19632

Exempt Supply - services via internet introducing customers to potential lenders - no direct input by taxpayer into any actual contract concluded - whether exempt - yes - EC 6th Directive Article 13 - VATA s 31, Sch 9 Group 5.

EDINBURGH TRIBUNAL CENTRE

	SMARTER MONEY LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

			Tribunal:	 (Chairman):  T Gordon Coutts, QC
					 (Member):	  Mr K Pritchard, OBE., BL., WS

Sitting in Edinburgh on Tuesday 30 May 2006

for the Appellant		Colin Tyre, QC

for the Respondents	Ian Artis, Advocate

© CROWN COPYRIGHT 2006.

DECISION

Introductory
This appeal is against a decision of the Respondents determining that certain supplies made by the Appellant were liable for VAT at the standard rate.  That was the issue for the Tribunal.  The Tribunal heard evidence from Mr Gordon Beattie, Director of the Appellant supported by various documents produced by him which were not challenged.  In addition the Tribunal had before it a witness statement by the Respondents officer Mr Simon Pettigrew.  The business of the Appellant is that of a provider of financial services and the majority of its activities are under the supervision of the Financial Services Authority.

Facts
The business of the Appellant in relation to the two matters under consideration before the Tribunal, i.e. Mortgage Enquiries and the arrangement of second or subsequent finance (described as “Secured Loans”) was operated in a similar way utilising the internet.

The Appellant made use of the internet to help to bring together customers who required mortgage advice with professional advisors authorised to provide such advice.  The Appellant runs several websites for this purpose.  Those websites are advertised on the internet with a view to finding customers who may require mortgage advice.  The arrangement of the advertisement is achieved by search engines such as Google.

A prospective customer will, on the internet, supply details requested by the Appellant with a view to providing at least the minimum information which a mortgage broker would require before considering whether to offer for the customers business. 

The Appellant’s websites fulfil two purposes.  They help a customer to find a mortgage advisor best placed to provide advice and a quote.  This may be particularly important where the customer has had difficulties in obtaining finance, such as by having a bad credit history, and such a customer can be put in contact with an advisor who specialises in such matters.  From the brokers’ perspective the Appellant’s website undertakes part of the process that they would have to undertake so reducing their level of input into the process.  This Appellant’s function involves capturing and supplying to the broker a significant part of the data required by them to find the client a mortgage and which will be used by them subsequently to complete a formal application.  The brokers are further served by removing from them a need to source all their new business.

The Appellant has, in the first place, a direct relationship with mortgage brokers.  This may involve the broker requiring the Appellant to supply the broker with customers who might be re-mortgaging with a minimum payment level or mortgage customers who require a minimum mortgage of a specified amount.  Secondly the Appellant can also operate an indirect relationship with a large number of brokers via the “LEADBAY” website.  That is owned by a company known as Add Momentum.  As a result the Appellant has access to a larger pool of mortgage brokers who have specified a profile of the type of customers they wish to contact.  Features may be the customers’ postcode, the size of the mortgage, the type of the mortgage, the credit history and any other special requirements.

The brokers decide how much they are prepared to pay for each particular customers details using a bidding system and the broker making the highest bid when the customer is found is sent the profile via email.  Thereafter they make contact with the customer.

In the indirect relationship Leadbay do not process the client profile in any way.  It is simply forwarded to the appropriate broker.

Remuneration is split between the Appellant and Leadbay.  Leadbay’s owner has been granted exemption from VAT for all of its activities including income generated from its relationships with the Appellant and from customers it may find directly.  

The second part of the Appellants activities, that of the secured loan advice, is operated directly but on a similar basis to that described above.

The relevant legislation
The exemption under consideration is that contained in Article 13 of the Sixth EC Directive in particular Section B, (d) 1 and 2.  That concerns (1) the granting and the negotiating of credit and the management of credit by the person granting it and, (2) the negotiation of or any dealings in credit guarantees or any other security for money and the management of credit guarantees for the person who is granting the credit.

