Simple Energy Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 November 2023 |
| Neutral Citation | [2023] UKFTT 976 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2023] UKFTT 976 (TC)
Tribunal Judge Mark Baldwin
First-Tier Tribunal (Tax Chamber)
Value added tax – Whether successful referrals by referrers of an energy supplier as part of the supplier's refer a friend scheme amounted to the provision of non-monetary consideration by those referrers for energy supplied to them – Yes – Appeal dismissed.
In Simple Energy Ltd [2023] TC 08995 the First-tier Tribunal concluded that an energy company’s customers were providing non-monetary consideration for their energy supplies when, in return for a £50 credit off their bill, they referred friends and contacts to the supplier.
The appellant was representative member of a VAT group which included a company, Bulb, which supplied energy to consumers. As part of its sales and marketing strategy, Bulb ran a ‘refer a friend’ scheme. Existing customers were sent an electronic link by email, which they were encouraged to forward to their friends and contacts. If someone clicked the link and became a customer of Bulb, the new customer and the referrer were given a £50 credit on their energy account.
HMRC and the appellant accepted that the £50 credit given to new customers represented a discount which reduced the value of the energy supplied to them, i.e. the appellant was only required to account for VAT based on the discounted invoice value. However, they disagreed regarding the £50 credit given to the referrers. The appellant’s view was that, just as it was for new customers, the credit represented a discount which reduced the value of the supply. HMRC’s view was that, by sending the email link to their contacts, the referrers were providing non-monetary consideration for their energy bill, and that this non-monetary consideration had been valued at £50. The appellant should therefore account for VAT on the gross, undiscounted value of its supply to the referrers.
The Tribunal reviewed case law concerning the meaning of ‘consideration’ and how to identify non-monetary consideration, including lead European authorities including the Dutch potato case (Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats ) and Tolsma v Inspecteur der Omzetbelasting Leeuwarden. The Tribunal reminded itself that for a payment (whether monetary or non-monetary) to be consideration there had to be reciprocity between making the payment and the receipt of a benefit. As counsel for the appellant expressed it, there must be “arrow in – arrow out” (para. [69]). The Tribunal also concluded that the case law on this topic demonstrated that the fact that an action might be “relatively modest, almost illusory” did not mean that it could not constitute non-monetary consideration (para. [67]).
Although the actions of the referrers in this case were not significant (they merely forwarded on an email link) and the outcome of that action was not guaranteed (contacts might not click the link and, even if they did, they might not sign up to be Bulb customers) the Tribunal concluded that the referrers were performing a role to which the subjective value of £50 had been ascribed, i.e. there was a sufficient link between the referral activity and the £50 credit that reciprocity existed. The referral activity thus represented non-monetary consideration paid for supplies of energy and the supplier was liable to account for output tax on the gross value of the energy supplied. Appeal dismissed.
The Tribunal’s decision will be surprising to many, but the judgment contains a review of historic case law on the question of how to define consideration for VAT purposes and how to establish when non-monetary consideration is provided which puts the conclusion into context.
Comment by Sarah Kay, Lead Technical Writer, Croner-i Ltd.
Amanda Brown KC, of counsel, instructed by KPMG LLP, appeared for the appellant
Isabel McArdle of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
[1] Bulb Energy Limited (“Bulb”) supplied energy to business and retail customers in the UK. It operated a “refer a friend” (“RAF”) scheme. When a new customer joined Bulb, the company would provide that customer with a personalised electronic referral link which the customer could send to anyone. When the recipient clicked on the link, that person was taken to a webpage where, should they wish, they too could sign up to become a Bulb customer. If that person was accepted as a customer of Bulb, having used one of these links and switched their energy supply to Bulb, both the referrer and the new customer (a “recruit”) received a credit against their energy charges.
[2] Value added tax (“VAT”) is, as a general rule, charged on the value of the consideration given for a supply. The question we are concerned with is whether a successful referral by an existing customer (a “referrer”) as part of Bulb's RAF scheme amounted to the provision of a service to Bulb by the referrer, such service constituting non-monetary consideration for the supply of energy by Bulb (as the Respondents (“HMRC”) contend), or whether those referrals were no more than the performance of a contingency which resulted in a discount that reduced the value of the energy supplies made by Bulb to the referrer and no more (as the Appellant contends).
