meeting with the Client to discuss progress, review and filing of all Client/Coach communication, review and advice regarding Offers of Scholarship and, in the event that Offer(s) of Scholarship are received, decision making assistance, assistance with all relevant application forms for university admission and Scholarship acceptance; and

The FirstPoint USA Service:

·        Dedicated Consultant managing file

·        Calculate approximate GPA

·        Creation of online Sporting & Media profile

·        Compliance, Eligibility & Clearing

·        SAT Exam preparation

·        The Clearing Department

·        Bespoke marketing & promotion

·        15-week ‘Pre-Scholarship Conditioning, Strength and Fitness Program’

·        Negotiation of Scholarship offers

·        Admissions assistance

·        US Visa & SEVIS process”

The 2010 Agreement also contained at Clause 15 the following provision:

15 – Money Back Guarantee:

The company will agree to refund up to 100% of the Services Fee under deduction of all administration costs and outlays (which proportion to be refunded is to be determined by the Company acting reasonably) in the event that the Client does not receive an Offer of Scholarship by the date of termination of this Agreement (which termination shall be in accordance with Clause 10 hereof), but subject to the following:-

(i)  The Client having satisfied in full all conditions pursuant to Clause 5.  For the avoidance of doubt, the Client’s failure to exercise or unreasonably delay the satisfaction of the conditions contained in Clause 5 will constitute a material breach of the Agreement and the Company shall be entitled to terminate the Agreement with immediate effect and the Company will not be liable for any claim whatsoever under this Clause 15; and

(ii)  The Client providing notification in writing to the Company of the Client’s claim under this Clause 15 to the Company’s Head Office, which at the Commencement Date is Scottish Legal House, 145 North Street, Glasgow, G3 7DA, within 7 days of the date of termination of this Agreement, such notification shall provide full details of the Client’s claim.

(6)        For the avoidance of doubt the following meanings apply to the abbreviations contained in these Representation Agreements:

·       NCAA – National Collegiate Athletics Association.

·       GPA means calculation of a US college’s academic entry requirement assessment of Grade Point Average, in respect of which Firstpoint’s Managing Director Mr Andrew Kean can calculate an equivalence for US academic standard admitting bodies from the UK examination results such as GCSEs, A Levels, Scottish Highers, Higher National Diplomas etc.

·       SAT Exam is a scholastic aptitude test on US “critical reading and math” sections which is required for many of the US Athletics Associations related to the colleges.  Firstpoint is the only company outside the US which is permitted to conduct the examinations on behalf of the US colleges in the United Kingdom.

·       SEVIS refers to the Student Entry Visa 1-901 Form which is required to be completed for the Department of Homeland Security.  That form duly accepted by the Department of Homeland Security is required before a student can actually apply for an entry visa.

(7)        The services described above in the VAT application and further information and in both contracts do give a general picture of what is on offer.  Further there has already been before any contract is entered into, extensive consultation with many more applicants for Firstpoint services than Firstpoint will ever convert to client student athletes from whom a fee is collected.  In respect of direct marketing, only Firstpoint amongst similar UK organisations prepares a Potential Applicant Brochure referred to above.  Mr Kean advised and the Tribunal accepted that Firstpoint could have in a year as many as 15,000 approaches from interested parties, (referred to as applicants throughout this decision).  Of these, Firstpoint would accept only about 400 in a year.  This figure certainly accords with the stated income in the accounts produced to the Tribunal.  So the decision to secure Firstpoint services is from the evidence more Firstpoint’s than the applicant’s. 

(8)        The criteria for that sift of applicants to becoming a contracted client student athlete is important.  It is important because it is necessary for Firstpoint to carry out an effective sift from all the applications since Firstpoint services and also its reputation with the public, with applicants and with the client student athletes and even more so with the US Colleges depends on the success of those client student athletes in obtaining a place and performing over there.  Presentation by Firstpoint to sports courses for admittance to sports programs and for scholarship funding and at the same time to the academic authorities in those institutions depends on Firstpoint’s assessment of the quality of the students’ performance and attainment.

