Revenue and Customs Commissioners v Findmypast Ltd
| Jurisdiction | Scotland |
| Judgment Date | 08 September 2017 |
| Neutral Citation | [2017] CSIH 59 |
| Docket Number | No 2 |
| Date | 08 September 2017 |
| Court | Court of Session (Inner House) |
[2017] CSIH 59
Court of Session (First Division, Inner House)
Lord President, Lord Drummond Young, Lord Tyre
S. Smith QC, R. G. Anderson; Office of the Advocate General appeared for appellants
Simpson QC; Balfour & Manson LLP appeared for respondent
Value added tax – Vouchers issued for access to genealogical websites – Nature and time of supply – Whether face value vouchers – Repayment claimed in respect of unredeemed vouchers – VATA 1994, Sch. 10A, para. 1.
The Court of Session refused an appeal by HMRC against a decision of the Upper Tribunal (UT) that, in respect of the supply of vouchers for the provision of access to genealogical and ancestry websites, VAT only became due when a customer redeemed vouchers to access records on a website, rather than when the customer purchased the vouchers.
The taxpayer, Findmypast Ltd, carried on the business of providing access to genealogical websites. A charge was made for viewing or downloading records and this was done either by subscription or by a “pay as you go” (PAYG) system, which involved a payment in return for which the customer received “credits”, sometimes referred to as “units” or “vouchers”. The taxpayer had accounted for Value added tax (VAT) on the PAYG vouchers at the time they were sold and the present proceedings concerned the refusal by HMRC of a claim for repayment of VAT in excess of £400,000 accounted for by the taxpayer in respect of unredeemed vouchers during the period 2008 to 2012. With effect from May 2012, the VAT legislation was changed to make VAT payable upon the issue of vouchers, so the present dispute did not apply to sales made in subsequent periods.
The primary issue for the court was whether VAT should have been accounted for at the time the vouchers were sold, as argued by HMRC, or at the later time when the vouchers were redeemed. If it was the latter, the taxpayer would have a valid claim for repayment. The UT had earlier overturned a decision of the First-tier Tribunal (FTT), finding that use of the search facilities was not part of a package paid for by the customer when purchasing the credit or subscription. In the opinion of the UT, the credits were face value vouchers and the service was supplied when the individual documents were accessed. The purchase of a credit was not a pre-payment for access to documents because, at the time of purchase, the customer did not know which documents they would access.
In the present hearing, the taxpayer contended that the service provided by it was the supply of genealogical records selected by a customer and viewed or downloaded by that customer. On that basis, the supply only occurred at the point when the credits were used or redeemed and documents were viewed or downloaded. Consequently VAT only became chargeable at that time. HMRC, by contrast, contended that what was supplied to the customer was a “package” of services, which conferred a right to search the records on various websites and, if so desired, to download and print particular items from those websites. That package was available at the point when the PAYG vouchers were purchased. Consequently, submitted HMRC, the service provided by the taxpayer was supplied as soon as a customer purchased vouchers and VAT was due at that point.
The court considered it necessary to examine the nature of the service supplied by the taxpayer, having regard to precisely what it does and what it undertakes to do for its customers, with the notions of consideration and reciprocity being of fundamental importance. The court identified two services: a general search function and the viewing and downloading of specific documents. It was necessary to determine the consideration for the amounts paid by PAYG customers, applying the principle of reciprocity. In the court's opinion, the consideration was the viewing and downloading of specific documents by the customer engaged in genealogical research. It was that service, and that service alone, that could only be accessed by making use of the PAYG credits. By contrast, the search function provided no such information, but merely an indication that a document might be relevant to the search. It followed that the search function was not an end in itself; it was no more than ancillary. In any event, the search function was available free of charge to the general public as well as to PAYG and subscription customers.
