19856

SUPPLY – Agency – Appellant sells vouchers – Vouchers entitle holders to “experiences” – Experience is provided by operators – Whether Appellant supplies vouchers as agent for operators – No 

LONDON TRIBUNAL CENTRE

	BUYAGIFT LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	STEPHEN OLIVER QC  (Chairman)
						RUTH WATTS DAVIES MHCIMA FCIPD					

Sitting in public in London on 16 and 17 October 2006

Richard Barlow, counsel, instructed by Gross Klein, accountants, for the Appellant 

Mario Angiolini, counsel, instructed by the acting general counsel and solicitor to HMRC, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	Buyagift Ltd appeals against a decision of the Customs in a letter of 10 February 2004.  The effect of the decision was that Buyagift acted as principal in making supplies of services to customers for a consideration equal to the full amount received by it from the customer.  Buyagift’s contention is that it supplied those services as agent for the provider of the services with the result that output tax was to be accounted for on its commission.

2.	This decision is concerned only with the issue of principle, i.e. whether Buyagift has been supplying the services as principal.  Depending on which way the ruling on that issue goes, the figures of Buyagift’s VAT liability will need to be agreed or else determined at a further hearing. 

3.	We heard evidence from Mr D J Mountain, joint managing director of Buyagift.  He gave us an account of Buyagift’s activities and of its business relationship with its suppliers.

Summary of transactions

4.	To set the scene as uncontroversially as we can, Buyagift’s trading activity is to make internet sales of vouchers to customers (“the customers”).  The vouchers entitle the holder (“the voucher holder”) to book an “experience” with a supplier (“the operator”) who, on completion of the experience, invoices Buyagift for an agreed fee (“the operator’s fee”).  The customer may be the same person as the person who, as voucher holder, has the experience.  The vouchers are transferable and can be issued as gift vouchers; the voucher holder who has the experience may be different from the customer who bought the voucher in the first place.  It will be seen therefore that each experience involves three or four parties namely:

(i)	The operator who typically will be one of a range of experience providers 	each of whom will have entered into an “operator agreement” with Buyagift.  	This agreement will cover the operator’s undertaking to provide particular 	experiences and it will stipulate the price for the particular experience.  We 	refer to that price as “the operator’s price”.  

(ii)	The voucher holder is the person who books and takes up the experience with 	the operator on the operator’s terms and conditions, having first presented the 	operator with his voucher.  

(iii)	The customer is the person who, on payment of either the price displayed on 	Buyagift’s website (“the voucher price”) or a different price specially 	negotiated with Buyagift, has the voucher issued to him or, in the case of a 	gift voucher, to his nominee.

(iv)	Buyagift as the issuer of the voucher receives the voucher price and, if and 	when the voucher holder takes up his experience, Buyagift is obliged to pay 	the operator’s fee to the operator.  

Buyagift’s website

5.	The first point of contact between customer and Buyagift will be through Buyagift’s website.  Displayed on the website will be the experience; there are also goods on offer that can be bought and used as gifts but which are, we understand, outside the scope of this appeal.  Details of the experience show the type of the experience, e.g a flight in a Tiger Moth or a drive in a Ferrari, the duration of the particular experience, the location or locations where the experience can be had and any relevant restrictions on the individuals who can use the experience (e.g. overweight or underage individuals may be excluded). The website shows the voucher price but not, we understand, the name of the operator.  Some experiences are to be provided at different locations by different operators.  Customers are also offered vouchers giving the holder the right to choose his experience, i.e. “multi-choice vouchers”.

6.	The website home pages, as well as describing the particular experiences and gifts on offer, enable the potential customers to see Buyagift’s terms and conditions and to know something about Buyagift and how it maintains its competitive position in the “experience” market.  We quote from a home page:

“Who are Buyagift Ltd?

Buyagift.com offers a range of over 800 amazing gift ideas including once in a lifetime experiences such as Ferrari and tank driving to the more relaxing spa breaks and balloon flights.  For those that are experienced enough already Buyagift also provide a range of traditional gifts including fine wine, flowers, hampers and chocolates.

