United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20351, [2008] BVC 2044, [2008] STI 228, [2007] V & DR 321

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Leisure Pass Group Ltd v Revenue & Customs [2007] UKVAT V20351 (20 September 2007)

20351

FACE-VALUE VOUCHER – London Pass entitling the purchaser to visit a list of attractions without further payment – whether a right to receive services to the value of an amount stated on it or recorded in it (VAT Act 1994, Sch 10A) – no – appeal dismissed

LONDON TRIBUNAL CENTRE

LEISURE PASS GROUP LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: DR JOHN F AVERY JONES CBE (Chairman)

SHEILA WONG CHONG FRICS

Sitting in public in London on 12 September 2007

Kevin Prosser QC, counsel, instructed by KPMG, for the Appellant

Phillipa Whipple, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

Leisure Pass Group Limited appeals against a decision on a letter from Customs of 16 August 2006 that the London Pass is not a face-value voucher. The Appellant was represented by Mr Kevin Prosser QC and Customs by Miss Philippa Whipple.

The issue in this appeal is whether the London Pass ("the Pass"), which is purchased for a fixed sum depending on the number of days' validity and entitles the holder to entry to a number of attractions in London without further payment, falls within the definition of face-value voucher. Originally Customs agreed that it was and made repayments accordingly but subsequently changed their mind. This appeal is against their revised ruling.

Schedule 10A of the VAT Act 1994 provides:

"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…".

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. In addition to free entry, some of the attractions entitle the holder to other benefits. For example, St Paul's Cathedral offers a 25 per cent discount on meals in the Refectory Restaurant after 1400 hours and a 10 per cent discount on purchases over £10 in the Cathedral Shop. A few of the attractions, such as the National Portrait Gallery, do not charge for entry in which case the Pass entitles the holder to free entry for any exhibition there for which an entry fee is charged to the public, or if there is no exhibition to a free copy of the Gallery's Visitor's Guide. The Appellant's Guide states that the Appellant is not liable for any loss if any attraction refuses admission in accordance with the terms of the Pass contrary to the terms of its contract with the Appellant.

(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. For an additional price the Pass is sold with a travelcard entitling the holder to travel on the underground, rail and buses.

(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 by the Appellant. The Appellant agrees to include a page of information about the attraction in its Guide.

(6) On arrival at the attraction, the Pass is swiped in a card terminal owned by the Appellant which confirms its validity, that is within the period of validity, and records the card details, including the date and time of the visit. These details are downloaded to the Appellant's computer overnight and at the same time the card terminal at the attraction is informed of the issue of new cards.

(7) The Appellant's computer system record for each Pass the following information.

(a). In the period before October 2005, a list of the attractions visited with the date and time, the card number, its duration, the price that the Appellant will pay to the attraction and the normal entry price, the cost of the Pass and the "benefit to card holder," being the difference between the cost of the Pass and the cash price of the attractions visited. Information about the rest of the attractions was stored elsewhere on the computer system and was readily available.

(b). The computer system was not working between October 2005 and 28 March 2006 owing to a dispute with the software provider.

(c). Between 28 March 2006 and 15 October 2006, the information is similar to that before October 2005 but containing a summary showing the total price to be paid by the Appellant to the attractions visited, the gate price, the price of the Pass and the benefit to the Passholder (based on the gate price) and to the Appellant (based on the price it pays to the attraction).

(d). From 16 October 2006 a page shows for each Pass the full list of the attractions and the gate prices (being the price current at the date of issue of the Pass); those visited are shown in bold with the date and time against them. The price paid by the Appellant to the attraction is not shown. The total of gate prices and the amount used and unused is shown. This cannot be accessed by the Passholder, who can merely ring a number shown in the Guide and be told the total gate price for the attractions not visited as at 6 am that day. Hardly anyone uses this facility.

(8) It is common ground that holders of the Pass will not in practice visit all the available attractions, although one party once succeeded in doing so with a 6-day Pass.

(9) The Guide shows the gate price to the public of each attraction. The total gate price is £464.40 for an adult Pass and £256.60 for a child Pass. The calculation does not include the value of the other benefits.

