The appeal is allowed. We gave a summary decision on 17 July 2022 (Footnote: ²) allowing the appeal. We now give our full decision at HMRC’s request (Footnote: ³).

This decision comes with a caveat: The decision is based on inadequate evidence and may well not reflect the reality. We asked for evidence as to other parts of the supply chain, along with further submissions as to that additional evidence. But on learning that the appellant had in vain requested that evidence from HMRC, the tribunal decided that it was not appropriate to give HMRC further opportunities in that regard.

The appellant buys and sells vouchers. This appeal is against HMRC’s decision to refuse amounts claimed as input tax in relation to the appellant’s purchases of face-value vouchers. We found that they were retailer vouchers and so were not excluded – as single purpose vouchers – from Schedule 10 to the Value Added Tax Act 1994 ("the VAT Act 1994"), by paragraph 7A of that schedule. But we also found that their supply to the appellant was not the first supply (referred to as “the issue” in the schedule) because the seller had acted as principal and not as agent, meaning that paragraph 4(4) of Schedule 10 applies and that VAT was chargeable on the vouchers. We found that the appellant had paid the VAT. We found that HMRC’s discretion in regulation 29 of the Value Added Tax Regulations 1995 (Footnote: ⁴) (“the VAT Regulations 1995”) had not been properly exercised. We found that the outcome would inevitably be the same if we remitted, especially given the HMRC officer’s evidence about that. We allowed the appeal without remitting.

The appellant bought the vouchers from Harrods (Footnote: ⁵), via a concession within Harrods run by DSG Retail Limited (referred to in the appeal as “Dixons” or “Currys”). The vouchers could be redeemed on the online games platform “Steam”, owned by Valve Corporation. Valve Corporation is incorporated under the laws of the United States State of Washington, but nothing turns on the place of incorporation. There were two sets of transactions in which the vouchers were purchased. The first set of transactions ran from 23 December 2015 to 30 April 2016 (“the pre-May 2016 transactions”). Bulk invoices for those from Harrods showed VAT at 20% (pages A192 to A197). HMRC had allowed the input VAT claims for the pre-May 2016 transactions. The second set of transactions ran from 1 May 2016 onwards (“the May 2016 onwards transactions”). Bulk invoices for those from Harrods, when eventually received, showed VAT at zero % (pages A86 and A192). It is to the second set of transactions, that is, the May 2016 onwards transactions, that HMRC’s decisions under appeal relate.

The decisions under appeal were notified by letter dated 16 February 2017. In the decisions, HMRC refused – for May 2016 onwards – the input tax claims for vouchers of identical type, and purchased in identical circumstances, to those for which HMRC had previously allowed the input claims to the end of April 2016, that is, for the pre-May 2016 transactions.

The decision to refuse amounts claimed as input tax was made under section 73 of the VAT Act 1994. Those amounts totalled £312,073, for 1 May 2016 to 30 September 2016 and 1 to 30 November 2016, that is to say, for monthly VAT periods 01/16 to 09/16 and 11/16. A decision to refuse a VAT credit was made under section 25(3) of the VAT Act 1994, in relation to VAT period 10/16. The amount of credit refused was £74,394.39 (Footnote: ⁶).

The table below shows the amounts refused for each of the periods—

It was common ground that the same issues arise for period 10/16 as for the other periods. And Mr Firth explained for the appellant that the assessed amounts included voucher adjustments totalling £12,417.27 which are not appealed.

Whether VAT was payable on the appellant’s purchase of the vouchers depended on whether they were excluded from Schedule 10 to the VAT Act 1994 and, if they were not so excluded, which paragraphs of that schedule were satisfied.

The appellant argued that—

HMRC argued that—

It had appeared from the appellant’s grounds of appeal that the appellant sought to recover input tax even if the supply to the appellant was not taxable (paragraph 27(2) of the grounds). By the time of the hearing, however, it seemed to have become common ground that, as HMRC argued in reliance on Associated Newspapers Limited v HMRC [2017] EWCA Civ 54 (Footnote: ⁸), if the supply was not a taxable supply, then there was no input VAT for the appellant to reclaim. But, since we are deciding that the supply was taxable, we need not decide whether input tax was recoverable even if the supply was not taxable.

The questions for the tribunal therefore, are—

The following facts did not appear to be in dispute.

Two types of voucher were mentioned in a distribution agreement dated 15 October 2005 between Omega Logic Limited and DSG Retail Limited (Footnote: ⁹) (see paragraph 37 below). One type was an E-Voucher, the other a Point of Sale Activation card, referred to respectively as a “Steam E-Voucher” and a “Steam POSA Card”. Each voucher bore a unique claim code, for entering onto the Steam website to redeem the voucher. The POSA card was a physical plastic item, bearing a scratch-off strip which would reveal the unique claim code. The card came inside packaging which bore instructions and terms and conditions, and which said “No Value Until Activated at Register”. Entering the code onto the Steam website credited the user with funds on the website, referred to on the POSA card packaging as “wallet funds”. It is not clear whether E-Vouchers too were sold as physical items (there is a reference to printing in relation to them in the distribution agreement).

As Mr Howard Suryaatmadja, the appellant’s sole director and shareholder, said in his witness statement, and which HMRC accepted, “Over the years, the industry began to change. Initially, the vouchers were physical pre-activated vouchers. The more modern way of distributing vouchers was electronic. The change to electronic vouchers took place around 2014. The cards were only activated on purchase from the retailer. The cards come in various denominations [and] are activated by the retailer” (paragraph 14, page A182). The vouchers in this appeal were bought from 1 May 2016 onwards, so after the 2014 change that Mr Suryaatmadja mentioned. And it was common ground that the vouchers were not pre-activated, and were instead activated at the till at or just before the time of sale. But submissions were made on the basis – and we accept – that the vouchers in this appeal were the Point of Sale Activation cards that the appellant took off the shelf and to the Dixons (DSG Retail Limited) till within Harrods: in other words, they were physical cards but not pre-activated.

It was common ground that, by the time of the appellant’s purchase of the vouchers in this appeal, more than merely games could be redeemed with the vouchers. The effect of that however was not common ground, as we shall explain later.

The price the appellant paid for the vouchers did not exceed their face value.

The way in which the appellant dealt with Harrods was this. When Mr Suryaatmadja of the appellant purchased Steam vouchers from Harrods, he was provided with a till receipt. Since the till receipt did not show the VAT on the transaction, Mr Suryaatmadja would request a VAT invoice. He would collect the till receipts for a whole month and then his bookkeeper would transfer the relevant information from those receipts to a spreadsheet. The spreadsheet would show the date, transaction number and value. The bookkeeper would email the spreadsheet to Harrods along with a request for VAT invoices for the purchases mentioned on the spreadsheet. Usually, the appellant would receive in return a summary or “bulk” invoice from Harrods, showing VAT at 20%. The appellant submitted on its VAT returns the details from the summary or “bulk” invoice, and had no problem recovering input VAT, even after receipt of HMRC’s 22 June 2015 letter (paragraph 175 below). It seemed to be common ground that – as Mr Suryaatmadja had said in his witness statement – the VAT previously recovered, for the November 2015 to April 2016 purchases, was recovered on the basis of bulk invoices. This is what Mr Suryaatmadja said in paragraph 26 of his statement—

However, by the end of 2016, it occurred to Mr Suryaatmadja and his bookkeeper that their request for VAT invoices appeared to have been ignored by Harrods. At first, Mr Suryaatmadja and his bookkeeper did not think this was out of the ordinary, because they “would often need to chase Harrods for the invoices”. Mr Suryaatmadja spoke to a gentleman in Transaction Services at Harrods. The gentleman told Mr Suryaatmadja that he, the gentleman, would get the invoices done and sent, but that did not then happen. Despite further chaser emails by the appellant, Harrods was initially silent and subsequently refused to provide the requested invoices, which related to the May 2016 onwards transactions. We have set out below how Harrods’ position appeared to change. (We make clear however that we include what is in this paragraph as background. Harrods was not before us to contest it. We do not expect what we say about Harrods’ silence to be accepted as a fact in other proceedings if and to the extent that it is relevant in other proceedings.)

Before the appellant had put in the VAT claims on this appeal, Mr Andrew Jenkins of HMRC had written to the appellant on 22 June 2015 saying (among other things)—

HMRC had however – after this letter – continued to permit input tax claims for which till receipts and eventually bulk invoices showing 20% had been used. Those claims were for the November 2015 to April 2016 VAT periods.

After the appellant had put in VAT claims for the 2016 periods in question in this appeal, Mr John Payne of HMRC on 22 December 2016 emailed the appellant arranging to visit the appellant. The letter dated 23 December 2016 attached to the 22 December email said, among other things—

Officer X of HMRC visited the appellant on Tuesday 24 January 2017. At the visit, Officer X asked Mr Suryaatmadja for the supporting invoices. He told Officer X that the appellant had been attempting to obtain the invoices, but that Harrods had not been responding. Officer X emailed Mr Suryaatmadja two days later on 26 January 2017. The email said, among other things (emphasis in original)—

Mr Suryaatmadja of the appellant forwarded that email to Harrods. Mr Suryaatmadja received in reply an email on 27 January from Harrods, attaching zero-rated bulk invoices for the transactions in question, that is, the May 2016 onwards transactions. His evidence was that he immediately forwarded that email to HMRC. We could not see that email from him to HMRC, but whether he sent it immediately is not material; we accept that he supplied the zero-rated invoices to HMRC (and there were emails from him on 9 February in which he did so: see below).

Officer X of HMRC then wrote to the appellant on 2 February 2017 saying (among other things)—

On 9 February 2017, Mr Suryaatmadja emailed HMRC attaching bulk invoices bearing the Harrods’ logo and VAT registration number. Those invoices showed a nil VAT rate on the May 2016 onwards transactions, whereas invoices for the pre-May 2016 transactions had shown a VAT rate of 20% (the change from 20% to 0% is shown by comparing the transactions listed on page A192 with those listed on page A89).

HMRC then sent the decision letter dated 16 February 2017. The letter said, among other things (emphasis in original)—

Having been supplying bulk invoices showing VAT for Steam voucher transactions shown in till receipts up to the end of April 2016, that is, for the pre-May 2016 transactions, Harrods had stopped supplying them, as mentioned above. The appellant forwarded to Harrods Officer X’s post-visit email of 26 January 2017. Harrods responded by email on 27 January 2017 attaching bulk invoices which showed zero VAT for purchases of Steam vouchers from 1 May 2016 onwards. The evidence before us was – and we find – that this was the first time that Harrods had indicated to the appellant that Harrods was saying Harrods had not charged VAT on those purchases. Having received from Harrods the zero-rated bulk invoices on 27 January 2017, the appellant raised the apparent zero rating with Harrods. Harrods responded by email of 9 February 2017 saying they had discussed the matter with their VAT accountant who had said that the transactions were properly zero rated (we could not see this Harrods email in the bundle but the appellant said this in paragraph 23 of his statement and we accept it). That 9 February 2017 email was, on the evidence before us, the first time that Harrods had told the appellant, in so many words (as opposed to attaching zero-rated invoices), that Harrods was saying it had not charged VAT on the May 2016 onwards transactions.