(9)        The client is the student athlete.  Mr Kean stressed and the Tribunal accepted that the client is student first and athlete second. 

(10)     The sift is only possible because of Firstpoint’s capacity to assess the applicants’ likelihood of obtaining a place.  As Mr Kean pointed out and the Tribunal accepted, that assessment is simple for a golfer with a very low handicap who is a top academic student with good UK qualifications.  He will be keenly sought after by Firstpoint and by many US colleges and by sports coaches.  However a very talented client student athlete can go on not only to compete in the US and internationally as a sportsman but also to qualify academically in say law or medicine.

(11)     For the purposes of clarity the Tribunal find that the college system in the US in the field of sports is significantly different from that in the UK.  US college sports are a multi-billion dollar business in the USA with income drawn from the attendance at sports events, from sponsorship, from television rights and from endorsements.  The sources of income give the colleges the ability to offer full and part sports scholarships to student athletes in many sports.  It is a cardinal principle that these athletes are amateurs and remain so.  The range and depth of the availability is clearly stated in the Client Information Booklet.  There are various different standards of college athletic associations which are again explained in the Client Information Booklet.  These national bodies are governed by admission criteria and the right to award scholarships.  They are differentiated by academic and sporting eligibility criteria.  The benefit for the college is they get a student athlete who will help them achieve sporting success which is highly valued in the USA.  It is also however a requirement that academic success is achievable.  Students must maintain an academic C-grade average during their scholarship.  There are effectively two entry requirements for these sports scholarships namely the sports standard and the academic achievement.

(12)     Whereas the sift for someone like a golfer with a low handicap or for a tennis player with a national ranking and a high academic achievement is simple, the position is very different for footballers (UK soccer players) who approach Firstpoint.  These applicants may have been signed and coached as amateur schoolboys or schoolgirls with prominent football clubs, some even living away from home from the early teenage years but who are released by the club and not signed for a professional side.  Since they still enjoy amateur status which is a pre-requisite for entry to US colleges, assessment by Firstpoint is necessary for Firstpoint before taking them on as client student athletes.  They may not be suitable material for presentation to the appropriate bodies.  They may not meet the eligibility criteria.  That assessment is carried out by Firstpoint from their expertise and ‘know-how’ and involves assessment of potential and talent through observation by Firstpoint staff at live matches and through an interview with Firstpoint. 

(13)     Firstpoint interview all applicants, usually with their parents.  These interviews are carried out at iconic sporting locations such as Stamford Bridge and Old Trafford. 

(14)     Four consultants from Firstpoint whose only task is to deal with eligibility of applicants before offering representation establish the applicants’ academic achievements or potential and sporting achievements in their respective sports.  They can take up references and obtain validation of any times, handicaps or rankings and consider whether they are likely to be successful in achieving a sport scholarship at a US college. 

(15)     Only after an applicant is deemed very likely to be successful in achieving a sports scholarship is he offered the opportunity of being represented via Firstpoint in all that is to follow.  What is intended is that the client student athlete will, through Firstpoint services obtain a sport scholarship and academic place at a US college.

(16)     Only then is the applicant able to convert from being an applicant to a client student athlete by signing the Representation Agreement and gaining access to Firstpoint services.  Thereafter the services offered are intended wholly to achieve a successful outcome.

(17)     Although the services have already been described in short form in the VAT Registration application, the appeal and in both of the Representation Agreements that does not take account of the effort, energy, experience or time devoted to each client student athlete which is much more fully described in the Client Information Booklet which formed part of the written evidence and is to be treated as repeated here.  The Tribunal found it credible and in accordance with Mr Kean’s evidence.  It does not describe any different services.  It simply describes the activities required to be carried out to ensure the client student athlete actually receives those services.

