Lycamobile UK Limited v The Commissioners for HMRC

VAT is chargeable when a supplier makes a real supply of availability or access, even if the customer later makes little or no use of it. The correct analysis is to identify the true nature of the supply in its legal and economic context, having regard to the customer’s purpose. Uncertainty about later use does not prevent a supply from arising. A plan bundle providing guaranteed telecommunications availability is not merely a preliminary sale of currency or a right to future services.

Reciprocity and a direct link between consideration and supply are necessary for a taxable supply, but they do not identify the supply. Ancillary elements may form part of a single composite supply. Plan bundles of the kind considered were not vouchers under either the pre-2019 or post-2019 statutory regimes.

Lycamobile UK Limited sold telecommunications “plan bundles” providing specified allowances for a fixed period, sometimes together with value-added services and roaming features. Lycamobile accounted for VAT only when and to the extent that allowances were used. HMRC assessed VAT on the consideration when the bundles were sold.

The First-tier Tribunal dismissed the appeal in principle, subject to an adjustment for certain pre-November 2017 non-EU use. Lycamobile appealed on the nature and timing of the supply, the treatment of value-added services, and the voucher legislation. HMRC cross-appealed against the adjustment concerning certain Type 2 bundles.

1. Appeal and cross-appeal dismissed. The Upper Tribunal upheld the First-tier Tribunal’s decision in principle. The categorisation of individual bundles and quantum remained for later determination.
2. The FTT correctly identified the legal question as the true nature of the supply before determining its time of supply. The inquiry required consideration of the legal and economic context, the relationship between supplier and customer, and the customer’s purpose. The plan bundles supplied guaranteed availability of specified telecommunications services for a fixed period at a fixed price. That was the real supply, made when the bundle was sold. Actual usage was irrelevant to the existence or timing of that supply.
3. The authorities concerning a preliminary supply of currency, including Macdonald Resorts Ltd v Revenue and Customs Commissioners Case C-270/09, HMRC v Findmypast Ltd [2017] ScotCS CSIH 59 and Go City Ltd v HMRC [2024] UKFTT 745 (TC), turned on their facts. They did not establish a general rule that a supply cannot arise while uncertainty remains about later use. Reciprocity and a direct link were necessary elements of a taxable supply, but did not determine what the real supply was.
4. The value-added services in Type 2 bundles could properly be treated as ancillary elements of a single composite supply. Their treatment followed the principal telecommunications supply. The FTT was also entitled to find that the non-EU roaming calls feature was, in substance, the same service as the principal allowances used in the UK. The pre-November 2017 effective-use-and-enjoyment rule therefore applied to that feature.
5. The bundles were not vouchers. Under Schedule 10B, they did not involve acceptance of an instrument as consideration for services, because the relevant service was availability supplied on sale. Under Schedule 10A, they did not represent rights to receive future services to the value of a stated or recorded monetary amount. The services had already been supplied when the bundle was sold, and the customer’s account recorded allowances rather than a diminishing monetary value.
6. The FTT made no error of law in allowing the effective-use-and-enjoyment adjustment for the relevant Type 2 bundles. HMRC’s cross-appeal was therefore dismissed.

• First-tier Tribunal (Tax Chamber): dismissed Lycamobile’s appeal in a decision issued on 18 July 2024, while finding that an adjustment was required for certain bundles.
• Upper Tribunal (Tax and Chancery Chamber): dismissed Lycamobile’s appeal and HMRC’s cross-appeal.