United Kingdom VAT & Duties Tribunals Decisions

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Bookit Ltd v Customs and Excise [2004] UK V18626 (28 May 2004)

EXEMPT SUPPLIES – Finance – Credit and debit cards – Appellant accepting remote cinema bookings for Odeon – Customers paying by card – Appellant charged 50 pence per ticket to customers – Extent of services to customers – Whether card handling services exempt – Whether any dealing with money – Whether intermediary services supplied in intermediary capacity – Whether "distinct act of mediation" – VATA 1994, Sch 9, Grp 5, item 1, 5 Note (5) – EEC Sixth Directive Art 13B(a)(1)-(4) – Appeal dismissed

LONDON TRIBUNAL CENTRE

BOOKIT LTD Appellant

and –

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: THEODORE WALLACE (Chairman)

MRS LYNNETH SALISBURY JP

Sitting in public in London on 15 and 16 December 2003 and 30 January 2004

Jonathan Peacock QC, instructed by Deloitte & Touche, chartered accountants, for the Appellant

Hugh McKay, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

This appeal concerns the treatment for VAT of fees of 50 pence per ticket charged by Bookit Ltd ("Bookit") to persons buying seats for Odeon cinemas by telephone or website and paying by debit or credit card.

The appeal is not against an assessment but against a decision in a letter dated 18 September 2002 that Bookit is making a single supply of cinema seat booking services to the customer in consideration of the fee which is standard-rated. At the hearing it transpired that there were issues of fact as well as the issue of characterisation of the supplies.

Bookit contends that the services provided to the customer for which the 50 pence fee is consideration consist of card handling, which services are exempt financial services within Schedule 9, Group 5 of the VAT Act 1994, being intermediary services under item 5 in relation to transactions comprised in items 1 and 2 or as coming directly within item 1. Bookit contends that the booking services are supplied as agent for Odeon Ltd.

Statutory provisions

The relevant provisions in Schedule 9, Group 5 are as follows:

"1. The issue, transfer or receipt of, or any dealing with, money …

2. The making of any advance or the granting of any credit.

…

5. The provision of intermediary services in relation to any transaction comprised in item 1, 2, 3, 4 or 6 by a person acting in an intermediary capacity

…

NOTES

…

(5) For the purposes of item 5 'intermediary services' consist of bringing together, with a view to the provision of financial services –

(a) persons who are or may be seeking to receive financial services, and

(b) persons who provide financial services,

together with (in the case of financial services falling within item 1, 2, 3 or 4) the performance of work preparatory to the conclusion of contracts for the provision of those financial services …

(5A) For the purposes of item 5 a person is 'acting in an intermediary capacity' wherever he is acting as an intermediary, or one of the intermediaries, between –

(a) a person who provides financial services, and

(b) a person who is or may be seeking to receive financial services …

(5B) For the purposes of Notes (5) and (5A) 'financial services' means the carrying out of any transaction falling within item 1, 2, 3, 4 or 6."

Schedule 9, Group 5 implements the mandatory exemption under Article 13B(d) of the Sixth Directive (77/388/EEC).

The evidence

There were three witnesses; Steven Paul Gosling, ACMA, the finance director of Odeon Ltd and director and secretary of Bookit; Andrew Jonathan Foster, Contact Centre Operations Manager of Bookit, and Lee Michael Barnett, Customs officer. Mr Gosling and Mr Foster gave oral evidence being cross-examined. Mr Barnett's statement was not challenged; he produced a transcript of a telephone call on 13 October 2003 when he booked two tickets for a film.

There was an agreed bundle of documents, which apart from correspondence included a letter of understanding signed on 21 March 2002 by Odeon Ltd and Bookit, an agreement dated 27 June 2002 between Odeon Ltd and Bookit headed "Data Services Agreement" and a Merchant Services Agreement dated 15 August 2002 between Girobank PLC, Odeon Ltd and Bookit ("the August Agreement").

The facts

We find the following facts.

Odeon Ltd is the United Kingdom's largest chain of cinema operators using the brand Odeon & ABC. It is now owned by a consortium of venture capitalists. It has almost 100 cinemas attracting some 673,000 customers weekly. Turnover in 2002 was £202 million.