(18)     The Tribunal found it remarkable that the Client Information Booklet described its own content which extended to 57 pages of information and 5 pages of glossary as the “bare bones of the scholarship process”.  It also envisages that the client student athlete will “complete the transition from being a Firstpoint USA (sic) client to big time college athlete”.  It also advises the client student athlete that Firstpoint will be handling amongst other things “brokering of scholarship offers”.  All of the language and intent is positive in its intention to obtain US college admittance for the client student athlete with a sports scholarship.

(19)     The services are offered to the client in the form of registration for the SAT (Scholastic Aptitude Test) which is the standard test used by over 5,700 US Colleges for admission purposes and is referred to above.  Firstpoint have also calculated the grade point averages  As explained the results determine which US College will consider the client.  This is where Firstpoint’s expertise on entry requirements, as gleaned through their experience and knowledge base is relied on by clients.  The Tribunal accepted Mr Kean’s evidence on an enormous amount of detailed information in that regard with respect for that awareness.  In particular we find that the client student athlete on payment in terms of the Representation Agreement enters the Firstpoint world of ensuring so far as possible client student athletes secure an offer of a sports scholarship and academic entry to a US college.  All Firstpoint’s activities are intended to facilitate that.  The place where the education when the client student athlete is engaged has only one intention namely to take place in the USA. 

(20)     Thereafter the whole purpose and intention of Firstpoint services are to promote the client student athlete, to inform the US colleges of the availability of the client student athlete as student and negotiate with coaches and the academic staff of the US colleges and do everything to achieve a successful outcome for the client student athlete.  Communication relating to the sporting and academic achievements go between the client student athlete and Firstpoint and between Firstpoint and the US colleges and reciprocally can go between the colleges and Firstpoint and Firstpoint and their client.  There are frequently occasions when Firstpoint will be approached by a US college coach looking for a particular sportsman at a particular standard in a sport or for instance playing in a particular place in a team.  As well as that there is direct contact from the client student athlete to the colleges and the colleges to the client student athlete.  In particular the actual application for a sports scholarship and academic place must be signed personally and remitted by the client student athlete since it also contains undertakings with regard to conduct etc.  Giving personal undertakings on behalf of its client student athletes would be outwith the power of Firstpoint.  Again the offer by the University will be made directly to the client student athlete.  The client student athlete is asked to contact Firstpoint if an offer is made as sometimes the offer is for less than 100% scholarship and can be negotiated more advantageously for the client student athlete by Firstpoint with the US Colleges.

(21)     The system is complex we were satisfied from Mr Kean’s evidence on this matter as he told us that he had been a student athlete himself.  He had done all his own applications both sport scholarship and academic and had been awarded a sport scholarship and academic place in the USA but was suspended from his training and learning as he had breached US Visa requirements.  He proceeded once that hurdle was cleared and went on to graduate.  He pointed out the sort of difficulty a client student athlete even with an accepted offer could face when attempting to make his own arrangements for proceeding with his education in the USA.  The Tribunal referred to and consulted the Client Information Booklet for an indication of these complexities which are manifold, and accept its terms.

(22)     Although Firstpoint will indicate to their client student athlete which US colleges are most appropriate to them with their skills and qualifications only the client student athlete can as stated sign the paperwork.  The final authority to sign or to commit must be the client student athlete’s. 

(23)     There may be some client student athletes who have the necessary qualifications and skills or talent who in the period of the representation agreement which is two years from signing do not receive an offer of a place.  There may be some who do and who do not take up any offer for some reason or for no reason.  There may be some who go through the whole procedure and decide at the airport not to go, or arrive at their destination and turn and come home in 24 hours without taking up any tuition or education in the USA.  All of them were however included in Firstpoint’s facilitating environment where the intention existed and the services have been provided, to obtain an offer of a US college place or sports scholarship.

