Leisure Pass Group Ltd v HM Revenue and Customs

Approved Judgment

Hearing dates: 7 and 28 June 2008

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction and Overview

In this judgment I refer to the appellant company as LPG, and to the respondents as HMRC. LPG appeals against a decision of the VAT and Duties Tribunal released on 20 September 2007. LPG sells a product which it calls the London Pass, and which is aimed principally at the tourist market. A member of the public who has purchased a London Pass is able for the period covered by it (which may be anything between one day and six days) to enter a large number of venues or 'attractions' in or around the London area without having to pay for admission at the attraction itself. The basic issue is whether LPG is liable to account to HMRC for VAT on the receipts which it obtains on sales of the Passes, or whether no VAT is payable at that stage because of a provision in Schedule 10A to the VATA 1994 about 'face-value vouchers'. If the provision applies VAT is payable by the attractions to which the passholder goes, and LPG is not liable to pay VAT at all. There was correspondence about the issue between LPG's advisers and HMRC in 2005 and 2006. It culminated in a letter from HMRC on 16 August 2006 giving notice that HMRC's decision was that sales of the Pass by LPG attracted VAT at the standard rate, and that the provision about face-value vouchers did not apply.

LPG's appeal to the tribunal was an appeal against that decision letter. The tribunal (Dr Avery Jones and Ms Sheila Wong Chong) dismissed the appeal, agreeing with HMRC's decision. The central ground of the tribunal's decision was that, on the detailed facts of the case, the statutory definition of 'face-value voucher' did not apply to the London Pass. More specifically a voucher, to be a face-value voucher, had to represent a right to receive goods or services 'to the value of an amount stated on it or recorded in it.' The London Pass could be regarded as a voucher, and it represented a right to receive services, namely admission to the various attractions, but it did not represent that right 'up to the value of an amount'.

Despite the forceful arguments addressed to me by Mr Prosser QC and Mr Hitchmough on behalf of LPG, I agree with the decision of the tribunal and with the submissions presented in support of the decision by Mrs Whipple. I shall therefore dismiss this appeal.

The law

Among the general principles of VAT are that (except where some specific provision enacts otherwise for any particular situation) the grant of a right in the course of a business is a supply of services, and the supplier is liable to account for VAT on the consideration for which the right is granted. The provisions which have that effect are familiar, and I will not prolong this judgment by setting most of them out. I will, however, quote the wording which specifies that the grant of a right is a supply of services for VAT purposes. Section 5(2)(b) of VATA 1994 is as follows (the italics being mine):

“5(2) Subject to [matters which are irrelevant in this case]

(b) anything which is not a supply of goods but is a done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services.”

HMRC say, and the tribunal has agreed, that s.5(2)(b) covers this case. LPG contends that the sub-paragraph is excluded by the specific provisions for face-value vouchers contained in Schedule 10A to the VATA 1994. Schedule 10A was inserted into the Act in 2003, replacing a shorter provision which had been a feature of United Kingdom VAT law from its inception in the Finance Act 1972. In the last VAT consolidation the predecessor provision was VATA 1994 Schedule 6 paragraph 5. I will set out the whole of paragraphs 1, 2 and 3 of the present Schedule 10A, but someone reading this judgment for the first time might find three introductory observations helpful.

i) In my judgment the critical part of the Schedule for this case is paragraph 1(1), and in particular the later words in it.

ii) It is common ground that, if the London Pass is a face-value voucher within paragraph 1(1) (which in my view it is not), it would also be a 'credit voucher' within paragraph 3(1).

iii) The specific provision which, in LPG's submission, has the effect that VAT is not payable on its (LPG's) receipts from sales of London Passes is paragraph 3(2). However, it is accepted that, if the London Pass is not a face-value voucher within paragraph 1(1), paragraph 3(2) cannot apply to it.

The relevant wording of Schedule 10A is as follows.

“1—(1) In this Schedule “face-value voucher” means a token, stamp or voucher (whether in physical or electronic form) that represents a right to receive goods or services to the value of an amount stated on it or recorded in it.

(2) References in this Schedule to the “face value” of a voucher are to the amount referred to in sub-paragraph (1) above.

2. The issue of a face-value voucher, or any subsequent supply of it, is a supply of services for the purposes of this Act.

3—(1) This paragraph applies to a face-value voucher issued by a person who—

(a) is not a person from whom goods or services may be obtained by the use of the voucher, and

(b) undertakes to give complete or partial reimbursement to any such person from whom goods or services are so obtained.

Such a voucher is referred to in this Schedule as a “credit voucher”.

(2) The consideration for any supply of a credit voucher shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds the face value of the voucher.

(3) Sub-paragraph (2) above does not apply if any of the persons from whom goods or services are obtained by the use of the voucher fails to account for any of the VAT due on the supply of those goods or services to the person using the voucher to obtain them…”.

There have been several reported cases in which aspects of Schedule 10A or of its predecessor provision have been considered. I was referred to some of them and supplied with copies of (probably) all of them. I have reread the more significant ones, but I do not find anything in them which assists the decision in this case. As Mrs Whipple said at one point in her oral submissions, cases in this area vary substantially and are very fact-sensitive. This case revolves around the words at the end of paragraph 1(1) 'to the value of an amount stated on it or recorded in it'. So far as I am aware, none of the cases has been specifically concerned with those words. Further, in the predecessor provision (which was the provision applicable in nearly all of the earlier cases) the words were not 'to an amount', but 'for an amount'. The difference is only the replacement of one small word by another small word, but the difference may be significant nevertheless.

The facts

The tribunal made detailed findings of fact in paragraph 4 of its decision. Rather than trying to paraphrase or summarise the findings myself I will simply reproduce paragraph 4, with a few minor omissions.

“4. We heard evidence from Mr Darren Evans of the Appellant and had a bundle of documents. We find the following facts:

(1) The London Pass is a voucher the size of a credit card containing a microchip. The Pass is sold to visitors to London and entitles the holder during the period of its validity to visit without payment any of about 55 attractions comprising places of interest, historic houses, museums, galleries, tours and cruises and leisure activities (“attractions”) which are listed in a 120 page guide (“the Guide”) which is given to purchasers of the Pass. …

(2) A particular attraction may be visited only once during the validity of the Pass. Before April 2006 an attraction visited on one day could be visited again on each other day during the validity of the Pass.

(3) The price of the Pass varies between £34 for a one-day adult Pass to £74 for a 6-day adult Pass; child Passes are also sold for between £18 and £48 respectively. Passes are also available for 2 and 3 days. The Pass has a final end-date about 18 months after issue. The days during which it is valid are counted from the first day of use. About 55 to 60 per cent of sales are from the Appellant's website, and the rest are sold in retail outlets. All but 13 per cent of purchasers are from abroad. …

(4) The Guide lists the advantages of the Pass as “not only great value and convenience, but also enables you to beat the queues at selected attractions.” In attractions where there are likely to be queues for payment on entry the attractions will have a separate entry point for Passholders.

(5) The Appellant contracts with the operator of each of the attractions to allow the Passholder entry without further payment. The attraction is entitled to refuse admission in accordance with its own admissions procedure. The attraction has to inspect each Pass in accordance with operational procedures. If the computer system is not working the attraction will check that the Pass has been signed and dated and will maintain a written record of use. For each entry with a Pass the Appellant pays a fee to the attraction that is negotiated with the attraction which is between 20 and 40 per cent below the gate price. Payment is made monthly...