Before 2002 Odeon Ltd operated a call centre at Stoke for advanced bookings by telephone and internet. The demand for this facility was growing and was expected to rise to 20 per cent of sales. Customers could avoid queuing; they did not need to arrive as early and the risk of the cinema being full was removed.

The original call centre was opened at Bromley in 1996. Demand soon exceeded capacity and a second facility was built at Stoke where call centre operations were consolidated. By late 2001 the launch of the Odeon website with a booking facility was taking off.

On 29 October 2001 the directors of Odeon Cinemas Ltd, a subsidiary of Odeon Ltd, resolved to sign agreements for a new company, to be known as "Bookit", to be formed and operated as advance booking agent for the Odeon Brand. On 23 November 2001 the Memorandum and Articles of Association of Bookit were adopted.

On 4 March 2002 an application for VAT registration was submitted by Bookit. The business activities were given as,

"Providing credit card handling services to cinema customers booking tickets through various distribution channels including call centre, internet, WAP and digital TV. Also telecom/promotional revenue."

The date of first expected supply was given as 1 March 2002. Taxable supplies for the first 12 months were estimated at £400,000 and exempt supplies at £1.8 million.

Bookit was registered for VAT independently of Odeon Ltd which was the representative member of the group which operated the cinemas.

On 21 March 2002 Odeon Ltd and Bookit signed a Letter of Understanding under which Bookit would "provide debit card and credit card handling services in respect of Advanced Card Transactions to Odeon's customers." In addition Bookit would provide information, data processing services, credit management services and record keeping to Odeon for other card transactions. The Letter of Understanding referred to an agreement dated 29 March 2002; however this was not produced and we were told that it was replaced by later agreements.

On 28 June 2002 Bookit started to trade operating the Stoke Call Centre. The VAT return for the 3 months to 31 July 2002 showed total sales of £230,999. A letter to Customs dated 11 November 2002 stated that £189,237 was for card handling charges, the balance being Administration and Data Processing charges (£41,483 plus VAT) and vending machine income (£279 plus VAT). No later figures were provided.

The Data Services Agreement of 27 June 2002 related to card transactions at box offices as opposed to transactions through the Stoke call centre. It provided for Odeon to present Bookit with details of payments made at cinemas using a credit or debit card and for Bookit to keep copies of the data whether in electronic or paper format for three years, providing the data to Girobank and providing Data Handling Services to Odeon. Data Handling Services were defined as "the provision of information, data handling services, card handling services, credit management services and the maintenance of records." Bookit was to obtain authorisation from Girobank in respect of card transactions if required and if instructed by the bank to retain any card presented and return it to the bank. Bookit was to be paid a fee of 11 pence per completed Card Transaction for Data Handling Services. It was recited that this did not alter the terms of the Merchant Services Agreement between Girobank, Odeon and Bookit dated 1 February 2002.

The February Merchant Services Agreement was not in the bundle. It was apparently replaced by the August Agreement dated 15 August 2002 which was expressed to have effect from 1 February.

The August Agreement recited at (A) that Girobank Plc is a member of the MasterCard, Visa and Switch card schemes and is authorised under those schemes to acquire data in respect of MasterCard, Visa and Switch transactions from merchants who have signed a Girobank Merchant Agreement. Recital (B) stated that the agreement sets out the terms on which Odeon will accept cards as a means of payment for tickets and on which card transactions will be authorised by and presented by Odeon to Bookit and by Bookit to Girobank.

Clause 2.1 covers remote payments by card handled by Bookit for sales for Odeon ("Advanced Card Transactions") and clause 2.2 covers card payments for sales by Odeon at box offices. The supplies with which we are concerned are covered by clause 2.1 which provides as follows,

"2.1 Girobank acknowledges that in relation to Advanced Card Transactions for the purchase of supplies, the following arrangements shall apply between Odeon and Bookit.

1.1 It shall be a condition of Odeon accepting Card payment for Advanced Card Transactions that the Cardholder agrees that Bookit will provide card handling services to the Cardholder.

1.2 Bookit will be required to pay Odeon the amount due to Odeon from the Cardholder and require the Cardholder to pay Bookit a fee ('Handling Fee') for which Bookit shall accept payment by Card.

