SUPPLY OF SERVICES – Delivery of goods by post – Postal charges charged to customers – Whether delivery a taxable supply – Yes – VATA 1994, s 4, Sch 9 Gp 3

LONDON TRIBUNAL CENTRE

	STUART ROY MORRIS T/A TWO PLUS TWO	Appellant

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	ANGUS NICOL   (Chairman)

Sitting in public in London on 11 May 2004

The Appellant in person

Jonathan Holl, advocate, of the Office of the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

1.	The Appellant has a small business of making and supplying bicycle trailers and providing related goods and services in Lewes in Sussex.  He is appealing against an assessment to VAT in respect of postal delivery charges upon which he neglected to charge VAT to his customers.  This amounted in all to £1,018, between February 1998 and October 2000.

The facts

2.	There is no dispute about the facts, which are to be found in the Appellant’s grounds of appeal and in correspondence between him and the Commissioners.  I find them to be as follows.

3.	In his grounds of appeal, annexed to the notice of appeal, the Appellant admits straight away that he did not charge VAT in respect of the postal charges which he passed on to his customers.  He said in his oral evidence that he had at first used couriers to transport goods to customers, both within the United Kingdom and abroad, and they had charged VAT to him.  In respect of these he, too, charged VAT.  Later he changed from the use of couriers to sending goods by Parcelforce, a part of the Royal Mail.  Parcelforce did not charge him VAT, and he thought that, therefore, there was no need for him to charge tax onward to his customers.  That he had not done so was discovered by Mrs Clifford, a senior officer of Customs, when she made a routine visit to the Appellant on 6 December 2000.

4.	During that visit, the Appellant said, the matter had been discovered by Mrs Clifford.  He said that she had not been sure of the position herself and had had to consult someone at her office before confirming that the Appellant should have been charging VAT on the postal charges.  He agreed that Mrs Clifford had mentioned a certain case on the subject, which was on its way to the Court of Appeal or the House of Lords (Customs and Excise Commissioners v Plantiflor Ltd [2002] STC 1132, HL).  Mrs Clifford had on a later occasion, with the assistance of the Appellant’s book-keeper, worked out the amount of tax due.  The Appellant acknowledged, with hindsight, that he should have paid VAT on the postal charges  and did not dispute the amount of tax.  He said that he had, when he had registered, been sent “a huge wedge” of VAT notices and publications, but that he could not specifically remember Notice 700.  He said that he had also asked his local VAT office for advice on some occasions.  During the visit, Mrs Clifford noted that the Appellant did hold Notice 700.  The Appellant said that he could not remember whether he had ever read paragraph 3.4, which dealt with postal charges.  Before delivering goods through the medium of Parcelforce, the Appellant had used couriers, all of whom charged him VAT, except for deliveries abroad.  When he changed to Parcelforce he had asked the Hove LVO about the position with deliveries abroad, and had been told (as was the case for deliveries abroad) that VAT was not chargeable.

5.	Mrs Clifford said that at the time of the visit, which was an ordinary routine inspection, she had been aware of the Plantiflor case, and that it was being appealed.  That, she said, was why she was unsure of the position, because she did not know which way the decision would go.  She had therefore decided that she should check, at her office, what the decision had been, before confirming that the Appellant was liable for tax.  Having done so, she considered that the present case was different from Plantiflor (as then decided) and that the Appellant was making a single supply of delivered goods.

The law

6.	The position in law relating to the conveyance of postal packets is contained in Schedule 9 to the Value Added Tax Act 1994, which lists those supplies of goods or services which are exempt from VAT.  Group 3 of that Schedule provides:

“Item No
1.	The conveyance of postal packets by the Post Office company.

2.	The supply by the Post Office company of any services in connection with the conveyance of postal packets.”

Section 4 of the same Act is also of importance:

“4.	Scope of VAT on taxable supplies

(1)	VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.

(2)	A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply.”

7.	In addition, Mr Holl, who appeared for the Commissioners, referred to Notice 700 and to the Customs and Excise Business Brief of August 2002.  Paragraph 3.4 of Notice 700 states:

“If, when you supply goods, you make an arrangement to deliver or post them for an extra charge, the extra charge is for the supply of a separate delivery service.  If you send goods by post, the charge made to you by the Post Office is exempt, but your charge to your customer is taxable even if it is exactly equal to the charge made by the Post Office.  Your supply of delivery services is standard-rated if the goods are sent to an address in the UK and zero-rated if they are sent elsewhere.

However, if the terms of your agreement with your customer for the supply of the goods requires you to deliver or post them to the customer, there is no separate supply of delivery of postage.  This applies even if you show a separate charge.  This means that you make a single supply of delivered goods and if the supply of goods is zero-rated then the zero rating also covers the delivery or postage.  This applies to most mail order transactions, but not if a delivery service is available at an extra charge for customers who request it.”

That second paragraph is not very clearly worded.  These two paragraphs are intended to explain in language less formal than the statute, that if you charge a customer for the delivery of goods, whether as a separate charge or whether the charge is contained in the overall price of the delivered goods, VAT must be charged in respect of the cost of delivery charged to the customer.  That is so even if delivery is by post, notwithstanding that the Post Office does not charge VAT.

8.	The extracts from the Business Brief for August 2002 simply record the passage of Plantiflor through the courts to the House of Lords.  In the House of Lords it was decided, in the Commissioners’ favour, that the delivery of the goods was a taxable supply made to the customer.

