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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Fairpay Ltd v Revenue & Customs [2007] UKVAT V20455 (15 November 2007)
URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20455.html
Cite as: [2007] UKVAT V20455
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- and
- The appeal is against a decision of the Commissioners contained in a letter dated 28 November 2005 that the supply of services provided by the Appellant to Kinsella Solutions Ltd ("Kinsella"), a Guernsey-incorporated company, is subject to VAT and does not fall within paragraph 3 of Schedule 5 to the Value Added Tax Act 1994 ("the Act").
- The grounds of appeal as set out in the Notice of Appeal are:-
- The issue for the Tribunal was whether or not the Appellant ("FairPay") came within paragraph 3 of Schedule 5 to the Act as providing services similar to those provided by accountants or other professionals, or a consultancy bureau and/or whether it was providing information or data processing. If FairPay's services can properly be described as falling within paragraph 3 of Schedule 5 to the Act then the place of supply is where the recipient of those services is based, and the supply is therefore outside the scope of UK VAT.
- FairPay has been registered for VAT since 1 July 2000. It operates from an address in Stone, Buckinghamshire. Its main business activity is the provision of payroll services.
- This appeal is concerned only with FairPay's supplies to Kinsella, there being no dispute between the parties that, for the purposes of this appeal, Kinsella, the recipient of the services, belongs in a country that is not a member state of the EU.
- Kinsella employs a number of individuals that it hires out to other independent companies, mainly to companies based in the United Kingdom. The services provided by Kinsella are mainly IT. Those individuals who work in the United Kingdom are required by the United Kingdom legislation to be registered for PAYE and National Insurance. Kinsella contracts with FairPay Ltd to deal with those matters.
- Section 7(10) of the VAT Act 1994 ("the Act") provides:
- Regulation 136(a) of the VAT Regulations 1995 provides:
- The Tribunal was referred to the following cases:
- Two bundles of documents were provided to the Tribunal. In addition the Tribunal heard evidence from Martin Roy Priest, who is managing director of a company called St Peters Trust Company. Kinsella is a client of St Peters Trust who themselves provide administrative services to Kinsella. We also heard evidence from Mrs Jean Elaine Hill, who is managing director of FairPay. There was no oral evidence called on behalf of the Respondents. The contract between FairPay and Kinsella is entitled a "Service Agreement". This agreement was drawn up by FairPay and describes the services provided by FairPay at Clause 1 of the agreement as:
- The issues which FairPay deal with which are charged separately, as referred to in the contract, concern such matters as answering enquiries about PAYE and entitlement to sickness pay or statutory leave of absence. They only answer such questions direct to Kinsella, they never deal directly with Kinsella's employees. Kinsella itself was not an expert in the United Kingdom employment law and from time to time required advice on certain aspects of it. In the first instance it would seek advice from FairPay. We were shown some e-mail correspondence between Jean Hill of FairPay and Bryan Marsh of St Peters Trust in which Jean Hill states inter alia: "Re Frisby I'm still working this one out because we've only one month to run to the end of the tax year there is not going to be enough pay in March to recover the overpayment and another problem is his tax is not cumulative. Thus his pay, tax and NI will not be correct for the year end returns."
- Every month Kinsella sends to FairPay information as to the amount that is to be paid to each employee and FairPay calculates the amount of tax and insurance which has to be deducted and sends out a report to Kinsella which is in the form of a table showing the name of the employee, the salary, the national insurance number, the daily rate of pay, whether or not he has been paid, how much has been paid. This is done electronically. FairPay issues the relevant pay slips. It regularly issues a Nominal Journal Report on which it indicates the growth and the net salaries plus PAYE and the NI deductions. It issues a pay slip summary.
- One of the invoices produced by FairPay made out to Kinsella dated 29 May 2007 shows inter alia:
- Jean Hill herself is a member of the Association of Taxation Technicians. For thirty years she worked in an accountancy practice which dealt with all matters concerning tax and accountancy. Her son is a qualified certified accountant who works in a firm of chartered accountants and who from time to time gives her advice. FairPay has no other employees. It was Mrs Hill's opinion that it was not possible to operate a payroll correctly if you are not aware how the tax legislation works. The people providing the information which needed to be put into the system were sometimes not clear as to the implications of what they were providing, and therefore it was necessary for her to understand what these implications were.