1.3 … the price payable to Odeon by a Cardholder shall be an amount equivalent to the full price of the Supplies and the price payable to Bookit shall be the said Handling Fee.

1.4 In relation to each Advanced Card Transaction Girobank shall pay to Bookit … an amount equal to the Handling Fee … and the amount due … to Odeon and payable by Bookit to Odeon [not exceeding the amount received by Girobank from the Card Issuer]."

Under clause 2.2 Girobank pays to Bookit an amount equal to the card payments due to Odeon on box office card sales.

Under clause 3 Girobank is required to credit Bookit's Girobank account with the amount of all transactions by card effected by Odeon both remote and box office for which Card Transaction Data is presented and within one day of the credit to Bookit's account to transfer the credit by BACS to any UK bank account nominated by Bookit.

Clause 4.2 requires Bookit to ensure that Girobank is provided with details of Advanced Card Transactions and to procure that Girobank is provided with details of box office card transactions and "to retain copies of all Card Transaction Data, whether in electronic or paper format, for a period of three years." Clause 4.3 requires Bookit to obtain authorisation from Girobank for transactions over the floor limit, to ensure that the authorisation code is included in the Card Transaction Data and to cancel an authorisation if the sale is not concluded.

Under clause 7.1 Girobank is entitled to withhold payment or make a charge back if Bookit fails to produce evidence of the Cardholder's authorisation or the Cardholder denies having authorised a telephone order.

Clause 8 provides for Bookit to pay Girobank for the services provided by Girobank under the agreement. These were specified in Schedule 1 and included 1.165 per cent for Visa and Master Card transactions and 6 pence per Switch transaction.

On 13 October 2003 Mr Barnett telephoned the Odeon Film Line and booked two tickets for 16 October paying by card. He recorded the conversation. He was answered by an automated voice saying "The Odeon Film line" and asking which Odeon cinema he was calling. Having stated that he was calling for Odeon Holloway Mr Barnett pressed a button to make an advanced booking by telephone. He had been told that he could book on-line at "Odeon.co.uk." The automated voice responded,

"Please note that this service carries a 50 pence per ticket card handling charge subject to a maximum of £2 paid to Bookit Limited. Tickets will only be released to the credit card holder on presentation of the card and not a third party. Signature may be required. To comply with the Classification Law ID may be requested by the cinema box office."

An employee of Bookit then came onto the line and established the performance and number of tickets required. At one point the employee said, "No we are not taking bookings for Friday, we are only taking bookings for until Thursday". Mr Barnett chose 5.00pm on Thursday and was told that it was an unreserved showing and that on arrival he could sit where he liked. Mr Barnett said that he would like to book two tickets and provided his card number, expiry date, telephone number, surname, initial and postcode. The operator repeated the order and said,

"The total amount charged to your card will be £12.30. That includes a charge of a pound by Bookit Limited. Please note that this will be a confirmed booking and is not exchangeable or refundable. I'll process the booking through for you now …"

After a pause Mr Barnett was informed, "At last the booking has been confirmed."

Mr Barnett's statement did not cover his collection of the tickets on 16 October. The other two witnesses covered the practice on this aspect.

The tickets are issued by machines at the cinemas which belong to and are operated by Odeon. The machines are automated. The customer inserts his card into the machine and receives the ticket and a card receipt.

Examples of credit card receipts issued on 3 July 2002 showed the card number and type, expiry date, amount and the words,

"The total charge includes a fee of 50p per ticket, to a max of £2, charged by Bookit Limited for card handling.

Printed on : 03/07/02 At [time] By : A1"

The receipts on that day were in two formats, although both were produced by Pacer Cat machines.

A ticket for "Master and Commander" on 2 December 2003 was for a specific seat and time. The ticket stated that the customer was served by "A" at Terminal "07". From the credit card receipt it appears that it was booked some hours earlier, payment being by Master Card and a fee of 50 pence being charged by Bookit.

Tickets for "Love Actually" at Marble Arch for a showing at 1950 hours on 25 November 2003 appear to have been paid for at 1952 hours by card with a 50 pence charge by the Appellant.