(24)     No-one can guarantee a US college place for sporting prowess or academic achievement even where a candidate has all the necessary qualifications.  In addition an offer can be conditional; it could be made but withdrawn if the conditions are not satisfied.

(25)     In pages 138-401 of the written evidence there is covered the sort of work Firstpoint does in offering its services.  The evidence along with Mr Kean’s discloses and the Tribunal finds that throughout the client student athlete’s contract period and often beyond if necessary Firstpoint will be approached by US sports coaches looking for athletes with particular skills and the necessary academic standard.  For instance they might be asked if – in football – they have a prospect of a “good centre half”.  The US colleges apply strict rules governing bodies such as Firstpoint’s contacts and arrangements with coaches.  Firstpoint may not contact coaches unnecessarily.  They may not pay coaches or pay coaches’ expenses.  Firstpoint may not be paid by the US colleges.  They can and do however advance information about their client student athletes through ensuring the quality of their skill and ensuring that the academic standard meets the requirement of the college.  Firstpoint deal with what they refer to as “promotion and clearing”.  Part of the process is to attain the necessary academic acceptance and confirm the amateur status.  This is to show commitment on the part of the client student athlete obviously to save the college wasted costs and efforts offering an opportunity which is not or cannot be taken up.  Firstpoint attempts to generate offers commensurate with the client student athletes funding capacity also.  Some parents may be willing to part fund but some perhaps cannot.  So matching client student athletes to availability is very important.  Local knowledge of US colleges and availability of scholarships and places from Firstpoint’s contacts in the USA are invaluable to client student athletes.  Consultants employed by Firstpoint who have all themselves been former client student athletes are sent to the US to visit colleges to check on current needs and requirements in relation to client student athletes performance and so on.  They each spend up to 6 weeks in USA.  Firstpoint can deal with approximately 2,500 coaches across USA.  Of these 40 are former client student athletes of Firstpoint.  Coaches come to the UK and Europe to visit organisations like Firstpoint and other bodies to check on client student athletes’ performance, fitness, training, and to meet with and observe client student athletes to confirm the standard of talent/skills the client student athlete has.  For this sort of occasion Firstpoint will organise for a coach, a visit to a stadium where Firstpoint has arranged say a football or hockey or other team game to be played by team members who are Firstpoint client student athletes.  This service is provided for the interest of both parties.  Both the client student athlete and the US colleges are provided with this service.

(26)     As well as that Firstpoint keeps abreast of academic requirements and standards.  Coaches do not deal with academic admission.  If a scholarship is offered, it is conditional on the student obtaining an academic place.  That in turn cannot be undertaken unless the client student athlete meets the US Department of Homeland Security requirements.  That depends on full funding either from a scholarship or part scholarship and part private resources.  It also depends on the offer of an academic place.  When all of these are satisfied a Department of Homeland Security form is issued and a student visa can be applied for, for entry to the US.  Firstpoint assist all client student athletes with this process.

(27)     The Tribunal accept the complexity of the process and that services are provided to the client student athletes and services to the US colleges.

(28)     Mr Kean was satisfied and satisfied the Tribunal and the Tribunal finds that it was Firstpoint’s intention for all client student athletes signed up to the Representation Agreement to obtain offers.  Even at the Tribunal he had difficulty isolating anyone who did not receive an offer.  When cajoled by Mr Artis under cross-examination who went down by diminishing percentages to 1%, he qualified that by saying and the Tribunal finds he would be very surprised and disappointed if no offer was received for a client student athlete.  He still hesitated but said it was a possibility.  Any client student athlete not receiving an offer would generally have been brought to his attention.  The only circumstances in which he had actually required to repay funds was in one case where an offer was received and the parents of the client student athlete did not consider the offer sufficiently recognised their son’s talent.  Firstpoint had taken the decision they were not prepared to present the particular client student athlete to a higher institution of learning as they considered he was not sufficiently elite.  The complaint by the parents was raised a very long time after the event.  In his written evidence Mr Kean said and the Tribunal accepts that he believed “there is no legal obligation to guarantee a US college place and scholarship”.