- Kinsella did not employ an in-house professional accounts manager and it fell to FairPay to take on that role. It was its job to see that Kinsella's obligations under PAYE legislation were met. It was given access to Kinsella's funds. No one at Kinsella immediately supervised the payroll and it was FairPay's job to do so.
- FairPay itself was originally part of an accountancy practice but later was separated from that practice by Mrs Hill. Its rivals were seen to be independent companies as well as those chartered accountants who set up a payroll services within their own organisations.
- The "customised csv file" referred to in the Standard Agreement is a report which is adapted by the computer so it can be transmitted directly to Kinsella electronically without any transposing, and is compatible with Kinsella's accounting format. However, the copy pay slips were not sent electronically. FairPay is BACS-approved by the clearing banks and also by Kinsella and Kinsella's bank so that it has authorisation to pay their employees. The information which Kinsella supplied to FairPay had to be checked by FairPay because there were quite often errors. Frequently Kinsella's software was not up-to-date and Mrs Hill might obtain further information with regard to such things as the correct tax codes which she could access online. When FairPay was providing advice, this would be charged if the advice was substantial enough to be recorded. However it was Mrs Hill's opinion that its core service was running the payroll. She was relied upon to pay the right amount of tax and national insurance, to pay over the right amount to HMRC and to keep correct records. This entailed her processing data from the employer, the software alone could not do it. She had to ensure that the employees were properly paid.
- Customs Notice 741 provide as follows:
- Mr Collins referred us to the case of Nasim Mohammed t/a The Indian Palmist where the Tribunal had considered whether the appellant, who had trained as a clairvoyant and palmist in Pakistan, supplied services of a consultant for the purposes of Schedule 5 to the Act. It was considered by the tribunal in that case that to be a consultant a taxpayer must fall within the term "liberal profession". It continued: "The European Court of Justice has given a preliminary ruling in Christiane Adam as to the meaning of "liberal profession" and has stated that a "liberal profession" must have a marked intellectual character, require a high level qualification, and be subject to clear and strict professional regulation." The tribunal also considered that for a consultant to have any value he must be recognised within his peer group as an individual with professional knowledge and skill, who knows more about the matter in hand than they do.
- We were also referred to the case of Christiane Adam itself and to the judgment of the European Court in that case. The court in that case first of all noted that the Sixth Directive uses the term without giving any general definition. It then continues at paragraph 39:
- The Commissioners pointed to the fact that it was considered by Mrs Hill that her actions were not similar to those of an accountant, and that accountancy practices set up their own departments to deal with payroll. She herself would refer on to Kinsella's accountants questions regarding P11(d). It was accepted that the work done required a degree of knowledge of the UK tax system, but it could not be described as having a "marked intellectual character", nor was any high level qualification required to perform it. Mr Collins submitted that FairPay in the present case was not subject to clear and strict professional regulation.
- With regard to the question of whether or not FairPay came within the concept of a "consultancy bureau", the Commissioners believed that the term was inserted into the Sixth Directive at the request of a Member State in order to deal with a particular category of trader within that particular Member State. The only information the Commissioners were able to provide to the Tribunal were the French and German versions of the third indent of Article 9(2)(e). In French the phrase is "bureau d'ιtudes" which translates as follows: "Research department or unit; research consultancy, research organisation". In German the word is "Studienbόros". There is no translation of this word provided. The English text of the directive is treated as the official translation.
- With regard to the expression "and other similar services", it was submitted that this referred to services similar to those of each of the activities viewed separately. Authority for this proposition were the cases of Linthorst, and Von Hoffmann. It was submitted that the indent refers not to professions, but to services. Professions are used as means of defining the categories of services to which the indent refers and therefore it was necessary to examine whether a particular service falls within a category of services which were principally carried out as part of those professions. In the present case the predominant supply was that of the payroll. The consultancy aspect such as it was did not go to the heart of the matter.