If a customer does not have his card when he goes to the cinema, he has to go to the Box Office and establish is identity. The box office has access to the computer record showing the customer's name, card number, time and method of payment. The off-site computer connects through to the box office computer which is the master record. If the amount is over the floor limit the box office seeks authorisation. Provided the record shows the booking, the ticket will be issued although the customer has lost or forgotten his card.

We now go back to the Appellant's role.

The telephone number of Bookit is advertised on the screen at cinemas, in the local press and in leaflets.

Bookit operates the 0870 50 50 007 national film information and booking line from Stoke for the Odeon chain. At the time of Mr Gosling's statement in October 2003, Bookit had around 250 full-time and part-time staff and a management team of eleven with five duty managers. Bookit records film information weekly and receives revenue from a telephone revenue share agreement.

When a customer has chosen a performance, Bookit's operator checks that seats are still available using the computer and then obtains the card information. When the information is keyed in, the computer will flash if the card is on a "hot list". This process happens while the operator is repeating the order back over the telephone and repeating that there is a charge by Bookit.

A customer notice was exhibited stating that if the ticket had been purchased through the call centre, Sky Active, WAP telephone or the internet "You have purchased your ticket via Bookit Ltd." We assume that this notice must be on the foyers of the cinemas.

Odeon terms and conditions for on-line ticket purchases were also included in the bundle. There was no evidence as to whether and if so how these were brought to the attention of customers. The tickets exhibited contained no reference to terms or conditions.

The bundle contained photocopies of internet displays on the www.odeon.co.uk website. These included a confirmation for a booking on 1 November 2003 for "Finding Nemo" which included a card handling charge of £1 but made no reference to the Appellant.

Copies of Skyactive displays for a booking on 29 November 2003 for "Master and Commander" were in the bundle. Both the order summary and the confirmation contained the words, "Card handling charge of £1.00 payable to Book it Ltd."

A copy of an Orange World WAP display showed a booking on 26 November for "Kill Bill : Volume 1" at 1755 hours on 30 November (presumably 2003) for £8.50 "including the card handling fee payable to Book It Ltd". The display referred to "Terms and Conditions (see below) for purchasing tickets." Unless those were those referred to for On-line ticket purchases they were not in the bundle.

A further copy of a Vodaphone WAP on the same day for the same performance also stated that there was a card handling fee payable to Bookit.

Customers may telephone Bookit from the cinema using a mobile phone to book a ticket paying by card and collecting the ticket from the machine so as to avoid the need to queue at the box office. This might be only a minute before the film starts or after it has started, as at paragraph 29 above.

Customers can also book seats in advance at the box office in which case Bookit is not involved. Odeon does not make any charge for card handling on sales at the box office whether for immediate use or in advance.

Before the arrangements with Bookit, Odeon made a charge of 40 pence for advance bookings by telephone using cards.

The Stoke call centre is situated in a short leasehold property which was transferred by Odeon to Bookit with fixtures and equipment. The equipment included switchboards, electronic payment processing equipment and computers. Odeon staff were transferred to Bookit.

Submissions for Appellant

Mr Peacock submitted that Bookit acts as agent for Odeon in making the booking and selling the tickets and provides a distinct service of card handling to the customer paying for the tickets. He said that the fee of 50 pence per ticket paid by the customer is consideration for an exempt financial service supplied by Bookit as an intermediary between the customer and Girobank. Bookit transmits to Girobank the details of the card, customer and amount; Girobank causes the customer's bank to be debited and credits the Bookit's Girobank account with a standing instruction to transfer the ticket element to Odeon's bank and the 50 pence fee to Bookit's bank.

He submitted that everything done by Bookit for the customer is exempt; alternatively, any additional supply to the customer is not done for consideration; he said that if that is not accepted by the Tribunal and it is held that there was a composite supply including booking services, such supply is exempt on the basis of Card Protection Plan Ltd v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270.

Mr Peacock said that Bookit provides agency services to Odeon for which it is paid a fee of 11 pence per transaction which is taxable; this fee he said applies both for Box Office and remote sales. The Box Office clerk swipes the customer's card and keys in an amount which goes to Girobank, then to Bookit's Girobank account before being transmitted from there to Odeon's account.

He said that Business Brief 17/98 of 7 August 1998 was correct and the third paragraph applies to Bookit which makes a separate credit card charge to the customer although it is acting as agent for Odeon in selling the tickets.