The incorporation of the Directive into UK Legislation is in VATA 1994 Schedule 9 Group 5, Items 2 and 5 read together with Note 5. defining intermediary services which reads:

[(5)  For the purposes of item 5 “intermediary services” consist of bringing together, with a view to the provision of financial services-

(a)	persons who are or may be seeking to receive financial services, and
(b)	persons who provide financial services,
together with (in the case of financial services falling within item 1, 2, 3 or 4) the performance of work preparatory to the conclusion of contracts for the provision of those financial services, but do not include the supply of any market research, product design, advertising, promotional or similar services or the collection, collation and provision of information in connection with such activities.

(5A)  For the purposes of item 5 a person is “acting in an intermediary capacity” or one of the intermediaries, between-

(a)	a person who provides financial services, and
(b)	a person who is or may be seeking to receive financial services…

(5B)  For the purposes of notes 5 and 5A “financial services” means the carrying out of any transaction falling within item 1, 2, 3, 4 or 6].

There are difficulties with the interpretation and syntax of the phrases beginning “together with”.  Our view is that work preparatory to the conclusion of contracts is confined to the specific contract under consideration and will not include generalised matters such as market research, product design or advertising but that the collection, collation and provision of information would not operate to exclude the collection and collation and provision of information in relation to the contract as opposed to the activities of market research etc.

The Case Law
In particular the Tribunal were referred to Sparekassernes Datacentre (SDC) v Skatteministeriet [1997] STC 932, Customs and Excise Commissions v Civil Service Motoring Association Ltd [1998] STC 111 and Commissioners of Customs and Excise v CSC Financial Services Ltd [2002] STC 57 and Customs and Excise Commissioners v BAA Plc [2003] STC35.  In particular under consideration was the dicta of Sir Andrew Morritt between paragraphs 30 and 39 of BAA.  That case has a similar factual matrix to the present.  From that case and the others cited it appears to this Tribunal that the case law establishes what are required are negotiations of or for credit.  These can be constituted by the capturing of the appropriate data whether pre-ordained or ad hoc.  Further the whole matter can be done on an electronic basis and there is no need for the supplier to be in a position actually to affect the outcome of the negotiations.  

Contentions of the Parties
The Respondent joined issue on the negative proposition that the Appellant is not carrying out a distinct act of mediation and negotiating in the terms of the contract as outlined in CSC Financial Services Ltd.  At the Tribunal a further argument was presented that the Appellant was not acting as an intermediary but merely providing information and had made no input into any specific contract.  They received payment whether or not a contract eventuated from the transfer of data.

It was argued for the Appellant that what was described on the facts fell within the term “negotiation” of credit under the Directive and that that was sufficient for the Appellant’s purposes.  However if it was necessary to consider the domestic legislation the Appellant was in a stronger position in that the specification in the UK Legislation applied exactly to the Appellant in that the Appellant brought together persons who were seeking financial services and persons who were to provide financial services.  It was plain that since they were not contracting on their own account they were providing intermediary services.  

Conclusion of the Tribunal
It appeared to the Tribunal that the above cited cases establish that what is required are negotiations.  These negotiations do not require to effect the actual conclusion of the contract.  They can all be done electronically.  On consideration of the facts of this case, that is the way the Appellant conducted his business and achieved its result, it seems to the Tribunal inescapable that the Appellant was and is conducting intermediary services and therefore falls squarely within the exemption.  All their activities were conducted “with a view to” the provision of credit.  Whether the Appellant is paid or receives remuneration irrespective of the conclusion of a contract is neither here nor there.  The service provided is the introduction of one party to another with a view to the provision of credit.

Decision
The Tribunal determines that the services provided by the Appellant are exempt services.  Accordingly the appeal succeeds.  The Appellant sought expenses in the event of success.  They have had success.  We find the Appellant entitled to its expenses which failing agreement will require to be taxed by the Auditor of the Court of Session in terms of Rule 29(3).

T GORDON COUTTS, QC

CHAIRMAN

RELEASE:  28 JUNE 2006

EDN/005/86

££Smarter Money Ltd v  Revenue & Customs [2006] UKVAT V19632 (28 June 2006)