- With regard to data processing, Mr Collins submitted that it should be read conjunctively with the "provision of information", as the latter phrase was so wide that it only made sense if it was in the context of data processing. The Tribunal was referred to the case of Talent and Production Services Ltd. In that case the tribunal adopted the definition of data processing set out in paragraph 12.4.10 of Notice 741-Place of Supply of Services. According to that Notice, data processing is the application of programmed instructions on existing data which results in the production of required information. The Notice also states that where services include an element of data processing which is simply required for a contract to be completed, the nature of the actual contracted services is determinative. The Commissioners accepted that in this case some data processing was done. However, the fact that FairPay received information and put it into the system and then got information out was not sufficient as it was not the job that FairPay was contracted to do, it was the means by which the job was done. In this case what FairPay did was more than data processing but was less than the work of a consultant. FairPay made payments both to the employee and to the Revenue. That, it was submitted, is the service which is provided, and thus the present case is to be distinguished from the case of Talent where a programme was operated to calculate royalties and nothing more. In the present case there was a far broader spectrum of services.
- It was submitted by Mr Young that although Mrs Hill did not describe herself as a tax accountant, it was open to the Tribunal to decide that FairPay was such. He pointed to the fact that "ATT" is a professional qualification in tax, and should properly be represented as a liberal profession. Barristers were entitled to take instructions from people who hold the ATT qualification, and it would therefore be very surprising if it was not to be deemed a liberal profession. The fact that there was no disciplinary panel was not the proper test. There was a wide difference between a palmist and clairvoyant and what Mrs Hill did for FairPay.
- With regard to `consultancy bureaux' it was submitted that upon a proper construction it was simply an office or department that provided advice. As FairPay provided advice in respect of payroll matters it was capable of falling within the ordinary and natural meaning of the words.
- With regard to the question of "similar services", it was submitted the position would be distorted if the same services received from a chartered accountant were deemed to be exempt, whilst there was no exemption here. The aim of the legislation was that where services were supplied outside the economic community, there should be tax neutrality because the VAT would be irrecoverable here if the services were not exempt.
- With regard to data processing, it was submitted that the predominant supply was undoubtedly data processing. In the present case Kinsella collected the data and provided it to FairPay who processed it. The form was altered, but it was still the same data, the information that came out did not change, it was the form of the data that was changed. This was to be contrasted with market research. It was accepted that the fact that FairPay actually paid the employees went beyond data processing, but the Tribunal was urged to find that the predominant supply was the provision of the data, which was evident from the invoices. Mr Young, as did Mr Collins, relied on Notice 741, paragraph 12.4.10 and 12.4.11.
- The first issue to be decided in this appeal is what exactly is it that FairPay supplies to Kinsella. It is clear from the Service Agreement and from the invoice that FairPay does more than simply deal with the payroll. However, from Kinsella's point of view its purpose in engaging FairPay is to ensure that those of its employees who worked in the United Kingdom are properly registered for PAYE and National Insurance and United Kingdom tax is properly calculated and deducted. The evidence of both Mr Priest and Mrs Hill was that the majority of FairPay's work is data processing. They both estimated that some 90 to 95% of FairPay's work was involved with data processing, although on the particular invoice that we saw in financial terms it did not amount to 90-95% of the total work.
- Mr Young had submitted that the services of FairPay were services similar to that of an accountant. We do not accept that this is the case. Mrs Hill herself said that an accountant would have more access to a company's books and records than she had for the work that she did. This of itself shows that there is a distinction to be made between the services of FairPay and those of an accountant. We do not accept the fact that she is an ATT member of itself is sufficient to bring her within the exemption contained in paragraph 3 of Schedule 5. Her activities are more akin to those described in the case of Linthorst, where the European Court considered that veterinary surgeons who were giving valuations of animals could not be regarded as being within the exemption. The Court in that case said that, had the legislature intended all activities carried on in an independent manner to be covered by that provision, it would have defined them in general terms. It continued:
- We do not consider that Kinsella were using FairPay in order to obtain advice such as an accountant might give, however they did take advantage of the accountancy knowledge which Mrs Hill had when wanting advice on matters relating to the payroll and other aspects of the employees who featured on the payroll.
