Credit card charges subject to VAT, and not exempt under financial services exemption

The key issues were the characterisation of SilverDoor’s supplies and whether or not their supplies should be classified as VAT exempt financial intermediary services. This case also reinforces the established distinction between primary and ancillary services, as previously set out in CJEU rulings in Bookit and NEC.

The UT upheld the First-tier Tribunal's (FTT) decision finding no errors of law and dismissed SilverDoor's appeal against two VAT assessments totalling £109,305. SilverDoor provided services to short-term accommodation providers. The services took the form of advertising accommodation, making reservations and collecting payments. The accommodation was generally booked by businesses for their employees. SilverDoor acted as a disclosed agent to the property partners and was remunerated via a commission which was charged to those partners.

SilverDoor made no charge to the clients for services except where the client chose to pay for the reservation with a corporate credit card. In these circumstances, a small percentage fee was charged.

The first issue for the UT to determine was the characterisation of the charge. The UT agreed with the FTT that SilverDoor was providing a reservation service to clients as well as providing services to the property partners. Where the card fee was charged, the card payment service was bundled up in the wider reservation services provided by SilverDoor to the client. Any card payment service was therefore ancillary to the principal reservation service. Since the reservation service would have been standard rated if made for consideration, the card fee also fell to be subject to 20% VAT. This conclusion was not affected by the fact that there was no consideration for the principal reservation service.

The UT also chose to consider whether the card payment facility would in isolation qualify for exemption as financial intermediation and found this could not be the case given that there was no contract between the merchant acquirer and the clients that SilverDoor could have negotiated (such negotiation being a prerequisite of the exemption). Even if there were a contract, the UT agreed with the FTT that there was no act of negotiation by SilverDoor. It was therefore not providing intermediary services within the meaning of the financial services exemption.

The case deals in detail with two salient issues. It is notable that the UT saw no issue in concluding that a service for which there was a charge (the card payment service) could be ancillary to a service which was made for no consideration (the reservation service). This will no doubt be a point to consider in a variety of other circumstances.

The decision also suggests a high bar for the exemption for financial intermediaries and is likely to be of interest to suppliers faced with a more limited payment services exemption following the Supreme Court’s judgement in Target Group Limited v HMRC.

It is noteworthy in this case that a point of appeal based on the payment services exemption was dropped following the decision in Target Group Ltd and the intermediaries’ exemption was relied upon instead.

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Approval code: NTEH70624105