Now well into their sixth year in force, the distance sales regulations are still throwing up unexpected issues. In this case it was whether the date of payment or the later expiry of the cancellation right period was when the sale had to figure in the seller’s VAT return.
Who: Robertson's Electrical Limited
Where: The Scottish Court of Session
When: December 2005
This unreported and largely unnoticed case reached an important verdict on the potential impact of the Consumer Protection (Distance Selling) Regulations 2000 ("DSRs") on liability to pay VAT in respect of on-line sales.
Robertson's Electrical sold electrical goods on-line. Their customers normally paid by credit card by inputting their credit card details at the time of ordering in the standard way.
The purchase terms and conditions also had a "No fault return" policy which was effectively based on the statutory right to cancel that is enshrined in the DSRs.
The policy stated that buyers had seven days from the day after the product was received to say that they wanted to return it.
On receipt of the online order, Robertson's delivered the product and prepared an invoice, either at the date that they sent off the product to the customer or within seven days after the date of delivery.
Roberton's practice was to regard the tax point for VAT purposes as the earlier of the date of the invoice or the expiry of seven days following delivery of the product.
This had the effect of putting some VAT receipts into a later VAT return period and the then Commissioners for Customs & Excise were not happy.
They took the view that regardless of any seven day period for cancellation/return or the date of drawing up an invoice, the tax point for VAT purposes was the earlier date of payment.
The issue went to the VAT and Duties Tribunal and then, on appeal, to the Scottish Court of Session.
The Tribunal agreed with Robertson's arguments that no sale effectively took place until the expiry of the period for cancellation.
On appeal, however, the Court took a different view. They did not believe that the right of cancellation changed the nature of the contract of sale into a transaction of sale on approval, which might have altered the contract date and hence the tax point.
Looking at the terms and conditions on the Robertson's website, it was held that the provisions relating to payment, ordering and returns all indicated that the nature of the on-line transaction was one of outright sale. The only impact that the DSR's had on the situation was to confer on the buyer an unqualified right to cancel the contract of sale that had already been concluded.
So in the Court's view the tax point was the date of payment and the Commissioners for Customs & Excise prevailed.
Why this matters:
The Court made it clear that it was still possible to organise for the tax point to be at a later date providing the terms and conditions of the transaction made it clear that the transaction was in fact one of supply on approval.
The judgement therefore underlines that it is still open to those selling on-line to draft their terms and conditions and the way in which the sale is presented so as to put it into the category of sale on approval. If this is not successfully done, however, then the tax point for VAT purposes is the date of payment.