Wherever possible we sell our experiences at the same price you would pay if you went direct to the supplier.  We are able to do this as we provide our suppliers with large volumes of customers and in return they provide us with competitive discounts.  We are so confident in our pricing levels that we even offer a 150% money back guarantee on every experience we sell (if you find it cheaper somewhere else within 14 days we will refund 150% of the price difference).”

7.	We will return later to the vouchers and their progress.  First, however, we need to explain the contractual relationship between Buyagift and the particular operator.  There are hundreds of experiences on offer on Buyagift’s website; these are provided at numerous locations by a number of different operators.  Each of the operator has an operator agreement with Buyagift.  We were shown two sample operator agreements.  

The operator agreement with Delta Aviation Ltd

8.	In this agreement (which is unsigned and undated) Delta Aviation Ltd and Buyagift are parties.  Delta provides flights in Tiger Moths, Chipmunks and “Pitts Specials”.  The following is a summary of the terms of that operator agreement: it is in our words and does not strictly follow the sequence of  the agreement:

(i)	Marketing fees are to be borne exclusively by Buyagift; the same goes for the 	costs of getting new business.

(ii)	Delta undertakes to “accept booking direct from Buyagift customers”.  	Delta undertakes to treat Buyagift “clients” with the same care and attention 	as Delta does its own clients and to give Buyagift’s clients equal priority to 	its own clients.

(iii)	The agreement provides that Delta has the responsibility to convey its own 	“terms of business to all Buyagift’s clients” and that “once a booking is made 	the Buyagift customer is bound by [Delta’s] terms and conditions”.

(iv)	Delta undertakes that its staff are properly trained and its safety standards are 	maintained.  

(v)	Delta’s prices for each experience, the operator’s fees, are specified.  	Buyagift undertakes to settle Delta’s invoices “around the 20th day of each 	month against invoices submitted during the previous month”.  Buyagift 	undertakes to accept and pay invoices, so long as they display reference 	numbers, as from the date on which the experience has been booked with 	Delta.  

(vi)	Delta agrees to indemnify Buyagift, its staff and agents against loss arising 	from any negligent or wrongful act of Delta.  

(vii)	The “Terms of Business” state that Buyagift “acts as a booking agency only”.  	The last of the “Warranties” in the operator agreement provides that Delta 	“undertakes to redeem all vouchers sold on behalf of Delta by Buyagift”. 

(viii)	The agreement is terminable on nine months notice by each party; but, it 	says, “all outstanding vouchers must be honoured”.

The operator agreement with Monster Events Ltd

9.	The Monster Events agreement relates to “activity” experiences in “4 x 4” off-road vehicles, quad bikes and trucks (“the vehicles”).  Monster Events, the agreement provides, appoints Buyagift as “a non-exclusive agent to sell the right for third parties to experience activities and to issue vouchers in the name of” Monster Events.

10.	Buyagift is stated to act “as an introduction agency only”.  Monster Events agrees “to accept bookings directly from customers introduced to Monster Events by Buyagift …”, to treat customers introduced by Buyagift with the same care and attention as those who come to Monster Events direct and “to redeem all valid vouchers sold on behalf of Monster Events by Buyagift”.  

11.	The agreement provides that Monster Events has the responsibility to convey its own terms of business “to all customers introduced to Monster Events by Buyagift …”; and once a booking is made the customer introduced to Monster Events by Buyagift is bound by Monster Events’ terms and conditions. Monster Events warrants that its staff are properly trained and its safety standards are observed.

12.	Monster Events’ prices for each experience (the operator prices) are set out in the Appendix to the agreement.  These are headed “Current Buyagift Buy Price”.  Buyagift is stated to be “entitled to commission” equal to the difference between the operator price and “the price paid by the customer for the activity”.

13.	Buyagift’s liability to account to Monster Events is covered by the following passage:

“All invoices of the Supplier must enclose the Buyagift voucher stub (Buyagift will not be able to pay invoices without them).  Invoices will be issued and paid at the pricing levels laid out in [the Appendix].  Unless otherwise agreed, the supplier’s account will be settled around the 20th of each month against invoices previously submitted which relate to activities experienced in the previous month(s) …

Buyagift reserves the right to withhold payment to the Supplier in the event that the Supplier is in breach of its contract to provide an activity to a customer.”