Mr Peacock said that it is settled law that A can make a supply to B consisting of providing services to C, see Customs and Excise Commissioners v Redrow Group plc [1999] STC 161, HL. Here A (the Appellant) provides a service of selling tickets to customers (C) as agent for Odeon (B). He stated that it was common ground that Odeon pays Bookit for that service (see paragraph 14 of Bookit's Skeleton). He said that the matters on which Customs rely as part of a booking service to the customer are in fact the core of the agency services supplied by Bookit to Odeon. This covers obtaining the customer's requirements, checking and confirming availability, informing the customer of the cost, and (often obtaining and transmitting the card details, which constitute the supply to the customer) confirming the sale of the tickets to the customer and to Odeon. Before 2002, the card handling services had been supplied by Odeon to the customer and were incidental to the sale of tickets.

He said that if the notification to Odeon of the sale of the ticket is a supply to the customer, there is no consideration for that supply, there being no direct link between such supply and the card handling fee, see Customs and Excise Commissioners v Littlewoods Organisation plc [2001] STC 1568 per Chadwick LJ at paragraph 14.

Mr Peacock said that if the Tribunal concludes that services other than card handling are supplied to customers for consideration, it would be wrong to subsume the exempt financial service into a wider taxable supply, see per McCullough J in Customs and Excise Commissioners v Leightons Ltd [1995] STC 458 at 463h-464b and 465f-466d.

He submitted that the card handling services to customers are not ancillary to the booking service. The customer wishes to book without going to the Box Office. The ability to pay by card is not a means to better enjoy remote booking but is at the core of the purchase : he referred to Card Protection Plan at paragraph 30.

Mr Peacock said that the card handling services supplied by Bookit fall directly within item 5 of Schedule 9, Group 5 as intermediary services in relation to either the transfer or any dealing with money within item 1 or making any advance or granting of any credit within item 2. Debit card transactions fall within item 1 and credit card transactions within item 2. Bookit is acting in an intermediary capacity in the provision of intermediary services, the customer's bank being the ultimate provider within Note (5A). Bookit provides a distinct act of "mediation" being the gateway. He referred to CSC Financial Services Ltd v Customs and Excise Commissioners (Case C-235/00) [2002] STC 57. Mr Peacock also submitted that the card handling services fall directly within item 1 as "any dealing with money". He said that Bookit's services fall within Business Brief 17/98 where it was said that where an agent for a supplier of goods or services makes a charge for accepting payment by credit card that charge is exempt and that the Business Brief is correct.

Submissions for Customs

Mr McKay submitted that on a proper analysis of the characteristics of the supplies by Bookit to customers these are not simply card handling but a standard-rated supply of booking services. The description of the 50 pence charge as a "card handling fee" is not determinative, see Lord Templeman's reference to a fork and a spade in Street v Mountford [1985] AC 809 at 819. He said that it is necessary to decide on the commercial reality of the transaction, see Debenhams Retail plc v Customs and Excise Commissioners (2003) Decision No 18169 at paragraphs 142 to 146 and the cases cited there.

He said that the terms of the agency agreement between Odeon and Bookit are not expressed in writing and that it is for the Tribunal to decide the nature of that agreement. Bookit was seeking to incorporate the aims of the customer into the agency agreement. Mr McKay said that there is only one supplier of booking services with no re-supply. The question is, "What is the Appellant doing for the customer as principal?". He submitted that the aim of the customer is to pre-book with certainty rather than to use a card. The customer's aim is to book a ticket rather then to pay by card. The use of the card is a means to the customer's end. A customer would be astonished to be told that he is receiving financial services from Bookit. Bookit provides no other financial services to its customers.

He relied on paragraphs 28 to 31 of Card Protection Plan saying that a single supply should not be artificially split and that the customer's aim is crucial. Just as in Customs and Excise Commissioners v British Telecommunications plc [1999] STC 758 BT wanted a delivered car (see per Lord Slynn page 766c), so here the customer wants a pre-booked cinema seat. The commercial reality is that there is a single composite supply of advance booking services. This includes checking the availability of seats for the customer, taking the card details and transmitting them to Girobank, and notifying both the customer and Odeon that the seats are taken. The taking of the card details is part of the principal booking service.