The appellant then received HMRC’s decision letter. On the same day as he received the decision letter, 16 February 2017, Mr Suryaatmadja forwarded it to Harrods’ VAT accountant, Mr Jay Majevadia. Mr Majevadia replied the same day, saying—

There was then correspondence on 14 and 15 March 2017 between Harrods and HMRC (pages A457 and 458). In his email of 14 March 2017 to HMRC, Mr Majevadia of Harrods – having agreed in his above email to the appellant that the vouchers should be “20% Standard Rated” – wrote to Jamie Yeardley of HMRC, saying—

Jamie Yeardley of HMRC replied to Mr Majevadia of Harrods on 15 March 2017—

So, according to their emails, Harrods’ position had changed. On 16 February 2017, shortly after receiving the forwarded HMRC decision letter of that date, Harrods’ position was still, as Harrods told the appellant, that “I would agree your point the concession vouchers should be marked as 20% Standard Rated as these are SPV’s” (Mr Majevadia’s 16 February 2017 email to the appellant). But by the time of Mr Majevadia’s 14 March 2017 email to HMRC, Harrods’ position had become, at least in what Harrods told HMRC in that email, that “Our current stance on these vouchers is that we treat them as MPV and do not account for any VAT on the onward sale”.

The appellant adduced a note of a meeting of 11 July 2017 between Mr Suryaatmadja and Mr Steve Plowman both of the appellant, and Mr Majevadia of Harrods (page A374). If accurate, the note evidenced a different position on the part of Harrods in its dealings with the appellant compared with Harrods’ dealings with HMRC. According to the note, Mr Majevadia of Harrods “was genuinely surprised that after charging VAT and showing it as a separate entry on the invoices before 1.5.16, that [sic] someone made a decision to show them without VAT after 1.5.16” and that “he would like to review the matter in detail and asked for all of LTL’s invoices (Howard sent these to Jay on 12.7.17). As Jay acknowledged that there was no record of any change in the policy of accounted for VAT on these cards in May 2016, and if there had have been Harrods should have notified LTL and other customers”.

We need make no finding as to whether that meeting note was accurate (though we do not suggest that any inaccuracy would be dishonest). But it was not disputed, that – as we accept – Harrods did not tell the appellant at any time prior to the purchases in question that those purchases would not include VAT. Indeed, Harrods’ position that Harrods had not included VAT was not – according to their 16 February 2017 email to the appellant – adopted until after that email (and if the appellant’s note of the 11 July 2017 meeting is accurate, Harrods still had not adopted that position by 11 July 2017 in their dealings with the appellant, at least). This point was relevant to Mr Firth’s arguments for the appellant as to legal certainty.

The appellant had bought the vouchers from a concession run within Harrods by DSG Retail Limited. The relationship between Harrods and DSG Retail Limited regarding the concession was governed by a contract dated 13 July 2011 between Harrods Limited and DSG Retail Limited (“the concession agreement”), which HMRC supplied to the appellant as being the relevant agreement. The concession agreement was expressed to continue until 31 May 2017 unless lawfully terminated sooner than that. It was common ground that the concession agreement was in force at the relevant times in this case.

There were three other contracts. They were adduced by HMRC as evidence of the supply chain from Valve Corporation (Steam), via a distributor (Epay), to DSG Retail Limited. The appellant was not in a position to accept that those were the contracts in the supply chain, or to accept that they were the only such contracts. And the appellant disputed in any event the effect that HMRC said those contracts had. We merely narrate at this point that the contracts were adduced. They were—

We return later to these three contracts. We discuss them in relation to whether Harrods acted as agent, which in turn is relevant to whether VAT was chargeable.

The law relating to input tax deduction is contained in the VAT Act 1994 and the VAT Regulations 1995.

Section 4(1) of the VAT Act 1994 provides for VAT to be charged on any taxable supply of goods or services by a taxable person in the course or furtherance of any business carried on by him. Taxable person is defined in section 3. It was common ground that Harrods and the appellant were each a taxable person. Section 24(1) defines input tax. Sections 25 and 26 provide for recovery of input tax. Section 26(3) provides that the Commissioners shall make regulations for securing a fair and reasonable attribution of input tax to supplies within section 26(2). Regulations 13 and 29 of the VAT Regulations 1995 are relevant. Regulation 13 provides that, subject to exceptions, where a registered person makes a taxable supply to a taxable person, he shall provide a VAT invoice to that person.

It was common ground that, if the supply to the appellant in the present case was liable to VAT, the supply did not come within any of the exceptions in regulation 13 and the appellant should therefore have been provided with a VAT invoice for that supply. By virtue of section 96(1) and section 6(15) of the VAT Act 1994, “VAT invoice” is defined as “such an invoice as is required under paragraph 2A of Schedule 11, or would be so required if the person to whom the supply is made were a person to whom such an invoice should be issued”.

By virtue of section 51B of the VAT Act 1994, Schedule 10A to that act has effect in relation to face-value vouchers issued before 1 January 2019 (the ones in this case were issued before that date). We borrow, if we may, HMRC’s helpful introduction to Schedule 10A: “the liability of vouchers throughout the supply chain could vary depending on the type of voucher (eg credit vouchers, retailer vouchers, ‘multiple purpose vouchers’ (“MPV”) or ‘single purpose vouchers’ (“SPV”)); the nature of supply/redemption (credit voucher/retail voucher/other voucher); and the role of a supplier/agent/customer in the supply chain (first issue, subsequent issue etc)”.

Paragraph 8(1) of Schedule 10A provides that “face value [sic] voucher” has the meaning given by paragraph 1(1) of that schedule. Paragraph 1 of Schedule 10A provides—

It was common ground that the vouchers in the present case are “face-value vouchers”.

Paragraph 2 of Schedule 10A to the VAT Act 1994 provides—

Paragraph 4 of Schedule 10A to the VAT Act 1994 provides—

Paragraph 7A of Schedule 10 to the VAT Act 1994 provided, at the relevant times—

Regulation 29(2) of the VAT Regulations 1995 provided at the relevant times—

It was common ground that, in the present case, the document required to be provided under regulation 13 was the VAT invoice.

In GB Housley Limited v The Commissioners for Her Majesty's Revenue and Customs [2016] EWCA Civ 1299, the Court of Appeal said—

It was common ground that, if the vouchers are, as the appellant contends, single purpose vouchers within the meaning of paragraph 7A of Schedule 10A to the VAT Act 1994 (Footnote: ¹⁰), then the vouchers are liable to VAT. It was also common ground that, if the vouchers are not single purpose vouchers within the meaning of that paragraph 7A, then the vouchers are retailer vouchers within the meaning of paragraph 4(1) of Schedule 10A. It was common ground that Steam (or technically Valve Corporation since Steam seems not to be a separate company) was the person who issued the vouchers for the purposes of paragraph 4(1) of Schedule 10A. Nothing turned on any distinction between Steam and Valve Corporation. The parties used “Steam” to refer to the issuer of the vouchers. If the vouchers are retailer vouchers within the meaning of paragraph 4(1) of Schedule 10A, then their tax treatment will depend on whether the supply of them to the appellant falls within paragraph 4(2) of Schedule 10A or within paragraph 4(4) of that schedule. It was common ground that, if the supply of the vouchers to the appellant falls within paragraph 4(2) of Schedule 10A, then the supply is not subject to VAT. And it was common ground that, if the supply falls within paragraph 4(4) of that schedule, then the supply is subject to VAT (because it was common ground that that would be the effect of treating the supply – as paragraph 4(4) says to do – in the same way as the supply of a voucher to which paragraph 6 of that schedule applies).

What is not common ground is which of the two subparagraphs of paragraph 4 of Schedule 10A applies to the supply of the vouchers to the appellant (if they are retailer vouchers). The appellant contends for subparagraph (4). HMRC contend for subparagraph (2).

So the first question is: are the vouchers single purpose vouchers within the meaning of paragraph 7A of Schedule 10A to the VAT Act 1994?

We do not find that the vouchers are single purpose vouchers, for the following reasons.

Paragraph 7A of Schedule 10A provided—

Mr Suryaatmadja in his witness statement for the appellant said that hardware could be bought on the website at the times of the transactions in question (page A188)—

Mr Suryaatmadja had also said in his statement that “Over the years, the industry began to change. Initially, the vouchers were physical pre-activated vouchers. The more modern way of distributing vouchers was electronic. The change to electronic vouchers took place around 2014. The cards were only activated on purchase from the retailer”. Mr Firth’s case for the appellant was however based on the vouchers in the present case being physical POSA cards, although not pre-activated.

In cross-examination, Ms Spence for HMRC asked Mr Suryaatmadja about a printout from the Steam website (page A165). Ms Spence suggested that it showed that any of the products mentioned on it, which included hardware, could be bought either individually or together and asked whether that was so. Mr Suryaatmadja said he did not know.

Mr Firth submitted that the vouchers were single purpose vouchers because, as provided in paragraph 7A of Schedule 10A, they represented a right to receive goods or services of one type which are subject to a single rate of VAT. He submitted that the question depends on an objective evaluation from the perspective of the typical purchaser of the voucher rather than on a forensic interrogation of the redeemer’s inventory and offering from time to time, and that the voucher is to be categorised in accordance with its main use, which is for games. Mr Firth cited for that submission: paragraphs 11, 14, 15, 41, 48 to 50 and 54 of the Upper Tribunal’s decision in Abbotsley Limited, Cromwell Golf Club, Cambridge Meridian Golf Club v The Commissioners for Her Majesty's Revenue and Customs [2018] UKUT 191 (TCC) (“Abbotsley”) and paragraphs 33 to 35 of the CJEU’s preliminary ruling in Město Žamberk v Finanční ředitelství v Hradci Králové, now Odvolací finanční ředitelství, Case C‑18/12, ECLI identifier: ECLI:EU:C:2013:95, [2014] STC 1703.

In Abbotsley, the Upper Tribunal said at paragraph 54—

There was no evidence of whether the Steam website printout on page A165 reflected the website as it was at the times of the transactions to which this appeal relates, that is, the May 2016 onwards transactions. But Mr Firth accepted for the appellant that hardware could, at the relevant times, be bought from the website separately from the games, and that the hardware could be used to play games other than those purchased from Steam. He accepted also that the hardware that could be bought with the vouchers was not “essential” – essential having been used in paragraph 54 of Abbotsley – to be able to play the games bought from Steam (and he told us that there were 12 years in which Steam sold only the games, before Steam introduced the hardware). Mr Firth’s position was however that, although “incidental” is not in the statutory provisions, “incidental” is nonetheless the test derived from Abbotsley. He submitted that the hardware that could be bought with the vouchers was “very much incidental to the games” on an objective view, and that the voucher is to be categorised in accordance with its main use, which is for games. He submitted that it did not prevent its being a single purpose voucher if the redeemer buys a few bits of hardware, because those bits of hardware were “incidental” or “ancillary” to the games.

