Introduction

In Orchardcrown Ltd v Revenue & Customs [2012] UKFTT 608 the issue was whether sums paid by customers of an online retailer in relation to postage of the goods were subject to VAT at the standard rate.  The question was whether the sums paid for postage were part of the consideration for the single supply of delivered goods to the customers (as contended for by the Revenue) or whether the sums were to be treated as disbursements on the basis that the retailer was acting as the agent of its customers in respect of the exempt supply of postal services.  The Tribunal applied the accepted analysis to single/multiple supplies in Card Protection Plan v C&E [1999] STC 270 and found that there was a single supply of delivered goods.

In light of the recent decision of the High Court in Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41, there is a question as to whether the same analysis would apply here.

The facts

The facts can be summarised as follows:

• the appellant sold goods online through eBay, Amazon or through its own website.  The purchaser could collect the goods personally or opt to have the goods sent by courier or by Royal Mail.  The case concerned those goods where customers elected the goods to be sent by Royal Mail
• where customers chose Royal Mail, the goods were sent via the appellant’s local Post Office.  An employee of the local Post Office would come to the appellant’s shop periodically and collect goods for delivery
• postage charges were separately itemised and invoiced to customers

The decision

The Revenue contended that there was a single supply of delivered goods and that the postage charges were ancillary to the supply of the goods.  The fact that postage charges were separately itemised or invoiced to customers did not affect this analysis.  The appellant contended that there was two separate supplies, one of goods and one of agency services in contracting with Royal Mail on behalf of customers.

The Tribunal found that there was a single supply by the appellant of delivered goods.  In doing so, the Tribunal had regard to the accepted principles in Card Protection Plan, and the following extract from that decision:

29…first, that it follows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, secondly, that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical customer, with several distinct services or with a single service.

30. There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service.  A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied.

In the UK context, there is nothing really unusual in this decision, save perhaps for the fact that the UK Courts are still considering the question whether a transaction involves a single supply or multiple supplies.

Australian context

Where this decision does hold interest is in the context of how an Australian Court would now approach the matter, in light of the decision of the High Court in Qantas.

The Tribunal found the following matters to be relevant to its decision:

• “What the customers want and what they are paying for is the goods delivered to the relevant delivery address.”
• “A typical customer would consider that it was paying the appellant for both the supply and delivery of the goods”

In Qantas, the Tribunal made the following similar findings:

• the actual carriage of the passenger was obviously the purpose of each reservation (at [10]);
• the reservation is only made for the purpose of travel (at [23])

Having regard to these findings, one could infer that what the passenger wanted and what they were paying for was the flight, and a typical passenger would consider that it was paying Qantas for both the reservation and the flight.  These findings certainly registered with the Full Federal Court on appeal, which stated as follows (at [47]):

As noted above, the Tribunal found (reasons [10]) that ‘the actual carriage of the passenger’ was ‘obviously the purpose of each transaction’.  In Travelex Ltd v Commissioner of Taxation [2010] HCA; (2010) 241 CLR 510 at [32] French CJ and Hayne J (who with Heydon J comprised the majority) clearly supported recourse to the purpose of the transaction as identifying the relevant supply. 

In finding that Qantas made a taxable supply on entry into the contract (the supply being the obligations arising on contract), for which the consideration (being the fare) was received, the majority of the High Court appeared to reject this approach and found (at [27]) that the earlier decision of the High Court in Reliance Carpet:

…provides no support for the proposition for the proposition adopted by the Full Court in the present case that it was necessary to extract from the transaction between the airline and the prospective passenger the “essence” and “sole purpose” of the transaction.

In taking this approach, the majority of the High Court appears to reject the established UK approach in Card Protection Plan.  Whether this results in Courts artificially dissecting transactions in the future remains to be seen.