Mr MacKay submitted that the customer obtains more than mere card handling. Redrow was concerned with input tax; it is axiomatic that the final customer could not deduct input tax. Here the customer pays the 50 pence fee. In his skeleton argument he wrote, "Here on any view consideration moves to Bookit from both the customer and Odeon, the Tribunal's task is to analyse what each is paying for…"

He said that it is unreal to say that the fee of 50p only covers card handling the other services being provided for no consideration. He referred to Customs and Excise Commissioners v Littlewoods Organisation plc [2001] STC 1568 at paragraph 14.

Mr McKay said that is unreal to say that the Appellant is acting as a principal within item 1 of Group 5. Nor is Bookit providing "intermediary services" within the definition in Note (5): the customer has his card so no "bringing together" is needed. The United Kingdom legislation including item 5 should be construed in accordance with Article 13B(d)(l) of the Sixth Directive, see BAA plc v Customs and Excise Commissioners [2003] STC 35. Some "distinct act of mediation" is needed for "negotiation" within the Directive, see CSC Financial Services Ltd v Customs and Excise Commissioners (Case C-235/00) [2002] STC 57 at paragraph 39-40; collecting details and passing them to Girobank is the type of clerical formality referred to at paragraph 40. He said that Bookit's approach makes the financial exemption hopelessly wide, see Sparekassernes Datacenter (SDC) v Skatteministeriet (Case C-2/95) [1997] STC 932 at paragraphs 65-66.

Mr Peacock in reply said that the supplies other than card handling are supplied by Bookit to Odeon rather than to the customer. The acceptance of payment on behalf of Odeon is a supply by Bookit to Odeon. He said that Customs sought to apply Card Protection Plan without analysing who supplied what to whom. The fact that services are performed to the customer does not mean that they are supplied to the customer.

He said that keying in information which initiates a card transaction is a "dealing with money" within Group 5, item 1. He said that there is a "distinct act of mediation" within CSC at paragraph 39 every time a card is used; if this is not correct he asks why Girobank is exempt. "Intermediary services" within Item 5 are not limited to taking out a new agreement. He said that it was not correct to characterise Bookit's services as "clerical formalities".

Conclusions

The decision under appeal is based on correspondence between Odeon Ltd and Customs and on agreements or draft agreements provided to Customs. A consequence of the appeal being against a decision of this type, rather than against an assessment based on actual supplies even if only sample supplies or a repayment claim since the VAT in dispute has been paid, is that there was a reduced emphasis on the facts.

The evidence as to the contractual relationship between Bookit and its parent company, Odeon, was far from clear. While it was not disputed that Bookit acted as agent for Odeon in relation to the sale of cinema tickets, Mr Peacock's assertion at paragraph 49 that it was common ground that Odeon paid Bookit for that service was not in accordance with the evidence before us.

The only evidence of payments by Odeon to Bookit was under the Data Services Agreement (see paragraph 16 above). This related to card transactions at box offices as opposed to transactions through the call centre. Furthermore it related to services after box office sales had been made. It did not cover services in relation to the actual sales which were performed by Odeon's own staff at box offices.

There was no evidence of any payments by Odeon to Bookit for its services as agent for sales effected through it. The figure for Card Handling at paragraph 15 above is consistent with Mr Gosling's evidence that Bookit processed 91,000 customer tickets per week. The Administration and Data Processing Charges at paragraph 15 are small even in relation to box office transactions.

However the fact that there were no payments by Odeon to Bookit for agency services does not mean that Bookit was not acting as agent for Odeon. At paragraph 11 of the Amended Statement of Case it was accepted that Bookit acts as Odeon's agent in selling cinema tickets to the public; Mr McKay did not resile from this. Odeon's agreement to sell to a customer a ticket for a specific performance in consideration for the payment of the ticket price is communicated to the customer by Bookit. It is Bookit which decides whether the payment by card would be accepted. The "hot list" (see paragraph 34) is maintained not by Odeon but by Girobank or the card issuer. In our judgment when accepting payment by card for a ticket Bookit is acting as agent for Odeon.

