Lucky Technology Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 September 2022 |
| Neutral Citation | [2022] UKFTT 366 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2022] UKFTT 366 (TC)
Judge Rachel Perez, Ms Celine Corrigan
First-Tier Tribunal (Tax Chamber)
Value Added Tax Act 1994 – Value Added Tax Regulations 1995 — Face-value vouchers, redeemable on the online games platform Steam, owned by Valve Corporation – Vouchers sold to appellant by a concession run by DSG Retail Ltd within Harrods Ltd – Whether single purpose vouchers within the meaning of VATA 1994, Sch. 10, para. 7A – Held: no – Whether retailer vouchers within the meaning of para. 4(1) of that schedule – Held: yes – Whether supply to appellant was by an agent of the issuer of the vouchers (Steam) – Abbotsley Ltd v R & C Commrs [2018] BVC 513 & Město Žamberk v Finančníředitelství v Hradci Králové, now Odvolací finanční ředitelství, (Case C-18/12) [2013] BVC 559 considered – Held: no – The supply to appellant was not therefore the first supply of the vouchers (the issue of the vouchers) but a supply…subsequent to the issue of the vouchers. VAT was therefore chargeable on the vouchers by virtue of Sch. 10, para. (4) – Whether appellant paid that VAT – Held: yes –. Zipvit Ltd v R & C Commrs [2018] BVC 29 considered – Whether HMRC erred in law in relation to reg. 29(2) discretion to accept evidence other than VAT invoices of VAT paid by the appellant. G B Housley Ltd v R & C Commrs [2017] BVC 4 cited –. Held: yes. Appeal allowed – VATA 1994, s. 47(3) and (4) considered
In Lucky Technology Ltd [2022] TC 08616 the appellant purchased face value vouchers from a retailer for resale. It recovered VAT incurred as input tax but did not hold full VAT invoices in respect of the purchases. The FTT ruled that, under the legislation applying at the time, the vouchers were subject to VAT and that HMRC should have exercised its discretion under SI 1995/2518, reg. 29, to permit its recovery as input tax.
The appellant purchased face value vouchers from a retailer. The vouchers could be redeemed by consumers on an online games platform. The purchases were made before 1 December 2019 when the law concerning the VAT treatment of face value vouchers changed.
The appellant bought vouchers over the counter and received a till receipt. Because the purchases exceeded £250 in value the appellant needed to obtain a full VAT invoice from the retailer in order to support input tax recovery. At the end of each month it sent its till receipts to the retailer and requested a full VAT invoice. Until April 2016 the retailer provided VAT invoices addressed to the appellant showing VAT charged at 20%. However, from May 2016 the invoices issued by the retailer classed the sales as zero-rated. In correspondence with the appellant the retailer advised that the zero rating of the invoices was an error that would be corrected.
It appears that, in correspondence between the retailer and HMRC it was agreed that the vouchers were zero rated (para. [33]). However, it should be noted that the FTT was not provided with comprehensive evidence regarding the retailer’s role in the supply chain. In para. [1] the FTT states that it has proceeded on the basis of the evidence available, which was “inadequate”, but HMRC had not responded to requests by the appellant for further evidence and it was not “appropriate to give HMRC further opportunities in that regard”.
There were two issues for the FTT to consider:
- Were the vouchers properly standard rated?
- If the vouchers were standard rated, should HMRC have permitted the appellant to recover VAT incurred even though it did not hold full VAT invoices?
In answer to the first question the FTT concluded that the vouchers were standard rated.
The law on the VAT treatment of vouchers was changed with effect from 1 December 2019. The vouchers under consideration were all issued before this date, therefore VATA 1994, Sch. 10A applies.
Under Sch. 10A if a voucher is redeemed by the issuer of the voucher it is a “retailer voucher”. It was common ground that the vouchers in this case were retailer vouchers. The consideration paid for a retailer voucher is disregarded if the voucher is supplied by the person who issued it. But, the consideration is not disregarded in subsequent supplies of the voucher. The FTT had to determine whether or not the retailer had bought and sold the voucher as principal (or should be treated as principal under VATA 1994, s. 47(3) or (4)). HMRC’s position was that the retailer was an agent and therefore the consideration paid for the voucher should be disregarded because the transaction being considered was not subsequent to its issue.