Ms Spence submitted for HMRC that the vouchers were not single purpose because they could be redeemed for hardware separately from redeeming them for games. She submitted that the exceptions in paragraph 7A of schedule 10A do not mention “incidental” or “ancillary” supplies, and that the argument relying on those terms was not relevant. She argued that it simply came down to the fact – as Mr Firth had accepted – that the redeemer of the voucher can purchase goods and/or services with it.

We accept in view of Mr Firth’s concession that hardware could be bought separately from games on the Steam website at the relevant times, and that the hardware was not “essential” to be able to play the games bought from Steam. We accept also that the hardware could be used to play games other than those available from Steam. Those three points, but in particular that the hardware was not essential to be able to play the Steam games, mean in our judgment that the hardware available on the Steam website at the relevant times was not only for enhancing the Steam game experience and was not merely incidental or ancillary to the Steam games (even assuming that “incidental” or “ancillary” were the right test).

However, that would not matter if, nonetheless, the vouchers which the appellant bought could be redeemed only for games. Mr Firth accepted that the burden was on the appellant to show that the vouchers were single purpose vouchers.

The photograph on page A126 of the front of a Steam POSA card said “Download and play thousands of your favorite [sic] games”. Despite its American spelling, it bore only a pound (£) sign and a euro (€) sign, and no dollar sign. So it appeared apt for use from the UK or from a Euro currency country, and therefore potentially a relevant example for the purposes of this case. We say potentially because there was no evidence of whether it accurately reflected the vouchers in the present case. There was an almost identical photograph of a voucher on the Steam website printout on page A165. That voucher photograph bore the exact same statement – “Download and play thousands of your favorite [sic] games” – but bore a dollar sign. That photograph was part of a Steam webpage which we accept showed that hardware could be purchased separately from games. In other words, the webpage which showed that hardware could be purchased separately from games appeared to suggest that a voucher that referred only to games could be used for purchasing hardware too.

It was not clear whether that webpage printout accurately reflected what the website had shown at the relevant times. Nor was it clear whether the printout accurately reflected that the vouchers in the present case could have been used, as could the voucher bearing the dollar sign, to buy hardware as well as games. However, the burden was not on HMRC to show that the vouchers were not single purpose, as Mr Firth accepted; it was on the appellant to show that they were. Even assuming that the vouchers in the present case did say only “Download and play thousands of your favorite [sic] games”, we were not persuaded – given the website printout on page A165 which may or may not have reflected what the website showed at the relevant times – that from the perspective of the typical purchaser of the voucher, the voucher was for just one type of goods or services, namely games. We do not find therefore that the vouchers could in fact be used only to download and play games. That, taken with our finding that the hardware on the Steam website was not merely incidental or ancillary to the games, means we are unable to find that the vouchers were single purpose vouchers.

It was common ground that, if we did not find the vouchers to be single purpose, then they were retailer vouchers within the meaning of paragraph 4(1) of Schedule 10A to the VAT Act 1994.

So, we accept that the vouchers were retailer vouchers. The next question is, therefore, was Harrods acting as agent or as principal in supplying the vouchers to the appellant?

The question of whether Harrods was an agent of Steam in supplying the vouchers to the appellant (via the DSG Retail Limited in-store concession) is relevant because VAT is not chargeable on the (first) issue of the vouchers (paragraph 4(2) of Schedule 10A to the VAT Act 1994). We parenthesise “first” because paragraph 4(2) refers only to “issue” rather than to “first issue” or to “first supply”. But a contrast between “issue” in paragraph 4(2) and “supply … subsequent to the issue” in paragraph 4(4) distinguishes between the first issue/supply of the voucher (within paragraph 4(2)) and later supplies of it (within paragraph 4(4)). It appeared undisputed that Steam was the (first) issuer of the vouchers (referred to in argument as the initial issuer), and that Steam’s issue of each voucher was the “issue of a retailer voucher” referred to in paragraph 4(2) of Schedule 10A (if we were against the appellant on the single purpose voucher question). That meant that the consideration for Steam’s issue of the vouchers was to be disregarded, by virtue of paragraph 4(2) of Schedule 10A, for the purposes of the VAT Act 1994 (except to the extent if any that the consideration exceeded the face value of the vouchers, which does not apply here). If Harrods was supplying the vouchers only as Steam's agent, then Harrods’ supply of the vouchers was not a subsequent supply, but was rather still the first issue of them by Steam (via Steam’s agent, who would in that hypothesis be Harrods). That would mean that the price the appellant paid for the vouchers was to be disregarded – in other words not subject to VAT – by virtue of paragraph 4(2) of Schedule 10A.

But if, conversely, Harrods acted as principal and not as Steam's agent, then Harrods' supply of the vouchers was not Steam's issue of them (Steam's issue of the vouchers being the first issue of them, as appeared to be common ground). That in turn would mean that Harrods' supply of each voucher was not the first issue of that voucher and so Harrods’ supply of the vouchers would not fall within paragraph 4(2) of Schedule 10A. The consideration the appellant paid for them would not then be disregarded under that subparagraph. Instead, Harrods' supply of the vouchers would be a "supply … subsequent to the issue" of the vouchers within the meaning of paragraph 4(4) of Schedule 10A. Paragraph 4(4) would in that case require Harrods’ supply of each voucher to be treated in the same way as the supply of a voucher to which paragraph 6 of Schedule 10A applied. That would mean – as was common ground if paragraph 6 applied – that VAT was in fact chargeable on the supply of the vouchers to the appellant.

Both parties relied on the following text in HMRC Notice 700 as a suggested helpful summary of the law of agency—

Ms Leppard submitted for HMRC that Harrods supplied the vouchers as agent and not as principal. We thank her for her extremely thorough oral exposition and post-hearing written submission. Ms Leppard’s submissions were in four broad parts: First, she advanced a different interpretation of the concession agreement from that advanced by Mr Firth. Second, Ms Leppard relied on the two contracts which she had adduced to show the chain of supply (i) from Valve (Steam) to Epay (the Steam and Epay contract) and (ii) from Epay to DSG Retail Limited (the Omega/Epay and DSG contract). Third, Ms Leppard relied on the terms and conditions on the back of the packaging of the physical POSA card. And fourth, Ms Leppard relied on HMRC’s assertion that the voucher has no value until activated at the till. We take each of those points in turn.

The concession agreement allows “the Licensee”, defined as DSG Retail Limited, to operate a concession by way of licence within Harrods’ store (pages A471 to A514). Clause 2 provides that the agreement runs until 31 May 2017 unless terminated sooner (it had not been terminated by the time of the appellant’s purchase of the vouchers). The licence to occupy is at clause 3. Clause 4 governs the floor space to be allocated to DSG as the Allocated Area. Clause 5 deals with Shopfitting obligations in relation to the Allocated Area.

Clause 1.1 of the concession agreement defines “Goods” and “Services” (pages A473 and A475)—

Clause 6.1 of the concession agreement provides (our emphasis) (page A481)—

Clause 8.3(b) of the concession agreement provides (our emphasis) (page A484)—

Clause 8.3(d) of the concession agreement provides (our emphasis) (page A484)—

Subclauses 8.3(g) and (h) of the concession agreement provide (our emphasis) (page A485)—

Clause 8.4 of the concession agreement provides (page A485)—

Clause 8.5 of the concession agreement provides (page A485)—

At the hearing, Ms Leppard for HMRC took us to paragraphs 6.1 and 8.3(d) of the concession agreement, and to the definition of “Services” in clause 1.1 of the agreement. She submitted that, regardless of the definition of “Services” in the concession agreement – which she accepted defines them as DSG Retail Limited’s KNOWHOW services – the supply of the vouchers to the appellant was a supply of services by Harrods, because the supply of the vouchers falls within the definition of “services” in paragraph 2 of Schedule 10A. That paragraph 2 provides that “The issue of a face-value voucher, or any subsequent supply of it, is a supply of services for the purposes of this Act.”. Ms Leppard argued that it is therefore the part of clause 6.1 relating to services that applies here, and not the part of it relating to goods. As was common ground, the part relating to services says that Harrods is DSG’s selling agent rather than the other way around.

Mr Firth for the appellant relied on clauses 6.1, 8.3(b) and (d) of the concession agreement. Mr Firth submitted that HMRC’s construction of the concession agreement, using paragraph 2 of Schedule 10A to the VAT Act 1994, depends entirely on interpreting “goods” and “services” in that agreement to mean something that is in flat contradiction to the definitions of those terms in the agreement. The definition of services was he submitted exhaustive, and Knowhow is a clearly defined part of the offering from DSG Retail Limited that has been given special treatment in the concession agreement. Moreover, the end of clause 8.3(d) of the concession agreement provides that “The Licensee shall ensure the Customer is made aware that the Services are being provided directly by the Licensee (under the “KNOWHOW" brand) and that their contract for Services is with the Licensee”. That text makes it, said Mr Firth, impossible that the supply of the vouchers pursuant to the concession agreement is a supply of services: There is no legal principle that Mr Firth was aware of which would allow the tribunal to infer that the contracting parties meant also that “services” should be defined in the agreement by reference to paragraph 2 of Schedule 10A of the VAT Act 1994. And, he submitted, the deeming provision in that paragraph 2 is “for the purposes of this Act”. So he submitted there was no basis, whether by virtue of legislation or in contract, to suggest that the parties intended to incorporate paragraph 2 of Schedule 10A into the agreement.

Mr Firth submitted that both Harrods and DSG Retail Limited acted as principal and that therefore the supplies were liable to VAT.

Our analysis at paragraphs 87 to 136 below is based on the above submissions made at the hearing. In post-hearing written submissions by Michael Ripley of counsel, HMRC did not now dispute that they were goods for the purposes of the concession agreement. But HMRC argued that “it is clear that Steam do not sell title to the Steam Products to Epay and it is envisaged that all parties in the chain will be acting as agents of Steam such that they are only distributing the vouchers on behalf of Steam. As explained below, the rest of the chain must be viewed against that backdrop and (above all) neither DSG nor Harrods could sell the Steam Products as principal (regardless of what the Concession Agreement says) because neither DSG/Harrods ever owned them” (paragraph 11, post-hearing submissions). HMRC further argued in the post-hearing submissions that “However, for the reason explained at paragraph 11 above it does not matter whether the Steam Products are within the meaning of “goods” or “services” for the purpose of the Concession Agreement. Harrods simply could not have sold the Steam Products as principal because it had not acquired them from anyone. Neither DSG nor Epay owned the e-vouchers and were only ever in the position of agent. In the absence of any agreement between Harrods and Steam, Harrods could not have acted as principal because its only contractual counterparty (DSG) was unable to make Harrods a principal” (paragraph 18).

