In Lunar Missions Ltd v HMRC [2019] UKUT 298 (TCC), the Upper Tribunal (UT) has held that a company which had offered rewards in the form of “single purpose vouchers”, within the meaning of paragraph 7A, Schedule 10A, Value Added Tax Act 1994, to supporters of its crowd-funded project, had made a taxable supply for VAT purposes when the vouchers were issued.
Background
Lunar Missions Ltd (Lunar) raised funds for a project through a crowd-funding platform called “Kickstarter”. On the platform, the creator of a project, such as Lunar, would seek supporters for its project. The creator might also offer rewards to supporters who pledge funds for its project.
Lunar’s project was to send an unmanned robotic landing module to the South Pole of the moon. During the crowd funding phase, Lunar offered supporters a range of “rewards” for pledges made to support the project, which included the right to space in the digital memory box (which would be buried on the moon by the spacecraft), if the project was successfully completed ie if the funding target was reached.
For the purpose of the appeal, the parties agreed that the FTT should proceed on the basis of a supply of a voucher for space in the digital memory box, which required a pledge of £60. A supporter who pledged could download a certificate or voucher which confirmed the amount they had pledged and that they were then entitled to a reward. It was not necessary for a person to hold a printed copy of a voucher to obtain a reward.
Lunar’s campaign was successful and it obtained 7,297 supporters who pledged a total of £672,447, on or before 17 December 2014. At that point supporters became contractually obligated to pay the amount pledged, and once paid, Lunar became obliged to provide the rewards, subject to certain conditions set out on its website.
HMRC considered that Lunar had made a supply to its supporters at the time at which the pledges made by supporters became unconditional and Lunar received payment, whereas Lunar contended that the supplies would only take place when the digital or physical space in the capsule would be provided. The issue was therefore the time of the supplies made by Lunar.
The FTT agreed with HMRC that the vouchers were “single purpose vouchers” redeemable for only one type of service and the time of supply was the time at which the voucher was issued. Lunar’s appeal was dismissed and it appealed to the UT.
UT decision
The appeal was dismissed.
Lunar challenged the FTT’s decision on the basis that the FTT had failed to give adequate reasons for its conclusion and that that failure was an error of law. In the view of the UT, it was implicit in the FTT’s decision that it reached its conclusion on the basis that if the vouchers were single purpose vouchers, the supply was made at the time at which the vouchers were issued because the supply of services was performed at that time (within section 6(3), Value Added Tax Act 1994) and no error of law was made. Even if that had not been the case, the UT confirmed it would have remade the decision and reached the same conclusion as the FTT for the following reasons.
The UT considered the interaction between section 6 and Schedule 10A, Value Added Tax Act
1994. From the wording of the legislation it was clear that, if the vouchers fell within paragraph 7A, Schedule 10A, the operative provisions of Schedule 10A do not apply. The timing of the supply must therefore be determined by reference to general VAT principles.
Applying the principles identified in Lebara C-520/10, the starting point was to consider whether the crowd-funding exercise involved a supply of services. A legal relationship was found to have been created between Lunar and its supporters in which Lunar agreed to provide rights to digital and/or physical space in the capsule and the supporters agreed to pay the price. The UT also found there was reciprocal performance between Lunar and the supporters who pledged funds.
The UT also considered the subject matter of the supply. It was accepted by Lunar that the issue of the vouchers fell within paragraph 7A. It followed that when Lunar issued the vouchers to the supporters, it provided them with all that was necessary to obtain the supply of services. At that point, it made the supply.
The UT agreed with FTT that a supply took place when the vouchers were “issued” ie the time at which a supporter became contractually obliged to make payment.
Comment
The VAT provisions relating to face-value vouchers were amended by Finance Act 2019, with effect from 1 January 2019 (to implement an EU Directive on the VAT treatment of vouchers). This case was not affected by the changes but it highlights the difficulties of applying the previous provisions and a widening of the definition of ‘single purpose voucher’.