The Appellant’s contentions  

9.	The Appellant’s case was that he did not know, and could not have known, that carriage costs charged by Parcelforce were taxable supplies when passed on to his customers, since Parcelforce did not charge VAT, although all the other courier services which the Appellant used had done so.  He had therefore assumed, logically, that that was an exempt or zero-rated supply.  He said that the confusion about the point was increased by the fact that Mrs Clifford had had to make a lengthy telephone call to her office to check on the point:  if she, an experienced Customs officer did not know, how could the Appellant be expected to know?  The Appellant said that he had always been scrupulous about charging VAT where it was due.  He contended that it was unfair to expect an ordinary small business to know about what he considered to be an illogical and unexpected anomaly when it was not laid out in any of the literature and Mrs Clifford herself was not sure about it.  He contended that in the circumstances the amount of tax should be waived.

The Commissioners’ contentions

10.	The Commissioners relied upon the statutory provisions set out above.  Mr Holl submitted that the burden of proof was on the Appellant, and the assessment made by Mrs Clifford was made to the Commissioners’ best judgment.  He said that the Appellant should have referred to Notice 700 and to Notice 700/24, which explains about postage and delivery charges.  The law was clearly stated, and the delivery by Parcelforce was a taxable supply in each case.  There was no power to waive an amount of tax that was due.  The Appellant was responsible for making sure that he was accounting for tax on all taxable supplies, and if anything was unclear he should seek advice.

Conclusions

11.	The issues of the burden of proof and of best judgment do not arise:  the facts are admitted, and the amount of the assessment, also admitted, was calculated from figures supplied by the Appellant.  I begin, therefore, with the law as set out in the 1994 Act.  The effect of section 4 and Group 3 of Schedule 9 together is that any supply of goods or services made by a person who is registered for VAT, for the purposes of his business, is taxable unless it is exempt.  It can only be exempt if it falls within Schedule 9, which is a complete list of all exempt supplies.  It therefore follows that a supply of the delivery of goods, or a supply of delivered goods, is a taxable supply.  It makes no difference that, in this case, a supply of delivery services by the Post Office is exempt; that exemption does not extend to the onward supply of delivery by the trader to the customer.  It is an exemption which is available only to the Post Office.  It may appear to be an anomaly, but it is the law.  The reason for it may be that, if the Post Office had to charge VAT on its services the result would be to increase postal charges significantly.  Therefore, it follows that the Appellant’s supplies of delivered goods were taxable supplies, and tax should have been charged to the customer in respect of the amount of the postal charges.  All that the Appellant now knows, and does not dispute.

12.	The question is, should the Appellant have known at the time?  First, it is the obligation of a trader to know sufficient about the law to carry on his business lawfully in all respects.  It has long been a maxim of law that ignorance of the law does not excuse.  More recently, in the context of VAT, it has been held that while that maxim still holds, a trader is not expected to be familiar with obscure details of the law.  Does this matter of the Post Office’s supplies alone being exempt fall within that category?  The law is set out clearly in the 1994 Act, and paraphrased clearly in the first of the two subparagraphs of paragraph 3.4 of Notice 700 quoted above. To both the 1994 Act and Notice 700 the Appellant had access.  If there was any uncertainty, he could have asked his local VAT office a specific question relating to the Post Office.  There is no other conclusion possible than that this was not an obscure detail, but an ordinary every-day rule of VAT law.  

13.	Why, then, the Appellant asks, did Mrs Clifford not know about it?  The case of Plantiflor was heard in the Tribunal in April 1997, and the Tribunal decided in favour of the taxpayer, Plantiflor Ltd.  The Commissioners appealed to the High Court, where it was heard in November 1998, the Commissioners’ appeal being allowed.  Plantiflor appealed to the Court of Appeal, and that court decided in February 2000 in Plantiflor’s favour.  The case was heard in the House of Lords in February 2002, and their Lordships’ decision was given in July 2002.  At the time of Mrs Clifford’s visit on 6 December 2000 the case of Plantiflor had been decided twice in favour of Plantiflor and once in favour of the Commissioners, and was on its way to the House of Lords. This Mrs Clifford knew, and might well be pardoned for wondering what the state of the law on this topic was, and, in particular, whether it had changed. Otherwise, Mrs Clifford’s evidence was that, apart from the Plantiflor situation, she was in no doubt about the law.  So far as was revealed in the evidence, the Appellant was not aware, between 1998 and the visit in December 2000, of the Plantiflor case.

14.	For the above reasons, the only conclusion to which I can come was that the law in this respect was clear and was readily accessible by the Appellant.  This appeal must therefore be dismissed.  I would add that I have no doubt at all that the Appellant made every attempt to charge and account for tax as he was obliged to, and I accept that the fact that the Post Office did not charge VAT may have suggested to him that he need not. I also accept that he had nothing to gain from not charging VAT, which would have been perfectly easy to do and would have made very little difference to the cost of each transaction.  In the circumstances, it is impossible not to have sympathy for the Appellant.  However, the Tribunal has no power to waive an amount of tax which has been found, as here, to be due.  

15.	It was mentioned more than once in correspondence from the Appellant that it had been suggested by the Commissioners that if his appeal were unsuccessful he could pay the tax in instalments.  I have no power to direct that the Commissioners should accept that, but I would suggest that they might consider doing so in this case, in which it appears that no more than an honest mistake was made.

16.	The Commissioners indicated that they would not ask for their costs, and accordingly I give no direction as to costs.   

ANGUS NICOL
CHAIRMAN

RELEASED:

LON/03/1007