The ruling overturns a tribunal decision that said the e-tailer
was liable to account for VAT only on the expiry of the cooling-off
period.
Background
The case, brought by HM Customs and Excise, concerned the VAT
liability of Scottish firm Robertson’s Electrical Limited in
respect of goods sold online and, in particular, goods sold and
paid for prior to the end of an accounting period, but not
accounted for until the next accounting period.
Customs and Excise argued that the VAT should have been
accounted for at the time the payment was made or the goods
sent.
Robertson’s, on the other hand, argued that the sales, as they
had been made over the internet, were subject to the cooling-off
period required under the Distance Selling Regulations – which had
not passed by the date the accounting period ended. Accordingly,
the VAT liability fell into the next accounting period.
The Distance Selling Regulations came into force on 31st October
2000 and gave new rights to consumers in the area of home
shopping.
Under the Regulations, consumers shopping for goods and services
by telephone, mail order, fax, digital television, the internet and
other types of distance communication have additional rights
including rights to clear information, further protection against
fraudulent use of a credit card and a cancellation period of seven
days – although there are exceptions.
Robertson's argued that, because of the statutory cancellation
requirement, the payments made by customers were treated as a
refundable deposit until the cancellation period had expired.
Considering the matter in 2004, a three-member tribunal panel
looked to a provision in the 1994 Value Added Tax Act which
provides that, in general:
"a supply of goods shall be treated as
taking place if the goods (being sent or taken on approval or sale
or return or similar terms) are removed before it is known whether
a supply will take place, at the time when it becomes certain that
the supply has taken place or, if sooner, 12 months after the
removal."
The tribunal found that a supply of goods in the circumstances
faced by Robertson’s was a supply on similar terms to goods sent on
approval or sale or return, and that the firm was accordingly not
accountable for VAT on the goods until the statutory cancellation
period had expired.
But three judges of the Second Division of the Inner House of
the Court of Session (Scotland’s highest civil court) overturned
this ruling last week.
The ruling
Giving the opinion of the court, Lord Justice Clerk said that
the tribunal had “overlooked the meaning and effect of the
respondent's online terms and conditions.”
The tribunal had taken the view that the Distance Selling
Regulations amended the nature of the contract between online buyer
and seller by transforming it into a contract of sale on approval –
but this view was mistaken, according to Lord Justice Clerk.
The terms and conditions of the contract had created a contract
of outright sale, and the Regulations only impacted on this “to the
extent of conferring on the purchaser an unqualified right of
cancellation of the sale,” he wrote.
Robertson’s therefore became liable to VAT either at the date of
delivery or – as was the case under this contract – on the date on
which the customer paid for the goods online.
Stephen Lane, a corporate tax partner at Pinsent Masons, the law
firm behind OUT-LAW.COM, said: "The impact of this case will be
increased administration for retailers in the event of cancellation
by customers within the seven days and an actual carry cost of
accounting for VAT and waiting for recovery where the seven day
period spans a VAT return period."
