The FTT has agreed with HMRC that a payment for a telecom plan bundle is taxable in full when paid and does not amount either to payment for a multi-purpose voucher or a non-taxable payment for credits: Lycamobile UK Ltd v HMRC [2024] UKFTT 638. The FTT distinguished plan bundles from other cases involving the pre-purchase of a "currency" to be later used to acquire the "real" supplies, where the acquisition of the "currency" is not an end itself for the purchaser. The FTT had no doubt in this case that the acquisition of the entitlements to allowances under the plan bundles was an end in itself for customers and, as such, was the "real" subject of the supplies.
Background
Lycamobile over the period in dispute made available telecom services to customers through plan bundles. These plan bundles comprised rights to future services, including telephone calls, text messages and data. Some also included additional services or rights to use services in other jurisdictions (roaming).
Lycamobile contended that payments made by customers for such plan bundles were not subject to VAT. Instead it only accounted for VAT to the extent that the relevant plan bundle was actually used and only to the extent that it was used for standard rated supplies. HMRC instead contended that the payment for a plan bundle was subject to VAT in full when paid regardless of later usage, albeit subject to adjustment later to the extent that the usage did not involve a standard rated supply in the UK. HMRC assessed Lycamobile on that basis.
Decision of the FTT
Lycamobile contended that payment for plan bundles were not subject to VAT broadly (a) since the payments were to acquire credits which were only subject to VAT when utilised to actually make calls etc, and it was not possible to identify the nature and extent of the services to be supplied with sufficient particularity at the time of payment for the bundle (for example where bundles allowed roaming where the place of supply might be affected by the "use and enjoyment" override) and/or (b) the payment for a plan bundle should properly be treated as payment for a voucher. The FTT has rejected those two arguments.
The FTT noted that there were two strands to the first argument. Cases such as MacDonald Resorts Limited and Findmypast Ltd dealt with the situation where a purchaser acquired, essentially, a form of "currency" to be used in future to obtain the "real service". In those circumstances, the Courts have held that the earlier pre-supply is not a taxable supply and VAT is only due where that "currency" is converted into the "real service". MacDonald's involved the acquisition of "points", for example, which were later used for accommodation. Secondly, there were prepayment cases (such as BUPA) which made it clear that where a payment is made, it doesn't give rise to a supply until the details of the relevant goods or services are known. However, those were two distinct issues and it was important to recognise the difference. The FTT stressed that MacDonald's was not a prepayment case, but a case about identification of the supply being made. And the FTT rejected the taxpayer's argument that there is an overarching principle within the VAT legislation to the effect that the tax point can never arise until all the relevant information in relation to that relevant supply is known. It is first necessary to identify the nature of the supply and then identify the tax point (taking into account the prepayment exception).
In this case, the FTT had no doubt that the it was the sale of the bundle that was the "real supply". When customers acquired a bundle, they received allowances to use telecom services and that was the purpose. Unlike MacDonald's, this was not a case where a customer merely acquired a "currency" which they could then use to obtain the desired supplies. Unlike the points in MacDonald's, the FTT considered that the bundle itself had an inherent value to customers. The allowances were not simply a currency to be used later.
However, the FTT considered that in bundles that included roaming services which were subject to the "effective use and enjoyment" override, then effect needed to be given to that override. Essentially, the FTT considered that it was implicit in this rule that a single supply of telecom services can be made in more than one place. Whilst recognising the difficulties in adjusting the VAT position, especially since the legislation made no express provision for an adjustment to be made following the time of supply, nevertheless the FTT considered that the correct approach was to treat such bundles as subject to VAT when supplied, with a retrospective adjustment to the VAT to the extent that allowances were actually used and enjoyed outside the EU. The FTT did not accept that this was an argument for deferring the charging of VAT until all the services in the bundle were actually used.
As regards the vouchers argument, this was also rejected by the FTT. For the pre-2019 period, the entitlements under the Plan Bundles which were shown on the taxpayer's system were not a monetary amount to be used in purchasing future services but were instead entitlements to allowances (which is to say something other than a monetary amount) that could be used from time to time while the Plan Bundle remained valid. For the post 2019 period, the legislation referred to an obligation on the part of the relevant supplier or suppliers to accept the instrument comprising the voucher as consideration for the provision of goods or services. It was difficult to see how the use of the entitlements contained within a Plan Bundle could properly be described as involving the acceptance by the taxpayer of an instrument as consideration for services.
Comment
The recent decisions in Lycamobile and Go City have focussed on the difference between a supply of services and either prepayments for undetermined services or the acquisition of rights to be later converted into the "real" service - and the related voucher analysis. This is clearly a difficult area of VAT and distinguishing between the acquisition of a "currency" to be later used for a real supply and acquisition of entitlements which is the real supply will not always be straightforward or easy! But the correct VAT analysis can have significant financial impact, both for taxpayers and HMRC. In principle, to the extent that a "currency" is not actually used, no supply is made and no VAT is payable. However, where the entitlements are themselves the "real supply", then the whole amount will be subject to VAT (subject to the possible application of the vouchers legislation).