(10) Entry at some of the attractions is liable to VAT and in others it is exempt. Exempt ones comprise 21 out of 55 attractions and about 60 per cent of payments by the Appellant to attractions because the exempt attractions include some of the most popular ones, such as Hampton Court Palace, the London Zoo and Windsor Castle.

(11) A separate booklet also lists other benefits available to Passholders, such as a free bottle of wine with a meal at listed restaurants. These benefits are available through other outlets. The Pass is shown but not read by a card terminal in these places and accordingly no check is made whether the card is still within its period of validity. The charge made for the Pass does not reflect these benefits. The Appellant does not consider that these benefits are a reason why customers buy the Pass. The benefits are included at the request of the retailers.

Mr Prosser QC, for the Appellant, contends in outline:

(1) The legislation should be read in its context as a provision designed (inter alia) to avoid double taxation where a supply is capable of being divided into two separate transactions by reason of prepayment, see Customs and Excise Commissioners v Granton Marketing Ltd [1996] STC 1049.

(2) The object of the legislation is to defer any VAT charge until the "real" supply of the goods or services is actually made, when the VAT charge would reflect the taxability (and rate) or exemption of the real supply. This achieved by disregarding the consideration for the supply of the voucher up to the face value. Accordingly the reason for having a stated (or recorded) face value is to charge tax on the issue of the voucher to the extent that it was not merely a prepayment for the real supply.

(3) The object of the legislation is not just to avoid double taxation but to avoid a distorted taxable charge in the issue of the voucher when the real supply was exempt. Sch 10A should not be construed so narrowly as to distort the general scheme of VAT, see HMRC v IDT Card Services Ireland Ltd [2006] STC 1252.

(4) The Pass is a form of prepayment for admission to such of the available attractions as the Passholder may choose to visit. It is a voucher in electronic form, the rights being recorded and exercised electronically. The Pass represents a number of rights to admission to each of the attractions without further payment, each having a known value, the gate price, which is recorded in the Appellant's computer system. The fact that the holder will not in practice visit every attraction does not mean that he does not have the genuine right to visit each of them. It is conceded that during the period of computer failure the definition is not satisfied because during that period there is no electronic form in which the value can be recorded.

(5) Customs' case confuses the value of the Pass with the value of the goods or services that the voucher represented.

Miss Whipple, for Customs, contends in outline:

(1) When purchasing a Pass the visitor receives the Pass itself, the Guide, the right to visit any of the attractions without further charge, the right to take advantage of the listed offers, the ability to beat the queue, the convenience of not having to carry cash or pay for entrance at each attraction.

(2) Normally the supply of rights is a supply of services on which tax is charged at the time of supply. Schedule 10A provides a limited exception postponing the charge to tax until the voucher is redeemed. The courts have maintained the distinction between sales of rights and vouchers, for example in Celtic plc v Customs and Excise Commissioners (1997) VAT Decision 14762 in which the tribunal treated a ticket for a particular football match described as a voucher as the sale of the ticket, not a voucher. Examples of supply of rights are the theatre ticket in Customs and Excise Commissioners v Richmond Theatre Management Ltd [1995] STC 257, the supply for the no-show charge for a hotel room in Bass plc v Customs and Excise Commissioners [1993] STC 42, and the supply of activities vouchers in Acorne Sports Ltd v Customs and Excise Commissioners (2003) VAT Decision 18009.

(3) The key defining feature of a face-value voucher is that it states or records a given value which abates according to use. There is no value stated on the Pass. Even if the gate prices stated in the Guide are regarded as recorded in the Pass they are not a value but a notional figure which does not represent the value to the holder or to the Appellant.

(4) The total of the gate prices is not a proxy for value because in practice the holder will not take advantage of visiting all the attractions. In any case the gate prices do not reflect the value of all the benefits. The attractions may be closed or they may increase their prices. The Pass is not a means of prepayment to each and every attraction but simply a right to visit any of them at the holder's election.