The “supplier” in that extract is Monster Events.

14.	The agreement can be terminated by either side on nine months notice in which case “all outstanding vouchers must still be honoured “by Monster Events” or “(if this is not possible) where Buyagift has already passed the supplier the amount paid by the customer for the activity this amount must be refunded to Buyagift.”

15.	Monster Events indemnifies Buyagift against loss arising from its negligence or wrongful acts.  If there is an accident, Monster Events agrees “to refrain from making any comment in relation to such death or injury without first obtaining the approval of Buyagift”.

16.	(Another agreement between Buyagift and Mithril Racing Ltd provides, in the same words as the Monster Events agreement, for sports car experiences.)  

Comment

17.	The arrangements summarized so far provide Buyagift with the means to make sales to customers.  Leaving aside the analysis of Buyagift’s legal relationship with the operator (i.e. is Buyagift the operator’s agent in the relevant sense) it is enough to say that Buyagift has assembled a portfolio of enforceable undertakings from operators to provide experiences; and Buyagift has committed itself to pay the operator’s fee for the particular experience if and when an experience is booked and the operator in question invoices Buyagift  with proof  of provision in the form of a voucher stub.

18.	We have already observed that nothing in the documentation that we have seen prevents the voucher from being transferable from customer to a third party and so on.  In any event vouchers are designed to be the subject-matter of gifts by customers to their beneficiaries.  

Buyagift issues the voucher

19.	We return to the issue of the voucher.  The customer who has chosen the experience turns on to the “order on-line” page of the website.  He keys in his name and address and that of the person to whom delivery is to be made (if different).  He has the opportunity of viewing Buyagift’s terms and conditions.  He then selects the experience, signifies his acceptance to Buyagift’s terms and conditions and, to complete the deal, uses the “order on-line now” box.

20.	Buyagift’s terms and conditions governing the issue of the voucher start with the statements:

“Buyagift Ltd is an agent for selected suppliers whose products and services are represented within the Buyagift.co.uk website.”

Later in the Buyagift terms and conditions are found these provisions:

“Exchanges – Vouchers can be exchanged free of charge subject to written confirmation by e-mail or letter within seven days of purchase (for vouchers purchased in December the free exchange period is 30 days).  Exchanges after seven days will incur a £20.  Experience vouchers can only be exchanged for alternative experience vouchers. …

Refunds – You have the right to return any goods within seven days of receipt and any vouchers within seven days of purchase and a full refund will be paid.  All refunds after the statutory seven days will incur a £20 or 20% (whichever is the greater) administration charge.  Once you or your recipient has booked an experience with a supplier you are bound by their terms and conditions (please make yourself aware of these at the time of booking).”

21.	Each voucher is valid for a minimum of ten months.  A ten month extension can be obtained from Buyagift on payment of £20.  Once a booking has been placed with operator, the terms and conditions provide that “you” are bound by the operator’s terms and conditions with regard to cancellation.  The terms and conditions exclude Buyagift from any responsibility for the operator’s safety standard and from any loss or damage suffered while participating in the experience.  They further provide that the total liability of Buyagift in connection with any experience is limited to the price paid for the voucher.

22.	At the start of the Buyagift terms and conditions are found these words:

“If on contacting the operator you feel that the activity taking place no longer accurately represents the activity purchased Buyagift Ltd will exchange the voucher or refund the purchase price.  Once a specific date has been booked, you will automatically become bound by the terms and conditions that individual supplier may have.  This does not affect your statutory rights.”

23.	The identity of the operator will not be known to the customer at least until the voucher is issued. That is, unless the customer has spoken to Buyagift in advance and ascertained the operator’s name. Where there is more than one operator for the particular experience or where the voucher gives a multi-choice, the identity of the operator may not be known to the customer until he actually books his experience.  