Having established that the consideration for the payments made by customers to obtain PAYG credits was the ability to view or download particular items on the taxpayer's website, the court observed that such a conclusion would entitle the taxpayer to succeed only if the payments made by PAYG customers were not “prepayments” within the meaning of VATA 1994, s. 6(4) and art. 65 of EC Directive 2006/112, the 2006 VAT directive. The elements of uncertainty, such as whether redemption of the credit would ever occur and when redemption would occur were sufficiently important to exclude the application of the prepayment rules contained in s. 6(4) and art. 65. For a prepayment to be chargeable to VAT, it must relate to a particular supply of goods or services, with a direct link to the consideration paid in advance. Without such a link, the payment made in advance of the supply was merely a deposit to the general account of the customer. In the present case, the uncertainties were significant and so material that the payment made when PAYG credits were purchased could not be considered a prepayment towards the cost of any particular search.
In view of its findings on the nature of the supply and the prepayment issues, the court concluded that the appeal by HMRC must be refused and, accordingly, the question of whether the PAYG credits amounted to face-value vouchers did not arise. However, since full arguments were presented to the court on this issue and the matter was regarded by HMRC as one of some importance, particularly in relation to multi-purpose face-value vouchers, the court considered it appropriate to address the subject.
Should the credits or vouchers satisfy the conditions of a face value voucher, the effect of VATA 1994, Sch. 10A, para. 4(2) would be that the consideration for the issue of the voucher would be disregarded, except to the extent, if any, that it exceeded the face value of the voucher, with the result that the issuing of the voucher would not be a taxable transaction and VAT would become chargeable at the point when the voucher was redeemed in exchange for goods or services.
In the court's opinion, the PAYG credits, or vouchers, issued by the taxpayer did not amount to face-value vouchers, but were credits that permitted the customer to view and download particular documents on the taxpayer's website. They were quite different from a typical face-value voucher, could not be used in the same way and did not represent the right to receive services. Moreover, they did not satisfy the third and fourth requirements of VATA 1994, Sch. 10A, para. 1(1). These require that the right represented by the voucher should be “to the value of an amount” and that that amount should be “stated on” or “recorded in” the voucher.
In the judgment of the court, the decision of the UT was correct in that the nature of the taxpayer's supply to PAYG customers was the supply of genealogical records selected by a customer and viewed or downloaded by that customer, and that the payments made by customers when they purchased PAYG credits did not amount to a prepayment within the meaning of VATA 1994, s. 6(4). However, the court disagreed with the UT, but agreed with the FTT, in finding that the PAYG credits did not amount to face-value vouchers within the meaning of Sch. 10A. Nevertheless, on the basis of its findings on the nature of the supply and the prepayment issue, the court found in favour of the taxpayer and dismissed HMRC's appeal.
This decision addressed a number of points concerning the time of supply of the taxpayer's services. The Court of Session was clear that credits purchased by customers could not be considered prepayments towards the cost of any particular search and, therefore, that VAT did not become due until the credits were redeemed and specific documents were downloaded or viewed. The obiter comments of Lord Drummond Young in relation to what constitutes a face value voucher, which were contrary to the findings of the UT, were of greater interest, however, and add to the growing list of authorities on this subject.
[1] The respondent taxpayer carries on the business of providing access to genealogical and ancestry websites which it owns or in respect of which it holds a licence. Customers who wish to search the historical records on the website may do so without charge. If a customer is to view or download most of the records on the website, however, he or she will require to pay the respondent. This may be done by taking out a subscription for a fixed period, which confers unlimited use of the records during that period. Alternatively, the customer may use a system known as Pay As You Go (“PAYG”). This involves the payment of a lump sum in return for which the customer receives a number of “credits”, sometimes referred to as “units” or “vouchers”. The credits may be used to view records on the website, and each time a record is viewed some of the credits are used up. The credits are only valid for a fixed period, but unused credits may be revived if the customer purchases further credits within two years; otherwise they are irrevocably lost.
[2] During the period between September 2008 and 10 May 2012 the taxpayer accounted for value added tax on the price of PAYG vouchers at the time when they were sold. The result was that tax was paid not only in respect of vouchers that were used to access genealogical records but also in respect of vouchers that remained unredeemed. In the...
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