(29)     Mr Kean also stated that he felt a strong moral obligation to repay the fee if no offer was received.  He went on to state “happily I have never had to make good that promise”.  The Tribunal accepted that a client student athlete who received no offers in the contract period would still be acted for with the same intention as found above.  Mr Kean did state and the Tribunal accept that there can be a 2/3 year process before a scholarship offer is received.

(30)     Sometimes Firstpoint’s promotion of client student athletes has the effect of interesting coaches who have never before looked outside USA for team members for their programmes.  Sometimes individuals themselves approach a US college to see if they could be considered and are advised to use Firstpoint’s services.  Firstpoint get very good feedback from US colleges with regard to their client student athletes but to maintain their high standards Firstpoint introduced in the 2010 Representation Agreement an additional service which was advantageous to both client student athletes and US colleges.  Firstpoint had discovered from feedback that sometimes their client student athletes who had achieved scholarship student status in June, had by September when term began in USA become unfit.  As a result Firstpoint took advice from the US coaches on a fitness and conditioning programme which they prepared for all their client student athletes.  It is computer based and is accessible to all client student athletes on a self help basis but is strongly recommended to them all so they arrive fit and conditioned to start their training when they join the US college. 

(31)     The Tribunal accepted and finds that although there are many written communications with client student athletes and coaches at the “offer point” in particular Firstpoint can be making negotiations through telephone calls between the US college and the client student athlete on a daily basis.  The Tribunal accepted and find that in periods under consideration namely 12/03/10 – 31/12/10 and 01/01/11 until recently, telephone calls had not all been recorded. 

(32)     All the correspondence provided shows that Firstpoint promote their client student athletes and that US colleges look to Firstpoint for that provision of sufficient information to allow them to consider that client student athlete’s potential for their team without necessarily having to see the client student athlete themselves.  Where the team game does not allow for any ranking to determine talent a web access display of the client student athlete’s capabilities can be given to coaches along with the type of showcase arrangement at prestigious venues described previously. 

(33)     In his evidence Mr Kean stated he clearly sees himself as an intermediary.  He was quite clear he was not an agent.  He knew that HMRC had accepted that position not once only in 2006 but twice as since then there had been a further inspection in 2008.  He was puzzled by the HMRC change of mind.

(34)     The history of the 2010 decision is that on 14 October 2009 Mr Samuel Rae an officer of HMRC visited Firstpoint’s offices at the behest of an HMRC credibility officer in Ayr to make verification of the repayment claim on Firstpoint’s return for the VAT quarter ending 30/06/2009.  The officer in Ayr had according to Mr Rae raised doubts that Firstpoint’s services were outside the scope of UK VAT, and had requested further information.  Mr Rae was unable to obtain the information from the only person he met on the premises Mrs Sharon Kean, the book-keeper.  He therefore telephoned Mr Kean during the visit and enquired in particular about the percentage of client student athletes who did not achieve placement.  Mr Kean advised he did not know but believed it could be very small.  Mr Rae was supplied on Mr Kean’s instruction with some emails showing the considerable contact Firstpoint had with US colleges and with a particular Representation Agreement with one specific client student athlete.  Mr Rae was aware of HMRC’s previous decision following the voluntary disclosure in 2006 namely that Firstpoint’s services were outside the scope of UK VAT.  There is no evidence he went back verbally to Mr Kean that day whilst he was on the premises to say he had not obtained the information he sought, or why he wanted it. 

(35)     Within HMRC Mr Rae passed the Representation Agreement to the Ayr credibility officer who made a submission to the Policy Unit of HMRC.  She was not named at the Tribunal but was referred to as “she”.  According to Mr Rae she considered the services provided were not outside the scope of UK VAT.  The Policy Unit did not immediately accept that submission and asked Mr Rae to obtain further information.  He wrote to Firstpoint on 22 October 2009 attempting to obtain the information sought.  The letter stated:

“I refer to the visit which I made to you at the above address on 14 October 2009.