24.	Vouchers issued for particular experiences tell the voucher holder the nature of the experience, e.g. to drive a 1,600 cc single seater on the Brands Hatch Indy Circuit.  The voucher contains brief information about the sequence of the events involved in the experience, brief instructions as to when and with whom to book and height, weight and age restrictions.  A contact telephone number is supplied for the Brands Hatch experience but, on that particular voucher, the name of the operator is not given.  The voucher is dated.  One voucher, the “Drive and Survive” experience, disclosed Drive and Survive as the operator.

25.	Vouchers for experiences that give the voucher holder a choice between providers are different from “particular experience” vouchers in that they contain a list of contact details.  The Tiger Moth experience, for example, lists seven locations where the experience may be provided by one of two providers.  We did not see any vouchers for multi-choice experiences.

Comment

26.	Buyagift’s issue of a voucher is a matter between Buyagift and the customer.  The operator will know of neither the issue of the voucher nor the identity of the customer nor the person for whom the customer is buying the voucher unless and until the voucher holder books the experience.  

27.	The vouchers that we saw reveal nothing about the amounts payable by Buyagift to the operator on take-up of the experiences.  Nor do they disclose the prices paid for the vouchers by the customers.  So long as Buyagift has promised the provision of the experience or experiences to which the voucher relates, the actual identity of the operator is, we infer, irrelevant at that stage.

28.	10% to 15% of amounts received by Buyagift from customers relates to vouchers that are raised but not “redeemed”; this information was provided by Buyagift’s accountants in a letter to the Customs.  

Exchanges and refunds of vouchers 

29.	As explained in the summary of the terms and conditions relating to the voucher sales, Buyagift offers exchanges and refund facilities.  These are matters between Buyagift on the one part and customer or voucher holder on the other part. The operator has no interest at that stage. Once an experience has been booked the operator’s terms and conditions come into operation and, it appears, the customer or voucher holder no longer has the right to look to Buyagift for an exchange or a refund.

Paying the operator 

30.	This is a matter between operator and Buyagift. The person using the experience obtains it on presentation of the voucher (and otherwise agreeing to conform with the operator’s terms and conditions). The operator is, as noted in the summary of the operator agreement, obliged to “redeem” the voucher.

31.	The operator compiles an invoice for submission to Buyagift. The invoice provided in evidence lists the voucher numbers and the operator’s fee (set out in the Appendix as the “Current Buyagift Buy Price”) for each experience provided. The operator includes vouchers or voucher stubs with the invoices submitted to Buyagift. The operator is paid by the 20th of the next month. If however it transpires after the presentation of the voucher that the operator has in some way breached its obligation to provide the experience, the operator receives nothing from Buyagift (as agreed in the operator agreement).  We understand that outstanding amounts payable by Buyagift to operators on redemption of the vouchers are held in a ring-fenced account at Buyagift’s bank.

The relevant statutory provisions

32.	Section 5(2)(b) of the VAT Act 1994 provides the definition of supply of services in the following terms:

“Anything which is not a supply of goods but is done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services”.

33.	Section 6 governs the time at which a supply is deemed to take place. The relevant provisions are in the following terms:

“(3)	Subject to subsections (4) to (14) below, a supply of services shall be treated as taking place at the time when the services are performed.

(4)	If, before the time applicable under subsection (3) above, the person making the supply … receives a payment in respect of it, the supply shall, to the extent covered by the … payment, be regarded as taking place at the time the … payment is received.”

34.	The value of supply of goods or services is calculated in accordance with section 19.  The relevant provision is in the following terms:

“(2)	If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration.”

The case for Buyagift

35.	The member of the public making use of the arrangements summarized above pays in advance for the opportunity to engage in a specific activity with a specified provider of that activity. Buyagift makes no supply of anything to the customer, either at the time of issue of the voucher or at any later time.  

36.	Buyagift’s role is as agent for the selected suppliers. The terms and conditions applicable to the vouchers state that that is the case. The operator agreement in terms states that the operator appoints Buyagift as a non-exclusive sales agent and that Buyagift “act as an introduction agency only”; it states that Buyagift is to be entitled to a commission. Those, say Buyagift, are the terms on which the parties have acted such that Buyagift is agent of the operator (the principal) and the customer is the customer of the operator.  

