Key Facts
- •Lycamobile UK Limited (Appellant) appealed three VAT assessments totaling approximately £51 million.
- •The dispute concerned the VAT treatment of 'plan bundles' sold to UK customers.
- •The Appellant argued VAT was chargeable only when and to the extent allowances within bundles were used, while the Respondents (HMRC) argued VAT was chargeable on the sale of the bundle.
- •Plan bundles included allowances for calls, texts, and data, and sometimes value-added services (VAS).
- •The Appellant also raised arguments regarding the classification of plan bundles as face-value vouchers under relevant legislation.
Legal Principles
VAT is chargeable on supplies of services; a chargeable event occurs when legal conditions for VAT are met; the time of supply is generally when services are supplied, but payment in advance may trigger earlier VAT liability; the place of supply is generally where the supplier or customer belongs.
Council Directive 2006/112/EC (PVD) and Value Added Tax Act 1994 (VATA)
A supply of services is taxable only if there's a legal relationship between the provider and recipient with reciprocal performance. The entire relationship must be examined to determine the true nature of the supply; contractual terms are relevant.
Case law (Lebara, Kennemer, Esporta, MEO, Vodafone, BUPA, Air France, MRL, Orfey, Marcandi, FMP)
For composite supplies with a single price, elements are examined to determine if one is subordinate or inseparable from another. The character of the supply is determined by its predominant component.
Case law (CPP, Purple Parking, Město)
Voucher legislation (Schedule 10A and Schedule 10B of VATA and the Voucher Directive) dictates the VAT treatment of vouchers, distinguishing between single-purpose and multi-purpose vouchers.
Schedule 10A and Schedule 10B of VATA, Council Directive 2016/1065 (Voucher Directive)
Outcomes
VAT was chargeable on the supply of plan bundles at the time of sale, regardless of usage, except for a repayment for allowances used outside the EU before November 1, 2017.
The sale of the bundle constituted the 'real supply' of telecommunication services, similar to cases involving phone cards (Lebara) or gym memberships (Esporta). The subsequent use of allowances was ancillary.
Plan bundles were not vouchers for VAT purposes, under rules before or after January 1, 2019.
The plan bundles did not meet the definition of a voucher under Schedule 10A or Schedule 10B; the allowances were not a monetary amount to be used for future services but entitlements to services already supplied.