Mr Firth’s written submission in reply to Mr Ripley’s post-hearing written submission was that HMRC’s post-hearing argument “is wrong for three reasons: 5.1. It is based on a failure to read the contracts properly – nothing prevented DSG from selling to Harrods. Harrods was thus in a position to sell as principal and DSG acted as agent in respect of that onward sale, precisely as the agreement stated. 5.2. In any event, even if the Steam/Epay agreement did purport to limit who DSG should sell to, that could not override or change what is in the DSG/Harrods agreement. It is the DSG/Harrods agreement that governs what happened between DSG and Harrods. 5.3. HMRC’s analysis does not satisfy the legal requirements for Harrods to supply as agent” and that “HMRC [sic] cashflow analysis accepts that DSG collects the £100 “on behalf of Harrods” (§§23 and 28), i.e. DSG acts as Harrods’ agent. That is fatal to their argument that Harrods acts as DSG’s agent” (paragraph 28).

The concession agreement is dated 13 July 2011 and is between Harrods Limited and DSG Retail Limited.

We accept that the concession agreement makes DSG Retail Limited Harrods’ agent in relation to “Goods” supplied by DSG Retail Limited pursuant to the agreement and that Harrods acts as principal in relation to those goods (we return at paragraph 96 below to whether the vouchers were “Goods” for this purpose). We say that because of our analysis – adopting almost entirely Mr Firth’s analysis – of clauses 6.1, 8.3(b), 8.3(d), 8.3(h) and 8.4 of the concession agreement, along with the definitions of “goods” and of “services” in the agreement. We take each of those clauses in turn.

As to clause 6.1 of the concession agreement, we accept Mr Firth’s submission that the reference at the end of the second sentence of clause 6.1 to “Harrods acting as the selling agent” applies only to “Services” (in respect of which, by virtue of clause 6.1, DSG Retail Limited acts as principal, with Harrods as DSG’s selling agent). So clause 6.1 provides that DSG Retail Limited shall “collect for and on behalf of Harrods” all sales proceeds in respect of “the Goods” to which the agreement refers. Mr Firth submitted that the provision in clause 6.1 that Harrods is exclusively entitled to control and banking of all sales proceeds also shows that Harrods acts as principal in relation to “the Goods”. We are not persuaded that that part of clause 6.1 does show that; Harrods also has the right to control and bank the sales proceeds for “the Services” referred to in that clause. But, as appeared to be common ground, Harrods does not act as principal under the concession agreement in relation to “the Services” to which that agreement applies. That point does not however alter our judgment that, without more, the provision in clause 6.1 that DSG collects proceeds for “the Goods” for and on behalf of Harrods means that Harrods acts as principal in relation to “the Goods” supplied pursuant to the agreement by DSG Retail Limited. That construction is reinforced by the contrast with the provision later in the same sentence that DSG collects the proceeds for “the Services” for and on behalf of itself with Harrods acting as the selling agent.

We have said that clause 6.1 has that effect without more. But we are satisfied that, read with the other parts of the concession agreement, clause 6.1 still has that effect. Indeed, other parts of the agreement reinforce that Harrods is acting as principal in relation to “the Goods” mentioned in the agreement. We say that for the following reasons.

Clause 8.3(b) of the concession agreement provides not only that DSG displays, offers for sale and sells the goods on Harrods’ behalf but also that each contract of sale in respect of goods is between the customer and Harrods.

That is reinforced, in our judgment, by the contrast of clause 8.3(b) with clause 8.3(d). The latter provides effectively the opposite for services, that is, that each contract for services is between the customer and DSG directly, with Harrods acting as DSG’s selling agent. So important is this considered to be that the clause goes on to require that the customer be made aware (i) that the services are provided directly by DSG, and (ii) that the customer’s contract for services is with DSG.

Clause 8.3(h) of the concession agreement reinforces that Harrods acts as principal in relation to goods by procuring that the property in each item of goods passes to Harrods immediately before it passes to the customer. That is not altered by the fact that the clause goes on to provide that the risk in the goods remains with DSG for the scintilla of time in which the goods belong to Harrods before property in the goods passes to the customer. That provision appears driven by practicalities: it would be difficult, and not legally or practically certain, to attempt to establish whether any insured event had started to take place during the scintilla of time in which property in the goods rests with Harrods.

Nor is clause 8.3(h)’s treatment of Harrods as principal undermined by the provision in clause 8.3(g) that, “until immediately prior to the sale of any Goods and Services to a Customer the title and risk in such Goods and Services shall remain with the Licensee”. The reference to “immediately before the sale” in clause 8.3(g) has to be read in light of clause 8.3(h). The time “immediately before the sale” is clearly intended to precede the scintilla of time in which property in the goods is with Harrods before passing directly from Harrods to the customer. While these distinctions will make no practical difference to the way the sale takes place, especially from the customer’s point of view, the distinctions are important to the provision in the concession agreement as to who is whose agent.

We consider too that the reference in clause 8.5 to the licensee (DSG) ensuring that it can pass full title in the goods to a customer at the point of sale does not mean, in and for the purposes of the concession agreement, that the licensee has title to the goods immediately before title vests in the customer. Read with clause 8.3(h), clause 8.5 of the concession agreement is about the licensee ensuring that the licensee has full, unencumbered title immediately before that title vests in Harrods pursuant to clause 8.3(h). Harrods will not be in a position to ensure that because Harrods acquires property in the goods pursuant to clause 8.3(h) only to the extent that the licensee has full, unencumbered title to them. It might in any event be said that the strict wording of clause 8.5 does not envisage that the title is in the licensee immediately before it passes to the customer; clause 8.5’s express requirement is to ensure that the licensee can “pass full title”, rather than to ensure that the licensee can “pass the Licensee’s full title”. However, while that distinction might not, without more, be conclusive as to whether the licensee has full title immediately before title vests in the customer, clause 8.3(h) makes clear that the licensee does not have full title immediately before title vests in the customer.

Clause 8.4 of the concession agreement is also of some support in permitting only the services, and not also the supply of goods, to be seen as operated as a business separate from that of Harrods.

That is not however the end of the matter regarding the concession agreement. We have established that Harrods acts as principal for the purposes of the concession agreement in relation to the supply of “the Goods” mentioned in the agreement. The question then is whether the supply of the vouchers by DSG Retail Limited to a customer pursuant to the concession agreement is a supply of goods or a supply of services, for the purposes of the concession agreement. We consider first what the effect is of applying the definitions in the concession agreement of “Goods” and “Services”. We consider second whether the definition of “Services” in the concession agreement should, as Ms Leppard submitted for HMRC, be replaced by the text of paragraph 2 of Schedule 10A to the VAT Act 1994 which provides that the issue of a face-value voucher, or any subsequent supply of it, is a supply of services for the purposes of the act.

The first of our considerations mentioned at paragraph 96 above is the effect of applying the definitions in the concession agreement of “Goods” and “Services”. We find that the supply of the vouchers by DSG Retail Limited to a customer pursuant to the concession agreement is a supply of goods within the meanings of the definitions of “Goods” and “Services” in the concession agreement. We say that for the following reasons.

The concession agreement gives the following definitions in clause 1.1 (pages A473 and A475)—

We accept that the supply of the vouchers via the concession is a supply of goods, because we accept that the vouchers are “Goods” within the meaning of “Goods” in the concession agreement. Although the phrase “related accessories and computing products” in the definition of “Goods” does not, alone, make that clear, it is clear from the agreement’s definition of “services” that the vouchers are not services. As Mr Firth said, the definition of services is specific to the “KNOWHOW” services, which are exhaustively defined in the definition to be “namely delivery, installation, repair of Goods and … customer support agreements”. Since the concession agreement covers only supply of goods and supply of services, if the vouchers are not within the agreement’s definition of “Services”, then the vouchers must be within the agreement’s definition of “Goods”. Mr Firth’s submission for the appellant was that the vouchers came within the “computing products” part of the phrase “related accessories and computing products” in the “goods” definition. If we had to decide which of accessories and computing products the vouchers are, we might find them to be accessories. But either way the vouchers are within the phrase “related accessories and computing products”. (Whether “related” qualifies only accessories or also computing products is not in issue and we cannot see that it would make a difference on the facts of this case.)

The second of our considerations mentioned at paragraph 96 above is whether the definition of “Services” in the concession agreement should, as Ms Leppard submitted for HMRC, be replaced by the text of paragraph 2 of Schedule 10A to the VAT Act 1994. We find that, as Mr Firth submitted for the appellant, it should not. We accept that paragraph 2 of Schedule 10A, which defines as “a supply of services” the issue and any subsequent supply of a face-value voucher, does not mean that supply of a face-value voucher is a supply of “services” in and for the purposes of the concession agreement. We say that for three broad reasons.

First, the agreement has its own definition of services, and does not provide that “Services” is to be construed in accordance with the definition in paragraph 2 of Schedule 10A.

Second, the last sentence of clause 8.3(d) of the concession agreement cannot be made to work as was clearly intended if one takes the definition of “Services” from paragraph 2 of Schedule 10A to the VAT Act 1994 and transplants that definition into the last sentence of clause 8.3(d), as we illustrate below.

Paragraph 2 of Schedule 10A provides—

Transplanting that definition into the last sentence of clause 8.3(d) of the concession agreement would produce the following for clause 8.3(d)—

Within the agreement as well as in reality, what was to be provided under the “KNOWHOW” brand was, as the definition of “Services” in the agreement said, “namely delivery, installation, repair of Goods and (subject to clause 8.22) customer support agreements. Any proposed new “KNOWHOW" services shall be subject to Harrods prior consent before being offered for sale under this Agreement”. So the last sentence of clause 8.3(d) of the concession agreement is about DSG making clear to the customer that delivery, installation and repair of Goods, and that customer support agreements, are supplied by DSG. That is very different from the issue or subsequent supply of face-value vouchers as mentioned in paragraph 2 of Schedule 10A to the act. Substituting the text of paragraph 2 of Schedule 10A into the last sentence of clause 8.3(d) of the concession agreement would mean that the agreement made no provision for DSG to make clear to customers that delivery, installation and repair of Goods, and that customer support agreements, are supplied by DSG and not by Harrods.

Third, the definition in paragraph 2 of Schedule 10A is expressed to be “for the purposes of this Act”, not more generally. While it is arguable that “for the purposes of this Act” is broad enough to include construction of documents in considering VAT questions under the act, that would be a step too far in this case, given the unintended effect on clause 8.3(d) that would be produced.

It is for the reasons at paragraphs 87 to 106 above that we accept (i) that the concession agreement makes DSG Retail Limited Harrods’ agent in relation to “Goods” supplied by DSG Retail Limited pursuant to that agreement, (ii) that Harrods acts as principal in relation to those goods, and (iii) that, in and for the purposes of the concession agreement, the vouchers are goods within the meaning of “Goods” in the concession agreement.

The next question is whether the other points relied on by HMRC detract from the apparent effect of the concession agreement so as to render Harrods nonetheless agent in supplying the vouchers to the appellant. We find that HMRC’s other points do not detract from the apparent effect of the concession agreement to make Harrods an agent, for the following reasons.

The Steam and Epay contract sets out the following background (page A518)—

“Retailer” is defined in clause 1 as “any person or entity that distributes prepaid products or services including but not limited to POSA Cards and E-Vouchers pursuant to a Retailer Agreement” (page A521).