I would be glad if you could supply me with the following to assist me in my consideration of the liability which should apply to your sales:-

a) The proportion of your clients who do not succeed in obtaining a scholarship

b) The file details of an individual client where scholarship was not obtained.

I thank you in advance for your attention to these matters.

If you contact us, please quote your VAT registration number and provide a daytime phone number”.

(36)     Firstpoint replied on 4 November 2009 as follows:

“Thank you for your letter of 22 October.  I am able to provide the following in response to your questions;

(a) As outlined during your visit we do not maintain statistics on the number of clients who do not succeed in obtaining a scholarship as this is not a performance indicator for the business.  We outlined that once an individual has been interviewed and assessed (during which time they are simply candidates not clients) they are then taken on as clients.  Our aim and expectation is that those taken on as clients will be offered scholarships and with few exceptions, this typically happens, sometimes over a period of time as conditions of offers are met (eg educational pre-requisites being met following exam re-sits etc).

(b) I am unable to provide details of an individual client where a scholarship is not taken up for confidentiality reasons, but am happy to outline what a typical file (which will apply in all cases) will include;

·        Personal details

·        Sporting attributes and assessment

·        Academic attributes and assessment

·        Aims and aspirations

·        Preferences in terms of location and type of scholarship sought

·        Sports Footage and Highlights

The client file is built up from information gathered during the candidacy stage and also as the application progresses and opportunities are discussed with clients.  The file contains no information connected with the making of ‘supplies’ for VAT purpose, except a copy of our invoice for agency services which you have seen on your inspection.

I trust that you will see that this is all the information required to enable you to assist you in your deliberations”.  The letter is signed by Mr Kean.

(37)     Further correspondence follows from Mr Rae asking Mr Kean to make an analysis as best he could of the success rate of the clients obtaining scholarships.  He took the point the process can go on for some time and asked Firstpoint to look at clients taken on between 24 months and 12 months previously to the date of the letter of 16 November 2009 in order to test whether an application was in the end successful or not.  Firstpoint was asked to provide specifically a number of clients taken on and the number of those successful.  With regard to the second point he asked for a file to be anonymised.  In his further reply on 14 December 2009 Mr Kean wrote to Mr Rae:

“Thank you for your letter of 16 November.  As you know, I have been happy to provide all the information you have sought to date, but I am surprised that you find it necessary to seek yet more information and am unclear as to how the information sought will help or inform your consideration for our VAT position.  We have already clearly outlined the service we perform for clients and you have seen the number of charges we have made for our service and these are key components in the question of liability.

Similarly, the confidential contents of a personal client file (which would take considerable resource to ‘de-personalise’) do not specifically relate to the making of supplies.  I am again unclear as to why you regard the file contents as important since we have already outlined the process that clients go through and the contract that they sign.  A copy of this agreement can be provided again if required.

I trust that you are able to conclude your considerations based on the full information already provided”. 

(38)     From that reply Mr Kean considered the request encompassed any student who did not get an offer, did not take up an offer or did not stay in the USA once there.

(39)     Mr Kean quite clearly was unaware of the potential outcome and also quite clearly considered that his aim and expectation as expressed should satisfy HMRC’s enquiries. 

(40)     In his reply Mr Kean expressed surprise at being asked to undertake the heavy administrative task requested of him which is understandable given the numbers of applicants and client student athletes he had, and the fact that client student athletes are sometimes processed over a period of years.  He also raised the query as to why such information was necessary.  He was not informed why the information was considered necessary.  He was not advised of the credibility check raising the possibility of a change within HMRC as to the interpretation of a statutory provision or the interpretation of the VAT POSS manual.  Indeed nothing from HMRC prompted Mr Kean to consider Firstpoint was under threat. 

