Two recent decisions of the UK's Upper Tribunal ("UT") on the VAT treatment of vouchers and unredeemed pay-as-you go credits have once again made this area a hot topic for UK VAT.

In the first case, Associated Newspapers Limited ("ANL") ran two business promotion schemes:

  • In the first, customers who bought a newspaper for a certain period would receive a free high-street voucher worth between GBP10 and GBP100. ANL would buy these vouchers directly from the retailer.
  • In the second, customers accumulated loyalty points, which they could later exchange for high-street vouchers. ANL acquired these vouchers from an intermediary who managed the scheme.

Business promotion schemes often create difficulties from a VAT perspective. Similarly, VAT in connection with vouchers is equally complex. This case involved a combination of both issues.

The UT confirmed that, where a service is purchased (here the vouchers), and is then given away under a promotion scheme free of charge, the service is used for "business purposes". As such, there can be no deemed supply, i.e. no VAT is chargeable.

As far as input tax was concerned, the UT found that ANL was entitled to reclaim VAT charged by the intermediaries. However, under UK VAT law, where ANL buys vouchers from retailers, no VAT is actually chargeable and, as a result, no input VAT can be reclaimed.

It is possible that HMRC will appeal against the UT's decision. If so, the Court of Appeal might need to consider the question of fiscal neutrality, and in particular, the decisions of the UK Supreme Court in LMUK and of the CJEU in Sveda .

In the second case, Findmypast Limited ("FMP") operated a website, which enabled customers to access ancestry records. To access the records, customers had to redeem credits ("Credits"), which they acquired on a pay-as-you-go basis. The Credits were only valid for a limited period of time and expired if not redeemed by a certain date.

FMP argued that the Credits were vouchers for UK VAT purposes and made a claim for overpaid VAT relating to unredeemed Credits. The UT considered that there were three key issues:

  • What was the nature of the Credits : In the UT's view, the customer bought the right to access individual documents, as and when he or she chose to do so, up to the limit of the Credits purchased. As such, the service was only provided when the individual documents were accessed.
  • If the Credits qualified as a face-value vouchers : The UT found that the Credits were a token, stamp or voucher (in electronic form) and represented a right to receive goods or services. Moreover, the fact that the website recorded a balance in terms of Credits rather than money did not affect the treatment as a face-value voucher.
  • If the purchase of the Credits was a prepayment : The UT observed that at the time the Credits were purchased the services to which the customer was entitled and for which he or she would use the Credits to pay are not fixed or clearly identified. As different documents or categories of documents had different prices and FMP could change the prices, the UT concluded that the purchase of Credits was not a prepayment for services.

It is likely that HMRC will seek to appeal against the UT's decision. If so, the (Scottish) Court of Session will have to consider the possible implications of treating the Credits as face-value vouchers, in particular when those vouchers can be treated as multi-purpose vouchers.