Ms Leppard took us to the following parts of the Steam and Epay contract (pages A523 to A525)—

Ms Leppard made two points for HMRC in reliance on the Steam and Epay contract. First, she submitted that the contract means that Harrods, as agent of DSG Retail Limited, distributes the claim codes to consumers (the person buying the voucher at the till), on behalf of (i) Epay and (ii) Steam (Valve). This she argued was derived from the express statement in clause 2.5 that Epay and the retailer (which she said was Harrods) act as the provider’s (Valve’s/Steam’s) agent in this regard. This effect was, she submitted, reinforced by Epay agreeing in clause 2.5 to use reasonable endeavours to ensure that retailers (so Harrods, she explained) do not take any action inconsistent with the agency model set out in the agreement between Epay and Valve/Steam. Ms Leppard’s second point in reliance on the Steam and Epay contract was that, pursuant to clause 4.3 of that contract, title in the code passes from Steam (Valve) to the appellant directly, and not via Harrods.

Mr Firth submitted for the appellant that HMRC’ had misconstrued the Steam and Epay contract; the definition of consumer in the Steam and Epay contract meant anybody who purchases from the retailer. He submitted that Harrods is the consumer and not the retailer – and DSG Retail Limited is the retailer and not the consumer – within the meaning of those terms in the Steam and Epay contract. He submitted that whatever the Steam and Epay contract says, it cannot override what is said in the concession agreement, and who knows whether Harrods even saw the Steam and Epay contract. Moreover, a party’s obligation in clause 2.5 of the Steam and Epay contract to use reasonable endeavours to ensure that a person not party to that contract did not take action inconsistent with the agency model mentioned in the contract did not, argued Mr Firth, mean that the person did not in fact take such action. He said that HMRC’s argument seemed to be that the Steam and Epay contract meant the vouchers cannot be sold to anyone but a consumer, and that HMRC seemed wrongly to rely on the appellant being that consumer within the definition of that term in the contract. Mr Firth submitted that nothing in the Steam and Epay contract said the vouchers cannot be sold to Harrods.

We do not accept HMRC’s argument that the Steam and Epay contract makes Harrods an agent in supplying the vouchers. Harrods is not a party to that contract (nor indeed is DSG Retail Limited). The contract cannot therefore affect the relationship between Harrods and DSG Retail Limited. More particularly, the requirement in clause 2.5 of the Steam and Epay contract that Epay “will use reasonable endeavours to ensure that Retailers do not take any action inconsistent with the agency model” – relied on by HMRC on the assumption (challenged by Mr Firth) that the “Retailer” in that clause is Harrods – cannot mean that Harrods has not in fact taken any such action. The clause does not bind Harrods. HMRC argued that the Steam and Epay contract meant that title in the code passed directly from Steam to the appellant and not via Harrods. We disagree. Again, that contract could not dictate the terms or effect of the concession agreement, between two parties who were not party to the Steam and Epay contract. There might also be a distinction to be made between, on the one hand, title to the voucher, which the concession agreement provided shall pass to Harrods immediately before passing to the customer (the appellant) and on the other hand, title to the code, the code being given to the customer at the point of sale. That distinction was not however the subject of submissions at the hearing and we need not consider that distinction given our judgment that the Steam and Epay contract simply cannot affect or dictate the relationship between Harrods and DSG Retail Limited.

The Omega/Epay and DSG contract provided at clause 2.1 (page A462)—

Clauses 3.1 and 4.1 of the Omega/Epay and DSG contract provided (page A463)—

Ms Leppard made three points for HMRC in reliance on the Omega/Epay and DSG contract. First, she submitted that clause 3.1 of the contract meant that DSG Retail Limited was authorised to sell the voucher card but not to enter into obligations for Steam. Second, she argued that clause 4.1 shows that there is no VAT on the payment request made by Epay to DSG Retail Limited, in contrast to VAT being chargeable on the commission. She derived this from her interpretation of “that supply” in clause 4.1(ii), which she said referred not to “Omega’s supply to DSG” mentioned in clause 4.1(i) but to the supply of commission mentioned in clause 4.1(ii), although clause 4.1(ii) does not in fact use the word “supply” in relation to commission. Third, Ms Leppard argued that the Omega/Epay and DSG contract showed that DSG Retail Limited does not buy services from Valve (Steam), and that the nature of the relationship between them cannot be altered by the nature of the supply.

In response to HMRC’s reliance on the Omega/Epay and DSG contract, Mr Firth pointed to clause 14.6 of that contract (under “Miscellaneous”) (pages A468 and A469)—

Mr Firth submitted for the appellant that that clause excludes the possibility that DSG Retail Limited was acting as agent of the other contracting party, unless that was said elsewhere in the agreement.

Clause 3.1(vi) of the Omega/Epay and DSG contract (page A463) provided that DSG shall “not incur obligations to third parties on Omega or iTunes' behalf, and will not represent to third parties that it is authorised to do so”. HMRC appeared to rely on that clause to argue that DSG Retail Limited was an agent. But, said Mr Firth, that clause provides that DSG Retail Limited shall not incur obligations to third parties on behalf of Omega and so that clause is saying that, when DSG Retail Limited contracts with a customer, DSG cannot be doing so on behalf of Omega.

Mr Firth argued that, if there is no agency by DSG Retail Limited for Epay or Omega, you would expect to see a supply from Epay to DSG Retail Limited and a supply from DSG Retail Limited to the next person in the chain. Whereas if DSG Retail Limited was acting as agent, you would, he explained, expect DSG Retail Limited not to be making a supply because the supply would be direct from Epay to the next person in the chain. He submitted that it is a two-supply model that this contract reflects, and which is reinforced by clause 2.1, which says (page A462)—

We asked the parties about a point arising from a comparison between the Omega/Epay and DSG contract (as varied, on HMRC’s evidence, to apply between Epay and DSG for Steam vouchers/cards) on the one hand, with the concession agreement on the other. That comparison seemed to show that DSG is required to pay twice over in respect of the same transaction (if there is no distinction between claim codes, pins and vouchers). We derive that from the following analysis.

As varied by the variation agreement, and as read with clauses 2 and 4 of the variation agreement, clause 3.1(ii) of the Omega/Epay and DSG contract, which Ms Leppard for HMRC told us governs the supply between Epay (previously Omega) and DSG, provides that DSG is responsible (to Omega/Epay) for collecting the face value in respect of all PINs sold at DSG’s outlets pursuant to this agreement. And by virtue of clauses 4.1(i) and 4.2 of the Omega/Epay and DSG contract, DSG then has to pay that amount to Omega/Epay, less DGS’s commission. But clause 6.1 of the concession agreement between DSG and Harrods says DSG collects the “sales proceeds” for “Goods” (which we have found includes vouchers; paragraphs 96 to 106 above) on behalf of Harrods. So, for £100-worth of face-value vouchers, DSG has to pay that £100 to Harrods, but also has to pay it (minus DSG’s commission) to Omega/Epay.

If we are talking about the same £100, clearly DSG cannot pay it over both to Omega/Epay and to Harrods, no matter what any of the contracts says. Deciding as invited by the appellant, without more, would have been, it seemed to us, to ignore that conflict. So we invited submissions on how to resolve that conflict.

Mr Firth submitted (submission 1/6/22) that “The simple answer is that DSG does have both these obligations, but the missing link is that Harrods also has to pay the periodic payment to DSG (clause 6.2) and DSG uses this money to be able to satisfy its obligation to Epay”. Mr Ripley of counsel submitted for HMRC at paragraph 28 of his post-hearing submission that there is no question of DSG having to pay out the same amount twice, without receiving anything back. Mr Firth agreed.

We do not accept HMRC’s argument that the Omega/Epay and DSG contract makes Harrods an agent in supplying the vouchers to the appellant. We accept Mr Firth’s submissions. That contract, too, cannot affect or dictate the relationship between Harrods and DSG Retail Limited.

What, then, of the point we raised with the parties, about DSG paying twice over, once to Omega/Epay and once to Harrods? Given the parties’ agreement that there is no question of DSG having to pay out the same amount twice without receiving anything back, we accept that there is no material conflict on that score between the concession agreement and the Omega/Epay and DSG contract. If there had been such a conflict, that might have required a reading of one or both of those contracts that departed from a prima facie reading. That in turn could have affected our construction of the concession agreement, which agreement has been key to our findings as to agency versus principal. Whether having to resolve such a conflict would have materially changed our findings we cannot say and need not now decide.

The back of the packaging of the physical POSA card gave the following instructions (page A149)—

Wallet funds are the credit the consumer has on the Steam website. The unique wallet code was beneath a scratch-off strip on the card. But Ms Leppard explained for HMRC that merely scratching off the strip would not of itself enable the voucher to be used; the voucher needed to be “activated” at the till in order for the voucher to be usable.

The back of the card packaging also included, under “Terms and Conditions”—

Ms Leppard explained that consumers do not have the benefit of the Steam and Epay contract, which she had relied on to argue that Harrods acts as DSG’s agent. But, she said, Steam rely on the above statements under “Terms and Conditions” on the back of the card packaging to define Steam’s relationship with the person buying the card, and particularly Steam rely on the statement that the retailer acts as agent for Valve Corporation “in distributing wallet funds”. Ms Leppard submitted that it does not matter if the consumer does not know that Valve Corporation is Steam; the consumer knows he is buying “wallet funds” when buying the card, and it is in respect of distributing those to the consumer that the retailer is said on the card packaging to be acting as agent. So, explained Ms Leppard, the consumer knows – from what is on the back of the card packaging – that Harrods is selling the voucher card as agent for someone else and not as principal.

In response to HMRC’s reliance on the back of the card packing (page A149) as meaning that the retailer acts as agent, that text had, submitted Mr Firth, no contractual force between Harrods and DSG Retail Limited and was a complete red herring.

We do not accept that the text on the back of the POSA card packaging makes Harrods an agent in supplying the vouchers. As Mr Firth submitted, that text has no contractual force between Harrods and DSG Retail Limited. Moreover, “retailer” on the back of the packaging seems to mean something different from “retailer” within the meaning of the Steam and Epay contract. That illustrates why definitions in contracts between others cannot simply be borrowed from those contracts and inserted into relationships not governed by those contracts.

Ms Leppard submitted that the voucher has no value until activated at the till and that it is therefore at that point that it is issued, by Harrods, on behalf of Steam.

Mr Firth submitted that it is irrelevant whether or not the vouchers have value before they are "activated"; it simply means that the supply of services for all parties in the chain occurs at that point. It tells one nothing about whether anyone in the chain of supply is acting as agent or not.

We do not accept that the voucher being inactive until activated at the till makes Harrods an agent in supplying the vouchers. As Mr Firth submitted, it tells us nothing about whether anyone in the chain of supply is acting as agent or not.