37.	The operator is the principal and Buyagift is the agent in the sense of being agent as described in the American Law Institute’s Third Restatement on Agency, found in Bowstead and Reynolds on Agency, 1996. In the circumstances of the arrangements described above, it is argued for Buyagift, the operator has assented that Buyagift should act on its behalf so as to affect its (the operator’s) relations with third parties.

38.	Buyagift drew particular attention to a voucher for a Junior Rally Experience. This (see paragraph 24 above) identifies the principal (“Drive and Survive”) and tells the voucher holder to redeem it with Drive and Survive. In that situation, it is agreed, a member of the public will have paid Buyagift, as agent, in advance for the opportunity to engage in that specific activity with Drive and Survive as a specified provider and principal. In that situation, so the argument goes, the supply for VAT purposes takes place when the voucher holder books his experience with Drive and Survive. Until that moment the moneys paid by the customer are lodged with Buyagift and if for any reason the experience is not taken up, any recovery by the customer is effected through a restitutionary claim. That is the position with both the single experience/single provider vouchers as with the multi-choice voucher arrangements.  Either way, so the argument runs, Buyagift will have supplied nothing to the customer on issue of the voucher.

39.	The supply received by the customer from the operator is the right for the voucher holder to participate in the activity shown on the voucher.

The case for the Customs

40.	The Customs contend that Buyagift makes a supply as principal when it sells the vouchers to customers. That supply falls within section 5(2)(b). Reliance is placed on the Tribunal decision in Acorne Sports Ltd, VAT Dec 18009. Reliance is also placed on the principles set out by the Court of Appeal in Potter v Customs and Excise Commissioners [1985] STC 45. We will deal with the particular points relied on by the Customs in the course of our conclusions.

Conclusions

41.	The argument for Buyagift is, we think, misconceived.  From the time the customer contracts with Buyagift for the issue of a voucher, Buyagift will have committed itself, in return for the voucher price, to procure the provision of the experience.  What the customer gets for his money is the benefit of the undertaking of the operator, given to Buyagift in the operator agreement, to provide the experience at an available time so long as the voucher holder books the experience within ten months and then agrees to be bound by the operator’s terms and conditions.  The customer gets that from Buyagift under a principal to principal contract and not through Buyagift as the operator’s agent.

42.	The supply received by the customer is the right for the voucher holder to participate in the activity shown on the voucher.  With the multi-choice voucher the customer gets the right for the voucher holder to choose an activity from the portfolio of activities for the supply of which Buyagift has contracted with the operators.  In both cases Buyagift is exploiting the right given it by the operator (under the operator agreement) to “sell the right for third parties to experience activities …” (see paragraph 9 above).  By so granting the customer or the voucher holder the right to participate there is a “granting of a right” by Buyagift within section 5(2)(b) and therefore a supply of services.  That, in summary, is our conclusion.  We now explain our reasoning.

43.	What is the consideration paid by the customer for the supply?  In our view this is the full amount paid by the customer for the issue of the voucher; it is immaterial that 10% to 15% of payments received by Buyagift relate to unredeemed vouchers (see paragraph 28 above).  The voucher provides, from the moment of issue, either the customer or the voucher holder with the immediate right to book the experience.  That is the thing supplied.  It is immaterial that the voucher is not redeemed.

44.	The time of the supply is the time when the customer pays for the voucher.  That is the effect of section 6(4).  We recognize that the customer has the right to a refund free of charge if he reclaims within seven days.  That feature does not make the time of actual payment any the less the time of supply for VAT purposes.

45.	In the course of argument Buyagift contended that the money paid by the customer in return for the issue of the voucher was to be regarded as the placing of that amount on deposit with Buyagift, as agent, to be held pending the performance of the contract by the principal’s i.e. the operator’s acceptance of the booking of the relevant experience. We do not, for reasons that we will develop below, accept that Buyagift handles the customer’s payment as agent. But, in our view, the capacity in which Buyagift receives the payment from the customer does not affect the time of supply issue. The service purchased by the customer is performed when he pays the voucher price to Buyagift and is issued with the voucher. As already indicated he obtains the right conferred by the voucher at that time and section 6(3) operates to treat the supply  as taking place at that time.  