[3] During the assessment period the Appellant was the parent company of Bulb and the representative member of the VAT group of which Bulb was a member. After the Notice of Appeal was lodged, the Appellant entered administration and this appeal is being continued by its administrators. Bulb itself is in “special administration” under the Energy Act 2011.
[4] This appeal is made under section 83(1)(p) of the Value Added Tax Act 1994 (“VATA”). The Appellant appeals against a decision of HMRC in a letter dated 1 April 2021, the consequent Notice of Assessment issued on 23 July 2021 and a review decision of HMRC dated 3 September 2021. The Appellant's Notice of Appeal was lodged in time on 1 October 2021.
[5] Bulb began trading in 2015 and introduced the RAF scheme in May 2016 as a means of accessing a wider customer base through existing customers. The basic operation of the RAF scheme is set out in [1] above. The RAF credit was £50 if the recruit switched both their gas and electricity supply, although this was temporarily increased to £75 for part of 2019 and 2020. If a recruit only signed up to switch one type of energy supply, then the credit would be £25. The RAF credit was not applied to the referrer's account if the recruit cancelled their application before receiving energy from Bulb, which was usually around three weeks after sign up, or if the referrer cancelled their account before the RAF credit had been applied.
[6] During the assessment period all customers, whether residential or business, were signed up to the same Terms and Conditions. These would be received by a recruit by email and were available on the Bulb website. They would be updated from time to time. The December 2019 version of the Terms and Conditions was taken as representative. Relevant provisions are as follows:
- Paragraph 1.3 stated that: you agree that you have entered into this Agreement with Bulb in your personal capacity or on behalf of your business via one of the following routes: the bulb.co.uk website, a price comparison website, a Bulb sales team (for example telephone, door to door or events sales team) or an approved broker if you're a business member, and you have not entered into this Agreement with Bulb via any other third-party agent
- Paragraph 3 set out the payment terms, the following of which are relevant: –Paragraph 3.2 provided that charges were determined by reference to kWh of energy used, either by estimates or actual usage from meter readingsParagraph 3.8 provided that customers were to pay monthly by direct debitParagraph 3.14 stated that any debit or credit balance would be carried forward from each monthly billParagraph 3.16 provided that the customer must pay in advance for the supplyParagraph 3.17 set out that the monthly payments would be based on the anticipated cost of energy split into 12 equal payments which were reviewed twice a year and adjusted as appropriate.Paragraph 3.18 provided for a twice-yearly review of the balance on the account and changes to the monthly payments as appropriateParagraph 3.21 provided for a refund of a credit balance exceeding expected monthly usage.
- Clause 16.5 of the December 2019 Terms and Conditions was an entire agreement clause and provided: This Agreement, any other Agreements you receive from us, and any documents explicitly referred to in this Agreement, are the entire agreement between you and us.Agreement was defined as: All the bits and pieces that together form the basis for us working together to supply your energy. These include this Agreement and the tariff information set out in the Energy Supply Agreement section of the Welcome Pack. You'll receive the Welcome Pack by email.
- Paragraph 17 concerned the terms for the referral credit.Paragraph 17.1.6 defined the credit as a reward.Paragraph 17.2.9 described the RAF credit as a credit to be added to the customer's account once the relevant requirements have been met.Paragraph 17.2.1 provided that the referrer and the recruit would receive a reward when the recruit successfully switches their energy supply to Bulb.Paragraph 17.2.5 provided that the recruit must use the referrer's unique link to switch energy supply to Bulb on bulb.co.uk. Retrospective claims were ineligible and would not be rewarded.Paragraph 17.27 provided that rewards would be cancelled if the recruit cancelled their agreement with Bulb before the switch date.Paragraph 17.2.10 confirmed that users could offer additional rewards to recruits as long as they made it clear that this was the responsibility of the users...
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