We accept Mr Firth’s submission that “nothing prevented DSG from selling to Harrods. Harrods was thus in a position to sell as principal and DSG acted as agent in respect of that onward sale, precisely as the agreement stated. 5.2. In any event, even if the Steam/Epay agreement did purport to limit who DSG should sell to, that could not override or change what is in the DSG/Harrods agreement. It is the DSG/Harrods agreement that governs what happened between DSG and Harrods”. We also accept his submission that “HMRC’s cashflow analysis accepts that DSG collects the £100 “on behalf of Harrods” (§§23 and 28), i.e. DSG acts as Harrods’ agent. That is fatal to their argument that Harrods acts as DSG’s agent” (paragraph 28).

It is for the reasons at paragraphs 69 to 137 above that we accept the appellant’s submission that Harrods was not acting as agent in supplying the vouchers to the appellant.

Mr Firth submitted that, if we found that Harrods was in fact acting as agent, Harrods was nevertheless part of the supply chain and made a taxable supply to the appellant. He advanced two arguments, one based on section 47(4) of the VAT Act 1994, the other based on section 47(3) of that act. Section 47(4) applies to electronically supplied services. Section 47(3) applies to other services.

Mr Firth submitted that the service that Harrods supplied to the appellant in supplying the vouchers was a credit on the Steam website, or access to a credit on the Steam website. He submitted that that was an electronically supplied service, that section 47(4) therefore applied, and that the supply of the credit or of access to the credit is to be treated therefore both as a supply to Harrods and as a supply by Harrods, and that the supply of the credit (or of access to it) to the appellant was therefore subject to VAT. Mr Firth submitted alternatively that, if the service was not electronically supplied, then section 47(3) applied instead. That subsection gave a discretion to HMRC to treat the supply as being both a supply to the agent and a supply by the agent. Mr Firth submitted that HMRC had effectively exercised that discretion in paragraph 22.6 of Notice 700, by giving Harrods the option to treat itself as both receiving and supplying the services. He submitted that Harrods had chosen that option and that therefore the supply by Harrods to the appellant was subject to VAT (and that Harrods could not retroactively or without reasonable advance notice change that choice because that would be contrary to the requirement for legal certainty, citing Ireland v Commission, 325/85, EU:C:1987:546, at paragraph 18 and Andrei C-144/44, at paragraphs 34 to 35). Mr Firth argued that HMRC seek to say that Harrods made a mistake in charging VAT, but, he said (i) the question of whether an agent has treated itself as supplying the services must be assessed objectively, and (ii) HMRC have not produced proper evidence to support this contention, let alone a witness who can speak to the matter.

Ms Spence for HMRC submitted that, whether or not Harrods was entitled to change its treatment of the vouchers without prior notification to the appellant is a matter for the civil courts. The appellant was, said HMRC, clearly advised, in HMRC’s letter of 22 June 2015, that for purchases exceeding £250 it is a requirement that before VAT is claimed a taxpayer must hold a valid VAT invoice and that it is not acceptable to claim any VAT while anticipating that a valid VAT invoice may be supplied at some point in the future. Despite this, said HMRC, the appellant continued to claim the amounts in question without holding a valid VAT invoice. HMRC did not agree that the liability of the supplies depends on the whim of the supplier. Rather, they said, suppliers and taxpayers in general are responsible for, and required to apply, the appropriate VAT treatment to their transactions, in accordance with Schedule 10A and any advisory publications applicable at the relevant time, which HMRC said was Revenue & Customs Brief 12/12. That Harrods had previously incorrectly applied VAT to the supply and then corrected the position without notifying the appellant was, said HMRC, a matter which the appellant should pursue in the civil courts.

Section 47(3) to (6) provided, at the relevant times—

Subsection (4) applied if the services that Harrods provided were “electronically supplied services”. Subsection (3) applied if the services were not electronically supplied services (and were not telecommunication services).

By virtue of section 47(6), paragraphs 9(3) and 9(4) of Schedule 4A to the VAT Act 1994 gave a non-exhaustive definition of “electronically supplied services” for the purposes of section 47—

Whether section 47 of the VAT Act 1994 would help the appellant would arise only if we were wrong in finding that Harrods acted as principal. But we would have liked to give what some Court of Appeal or Upper Tribunal panels might consider to be help, by making a finding as to section 47 in the alternative.

We were not persuaded however that we could find in the alternative that VAT was chargeable by virtue of section 47(3) or (4). We say that for the following reasons.

As to section 47(4), the vouchers supplied to the appellant seemed to be only the physical point of sale activation cards rather than the “E-Vouchers” referred to in the Omega/Epay and DSG contract. The appellant took the card off the shelf and to the till, where the appellant was, in exchange for the purchase price, given property in the physical card voucher along with a code to use with that voucher. The way the code was to be used was by entering it onto the Steam website. As we understood it, the code was not supplied by email, but in any event the card supplied was the physical card, in its packaging. The card, with the code, gave the buyer (i) credit on the Steam website, (ii) the means (not in terms of hardware but in terms of a code to use) to access electronically that credit on the website, (iii) the means (again not in terms of hardware) to use that credit electronically on the website, to buy or play games (and/or to buy hardware), and (iv) where the credit was used to buy or play games, the thing purchased was supplied electronically (whereas, where the credit was used to buy hardware, the credit was used electronically, but the hardware it bought was not supplied electronically).

Paragraph 2 of Schedule 10A to the VAT Act 1994 provides that “The issue of a face-value voucher, or any subsequent supply of it, is a supply of services for the purposes of this Act”. It was common ground that the vouchers in the present case are face-value vouchers. So Harrods’ supply of the vouchers was by virtue of paragraph 2 of Schedule 10A a supply of services for the purposes of section 47(4) (as distinct from “Services” in the concession agreement). But to satisfy section 47(4), the supply needs to have been electronically done.

Whether the supply was electronically done depends on what is deemed supplied for the purposes of paragraph 2 of Schedule 10A. Paragraph 2 of Schedule 10A does not specify the nature of the services deemed supplied by that paragraph.

On the face of it, what Harrods supplied was the physical card, the code and the activation. If the physical card and the code are the services deemed supplied by paragraph 2 of Schedule 10A, then – unless the activation at the till gave an electronic character to the supply of all three – it might be said that the services were not supplied electronically. On the one hand, that could be said to reflect that a face-value voucher can be “in physical or electronic form” in the definition of “face-value voucher” in paragraph 1 of the schedule. But on the other hand, treating the services deemed supplied as physical might not fit with the purpose of that paragraph 2.

As to the purpose of paragraph 2 of Schedule 10A, we had a look at the explanatory notes that accompanied clause 19 of, and Schedule 1 to, the Finance Act 2003, which inserted section 51B and Schedule 10A into the VAT Act 1994. We could not find the latest version of the explanatory notes that accompanied the act at royal assent. But the version of the notes that we found said—

If that text matched the version of the explanatory notes in force on royal assent to the Finance Act 2003, then it gave room for Mr Firth’s submission that the “services” supplied for the purposes of paragraph 2 of Schedule 10A were the credit on the Steam website. Mr Firth’s argument was that the credit was available electronically. If that were right, then that would mean that the credit was an electronically supplied service for the purposes of section 47(4) of the VAT Act 1994. But whether the explanatory notes on assent could be relied on would itself need to be considered. And consideration would also need to be given to whether, in any event, the “underlying supply” mentioned in the explanatory notes was the credit or the software or the downloading of the software (if distinctions between any of those made a difference).

The points at paragraphs 147 to 152 above would need to be addressed before we could say that we were satisfied that what Harrods supplied was electronically supplied services for the purposes of section 47(4) of the VAT Act 1994. A finding that section 47(4) applied would not however be determinative of whether Harrods made a taxable supply to the appellant unless we were wrong in finding that Harrods acted as principal and not as agent. In view of that, and given the points that would need to be further addressed, we did not consider it proportionate to consider this further, and do not make a finding as to whether section 47(4) applied.

If we are wrong in finding that Harrods acted as principal and if we had found Harrods not to have supplied services electronically (for section 47(4)), it might on the face of it seem that section 47(3) must apply. That would be, as Mr Firth argued, (i) because HMRC exercised their section 47(3) discretion by giving the option in Notice 700 to Harrods to treat itself as both receiving and supplying the vouchers, and (ii) because, by supplying VAT invoices to the appellant, Harrods took that option. Mr Firth went on to argue that Harrods was not entitled retroactively to cease doing that without reasonable advance notice to the appellant.

We would not however accept, on submissions so far, that VAT was nonetheless chargeable on Harrods’ supply of the vouchers by virtue of section 47(3) (remembering that this question would arise only if we were wrong in finding that Harrods acted as principal). We accept that, in Notice 700, HMRC purported to exercise their section 47(3) discretion as to whether to treat the supply both as a supply to the agent and as a supply by the agent by giving the option to the agent to “treat yourself as both receiving and supplying those services”. But, Notice 700 included a condition on the availability of that option which was not in section 47(3). The condition is that the supplies be taxable. On the face of it, therefore, Notice 700 does not purport to farm out the entirety of HMRC’s section 47(3) discretion; it purports to farm it out only where the supplies are taxable. Since the reason section 47(3) is relied on for the appellant is to support the argument that the supply was taxable, we would be reluctant to find that Harrods’ choice to treat itself as both receiving and supplying the services (if we were wrong in finding that Harrods acted as principal) means that the section 47(3) discretion has been exercised and that the supply was therefore taxable. That would be circular.

It may be that the condition in Notice 700 is ineffective, to the extent that section 47(3) is determinative of whether a supply is taxable. If the condition in Notice 700 were ineffective, then we would accept Mr Firth’s argument that Harrods’ choice meant that section 47(3) was after all satisfied and that VAT was therefore chargeable on the supply of the vouchers by Harrods. We would however need to consider further submissions on whether the condition in Notice 700 is or is not effective. If we had been against the appellant on the agency question, we would have had to resolve the section 47(3)/Notice 700 point. But since that point is material only if we are wrong on the agency question, we consider it disproportionate to explore it further, merely to enable us to make an alternative finding.

So, we have found that VAT was chargeable on the purchases of the Steam vouchers because Harrods acted as principal in supplying the vouchers.

The next question is whether that VAT was paid by the appellant.

We find that the VAT was paid by the appellant on the May 2016 onwards transactions, for the following reasons.

First, if VAT was properly chargeable on the transactions (as we have found), then the price paid must be assumed to have included VAT. For a seller to argue that, where VAT was properly chargeable, the seller had not in fact charged VAT, would be to assert wrongdoing by the seller, even if the seller were to assert that it was innocently done. We have no direct evidence at all from Harrods, and no evidence from them to the effect that, if VAT was properly chargeable, the price nonetheless did not include it.

Second, on the contrary, on the evidence we do have from Harrods, Harrods itself told the purchaser, not merely before the May 2016 onwards transactions, but after them, that Harrods had charged VAT on them (email 16 February 2017, apparently abandoning the position taken in Harrods’ 9 February 2017 email, which we have not seen but accept was sent).