It is to be noted that although Bookit was not paid by Odeon for its services as agent, the agency gave Bookit the opportunity to charge customers for card handling and to benefit from telephone revenue sharing arrangements.

The customer who rings the call centre will normally be unaware of the fact that he is telephoning Bookit rather than Odeon until after he has pressed the advanced bookings button. Even then there is nothing to tell the customer that the involvement of Bookit as principal extends beyond card handling.

When Bookit is finding out the customer's requirements and checking the availability of seats in accordance with those requirements, it is not in our judgment performing any service for a consideration for the customer. The recording by Mr Barnett included the employee as referring to "taking bookings", see paragraph 24. This was a preliminary to a sale on behalf of Odeon. Odeon received nothing unless the ticket was sold. Bookit received nothing unless the card transaction followed. If matters had stopped at that point there would have been no question of any consideration being paid by the customer any more than if a retailer shows goods to a customer who after asking questions does not make a purchase.

The next step in Mr Barnett's transaction was that Bookit obtained the customer's card details together with his telephone number and postcode. At that point Bookit was expressly involved and Mr Barnett, the customer, by proceeding agreed to a charge by Bookit in addition to the ticket price. By providing his card details Mr Barnett agreed to his account with the issuer of the card being debited and to the payment being credited to Odeon and Bookit in satisfaction of the price of the ticket and Bookit's fee.

It is most unlikely that a customer would be aware of the settlement mechanism under which Girobank received payment from the card issuer and paid Bookit which in turn paid the ticket element to Odeon. The customer would however know that the transaction involved the provision of credit by the card issuer, unless the card was a debit card, and involved the transfer of money from his account with the card issuer to discharge his liability for the ticket and Bookit's fee.

It was not suggested by Mr McKay for Customs that when Bookit takes the customer's card details and transmits them to Girobank it is not performing a service for the customer, see paragraph 9 of the amended Statement of Case. The dispute was rather as to whether those services form part of a package described as "cinema seat booking services."

We have already concluded that in providing information prior to the customer's decision to book tickets for a specific performance Bookit is acting as agent for Odeon on whose behalf it is selling the tickets. We have also concluded that when accepting payment by means of the customer's card for the tickets Bookit is also acting as agent for Odeon. As a matter of contract, Bookit is accepting the payment offered by the customer, it being a term of the contract that payment would be by card.

The final component of the booking services on which Mr McKay relied is sending notification to Odeon's computer system that the seats have been taken and informing the customer that the booking has been confirmed.

In our judgment both of those functions are performed by Bookit as agent for Odeon and neither constitutes a service supplied by Bookit to the customer. Odeon cannot properly sell a seat for a cinema performance without taking steps to ensure that the seat is kept available. If Odeon is not informed by Bookit that the seat has been sold and that payment has been made by card, Odeon's automatic machine at the cinema will not issue the ticket. Similarly Odeon cannot charge a customer for an advanced booking without informing the customer that the booking has been accepted.

The result is that the only supply by Bookit to the customer is of card handling services and the submissions as to application of Card Protection Plan do not fall to be considered. The fact that the card handling services would if made by Odeon be ancillary to the sale of the tickets is not relevant since the card handling services were supplied by Bookit as principal.

This brings us to the issue of whether the card handling services supplied by Bookit are exempt under Group 5 of Schedule 9. Mr Peacock's contention was that Bookit provides intermediate services within item 5 or is "dealing with, money" within item 1.

It is clear that banks making payments on behalf of customers using their cards are making exempt supplies within item 1 or 2 depending on whether the cards are debit or credit cards. It is also clear that Girobank provides intermediary services within item 5 in relation to such transactions by the banks and transfers money when it credits Bookit's account in respect of such transactions.

The issue is therefore whether Bookit is also providing intermediary services to customers and acting in an intermediary capacity within item 5 when read with Notes (5) and (5A) or alternatively whether Bookit itself is making supplies to customers consisting of dealing with money within item 1.

It is necessary to focus upon the specific services provided by Bookit to customers for the 50 pence fee. These services start with obtaining the customer's card number and details including postcode. This information is transmitted to Girobank which gives authorisation where this is required as exceeding a specified limit. The processing by Girobank of the transaction is not part of any supply by Bookit to the customer. Nor in our judgment is either the confirmation by Bookit that the card payment is accepted, this being on behalf of Odeon, or the notification to Odeon of the purchase, this again being part of the agency service to Odeon. Again we do not consider that the act of informing the customer that he should collect the ticket from an automatic machine using the card is part of the supply by Bookit to the customer, this again being a service performed as agent for Odeon, the vendor of the ticket.