(5) So far as distortion is concerned the Pass represents a basket of rights characterised as a single supply of services which is taxable; see for an analogous decision Highland Council v HMRC [2007] CSIH 36 relating to the use of various leisure facilities, some of which were exempt and others taxable. On the Appellant's case the only VAT charged is the discounted price paid by the Appellant to the attractions leaving untaxed the benefits of convenience and ability to jump the queue.

(6) The purpose of Sch 10A is to capture the tax over the two stages; here the tax at stage two is an unknown amount. The Schedule operates on any form of right and does not refer to prepayment. Here there is no prepayment because the holder will never go to all the attractions; the Pass represents a right to choose from a menu, which is different from a prepayment. The value referred to in the definition must be a value appropriate to the goods or services. Suppose a voucher entitled a shopper to anything he could put in his basket in a supermarket in five minutes, the Appellant's contention would be that the value recorded in the voucher would be the value of everything on the supermarket shelves. Schedule 10A should be given a purposive interpretation, neither a wide nor a narrow interpretation (the wide interpretation in IDT was on account of non-taxation being contrary to the Sixth Directive). It is an odd result of the Appellant's submission that if the computer is not operating there is no face-value voucher.

We turn first to the authorities. The Court of Appeal in Granton Marketing Ltd said that "para 6 [the predecessor to Sch 10A] is designed to avoid double taxation where a supply is capable of being sub-divided into two separate transactions by reason of prepayment." The Court decided that the right to a discount on the price of meals was not within the provision since he was not entitled to any particular goods or services by the restaurant which might be closing early or be full. Robert Walker LJ in F&I Services Ltd v Customs and Excise Commissioners [2001] STC 939 said at [45] that the Court in Granton may have gone further than it should in looking for an unconditional right to be served in a restaurant because VAT legislation must be construed in a Community context without an over-refined analysis in terms of domestic law. However, Granton was correctly decided on the ground that the card entitled the customer to a discount rather than a right to goods or services. At [45] he stated "But Sch 6 para 5 must not be construed so widely as to distort the general structure of VAT as a Community tax, and I think that this court was right, in Granton Marketing to be aware of that danger."

On the other hand, a wide meaning was given to Sch 10A in IDT Card Services Ireland Ltd by Arden LJ in order to prevent non-taxation:

"[95] In my judgment the principles of avoidance of non-taxation, avoidance of double taxation and the prevention of the distortion of competition are general principles of the Sixth Directive. One of the objectives of the directive is the harmonisation of rules on turnover taxes (see the preamble quoted above) and the Directive contains mandatory rules as to which supplies shall be taxable and where those supplies are deemed to take place. It must follow from these provisions that one of the objectives of the Directive is to prevent situations arising in which a taxable supply escapes taxation because it is not caught by the legislation of member states…

…

[109] Once it is determined that the court has a wide power to interpret legislation in the light of the wording and purpose of the Sixth Directive, there can be seen to be no objection in principle to interpreting Sch 10A to conform to the principles of the Sixth Directive. The principal remaining objection to the application of the Marleasing principle in this case is the principle of legal certainty. This is an important issue.

…

[112] It follows from the fact that if ICSIL is correct in its interpretation of para 3(3) of Sch 10A, the VAT treatment of the distribution of the phonecards for Interdirect's services infringes the principles of the Sixth Directive. It further follows that the United Kingdom is acting in a way which is incompatible with its Community obligations if the effect of para 3 of Sch 10A is to relieve any supplier from VAT under the guise of granting relief to a supplier from the double taxation on telecommunications services. Therefore the court is under an obligation to interpret para 3 as far as possible in the light of the wording and purpose of the Sixth Directive and specifically to prevent the non-taxation of the supplies to the UK distributors of ICSIL's phonecards, or other taxpayers in the same position.