- We have to ask ourselves whether the activities of FairPay come within the concept of "the supply of information" in relation to data processing. We were not referred to any authority on that particular point. Whilst unquestionably FairPay is supplying information in relation to the data processing, in our judgment the information it supplies goes well beyond that relating to the data processing as does its dealing with the BACS payments. It is because of this further supply that Mr Young submitted that FairPay's work was akin to that of an accountant, and could be encompassed within the concept of `accountants and similar services' in paragraph 3 of Schedule 5. We do not see how that submission can be consistent with his alternative argument that data processing was the predominant supply of FairPay's services and the other elements were to be regarded as ancillary to it. We do not accept Mr Young's argument on the basis of Card Protection Plan Ltd that here there is a single service of provision of data processing to which the other elements are subsidiary. There is a separate charge for the BACS processing, and, whilst that is not of itself decisive, the amount of the charge is comparable to that for the payroll service. We accept Mr Collins' submissions that in reality Kinsella were purchasing a package of services, which in part was a supply of payroll services. The other services provided went quite a long way beyond data processing, and we find that the supply of the BACS service cannot be encompassed within the concept of the provision of information. Similarly we find that, because a large part of FairPay's work is data processing, it cannot bring itself within the concept of a `consultancy bureau'. It does work which is qualitatively different from providing advice as well as providing advice, which it does in a limited area only. FairPay is not entitled to the exemption from VAT.
- This appeal is dismissed. No order for costs.
20455
VALUE ADDED TAX Whether Appellant's services were services similar to those of accountants or a consultancy bureau No Or data processing and provision of information No Appeal dismissed VATA 1994 s.7(11) and Sch 5 para 3; VAT (Place of Supply of Services) Order 1992 SI 1992 No. 3121 Art 16
LONDON TRIBUNAL CENTRE
FAIRPAY LTD Appellant
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: MISS J C GORT (Chairman)
MRS E M MACLEOD CIPM
Sitting in public in London on 16 July 2007
Mr Andrew Young of counsel, instructed by M J Kerridge & Co, for the Appellant
Mr Ben Collins of counsel, instructed by the solicitors office for the Respondents
© CROWN COPYRIGHT 2007
DECISION
"Decision given by Local Compliance Indirect Tax Appeal is not based upon the true facts as given. Raises fundamental issues about international services and lack of understanding/acceptance of services provided by FairPay."
The Background
The law
"A supply of services shall be treated as made
(a) In the United Kingdom if the supplier belongs in the United Kingdom; and
(b) In another country (and not in the United Kingdom) if the supplier belongs in that other country."
The Sixth Directive provides by article 9(2)(e) (the operative article at the relevant time, but now article 56(1)) provides:
"(e) the place where the following services are supplied when performed for customers established outside the Community or for taxable persons established in the Community but not in the same country as the supplier, shall be the place where the customer has established his business or has a fixed establishment to which the service is supplied
services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, as well as data processing and the supplying of information "
Article 9(2) has been incorporated into the UK legislation as follows:
(i) Section 7(11) of the Act provides:
"The Treasury may by order provide, in relation to goods or services generally or to particular goods or services specified in the Order, for varying the rules for determining where a supply of goods or services is made."
(ii) Article 16 of the VAT (Place of Supply of Services) Order 1992 provides that where a supply consist of any services of a description specified in any of paragraphs 1 to 8 of Schedule 5 to the Act and the recipient of that supply belongs in a country which is not a Member State, the supply shall be treated as where the recipient belongs.
(iii) Paragraph 3 of Schedule 5 to the Act, following, but not exactly, Article 9(2)(e) of the Sixth Directive lists:
"Services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services; data processing and provision of information (excluding from this head any services relating to land)."
"For the purposes of the Act the following territories shall be treated as excluded from the territory of the Community
(a) the Channel Islands
Mohammed t/a The Indian Palmist v CCE [2003] UK VAT V.18397
Talent and Production Services Ltd v CCE [2004] UK VAT V 18654
Linthorst, Pouwelsand Scheres v Inspecteur der Belastingdienst Ondernemingen Roermond [1997] EUECJ C-167/95
Van Hoffman v Finanzamt Trier [1997] EUECJ C-145/96
Card Protection Plan Ltd v CCE [1999] EUECJ I-973
Christiane Adam v Administration de l'Enregistrement et des Domaines [2001] EUECJ C-267/99
Levob Verzekeringen v OV Bank [2005] EUECJ C-41/04
The evidence
"To run a monthly payroll in a form that complies with the client's statutory obligations, calculate net wages and salaries payable, after appropriate deductions, based upon information supplied by the customer and in accordance with the statutory tax and National Insurance rates appropriate at the time. To produce pay slips, summary reports, customised csv file, make BACS payments , package and post payslips and P45 to individual employees and complete the PAYE yellow booklet and arrange for BACS payments to the Inland Revenue.