(41)     Mr Rae sought further advice from the Policy Unit.  This is not disclosed in Mr Rae’s subsequent letter of 28 January 2010 to Firstpoint (page 21 of the bundle) which advised Firstpoint in the first instance that Mr Rae had carefully examined the Representation Agreement between Firstpoint and prospective students and further information which Firstpoint had supplied and did not consider that in supplying services to them Firstpoint was acting in an intermediary capacity as explained in Public Notice 741 at Section 11 (for the purposes of this decision the reference is deemed to be Public Notice 741A effective from 01/01/2010 at Section 12).  Surprisingly he went on to say that he took this view because the

“fixed fee of £2495.00 is due by your customers and is payable by them within 14 days of the date of execution of the agreement in order for them to receive your services (paragraphs 1 and 4 of the agreement) irrespective of whether or not you succeed in achieving a placement from them at an American University.  If the fee is not paid you can rescind the agreement and you can charge interest if the fee is not paid within the 14 days allowed.

To be acting as an intermediary you must be involved in arranging or facilitating the making of supplies.  It is clear there were the occasions where clients do not achieve placements.  In such cases the American Universities make no supply to the student and you have not therefore arranged any supply.  In all cases you are charging clients a flat fee which is not dependent on any supply being arranged.

We therefore consider that your supplies fall under the Business to Consumer General Rules for Supplies of Services (see Notice 741 paragraph 5.3).  Since Firstpoint (Europe) Ltd belongs in the UK you must charge VAT at the standard rate on your services”.

(42)     Following that letter Henderson Loggie, Chartered Accountants through Mr Alan Davis asked by letter dated 12/02/2010 (pages 23/24 of the bundle) for a reconsideration by Mr Rae of his decision and if he was unable to do so requested a local reconsideration by HMRC appeals team.

(43)     Henderson Loggie relied on the Representation Agreement which outlined the scope and nature of supply provided.  They asserted that Firstpoint acted as an agent or intermediary for their clients in placing them in educational establishments in the United States.  They also stressed that even if Firstpoint could not place a candidate within the US educational institution all of the work that they had deployed had been in respect of that prospective supply.  Firstpoint did not then seek an alternative placement anywhere else in the world.  Henderson Loggie go on to explain that even if an offer was made sometimes a client student athlete did not take it on because there might be changes to the domestic position or conditions may not have been met.  Although not giving a foundation in law which applied at that point the terminology follows the terminology of the law at the time namely 12/02/2010 being the Council Directive 2008/8/EC, and VATA 1994 Schedule 4A Part 3 paragraph 10(1) and (2) being the “intermediary” issue.  They went to detail what they regarded as the “liability” of the supply namely that the liability in respect of the services falls where the services are physically delivered under the VAT (Place of Supply of Services) Order 1992 referring to legislation which governed that point prior to 01/01/2010. Henderson Loggie also brought in the secondary argument under the legislation relating to “ancillary services”.  As this was not an issue determined by the Tribunal no further reference is made to any of the correspondence or part of it relating to the “ancillary services issue”.

(44)     In reply Mr Rae wrote to Henderson Loggie on 12 March 2010 and gave the ruling which came to be the decision appealed against in the 2010 appeal.  He stated:

“I refer to your letter of 12 February 2010 and the points you make have been noted.

I have further considered the position in light of your lines of argument, but I continue to hold the view that the services provided by your client are not those of an intermediary under the VAT (Place of Supply of Services) Order 1999 (sic) (Statutory Instrument 1992/3121, Article 13).

Your client charges a fixed fee to clients regardless of whether or not he succeeds in arranging the education supply in the USA.  It is clear from the provisions of the Agreement that the client is required to pay the fee in order to receive Firstpoint’s services whether or not the client is ultimately successful obtaining a place at an American university as a result of the services provided by Firstpoint.  Firstpoint’s supply to the client is not therefore directly dependent on any educational supply actually being made……..