…

[114] Mr Pleming ventured only briefly to submit precisely how para 3 should be interpreted in order to bring it into conformity with Community law. As the Ghaidan case shows it is not necessary to find a simple linguistic device for this. It also shows that one of the ways of interpreting a provision 'so far as possible' is to write in words. In my judgment the appropriate interpretation is to read in words to widen the disapplication in para 3(3) of the disregard in para 3(2) so that the disapplication applies where the disregard would result in the non-taxation, contrary to the objectives of the Sixth Directive specified in para 95 above, of a taxable supply of goods or services in the United Kingdom. In my judgment it is unnecessary for this court to attempt to splice precise words into the language used by Parliament in Sch 10A as if it were itself the parliamentary drafter. As the Ghaidan case shows, it is not an objection to interpretation of this nature that it amends the language used by Parliament. In this respect, I do not find Mr Lasok's citation from the Scotch Whisky case of assistance since the principle there stated was one applicable to the interpretation of European Union legislation (ie under the first level of interpretation as I have described above) and not applicable to the interpretation of domestic legislation under the Marleasing principle. The interpretation of para 3(3) of Sch 10A which I prefer gives effect to the wording and purpose of the Sixth Directive because it implements the general principles of VAT law identified above in respect of the harmonised rule relating to the place of supply of telecommunications services, ie that such supply should in the case of private consumers be taxed in Ireland but in the case of registered persons such as the United Kingdom distributors be taxed in the place where such persons are established."

It seems to us that the scheme of the legislation recognises three categories of supply. The first is a supply of specific goods or services on which tax is payable at the time of supply even though the enjoyment of the supply may be postponed and in the meantime one could describe the owner as having a right, as in the case of a theatre ticket (see Customs and Excise Commissioners v Richmond Theatre Management Ltd [1995] STC 257).

The second category is the supply not of specific goods or services, but of making facilities available for use to the extent that the purchaser chooses, as with the golf club subscription in Kennemer Golf & Country Club, Case C-174/00 [2002] STC 502 at [40]: "The services provided by the association are constituted by the making available to its members, on a permanent basis, of sports facilities and the associated advantages and not by particular services provided at the members' request." The supply will be of a right to use the facilities which is categorised as a separate supply of services and is therefore taxable, regardless of the taxability of the goods or services that may be enjoyed in pursuance of the right (an example is The Highland Council in which some of the supplies that the purchaser of the All Inclusive card could use were taxable and some exempt; another is Acorne Sports Limited in which vouchers were supplied entitling the holder to participate in a variety of leisure activities). This is because the supply is complete when the person acquires the right, and it cannot be affected by the person's subsequent use or non-use of the facilities.

The third category is Sch 10A, which is an exception to the second, and applies if a voucher represents the right to receive goods or services up to the face value of the voucher. The consideration for the voucher is disregarded (except to the extent to which it exceeds the face value) (para 3(2)), in which case tax is charged on the goods or services for which the voucher is redeemed according to their VAT categorisation. Not only is the time of supply deferred until the voucher is redeemed but the fact that the issue of the voucher is a separate taxable supply of a right is also effectively disregarded in favour of the VAT categorisation of the ultimate supply made on redemption of the voucher. Paragraph 3(3) excludes the effect of para 3(2) if the supplier of the goods or services obtained from using the voucher fails to account for any VAT on the goods or services supplied to the user of the voucher, thus emphasising that this is merely a postponement of the supply; if the tax is not paid on the ultimate supply then the supply of the voucher becomes taxable.

The distinction between the second and third categories is that in the second the purchaser acquires a right and what he subsequently does in pursuance of the right is irrelevant; and in the third because the right is in the form of a voucher one can wait and see what he does with the voucher. Normally where the supply for a fixed price is of a menu of goods or services from which the acquirer can choose, it necessarily falls within the second category. Mr Prosser's contention, for which there is no direct precedent, is that where there is a voucher and also the value of the items comprising the menu are themselves stated (or recorded), this enables the supply to fall into the third category. Effectively, he regards the Pass as a voucher for admission to each of a number of attractions to the value of each of them up to a total value of £464.40 and every time it is used that value is written down by the gate price, as can now be seen on the Appellant's computer system. Where, as here, a majority by value of the ultimate supplies are exempt there is a clear advantage from the point of view of neutrality if they can be fitted into the third category. We are not concerned about Miss Whipple's suggestion of lack of neutrality in not capturing the value of queue jumping and general convenience as one cannot put a monetary amount on them.

