United Kingdom VAT & Duties Tribunals Decisions

Leisure Pass Group Lts v Revenue & Customs [2009] UKVAT V20910 (9 January 2009)

20910

FACE VALUE VOUCHER – revised terms of London Pass – whether it represents a right to receive services to the value of an amounted stated on it (para 1, Sch 10A, VAT Act 1994) – yes – appeal allowed

LONDON TRIBUNAL CENTRE

LEISURE PASS GROUP LIMITED (No 2) Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: DR JOHN F AVERY JONES CBE (Chairman)

LYNNETH M SALISBURY

Sitting in public in London on 18 December 2008

Kevin Prosser QC and Andrew Hitchmough, counsel, instructed by KPMG LLP, for the Appellant

Philippa Whipple, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009


 


DECISION

1. Leisure Pass Group Limited appeals against a decision in a letter of 1 May 2008 that the London Pass ("the Pass") is not a face value voucher within Schedule 10A to the Value Added Tax Act 1994. It is their second appeal. In the first, (2007) VAT Decision 20351, upheld on appeal [2008] EWHC 2158 (Ch), on the basis of the former terms, the Pass was held not to be a face value voucher. Since then the terms have changed and the Appellant is contending that as amended it does qualify. The Appellant was represented by Mr Kevin Prosser QC and Mr Andrew Hitchmough, and the Respondents ("Customs") by Miss Philippa Whipple.
2. There was an agreed statement of facts as follows:

(1) The Appellant carries on business from premises at 58-60 Berners Street, London W1T 3NQ.

(2) The Appellant was registered for the purposes of VAT under VAT registration number 739 8400 07 effective from 1 September 1999.

(3) The Appellant supplies the London Pass. The Pass is a credit card sized plastic card containing a microchip with a variable validity period of between one and six days. The Pass is sold to visitors to London and gives rights to the Passholder which include free entry to fifty tourist attractions throughout London and other rights including a range of special offers and the ability to beat queues at selected attractions.

(4) The Appellant contracts with the operator of each attraction to allow entry to Passholders without further payment. Payment is made by the Appellant directly to the attractions visited by the Passholder. Each of the participating attractions is equipped with a small terminal (owned by the Appellant) that confirms the validity of the Pass and records the Pass details, including the date and time of the visit.

(5) With effect from 26 November 2007, the Appellant altered the design and configuration of the Pass. The redesigned Pass has a set value that is shown on the face of the Pass itself and recorded in it ("Maximum Value"). The Passholder gains entry to participating attractions until the Maximum Value has been exhausted.

(6) The value of the Pass varies in accordance with the duration period of the Pass, but it ranges from £70 for a 1-day Adult Pass to £420 for a 6-day Adult Pass.

(7) The gate value of each attraction visited is deducted from the face value of the Pass on entry.

(8) The Pass remains valid for the stipulated number of days after it is first used, or until the Maximum Value is reduced to nil.

(9) The price at which each Pass is sold will not be more than the face value of the Pass but will be less. For example, the current price for a one day voucher with a £70 Maximum Value is £39 [figure changed from £36 in the light of the website documents with the papers].

(10) The Appellant makes payment to the attractions at a negotiated discounted rate, which is between 20 and 40 per cent below gate price. Some of the participating attractions are exempt for VAT purposes

(11) On 16 November 2007 the Appellant wrote to the Respondents seeking a ruling as to whether the Pass fell within the definition of a face value voucher under Schedule 10A to the Value Added Tax Act 1994 from 26 November 2007.

(12) On 1 May 2008 the Respondents ruled that the Pass did not fall within the definition of a face value voucher. Following on from the ruling and litigation concerning the original design of the Pass without the set values shown on it, the Respondents ruled that the Pass similarly fell within the supply, not of specific goods or services, but of making facilities available for use to the extent that the purchaser chooses. In addition the Respondents considered that Schedule 10A was limited to cases were there was prepayment of a specific amount, redeemed for goods and services to the same value.

(13) The Respondents also stated that to qualify for a credit voucher, the redeemer had to account for VAT on the full face value of the voucher at the time the voucher was redeemed. In relation to the Pass, the Appellant reimbursed redeemers at discounted rates – in the Respondents' view the Pass fell outside the definition of a face value voucher.

(14) The Appellant submitted its Notice of Appeal to the Tribunal on 16 May 2008.

Issues in dispute

(15) The central issue in this appeal is whether the Pass, as at 26 November 2007, represents a right to receive goods or services to the value of an amount stated on it or recorded in it, pursuant to paragraph 1(1) Schedule 10A, and is therefore outside the scope of VAT; and whether the inclusion of a daily Maximum Value has the result that the Pass represents a right to receive goods or services to the value of an amount stated on it or recorded in it.

(16) In order for the Tribunal to make such a determination, the issues raised will be:

1. whether there is a value that is stated on or recorded in the Pass;

2. whether a face value voucher requires VAT to be accounted for by the redeemer on the amount received or on the full face value of the voucher;

3. whether Schedule 10A permits a face value voucher to be sold at a discount;

4. whether the purpose of Schedule 10A is to avoid double taxation where a supply is capable of being subdivided into two separate transactions by reason of a prepayment, i.e. by the purchase of a voucher;

5. whether the prepayment analysis requires there to be symmetry or uniformity of treatment of the vouchers at each stage of their life cycle, because in the absence of such symmetry there will be double or non-taxation.