Third, Harrods, like any seller, should have known in advance of each purchase whether it was charging VAT. It was common ground that Harrods had issued bulk invoices showing 20% VAT for purchases prior to May 2016. In view of that, and given that Harrods said – as we find – nothing at all to the appellant to change the VAT position prior to the May 2016 onwards purchases, Harrods’ position prior to each of those purchases was – outwardly – that Harrods was in fact charging VAT on them.

Fourth, it was common ground that, for the May 2016 onwards transactions, the price did not go down as compared with the price of the pre-May 2016 transactions, which HMRC (and eventually Harrods) said had wrongly charged VAT. Moreover, as we have noted above, Harrods itself was still telling the purchaser (the appellant), after all of the May 2016 onwards transactions, that the transactions had borne VAT; see Harrods’ email of 16 February 2017. The reason the price did not go down may well be because Harrods decided only after the May 2016 onwards transactions that those transactions had not borne VAT. We make no finding on that because we have no evidence of what was in Harrods’ mind prior to each of the May 2016 onwards transactions. But we did have evidence, and have found, that Harrods did not outwardly – that is in Harrods’ dealings with the appellant prior to the purchases – adopt the position that the purchases would not bear VAT. And the fact remains that the price did not change in the May 2016 onwards transactions as compared with the pre-May 2016 transactions for which Harrods had issued bulk invoices showing 20% VAT. Take a voucher for which Harrods charged, say, £10 in the pre-May 2016 transactions. If that price was said by the seller to include VAT (rightly or wrongly), which it was common ground was originally so because of what was shown on the pre-May 2016 bulk invoices, then the price of a £10 voucher excluding VAT for the pre-May 2016 transactions was £8.33. HMRC did not however argue that the non-VAT price had increased from £8.33 for the pre-May 2016 transactions to £10 for the transactions after that. Nor was there evidence that the price had so increased. We find that it did not.

Fifth, that the price did not go down was explained away, according to HMRC, because VAT had not been charged on the pre-May 2016 transactions either. We do not accept however that VAT was not charged on the pre-May 2016 transactions. Officer X of HMRC said in paragraph 32 of that officer’s witness statement (page A48) that “Harrods have maintained that they have not charged VAT on the sales although they did show VAT, in error, on some of the invoices they provided to Lucky Technology Ltd “early on” – prior to and including April 2016.”. Officer X relied for this assertion on an email from HMRC themselves to Harrods dated 12 June 2018 (page A551) which said—

We did not however have evidence from Harrods to the effect that the VAT was not in fact charged on the pre-May 2016 transactions. The 12 June 2018 email was from HMRC to Harrods. Moreover, the assertion that Harrods did not in fact charge VAT on those pre-May 2016 transactions depends on a position that Harrods adopted outwardly, whether to the appellant or HMRC, only after all of those transactions (and after all of the May 2016 onwards transactions). The earliest outward implication that Harrods was now saying that any transactions at all had not borne VAT was in the bulk invoices for the May 2016 onwards transactions showing zero VAT, which Harrods emailed to the appellant on 27 January 2017. That was 13 months and four days from the earliest of the pre-May 2016 transactions, dated 23 December 2015, some eight months from the latest of the pre-May 2016 transactions, the latest being dated 30 April 2016. And those invoices related only to the May 2016 onwards transactions, not to the pre-May 2016 transactions. Even if it could be said that the appellant should have realised from those May 2016 onwards bulk invoices that the same might now turn out to apply to the pre-May 2016 transactions, that still means that the appellant would not have “discovered” or realised that until 13 months and four days after the first of those transactions.

Assuming for a moment that HMRC’s 12 June 2018 email to Harrods accurately reflected that the pre-May 2016 invoices had shown VAT merely due to a template error, that position seems to have been adopted expressly by Harrods for the first time only in the week or so prior to the 12 June 2018 email which narrated that position. Ms Leppard’s reliance on the assertion in Officer X’s witness statement that Harrods now says that VAT was not in fact charged on the pre-May 2016 transactions does not therefore lead us to find that VAT was not in fact charged on those transactions.

Sixth, HMRC argued that, “Put simply, HMRC has confirmed that [Harrods] did not charge VAT to the Appellant on the supplies subject to assessment, therefore the Appellant has not borne the burden of VAT and has no right to deduct amounts as input tax.”. However, HMRC also said that “HMRC does not agree with point 15 of the Appellant’s additional [grounds] ie that the liability of the supplies at issue depends on the whim of the supplier. Suppliers and taxpayers in general are responsible for, and required to apply, the appropriate VAT treatment to their transactions, in accordance with legislation in Schedule 10A VATA 1994 and any advisory publications applicable at the relevant time ie Revenue & Customs Brief 12/12 [page A162-A164 DB]”. That HMRC position is consistent with our finding that, given that VAT was properly chargeable for the May 2016 onwards transactions, the price did include the VAT and so the appellant did bear that VAT.

Seventh, Officer X went on to say in paragraph 32 of that officer’s statement that “I have not issued assessments on these early transactions [the pre-May 2016 transactions] as this should be taken account of by Lucky Technology Limited with a credit note issued by Harrods”. But if the pre-May 2016 transactions did not in fact bear VAT as HMRC say, and which HMRC say is also Harrods’ position, why would Harrods need to issue a credit note to the appellant? There would be nothing to credit. It would rather be a case of issuing revised invoices for those transactions with the price still showing as £10 (taking our example of earlier) but saying that VAT was zero.

Eighth, Mr Firth submitted that the fact that the appellant did not hold a VAT invoice does not mean that the appellant has not incurred and paid VAT on supplies to it, and indeed believed it was doing so. He submitted, relying on Zipvit v HMRC [2018] EWCA Civ 1515 at paragraphs 85 to 90, that there is no requirement for the contract explicitly to identify that the price paid is inclusive of VAT for it to be possible to say that VAT has been paid by the customer.

HMRC opposed that argument, relying on what the Court of Appeal in Zipvit said, at paragraph 116—

Mr Firth argued for the appellant however that, contrary to the present case, at the time of entering into the supply both the supplier and the customer in Zipvit believed the supply was exempt (paragraph 6 of the CA judgment). Mr Firth argued that this was fundamental to the Court of Appeal’s decision.

We accept that the present case is to be distinguished from Zipvit. In Zipvit, Lord Justice Henderson, with whom the other members of the Court of Appeal agreed, set out the situation at paragraph 115 of the judgment—

In the present case, however, the bulk invoices showing zero VAT came after the purchases in question. Those purchases were made after receipt of invoices for previous purchases which showed VAT to have been charged, and without any suggestion by the seller after receipt of those invoices and before the May 2016 onwards transactions, that the seller was no longer charging VAT on that kind of purchase. Indeed, even after the May 2016 onwards transactions, Harrods was still saying – in its email to the appellant of 16 February 2017 – that VAT should in fact have been charged on those purchases.

Ninth, Ms Spence for HMRC argued that, if Mr Firth was right, VAT would be paid twice. Mr Firth submitted that that was wrong. The structure of paragraph 4 of Schedule 10A is, he said, that the first issue of the voucher, which he said (and we have found) was by Steam, is not liable to VAT in any circumstances (paragraph 4(2) of Schedule 10A). Moreover, he explained, he was not asking us to reach a different conclusion on that. He submitted that – as was common ground – every supply subsequent to that first issue is subject to VAT (paragraph 4(4) of Schedule 10A). So as long as Harrods was acting as principal (which we have found it was) then, argued Mr Firth, Harrods’ supply to the appellant is liable to VAT and Steam’s initial issue of the voucher is not liable to VAT. Then, he explained, when the voucher is redeemed via the Steam website, Steam (Valve) will account for VAT at that time and not before and, he submitted, that is how Schedule 10 is meant to operate. Mr Firth argued that that also explains why Ms Spence was wrong to say you cannot have VAT embedded in a purchase of a £10 voucher for £10. You absolutely can, he submitted, because that is how VAT is passed down the chain, by embedding it in the £10, so that when the final consumer buys the £10 voucher for £10 the consumer is paying an amount that includes VAT. That must be right, he argued, because where else does the VAT come from? Always from the end user. On Ms Spence’s analysis you would, he argued, be trying to sell a £10 voucher for £12, to charge the VAT. “Good luck with that”, he said. What consumer would pay £12 for a £10 voucher?

We do not accept that our finding that Harrods supplied the vouchers as principal, and that VAT was therefore chargeable on vouchers, means that VAT will be paid twice. As Mr Firth said, the structure of Schedule 10A is designed to prevent that.

It is for the reasons at paragraphs 160 to 175 above that we accept that VAT was charged as part of the price the appellant paid, and that the appellant therefore paid the VAT.

The next question is whether HMRC erred in law in relation to their discretion in regulation 29(2) of the VAT Regulations 1995.

Officer X said in a helpful witness statement—

Officer X’s oral evidence-in-chief included this—

In cross-examination, Officer X accepted that, having seen the till receipts at the 24 January 2017 visit, Officer X had decided they were not enough and that – when sending Officer X’s 26 January 2017 email on pages A378 and 379 – Officer X was not going to consider alternative evidence—

Cross-examination of Officer X later addressed Officer X’s 2 February 2017 letter—

So Officer X’s evidence was that, while acknowledging that Officer X’s letters did not say this, “in my mind I was thinking that, if you can’t provide me with anything else, I will disallow. So I look at what is provided at the visit, and what is provided after, then decide” and “if [Mr Suryaatmadja] had emailed me saying I can’t provide invoices, I would have considered what else would do. It was just my intention if he did not supply a valid VAT invoice”. Mr Firth suggested to Officer X that Officer X’s recollection of having had this in mind when writing the pre-decision letters might not be reliable, and that it might have arisen over the long period of time in which Officer X was preparing for this litigation, with the discretion point repeatedly made during preparation. Officer X denied having misremembered, but accepted that it was fair to say that Officer X’s letter nearer the time was more accurate.

Officer X also said in oral evidence that, had Officer X reached the view that VAT had in fact been chargeable and paid, Officer X would not have decided not to allow the input VAT. Equally, Officer X told us that, had Officer X reached that view after making the decision under appeal, Officer X would have withdrawn the decision and the assessments and would have allowed the input VAT after all.

Mr Firth made clear that he was not for a moment suggesting any dishonesty on Officer X’s part.

Mr Firth submitted for the appellant that it is true that the appellant does not possess VAT invoices normally required to justify input VAT, but that this was because Harrods is wrongly refusing to provide them and HMRC have a statutory discretion to permit deduction of input tax in such circumstance under regulation 29(2). He submitted that either Officer X did not consider exercising the discretion under regulation 29 (because Officer X erroneously did not think the supply to the appellant was taxable) or, if Officer X did consider exercising the discretion, Officer X failed to take into account the relevant consideration that the supply is taxable or, to similar effect, Officer X took into account an irrelevant consideration, namely, Officer X’s belief that the supplies were not taxable. Mr Firth submitted that, on either basis, the appeal should be allowed, citing GB Housley Limited v HMRC [2016] EWCA Civ 1299, paragraphs 79 to 80. Mr Firth reminded the tribunal that the only reason the appellant does not have VAT invoices is because the supplier is refusing to provide them, despite being asked, and that it is outside of the appellant’s control to force the supplier to provide those documents. In those circumstances, he argued, for HMRC to insist upon the provision of VAT invoices renders it impossible for the appellant to exercise its right to recover VAT, contrary to the EU law principle of effectiveness.