The question is whether the supply in this appeal can be fitted into the definition of face-value voucher. The first part of the definition is that it must be a "voucher (whether in physical or electronic form)…". The Pass is a voucher that is partly in physical form (the card itself containing the chip) and partly in electronic form (the information stored on the chip, and Mr Prosser contends also the information about the use of the Pass on the Appellant's computer). The next part of the definition is "that represents a right to receive goods or services…". The Pass represents a right to receive services in the form of free entry to such of the attractions that the holder decides to visit and to the other benefits. These are in our view correctly described as a right since the Passholder will not in practice visit all of them and effectively he has a right to choose between them. It is not therefore a purchase of actual entry to all of them. Miss Whipple would include the benefits of avoiding queuing as a right but we consider that this is a by-product of holding the Pass rather than a service to which the holder has a right. We see no difficulty in including the information on the Appellant's computer as being part of the electronic form of the voucher. Since a voucher wholly in electronic form is within the definition the information will be wholly on a computer.

The main difficulty with the definition is over the final words "to the value of any amount stated on it or recorded in it," which it is not immediately apparent that they are satisfied. Mr Prosser puts forward a strong case for saying that if, as we have decided, one can include the Appellant's computer system as part of the electronic form of the voucher, the face value "recorded in it" is the gate price for each of the separate attractions. Mr Prosser would read the recorded value requirement as satisfied by saying that there is a separate right to admission to attraction No.1 to the face value of its gate price, a separate right to admission to attraction No.2 to the face value of its gate price, and so on, while recognising that the total of those gate prices is not a particularly relevant figure.

We consider that while Mr Prosser's interpretation is ingenious it stretches the wording too far, even though we would like it to fit on grounds of neutrality. We consider that the right to receive goods or services that the Pass represents is a single right to free entry to such of the attractions as the holder chooses to visit, which should not be dissected into a series of separate rights to admission to each attraction each with its own recorded value. That single right is not "to the value of an amount stated on it or recorded in it" which implies that the holder can in a meaningful way spend up to a given value on the goods or services represented by the voucher. With, say, a book token (which clearly falls within Sch 10A), the value shown on it is highly relevant. Here, having purchased the Pass, the gate price of each of the attractions is irrelevant to the Passholder, save that he may want to know that he has received value from the Pass in the form of paying less for it than the gate price of those attractions he decides to visit. The value does not become relevant merely because one can determine that the Pass represents an arithmetic total of gate prices that reduces when an attraction is visited. The right represented by the Pass is not, viewed realistically, that the holder has the right to visit attractions to any stated (or recorded) value; it is to visit such of the attractions he chooses. It might be different if the Pass entitled the holder to admission to attractions having a gate price up to the value of £X (with X depending on the number of days' validity of the Pass).

Nor do we consider that para 3(3) can be made to fit. For the disregard of the consideration up to the face value of the voucher, the supplier of the goods in return for the voucher must account for VAT on the goods or services supplied, which seems to imply that the VAT must be accounted for on the same face value, so that this is a provision postponing the time of payment to the time of redemption of the voucher, at least to the extent that tax is payable on the ultimate supply. That cannot work here where the attractions account for VAT on the discounted price paid to them by the Appellant. In our view, Schedule 10A is limited to cases where there is a prepayment of a specific amount, which may be redeemed for goods or services of the same value. This is what we have described as the second category for which the recipient pays a fixed amount for a right to use various facilities and it is of no consequence what use he makes of the right.

Unfortunately that means that there is a distortion caused by the underlying exemption of a majority in value of the supplies actually chosen being negated by the fully taxable supply of the Pass, the cost of which falls on foreign visitors, but that is the necessary result of treating a right as a separate supply of services except where Sch 10A applies, which we do not consider it does.

Accordingly we dismiss the appeal. Customs do not ask for costs.

JOHN F AVERY JONES

CHAIRMAN

RELEASE DATE: 20 September 2007

LON/06/0984