"FairPay Ltd will if requested complete P35s, P14s and P60s. FairPay has been authorised to deal with the Inland Revenue and DSS on regular matters. We will also deal with queries raised by your own staff and advise as appropriate. It is not part of this agreement that FairPay Ltd will deal with the Inland Revenue or the DSS on specialised queries or investigations, but will if specifically requested to do so by the customer, for a fee to be agreed. The customer must keep all documentations supplied by FairPay Ltd to support their operation of PAYE. "
Under the heading "charges" the following are set out:
"A fee of £5 will be payable to FairPay Ltd to set up each new employee.
A charge each time a payroll is run will be a fixed charge of £30 plus £3.00 for each live employee entry inclusive of full service.
P45s will be charged at £2.50 per employee. The amount of 1st class postage will be charged separately for sending pay slips and P45s direct to employees.
FairPay Ltd reserve the right to charge the customer for transporting supplies necessary to the performance of this service, long distance telephone calls and facsimile transmissions.
"
There is a further heading "BACS Service". This states that FairPay has received BACS approval to operate as a bureau under an inspection scheme carried out in 2004. We heard evidence that this inspection is a three-yearly matter and FairPay has just been subjected to a recent inspection. The contract then provides:
"FairPay Ltd will arrange for the payment of wages and salaries to the customer's employees using BACS.
The customer will provide FairPay Ltd with details of employee's bank accounts and ensure that FairPay Ltd is advised of any changes to these details.
Each time the customer's employees are paid, FairPay Ltd will prepare a list of payees showing bank details and amounts.
The customer must check and approve this BACS report on the day of receipt and ensure that the Pay Date, and the client's bank details are correct and check the total transaction is within the limit set up on the BACS application, before FairPay Ltd will send these transactions to BACS.
BACS will send an input report direct to the customer, prior to final processing, detailing those payments to be processed, together with any error conditions. "
Under the heading "payment" it is provided that:
"The customer provides authorisation to FairPay Ltd to collect payment of their invoices raised by way of the BACS services, at the same time as making the next payroll payments to employees. If, for whatever reason, payment is not made, FairPay Ltd may, without prejudice to any other rights they may have, suspend the provision of all services performed by them under this agreement."
There is no provision for payment of VAT recorded in this contract.
Details Qty Rate Amount
Monthly PAYE payment
by BACS 15.00 15.00
Fully Managed Service
Standing Charge 35.00 35.00
Pay slips/BACS processed 118 3.25 383.50
Total 646.77
Mr Collins submitted that this invoice showed that in reality Kinsella were purchasing a package of services, which in part was a supply of payroll services. The whole purpose of the contract would fail if the BACS payments were not made.
12.4.10 What is data processing
For the purposes of para 3, data processing is the application of programmed instructions on existing data which results in the production of required information.
12.4.11 Examples of exclusions from data processing
services which simply include an element of data processing. Where this is simply required for a contract to be completed, the nature of the actual contracted services determines which section applies.
Simple re-formatting where there is no change to the meaning of the content.
The Respondents' case
"However, with a view to providing guidance to the referring court, certain factors which characterise the liberal professions, within the meaning of annex F(2) to the Sixth Directive, should be emphasised. As the Commission has pointed out in its written observations, the liberal professions mentioned in that profession are activities which, inter alia, are of a marked intellectual character, require a high level qualification and are usually subject to clear and strict professional regulation. In the exercise of such an activity, the personal element is of special importance and such exercise always involves a large measure of independence in the accomplishment of the professional activities."
The Appellant's case
Reasons for decision
"It is appropriate to add that, whereas veterinary surgeons' duties sometimes involve advisory or consultancy aspects, that fact is not enough to bring the principal and habitual activities of the profession of veterinary surgeon within the concept of `consultants' or `consultancy bureau' or to cause them to be regarded as `similar'."
MISS J C GORT
CHAIRMAN
RELEASED: 15 November 2007
LON 2006/0032