Since there is no certainty that an underlying supply of educational services will in fact be made, we cannot accept that Firstpoint can be providing an intermediary service for determining the place of supply for VAT purposes.

Your reference to “residual” costs appears to me to relate to costs where exempt supplies are being made by a taxpayer and certain costs are not wholly attributable to either exempt or taxable income.  The provisions for input tax deduction with regards to partial exemption do not appear to me to be relevant in this case.

In conclusion, I must confirm the ruling contained in my letter of 28 January 2010 to your client:  we consider that his supplies fall under the business to consumer general rules for supplies of services (see Notice 741, paragraph 5.3).  Since Firstpoint (Europe) Ltd belongs in the UK your client must charge VAT at the standard rate on his services.

You have the right to ask for an independent local reconsideration of this decision stating your grounds of appeal within 30 days of the date of issue of this letter.

You may also have the right of appeal to the Independent Taxes Tribunal.  Please see factsheet HMRC1 on the HMRC website”.

(45)     There is reference in that letter to “residual” costs which related to where exempt supplies were being made.  This matter was not pursued at the Tribunal or in any other correspondence; again no findings are made in respect of residual costs. 

(46)     A formal review was requested and in the review letter dated 7 May 2010 Ms Sarah Thomas states that the Policy Unit have issued the Local Compliance Appeals and Reviews office with “unambiguous guidance” in relation to the supplies Firstpoint makes.  She indicates that Firstpoint fall within the Business to Customer (B2C) General Rule set out at Notice 741A paragraph 5.3.

(47)     Mr Rae’s letter of 12 March 2010 was effectively the first “change of mind” letter and Ms Thomas’ review was the confirmation of that change of mind.  Her letter like Mr Rae’s gave no reasons for the change of mind.  Firstpoint were simply told that they are not considered to be an intermediary for the purposes of ascertaining the VAT liability of their supplies.  No UK or EC law is quoted in her letter neither the previous law which had originally been used nor more appropriately the law applicable from 01/01/2010.  No reason for not considering full terms of the legislation is given.  Neither letter dealt with ‘intention’.  The Tribunal found the letters seriously inadequate

(48)     The matter of exceptions to the B2C interpretation is first raised in HMRC’s first Statement of Case (now amended).  In response Henderson Loggie wrote suggesting the law from 01/01/2010 be applied.  This was agreed between the parties.  The 12 March 2010 letter was appealed (the 2010 Appeal).

(49)     After the decision that Mr Kean would be required to charge VAT on Firstpoint’s services in an effort to try to meet HMRC’s claim that only the matter of not repaying those who did not receive an offer stood between him and having a decision that his services were outside the scope of UK VAT, a change was effected to the Representation Agreement.  Whilst the change was being made Mr Kean expanded the ‘services’ paragraph as indicated above.

(50)     Mr Kean gave evidence and the Tribunal finds that although the ‘services’ bullet points were expanded they still did not fully describe the methodology and resources required to provide them.  He described to the Tribunal that he could have in fact filled a page with bullet points.  However that was not so much of a concern to us as Firstpoint believed that the services were quite properly described in the Representation Agreement. 

Submission for HMRC

The Decision TC/2010/04909 and TC/2011/03580

Reasons

The Tribunal were satisfied that Firstpoint’s supplies fall within para 10(2).  They are supplies made to people who are not relevant business people consisting of activities intended to facilitate the making of other supplies.  The other supplies are supplies made by US colleges in the USA. Applying all these provisions, therefore Firstpoint’s supplies are therefore also made in the USA.

The Tribunal was also satisfied that no actual supply needed to be achieved as 10(2) appeared to be the “mopping up” provision to take account of Article 46 and the preamble.

Expenses

MRS G PRITCHARD, BL., MBA., WS

TRIBUNAL JUDGE

RELEASE DATE:  4  NOVEMBER 2011