46.	Does Buyagift make it supplies to the customer as agent for the provider?  To answer this we need to examine both the terms of the contracts and the surrounding circumstances.

47.	We start by stating what we see to be the real function of the operator agreement.  This is to enable Buyagift to sell vouchers entitling the voucher holder to experiences provided by the operators.  The operator agreement between the operator and Buyagift gives Buyagift the authority to make the sales.  

48.	The case for Buyagift is, as noted above, based on the wording of the operator agreement which describes Buyagift as a “non-exclusive agent” and “as an introductory agency only”, entitled to a “commission”.  Those descriptions will hold good and Buyagift will in law be the operator’s agent if and so long as the operator agreement empowers Buyagift to enter into contracts for the sale of vouchers to customers on behalf of the operator, such that the operator becomes a party to those contracts.  But the operator agreement does not have that effect; nor does the contract for sale of the voucher.  The operator is not bound to provide the experience until the later and separate transaction by which the voucher holder redeems his voucher by booking the experience and accepting the operator’s terms and conditions.  Although Buyagift can fairly be described as an “introduction agency” (see paragraph 10 above), it is not an agent of the operator in the sense that it has power to commit the operator to a contract with the customer when it (Buyagift) enters into the agreement for sale of the voucher.

49.	Take a sale of a voucher relating to a single experience and assume it is to a customer for his own use.  The customer may take up the experience with the provider named on the voucher (as Drive and Survive is on the Junior Rally voucher).  However it may not be the customer who takes up the experience and it may not be the operator named on the original voucher that supplies it.  The customer is free to change the voucher for a different experience with a different provider; he is able to do this by a separate deal, i.e. the exchange provided for in the terms and conditions of the voucher sale.  That will be a deal to which only the customer and Buyagift are parties.  The customer may obtain a refund from Buyagift or even fail completely to book his experience.  In those situations the original provider who, it is asserted for Buyagift, is the principal when Buyagift sells the voucher, never becomes obligated to provide the experience.  The same applies when the customer or the recipient of the voucher passes it on to someone else.  There is, as already mentioned, nothing in the terms and conditions covering Buyagift’s sale of the voucher that makes that voucher non-transferable.  Thus the agreement for the provision of the experience taking effect when booking is made may be between a voucher holder who was not a party to the voucher sale by Buyagift in the first place.  And when the customer buys a multi-choice voucher from Buyagift, no provider will, by that transaction, be bound as principal to Buyagift’s acts as agent.  The identity of the provider is left to the discretion of the voucher holder.

50.	Generally speaking the provisions of the operator agreement are consistent with an agreement by which the operator agrees to accept bookings on presentation of a voucher and thereby enables Buyagift to sell vouchers as principal.  It will be seen, for example, that both the operator agreement and the terms and conditions of Buyagift’s voucher-sale agreement envisage that a separate contract will come into existence between the operator and the voucher holder when the voucher holder books the experience. The operator agreement, therefore, makes it the operator’s responsibility to convey “their own terms of business to all customers introduced”; and it provides that once a booking is made “the customer … is bound by the operator’s terms and conditions”. That provision, and the provision obliging the operator to accept bookings from customers introduced by Buyagift, would be superfluous if the operator entered into contractual relations with the customer upon sale of the voucher, as would happen if Buyagift were actually acting as legal agent of the operator. Moreover Buyagift’s terms and conditions similarly provide that the customer will be bound by the operator’s terms and conditions only after, and not before, contacting the operator and booking the experience.  In any event, as the operator’s terms and conditions are not communicated to the customer at the time of purchase of the voucher, it is difficult to see how they could ever be part of the contract for the purchase of the voucher itself.

51.	The operator agreement provides for the operator to issue invoices to Buyagift for experiences provided to customers in exchange for vouchers.  Those invoices suggest that the operator has supplied services to Buyagift: see paragraph 31 above.   If the operator were a party to a contract for the sale of the voucher to the customer, and Buyagift were an agent for the operator, then an invoice would normally fall to be issued by Buyagift to the operator for agency services, once vouchers were sold.  Essentially the invoice, which is the relevant document for VAT purposes, goes in the opposite direction to what Buyagift argues for.

