The High Court has ruled today that card handling fees charged by Bookit Limited for seats in Odeon’s cinemas across the United Kingdom should be exempt of VAT. Bookit operates call centres that take bookings for its parent company Odeon plc and charges a card handling fee for dealing with payments made by customers. The additional fee (in this case 50p on top of the ticket price) is only applicable when the customer is paying by credit or debit card and is booking via the telephone or internet.

HM Revenue & Customs (HMRC) argued that the fees charged for this service should be subject to VAT. The High Court’s decision was that this treatment was inconsistent with European and domestic law, ruling that Bookit should be entitled to benefit from the VAT exemption for financial services.

Dennis Knowles, indirect tax partner at Deloitte, advisors to Bookit, commented: “Separate card handling fees charged for the many services that can be booked remotely – by phone or internet - could now qualify for exemption. This decision means that other taxpayers in similar circumstances currently being charged VAT should seek repayment of tax collected by Customs in the past three years.”

Ends

Notes to editors

The VAT & Duties Tribunal had earlier decided that while it was satisfied that Bookit was providing a distinct booking service to Odeon, it considered that the card handling services provided by Bookit to cinema-goers did not qualify as "intermediary services" for the purposes of the VAT exemption in Item 5, Group 5, Schedule 9 of the Value Added Tax Act 1994 ('the Act').  The chairman contended that an intermediary service must involve an element of "negotiation", which he defined as involving a "distinct act of mediation".

The High Court, overturning the Tribunal's decision, decided that the card handling services provided by Bookit are exempt from VAT pursuant to Article 13(B)(d)(3) of the Sixth Directive and Items 1 and 5 of Group 5 of Schedule 9 to the  Act.  While the Vice Chancellor of the High Court doubted that the services performed by Bookit for the cinema-goer are strictly acts of negotiation, he was of the view that as Note 5 of Item 5 does not incorporate any reference to "negotiation", this was not enough to justify the rejection of Bookit's claim to exemption.  The Vice Chancellor found following SDC and FDR that Bookit did transfer monies sufficient to effect a change in the legal and financial situation of the customer.

The three key distinguishing factors between the Bookit case and the Debenhams case (which lost to Customs in the Court of Appeal on 19th July 2005, ruling that Debenhams is responsible for paying VAT on 100% of any money paid by a customer, regardless of any card handling fee) are:

• In Bookit’s case the card handing fee is an additional charge on top of the ticket purchase price;
• There is a contract between Bookit and the customer (by express terms either on the internet or telephone) (cf. no contract between card co and customer in the MC arrangement);
• Bookit is effecting a change in the financial and legal character of the transaction. 

HMRC have 28 days from the date the decision is handed down to lodge any appeal with the Court of Appeal.

About Deloitte

In this press release references to Deloitte are references to Deloitte & Touche LLP.

Deloitte & Touche LLP is the UK's fastest growing major professional services firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of £1,246 million in 2003/2004. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.