Small businesses are losing up to around  2.5% of their revenue in fees to Card  ( or "Merchant") Acquirers. But restrictions on VAT recovery imposed by HMRC   increase  these costs and distort competition. If you care about our struggling  town centres, corner shops and village outlets and want them to thrive,  please support my challenge in the Tax Tribunal.

Who am I? :
My name is Ed Armstrong; I run a start-up restaurant and pub in London. Like every small business it has many challenges, but is so worth it. 

Facts of the case:

Most small businesses have to accept payment cards -we are becoming  a “cashless” society. Access to the main card schemes like Visa and Mastercard is only through a  Card Acquirer, who provide terminals and authorise transactions, so I know  my customers' debts will  be  promptly settled.

For every sale  I  have to pay a Card Acquirer a Merchant Service Commission ( "MSC")  for the service I  get, its  around 65p for debit cards but can be up to  1.5%  to 2.5% for credit and business cards.

I think that losing up to around  2.5% of my turnover  on some cards is  high.

I've been asking questions:

• Why is the MSC so high, especially for accepting credit and business cards? 
• Why  can the MSC of new  Card Acquirer  providers  also  be high? 
• Why aren’t more lower blended rates on offer?
• What can, if anything small businesses do anything to reduce MSC they pay?
• Is there VAT on the MSC?  VAT should tax a final consumer, not earlier stages.

What I’ve done about it so far: 

I used to work in insurance, which is VAT exempt. This means that VAT is not charged on insurance transactions, but insurance companies then can't get their VAT back on their cost base. Its  a "stealth"  tax  hidden  in the supply chain. 

It became obvious to me- if you are in business,  and like a Card Acquirer  can't get your VAT back, you have to factor it into your pricing one way or another. If suddenly you can get all your VAT back, your net costs go down,  as you get a windfall you hadn't priced for!

I brought that knowledge into retail, and asked why the MSC is  mostly exempt? I’ve taken legal advice- MSC shouldn't be  VAT exempt, its like factoring  which the case law says is VATable, and  it is VATable in other countries like Holland.

Why does all this matter?

It's easy to think MSC isn't important, as its a small amount on each transaction. But it adds up- there are over 16 billion (yes, 16 billion ! ) card payment transactions every year. And the wrong  VAT liability is being applied to them all, as I see it. 

If the MSC were taxable, I and most businesses can recover it, as we charge VAT to the final consumer. It could then  release tens or hundreds of millions  of pounds into the UK retail payment chain.   

If I win, and these sums  are passed on to Retailers, small businesses could benefit by  up to £20 per £100,000 of turnover, as well as  increased competition and choice, as lower start-up costs attract more entrants into the Card Acquirer market and reduce pricing further.  

So whatever rates  a business pays for the MSC, there is potential for it to go down even more, if  I win.  

I asked HMRC for a ruling and they said  the MSC was VAT exempt. I've appealed it in the Tax Tribunal and we are preparing  to go there to challenge  HMRC. 

What happens next? 

Its unusual that a small business is appealing this, so first HMRC are trying to strike me out, by  saying I've no interest in the case. But I, and every business in the land accepting cards, are  "persons affected" by the HMRC exemption for Card Acquiring. Any change in that  liability will have consequences for us all. 

If there are  over 16 billion card transactions p.a. in the UK, then  I reckon this has to be one of the biggest and most important tax cases in recent times. 

HMRC say that we will have to fight to  at least the Court of Appeal ,first on the point on legal standing, and second on the VAT liability ! That’s two rounds of litigation.

This is not just my challenge  but  its  for every Retailer and business accepting card payments,  because  the better incentivised  we all  are to work the long hours we do,  the more  we  will thrive and prosper, and that means HMRC  get more tax as well, to pay for schools and hospitals etc. 

But  I can't take on this legal challenge on my own, so  if you have read this and support me, please can you help? 

How you can help:

I  will have to cover legal fees, expert  economic evidence, and other costs, in theory for two  issues to be determined, as well as in due course, provide a  reserve of  something in the region of a hundred  and fifty thousand pounds,  in the event I have to pay the other sides  costs  (that's common in these type of cases where the small guy takes the case - even if we are confident we will win , the courts usually require it). 

I’m asking each business to pledge a fiver each (or more if you can manage it) to support this case.

I’m looking to raise an initial £30,000, but will need to raise a fighting  fund of  some £300,000 in due course.

Please pledge a fiver, or more if you can. Please also take the time to share this with other small business owners, your customers, friends and family! 

There will be continuous updates on the appeal. All funds are held in trust and unused funds are donated to other deserving causes.