52.	The arrangements would be consistent with Buyagift acting as the operator’s agent if Buyagift collected any money on behalf of the operator, as distinct from collecting for itself.  In the present case if the customer or the voucher holder never redeems the voucher, Buyagift appears to be free to keep the whole proceeds of sale of the voucher.  This can only be consistent with the state of affairs in which Buyagift acts as principal in the sale of the voucher to the customer.  Buyagift say that the customer, in those circumstances, could always take restitutionary proceedings to recover the whole or part of the cost of the voucher.  That may be so, but it does not make Buyagift the agent of the operator when selling the voucher to the customer.

53.	The reference in the operator agreement to Buyagift’s “commission” (see paragraph 12 above) suggests, on first impression, an agency relationship.  The reality, however, is that, subject to accounting to the operator for his pre-agreed fee, Buyagift is sole proprietor of every amount paid by the customers for their vouchers.  We recognize that those amounts will not have been “earned” until the experience is booked or the voucher expires after ten months; until the potential operators’ claims for fees have expired, Buyagift’s bank may insist on some form of ring-fencing of amounts required to meet its contingent liabilities.  But that factor does not make Buyagift the operator’s agent.  Nor does it prevent the whole payment by customer to Buyagift for the voucher from being a payment in respect of a supply for purposes of section 6(3).

54.	Buyagift is under no contractual constraints exercisable by the operator as regards the price set for sale of the voucher.  The operator may have grounds to complain if Buyagift overcharges for the voucher relating to the operator’s experience and so prices it out of the market.  But Buyagift’s freedom in this respect is, we think, inconsistent with any suggestion that it is agent for the provider.  

55.	Provision in the vouchers and in Buyagift’s terms and conditions points strongly to the contract for the sale of the voucher being between customer and Buyagift as principal.  For example, save where the voucher relates to single experience provided by a single operator (such as Drive and Survive), the operator is mentioned on the voucher only in his function as “supplier” and as a contact in order “to redeem your gift voucher”.  In all other respects the voucher suggests that the contract is with Buyagift.  In particular, the customer is instructed to contact Buyagift for “full terms and conditions” (which, in any event, are Buyagift’s own terms and conditions), “personal assistance” and “details of other exciting experiences”.  We have also observed in this connection that Buyagift specifically disclaims liability in relation to the experiences.  Such a clause would be entirely meaningless if Buyagift were only acting as an agent in the legal sense, as they would not be party to the contract and the liability would, in all cases, be solely that of the principal.  That provision only makes sense in the context of a direct contractual relationship between Buyagift and the customer.

56.	We have, in reaching the above conclusions, followed the approach of the Court of Appeal in Potter v Customs and Excise Commissioners.  As in Potter, the only positive pointer towards a relationship of agency is the fact that Buyagift’s income from the sale of vouchers is described in the operator agreement as an “agency commission”.  We agree with the Customs that in the present case, as in Potter, that description is misleading and cannot be determinative on its own.  In particular we agree with the Customs that the operator agreement does not confer power on Buyagift to enter into contract with customers which bind the operator.  The operator agreement and Buyagift’s own terms and conditions relating to the sales of vouchers envisaged that the operator will enter into a separate contract with the customer or voucher holder at the later stage when the experience is booked.  And in common with the Customs we place reliance on the fact that Buyagift does not invoice the operator for agency services.  Instead, it is the operator that invoices Buyagift for the operator’s fee, upon fulfilment of its contractual duty to honour a voucher issued by Buyagift.

57.	Taking into account all the circumstances of the case, we conclude that Buyagift has been acting as principal in the supply of vouchers to customers.  Consequently Buyagift has become liable to account for output tax on the whole consideration received and such liability arises when payment is received.

58.	That concludes our decision on the points of principle. Actual figures for Buyagift’s liability to VAT remain to be determined.  If the appeal needs to be referred back to this Tribunal we will then deal with any outstanding matters on the figures.  

STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 31 October 2006

LON/05/602