The actual components of the supply by Bookit to the customer are therefore limited to obtaining the card information with the necessary security information and transmitting this to Girobank. It does not even include any decision by Bookit whether to transmit that information, since in deciding whether to accept a payment by card not requiring authorisation from Girobank Bookit is not performing a service for the customer but is acting as agent for Odeon.

In Customs and Excise Commissioners v BAA plc [2003] STC 36, Sir Andrew Morritt V-C endorsed the holding of Etherton J that items 2 and 5 of Group 5 must be construed as far as reasonably possible consistently with Article 13B(d)(1) of the Sixth Directive. By parity of reasoning the other items of Group 5 must also be construed consistently with the relevant provisions in Article 13B(d) insofar as this is possible The exemptions are both specific and mandatory subject only to conditions to ensure their correct application and the prevention of abuse.

The authority in the Sixth Directive for item 1 must be in Article 13(B)(d)(3) which provides,

"Transactions, including negotiation, concerning deposit and current accounts, payments, transfers …"

Here we are concerned with transactions concerning payments or transfers.

In CSC Financial Services Ltd v Customs and Excise Commissioners [2002] STC 57 the Court of Justice said at paragraph 26 that transactions concerning transfers within Article 13b(d)(3) must have the effect of transferring funds and entail changes of a legal and financial character. Logically transactions concerning payments must also entail changes of a legal and financial character. At paragraph 32 the Court said,

"The mere fact that a constituent element is essential for completing an exempt transaction does not warrant the conclusion that the service which that element represents is exempt."

The mere transmission of details to Girobank is essential to the completion of the transfer or payment by Girobank or the issuer, but that does not bring Bookit within item 1. The Appellant company has not satisfied us on the evidence that Bookit in transmitting on behalf of customers the required card information is itself transferring funds or bringing about changes of a legal and financial character. The transfers and financial changes are effected by Girobank and the payments are effected by the bank issuing the card.

This leads to the question whether the Appellant is performing intermediary services within item 5.

If we were solely concerned with the interpretation of the words of the 1994 Act, Bookit is "bringing together" the customer wishing to use his card and the card issuer which is providing financial services as well as the customer and Girobank, although the customer will be unaware of Girobank's involvement.

However the statute must be interpreted consistently with the Sixth Directive as interpreted by the Court of Justice. In CSC the Court of Justice said this at paragraph 39,

"Negotiation is a service rendered to, and remunerated by a contractual party as a distinct act of mediation. It may consist, among other things, in pointing out suitable opportunities for the conclusion of such a contract, making contact with another party or negotiating, in the name of or on behalf of a client, the detail of the payments to be made by either side. The purpose of negotiation is therefore to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract."

Although the Court said that it was not necessary to consider the precise meaning of "negotiation" in Article 13B(d)(1)-(4), we accept Mr McKay's submission that it does involve some "distinct act of mediation".

In our judgment the services of the employees of Bookit in obtaining card information and transmitting the same to Girobank do not involve any act of mediation on behalf of the customer. The only matters mentioned in paragraph 39 of CDC which could be relevant are "making contact with another party" here Girobank. However it does not seem to us that the mere transmission of card information suffices for "negotiation" or it follows does such transmission come within "intermediary services" in item 5.

This decision has focussed on the customer who telephones Bookit. Neither party submitted that the position is any different when the customer contacts Bookit by other methods such as the Internet. There was no evidence that the means by which Bookit transmits information to Girobank varies according to the way in which the customer contacts Bookit.

This decision is only as good as the evidence on which it is based. The actual means of transmission of information between Bookit and Girobank was not clearly explained although we assume this to be by means of a computer with the material being encrypted. If we have misunderstood the facts either party has liberty to apply within 21 days of the release of this decision to adduce further evidence.

Subject to such application the appeal is dismissed.

THEODORE WALLACE

CHAIRMAN

RELEASED:

LON/02/905