The FTT reviewed the contracts between the parties in detail. The retailer operated a department store and the vouchers were sold via a concession. The vouchers were activated at the till when purchased in the shop. The process of activation required the seller to contact a company which tracked and managed voucher sales on behalf of the issuer of the vouchers. In addition to an agreement between the retailer and the concessionaire, the FTT reviewed a contract between the voucher issuer and the company which tracked and managed sales. This detailed consideration is set out at para. [69]–[138].
The FTT concluded that the retailer was acting as a principal when vouchers were sold in its shop. As a consequence of this finding, the vouchers were properly standard rated (para. [159]). The FTT further concluded that VAT had been accounted for by the retailer on the sale of the vouchers, notwithstanding the zero rated invoices issued by the retailer. The FTT’s reasoning on this point, set out at para. [160]–[175] included the fact that the retailer had told the appellant that the sales were standard rated (para. [161]).
Having concluded that the vouchers were subject to standard rate VAT and that this had been paid by the appellant the FTT determined that, in these circumstances – where the lack of a full VAT invoice on the appellant’s part was due to the retailer’s refusal to issue one – HMRC should have exercised discretion and permitted input tax recovery. The FTT concluded the officer’s decision to disregard all the evidence that the appellant could provide was rooted in his view that the supplies were not VATable in the first place rather than an assessment of the available evidence (para. [198]).
Because the VAT liability of the vouchers was determined by the pre 1 December 2019 legislation, this decision is unlikely to have a significant impact on the VAT treatment of voucher sales generally. The FTT’s decision that HMRC should have accepted alternative evidence to support input tax recovery will be of interest to other businesses whose suppliers have not issued full VAT invoices.
Comment by Sarah Kay, Senior Tax Writer at Croner-i.
Mr Michael Firth of counsel appeared for appellant
Ms Sharon Spence and Ms Dawn Leppard both of HMRC, and, for post-hearing submissions, Mr Michael Ripley of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the respondents1
[1] The appeal is allowed. We gave a summary decision on 17 July 20222 allowing the appeal. We now give our full decision at HMRC's request3.
[2] This decision comes with a caveat: The decision is based on inadequate evidence and may well not reflect the reality. We asked for evidence as to other parts of the supply chain, along with further submissions as to that additional evidence. But on learning that the appellant had in vain requested that evidence from HMRC, the tribunal decided that it was not appropriate to give HMRC further opportunities in that regard.
[3] The appellant buys and sells vouchers. This appeal is against HMRC's decision to refuse amounts claimed as input tax in relation to the appellant's purchases of face-value vouchers. We found that they were retailer vouchers and so were not excluded – as single purpose vouchers – from Schedule 10 to the Value Added Tax Act 1994 (“the VAT Act 1994”), by paragraph 7A of that schedule. But we also found that their supply to the appellant was not the first supply (referred to as “the issue” in the schedule) because the seller had acted as principal and not as agent, meaning that paragraph 4(4) of Schedule 10 applies and that VAT was chargeable on the vouchers. We found that the appellant had paid the VAT. We found that HMRC's discretion in regulation 29 of the Value Added Tax Regulations 19954 (“the VAT Regulations 1995”) had not been properly exercised. We found that the outcome would inevitably be the same if we remitted, especially given the HMRC officer's evidence about that. We allowed the appeal without remitting.
[4] The appellant bought the vouchers from Harrods5, via a concession within Harrods run by DSG Retail Limited (referred to in the appeal as “Dixons” or “Currys”). The vouchers could be redeemed on the online games platform “Steam”, owned by Valve Corporation. Valve Corporation is incorporated under the laws of the United States State of Washington, but nothing turns on the place of incorporation. There were two sets of transactions in which the vouchers were purchased. The first set of transactions ran from 23 December 2015 to 30 April 2016 (“the pre-May 2016 transactions”). Bulk invoices for those from Harrods showed VAT at 20% (pages A192 to A197). HMRC had allowed the input VAT claims for the pre-May 2016 transactions. The second set of transactions ran from 1 May 2016 onwards (“the May 2016 onwards transactions”). Bulk invoices for those from Harrods, when eventually received, showed VAT at zero % (pages A86 and A192). It is to the second set of transactions, that is, the May 2016 onwards transactions, that HMRC's decisions under appeal relate.
[5] The decisions under appeal were notified by letter dated...
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