The Upper Tribunal has upheld the decision of the FTT in Lycamobile UK Ltd v HMRC [2026] UKUT 74 that a payment for a telecom Plan Bundle is subject to VAT in full when paid and does not amount either to payment for a multi-purpose voucher or a non-taxable payment for credits. The UT agreed with the FTT that, in this case, the acquisition of the entitlements to allowances under Plan Bundles was an end in itself for customers and, as such, was the true subject of the supply.
The decision indicates that it may be difficult to take advantage of the concept of a purchase of "allowances" or "credits" being outside the scope of VAT, such that VAT is only chargeable on the actual usage of those credits to acquire services. In this case, only some 5 or 10% of allowances for telecom services under Plan Bundles were actually used and so the "credits" analysis would have given rise to a very significant VAT advantage. However, on the facts, the UT has agreed that the "true" supply in this case was the acquisition of the guaranteed access to the telecom network subject to the terms of that access and, as such, VAT was chargeable in full at the outset.
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 allowances under the relevant Plan Bundle were 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.
Lycamobile appealed contending that payments 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 rejected those arguments. 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. In addition, the FTT rejected the argument that Plan Bundles amounted to multi-purpose vouchers since 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 as required. Lycamobile appealed the FTT decision to the UT.
Decision of the UT
The UT first dealt with the question whether the payments made by customers for a Plan Bundle was a prepayment for a type of credit or currency such that VAT only arose when (and importantly only to the extent that) those credits were actually used. Since the evidence before the FTT was that only 5 to 10% of allowances were actually used, this was a significant difference in practice and would have meant that perhaps 90% of the consideration being VAT free.
The UT considered the case law on prepayments extensively, including reviewing those decisions such as MacDonald Resorts Limited and Findmypast Ltd in which it had been held that 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 UT considered that the FTT had been correct to stress that MacDonald's was not a prepayment case, but a case about identification of the supply being made.
The UT noted that there were three important points to bear in mind when approaching the question in this case:
It is clearly possible to have a supply consisting of availability/access
It is also possible, but less common in practice, to have a supply consisting of a sale of some type of "currency" as a preliminary step in allowing access to goods or services.
Additionally, VAT can arise on payment rather than supply under the prepayment rules.
In this context, the UT rejected the taxpayer's argument that there is a general proposition that there can be no supply so long as any uncertainties remain as to the terms of the supply. In addition, the UT considered that the cases involving the purchase of a "currency" outside the scope of VAT turn entirely on their facts. As such, the FTT in this case was entitled to find on the facts that what customers were contracting for in buying a plan was guaranteed availability, at a fixed price, for a fixed period. Indeed, although the FTT did not rely on the fact, the UT considered that the fact that only 5 to 10% of allowances were actually used is, at the very least, consistent with that conclusion.
The UT also rejected the taxpayer's appeal that the FTT had been wrong to treat the additional value added services (roaming) as separate to the main supply of allowances. This argument was fundamentally misconceived as the supply was simply of the Plan Bundle (access) rather than the underlying use. Since the real supply was that of the bundle (rather than the use of the underlying allowances), the FTT had been perfectly entitled to conclude that there was a single supply.
As such, the UT rejected the taxpayer's appeal on the identification of the correct supply.
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.
HMRC appealed against this aspect of the decision arguing that the single composite supply analysis was relevant to all VAT issues, including the place and rate of supply. Accordingly, once an element of a single supply is identified as minor or ancillary, it can play no role in identifying any aspect of the VAT treatment. However, the UT considered that HMRC had also misconstrued the FTT decision. The FTT had not held that roaming was a minor or ancillary element. Rather "it was a decision that in substance the relevant usage was of the same service as the
predominant element (the Allowances) and so fell to be treated in the same way". The use of the allowances, whether for UK use or roaming, was the use of the same service (the Plan Bundle). As such, it was necessary to adjust the charge to VAT subsequently to take account of the "use and enjoyment" rules where they dictated that part of the usage was not subject to VAT.
Vouchers
The UT also rejected the taxpayer's arguments that the FTT had been wrong to conclude that the Plan Bundles amounted to multi-purpose vouchers for VAT purposes. For the pre-2019 period, the entitlements under the Plan Bundles did not involve a "token, stamp or voucher" and nor were they shown as a monetary amount to be used in purchasing future as required by the rules at the time. 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. The FTT had been correct to be sceptical that a Plan Bundle is or includes and "instrument" and 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 as required by the legislation.
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).