Ms Spence submitted for HMRC that the right to deduct input tax is not an absolute right. Rather, she said, the taxable supply must be made for the purposes of the taxpayer’s business and the appellant must hold a VAT invoice or such alternative evidence to satisfy HMRC that a taxable supply has been received, at a positive rate. She submitted that Officer X’s 2 February 2017 letter at page A83, and the decision letter at page A118, clearly showed that Officer X did consider alternative evidence, namely the till receipts. Ms Spence submitted that Officer X was entitled to reject the till receipts because, although they do say what was bought, they are not the kind of till receipts that show the VAT amount but are rather credit card payment receipts. Ms Spence said that, if the till receipts had been of the type showing VAT (rather than credit card payment receipts), “things might be different, who knows?”, but that even then the receipts still did not show the purchaser’s name and that the credit card numbers varied. Ms Spence reminded us of Officer X’s evidence that there had been runners who did the purchasing of the vouchers for appellant.

Ms Spence accepted however that HMRC could have asked the appellant for the names to link to the credit card numbers and that that would have established the purchasers’ names (along with evidence which HMRC could also have sought of the purchasers’ links to the appellant). But Ms Spence argued that that would not have established the VAT paid. She submitted that, once the Harrods’ bulk invoice summaries showing zero VAT were provided to Officer X, Officer X was entitled to take them – as Officer X did – as confirming that no VAT had been charged to the appellant. This was, argued Ms Spence, because Officer X then held a document required by regulation 13(1), which meant that no further evidence of a VAT charge was required, and so Officer X was not then required to consider alternative evidence before issuing the assessment. Finally, Ms Spence submitted that the assessments were made to best judgment and issued within the legislative time limits, and HMRC had taken into account and applied or considered all relevant information, knowledge and documentation in reaching their decision.

We record at the outset that we accept that there is no dishonesty whatsoever in any of what Officer X said in oral or written evidence. We were impressed by Officer X. Officer X was a forthcoming witness and was clearly trying Officer X’s best to recall what had happened and when, and to help the tribunal. Officer X, like Ms Spence, had put a lot of effort into this case.

We find however that HMRC erred in law in relation to their regulation 29(2) discretion, for the following reasons.

First, we find that HMRC failed to exercise the discretion to accept alternative evidence, for the following reasons.

To put it in context, HMRC’s 22 June 2015 letter from Andrew Jenkins had told the appellant about that discretion (page A79)—

HMRC’s insistence on VAT invoices for the claims in this appeal came however without the qualification that Mr Jenkins has given: that it be impossible to obtain VAT invoices from Harrods. HMRC repeatedly told the appellant – in every letter and email to the appellant after the 24 January 2017 visit and before the decision – that only VAT invoices would be accepted, without mentioning that, “if it is not possible to obtain a proper valid VAT invoice” then “discretion can … be applied”, as the 22 June 2015 letter had put it.

Moreover, Officer X had in the 2 February 2017 letter referred to what Officer X called a “ruling” by HMRC’s Mr Jenkins in his 22 June 2015 letter that, for purchases over £250, VAT invoices were required (and without mentioning the qualification Mr Jenkins had given in that letter: that it be impossible to obtain VAT invoices) (page A83). Officer X accepted in cross-examination that “ruling” overstated the matter, and that what Mr Jenkins had said had no formal status and was just a letter. In Officer X’s 2 February 2017 letter, Officer X had also gone so far as to say (emphasis in original) (page A84)—

Whether or not Officer X had misremembered having in mind, when writing the pre-decision letters, that “if you can’t provide me with anything else, I will disallow”, Officer X’s evidence was that Officer X did not before or after making the decision say that to the appellant, whether orally or in writing. We accept that evidence. And we accept Mr Firth’s submission that having only in your mind that you would take further evidence depending on what comes in is not an exercise of discretion.

We find that it was an error of law repeatedly to tell the appellant that only VAT invoices would do. That is so in any event, but especially when taken (i) with the erroneous reference in the 2 February 2017 letter to a previous “ruling”, and (ii) with the statement of intent in that letter: “I will disallow”. The error of law was in giving the appellant the impression that there was no point in Mr Suryaatmadja obtaining and then providing alternative evidence such as information to inform the till receipts – for example, which credit card matched which purchaser and how that purchaser was linked to the appellant (if the purchaser was not Mr Suryaatmadja himself) – because alternative evidence would at that point make no difference. Whether Officer X viewed what Officer X had done as a mental exercise of discretion, outwardly it was not an exercise of discretion.

Second, there were errors of law in what HMRC did after receiving the bulk invoices showing 0% VAT. Despite HMRC having previously allowed 20% VAT for the same type of vouchers where bulk invoices had shown 20% VAT (paragraphs 19 and 22 above), Officer X simply relied on the 0% invoices at that point. Officer X did so as determinative not merely of the question of what evidence would suffice, but of the question of whether VAT had been chargeable and paid. This was an error of law in that, on receipt of the 0% bulk invoices, HMRC closed their mind to the possibility (raised by the appellant) that those invoices were mistaken and to the possibility (raised by the appellant) that VAT was chargeable and paid, and did not consider that question in light of the facts and the law as applied to those facts. This in turn led to the error of law that an irrelevant (and simply wrong) matter was taken into account, that matter being the mistaken view that VAT was not chargeable. This meant that – as was common ground – even if the appellant had, after supplying the 0% bulk invoices, provided bulk invoices showing 20% or even an individual 20% VAT invoice within the meaning of regulation 13 for each transaction, those invoices would not by that time have made a difference.

Third, it appeared from the evidence that Officer X had not, by the time of forming the conclusion based on the 0% bulk invoices, had internal advice from HMRC to the effect that VAT was not in fact chargeable and that HMRC had therefore previously been in error in allowing the input VAT for the periods for which the bulk invoices had said 20%. But if and to the extent that Officer X formed that view independently of the 0% bulk invoices (whether on advice or not), and prior to making the decision, that view was – in light of our findings earlier this decision – wrong. It follows that we accept that, if Officer X did form a view on chargeability independently of the 0% bulk invoices, that was an error of law in that, again, an irrelevant (and simply wrong) matter was taken into account, namely the mistaken view that VAT was not chargeable. This means again that, even if the appellant had, after supplying the 0% bulk invoices, provided bulk invoices showing 20% or even an individual 20% VAT invoice within the meaning of regulation 13 for each transaction, those invoices would not by that time have made a difference.

The points at paragraphs 196 and 197 above are reinforced by Officer X’s evidence – which we accept – that, had Officer X reached the view that VAT had in fact been chargeable and paid, Officer X would not have decided not to allow the input VAT and that, had Officer X reached that view after making the decision, Officer X would have withdrawn the decision and the assessments and would have allowed the input VAT after all. In other words, whatever alternative evidence the appellant might have been able to provide, that would have made no difference once Officer X had formed a view as to VAT chargeability.

It is for the reasons at paragraphs 190 to 198 above that we accept the appellant’s submission that HMRC erred in law in relation to HMRC’s regulation 29(2) discretion.

It seems that the power for HMRC to accept alternative evidence is aimed at where HMRC do not, or would not, accept that purchases were made (and therefore the VAT paid) without the VAT invoice. But in the present case, HMRC appeared by the time of the hearing to have accepted that the purchases had been made. For HMRC to continue nonetheless to resist the appeal by relying on an argument that there was no error of law in relation to the regulation 29 discretion – even if we were to find, as we do, that VAT was in fact chargeable and paid – would appear to be to attempt to get out of allowing the input VAT. That did appear to be HMRC’s position. We say that because Ms Spence did not accept that the regulation 29 point would fall away if we were to find that VAT was chargeable and paid, despite Officer X having told us that, had Officer X reached the view, post-decision, that VAT had in fact been chargeable and paid, Officer X would have withdrawn the assessments and would have allowed the input VAT after all.

Finally, we observe that the letter dated 23 December 2016 arranging the visit (attached to the 22 December 2016 email) had warned the appellant that (page A63, our emphasis)—

But at the visit Officer X questioned evidence to support claims for the other periods in this appeal. The notes attached to that letter had however also said (page A65)—

No point was taken as to this, and we have not based any of our reasoning on it.

Ms Spence submitted for HMRC at the hearing that “further enquiries made by HMRC confirm that no VAT was paid to HMRC by the supplier and moreover, no VAT is chargeable on the supplies at issue. With this in mind, it is submitted that, to allow the Appellant to recover an amount claimed as input tax which it has not borne the burden of and which has not been paid to HMRC by the supplier, could equally be seen to render the right of deduction ineffective, call into question the neutrality of VAT or be contrary to the EU law principle of effectiveness” (skeleton, paragraph 90). HMRC’s post-hearing submission by counsel echoed this: “[Officer X] considered whether to allow input tax and determined not to do so because Harrods had not itself accounted for VAT” (paragraph 36, post-hearing submission, 1 May 2022).

We do not accept that Harrods’ actions in its dealings with HMRC should properly dictate whether or not the appellant, who has no control over Harrods, is entitled to reclaim input VAT.

It appeared to be common ground that the First-tier Tribunal’s approach to the exercise of HMRC’s regulation 29(2) discretion is supervisory, and that – as Mr Firth summarised it – there would be an error of law if HMRC had failed to exercise the discretion, or had exercised it unreasonably, or had taken account of irrelevant matters, or had failed to take account of relevant matters. In other words, the typical judicial review grounds were, he submitted, the extent of our jurisdiction in relation to the exercise of the discretion.

Mr Firth submitted that we should allow the appeal because the outcome would not inevitably be the same if HMRC were to conduct a proper exercise of their regulation 29(2) discretion. He cited paragraphs 70, 75 and 79 of GB Housley Limited v The Commissioners for Her Majesty's Revenue and Customs [2016] EWCA Civ 1299.

Ms Spence submitted that the “legislative conditions set down in the VAT Act 1994 and the VAT Regulations 1995 have not been met and the Appellant is not entitled to reclaim the amounts assessed as input tax” (Footnote: ¹²) and invited the tribunal to dismiss the appeal and to find that the amounts set out in the table reproduced at paragraph 7 above are properly due from the appellant.

We accept that the outcome would not inevitably be the same were we to allow the appeal. We have found that VAT was chargeable and paid. We remind the parties, incidentally, that Officer X accepted (i) that, had Officer X reached the view that VAT had in fact been chargeable and paid, Officer X would not have decided not to allow the input VAT and (ii) that, had Officer X reached that view after making the decision, Officer X would have withdrawn the decision and the assessments and would have allowed the input VAT after all.

It is for all of the above reasons that we allowed the appeal but did not remit.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by the First-tier Tribunal not later than 56 days after this decision is sent to the party making the application. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.