Credits, vouchers and VAT

The FTT has held that payments for a London Pass did not attract VAT at the time of purchase of the Pass: Go City Ltd v HMRC [2024] UKFTT 745. The FTT agreed with the taxpayer that there was no supply at the time of issue of the Pass either because it was correctly seen as a multi-purpose voucher or otherwise that the purchase of "credits" to use for entry to attractions fell outside the scope of VAT. Furthermore, the FTT agreed with the taxpayer that to the extent that those "credits" were not used up, then amounts related to those credits were not subject to VAT.

In addition, the FTT upheld the taxpayer's argument that certain assessments issued at the time where HMRC had not made up its mind as to whether the VAT treatment applied by the taxpayer was or was not correct were not validly made.

Background

Go City Ltd (GC, formerly Leisure Pass Group) had a long history of VAT disputes with HMRC over the correct VAT treatment of its London passes. In essence, these passes gave purchases rights to access a number of different attractions and services, including entry to various sites and travel on hop on hop off transport.

The current dispute related to supplies made after the Voucher Directive was introduced and after GC had made changes to its contractual arrangements. These changes were designed to ensure that the passes did not give rise to direct rights of access from sites to the users, but instead the sites provided the right of access to GC who could then pass that onto purchasers. In addition, the passes gave purchasers "credits" which could be used for entry into a range of sites and activities and those credits were "used up" as purchasers took advantage of them. The number of credits were designed to prevent "super users" abusing access and it seemed it was more typical for users to use only around 80% of the total credits available. When passes were used, GC became liable to pay the site/attraction a fee, but this was well below the advertised gate price for such sites/attractions.

After considerable deliberation, HMRC decided to challenge GC's VAT returns which treated the supplies of the London Passes as outside the scope of VAT. HMRC issued assessments for periods in 2019 and 2020 and GC appealed.

Was the London Pass a multi-purpose voucher?

There is a significant difference in treatment of vouchers for VAT purposes depending on whether they are "single purpose vouchers" (SPV) or "multi-purpose vouchers" (MPV). An SPV is a voucher where the place of supply of the goods or services to which the voucher relates and the VAT due on those goods or services are known at the time of issue of the voucher (Article 30a(2) of the VAT Directive). An MPV is a voucher other than a single-purpose voucher (Article 30a(3)).

In this case, although it was not known exactly what the Pass would be used for when purchased, HMRC argued that the Pass fell outside the scope of the MPV definition. The UK provisions implementing the Voucher Directive stated (VATA 1994 Sch 10B para 1(5)(b)) that "an instrument functioning as a ticket, for example for travel or for admission to a venue or event" was not a voucher. HMRC relied on this exception, arguing that the London Pass operated as a ticket.

The FTT rejected HMRC's argument. The Pass was not a ticket as a ticket connotes a specific and ascertainable admission, whereas when purchased a Pass did not give the customer a pre-determined specific entitlement. Rather purchasers obtained a ticket when visiting specific sites and using the Pass to get a entry ticket.

The FTT held that the London Pass amounted to the issue of an MPV which was outside the scope of VAT at the point of purchase.

Supply of credits?

Even if the Pass did not qualify as a MPV, GC argued that the Passes were supplies of credits outside the scope of VAT. GC pointed to the cases of McDonald Resorts Ltd v HMRC (Case C-270/09) and Findmypast Ltd v HMRC [2017] STC 2335. In McDonald's involved the sale of "points rights" which could be redeemed for temporary timeshare accommodation. The CJEU held that, since the purchase of "points rights" was not an aim in itself, but rather the purpose of the rights was to allow participants in the scheme to obtain various possible benefits, the service was not supplied until the points were converted into specific transactions. The Inner House of the Court of Session followed that judgment in Findmypast, which involved the sale of "credits" for accessing historical records. The Court held that since the purchase of credits was not an aim in itself and the actual service was provided only when a document was viewed or downloaded.

GC argued that the credits it sold should attract the same treatment. They were not an aim in themselves for purchasers and it was only when those credits were actually used that the classification of the service could be known and only at that point did a chargeable event arise. The FTT agreed with this argument.

Amount of consideration?

HMRC's concern in this case was always about the VAT leakage that occurred by treating the sale of the London Pass as outside the scope. To the extent that a purchaser did not use all the credits on the Pass then some of the consideration for the Pass did not get allocated to onward supplies of attractions. In essence, there was a gap between the amount paid for the Pass and the amount reimbursed by GC to the actual sites. HMRC considered that the full amount of the payments received by GC should be subject to VAT, even if the supply of the Pass itself was outside the scope of VAT as an MPV or credits.

The FTT has, however, held that there was no basis for picking up the unallocated part of the consideration paid for the Pass. Where a customer does not use all the available credits, part of the sum paid for the Pass was not expended on the supply of a service.

Protective assessments?

Finally, the FTT considered GC's argument that certain "protective assessments" made by HMRC were not valid. GC pointed out that VATA 1994 s.73(1) allowed HMRC to issue an assessment where "it appears to the Commissioners that [a person's] returns are incorrect". In this case, GC pointed out that at the time of the earliest assessment, HMRC had not made up its mind that the returns were incorrect. The evidence was that the relevant inspector was unsure as to the correct treatment and had written a Technical Advice Request (TAR) referencing strong arguments supporting the taxpayer's treatment. On the facts, the FTT agreed with GC. HMRC had failed to show that HMRC were of the view that the VAT returns were incorrect at the time it made the assessments.

HMRC pointed to the danger in preventing "protective assessments". The FTT had two answers to this point. Firstly, it highlighted that true "protective assessments" were made in circumstances where HMRC had a particular view of the correct treatment, but where case law was currently against them, not in the circumstances of the current case. Secondly, the FTT pointed out that the purpose of time limits is to prevent taxpayers from tardy assessments. "If HMRC could issue an assessment just before the end of the two year period, simply in order to give it longer to decide whether the taxpayer's return was incorrect, that would entirely undermine the statutory purpose."

Comment

The decision is an endorsement of the taxpayer's position both on the law and administrative practice in this case. It contains important clarifications on the scope of the vouchers legislation as well as the VAT treatment of (essentially) payments in advance for unallocated future supplies. One can perhaps see HMRC's discomfort in the fact that the structure of the arrangements led to unallocated amounts falling outside the scope of VAT entirely, but the FTT saw this simply as a function of the rules.

Finally, and perhaps most importantly, the decision stands as a warning against HMRC simply putting in ill considered assessments simply as a means of extending the time limit to decide whether or not VAT has been properly accounted for.