3. We heard evidence from Mr Darran Evans of the Appellant and had a bundle of documents. We find the following facts, which include facts we found in the previous appeal which we understand are still valid:

(1) The Pass is sold to visitors to London and entitles the Passholder 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 128 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 20 per cent discount on meals in the Refectory Restaurant after 1400 hours, a 10 per cent discount on purchases over £10 in the Cathedral Shop and a reduction in the price of the audio guide. 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) If the gate price of an attraction would take the Passholder over the Maximum Value the holder will be refused entry; the balance cannot be paid in cash. A particular attraction may be visited only once during the validity of the Pass.

(3) 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. In practice, Mr Evans estimated that there will be queues at a particular attraction only on 20 or 30 days a year.

(4) We saw some examples where the discount was greater than the normal 20 to 40 per cent.

(5) The details collected by the attraction 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.

(6) 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, and they require further expenditure by the Passholder. The benefits are included at the request of the retailers.

(7) Over 50 per cent of purchasers of one-day Passes will get to within one attraction of the £70 limit, and for a two-day Pass over 50 per cent of Passholders will use a gate value of over £70.

(8) The Appellant's website lists the amounts saved by buying a Pass. This is calculated by assuming that three of the top attractions are visited in a day. The saving quoted for a one-day Pass is £8.

4. Schedule 10A to the Value Added Tax 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…".

5. Mr Prosser and Mr Hitchmough contend:

(1) The Pass is now a face value voucher. It qualifies under Sir Andrew Park's observation that "The statute contemplates, and applies only to, a voucher which has a monetary limit placed upon it, in the sense that, when the monetary limit is reached, the voucher is exhausted and cannot be used any further."

(2) The convenience elements, such as the ability to beat the queue, are irrelevant. They are ancillary elements not constituting for the customer an aim in itself, but is simply a means of better enjoying the principal element of the package (see Card Protection Plan v Customs and Excise Commissioners Case C-349/96 [1999] STC 270 judgment at [30]).

(3) Customs are wrong in contending that symmetry is required between the price paid for the voucher, its face value and the amount received on its redemption. That is a misreading of F & I Services Limited v Customs and Excise Commissioners [2001] STC 939.

6. Miss Whipple contends:

(1) On the interpretation of the statute the value limit should be an effective limit not a theoretical one. The limit of £70 is hypothetical and not meaningful. It was fixed at a figure that would be unlikely to inconvenience the Passholder; it will not make any difference to the majority of Passholders. For a six-day pass there is no change from the previous position; the figure of £420 is roughly the same as the total gate price of all the attractions, and as a practical matter it is not possible to visit them all. The website gives an estimate of the savings based on visiting three top attractions per day, which will be below the limit and demonstrates that the limit is not an effective one in practice. The limit is effectively and in substance still based on the number of days, not value.

(2) This interpretation is supported by its purpose. Where the legislation applies there should be no tax on the issue and full tax on redemption of the voucher. This requires symmetry between the prices of the two, in the sense that one is a prepayment for the other, see F & I Services Ltd v Customs and Excise Commissioners [2001] STC 939 at [44], [56] and HMRC v IDT Services Ireland Limited [2006] STC 1252. Although not implementing any provision of the VAT Directive the provision should be interpreted consistently with its principles, so as not to distort the general scheme of the tax. Avoiding non-taxation or double taxation are such general principles. The provision should not be interpreted so as to allow goods or services to escape tax. The purpose of the provision is to avoid double taxation where a supply is capable of being sub-divided into two separate transactions by reason of a prepayment. Prepayment requires symmetry or uniformity of treatment of the vouchers at each stage of their life cycle.

(3) The convenience elements are ancillary elements of the overall supply for liability purposes but are more than ancillary in terms of the benefit provided.

7. Dealing first with the purpose of the provision, the reference to symmetry derives from Carnwath J's decision in F & I Services Limited v Customs and Excise Commissioners [2000] STC 364 where he said, without using the word symmetry, at 368c:

"Both parties accept that there needs to be a measure of reciprocity in the treatment of the vouchers at the stages respectively of sale to the customers and use by them. This is necessary to avoid the supply represented by the vouchers, on the one hand, being subject to double taxation, or on the other hand falling out of the tax net altogether."

In the Court of Appeal Robert Walker LJ referred at [56] to this as "symmetry or uniformity of treatment of vouchers at each stage of their life cycle." The vouchers in F & I Services were sold to customers for £300 and could be used only in conjunction with a substantial cash payment. No payment was made to the participating retailer on redemption of the voucher; the only benefit to the retailer was the general benefit of participating in the scheme. Carnwath J's decision on this point was:

"There is no direct link between the supply of goods at that point [presentation of the voucher] and the overall benefit they get from participating in the scheme. In Naturally Yours Cosmetics Ltd v Customs and Excise Comrs, by contrast, the gift (of a pot of cream) was a reward for the specific service of organising a private party."

It seems to us that, given the factual position in F &I Services, it would be to take the requirement for symmetry out of context to say that it meant that the provision applies only where, as in the familiar case of the book token, the customer pays a particular sum for the voucher and that same sum can be applied on redemption of the voucher. Clearly, where there is no connection between the two, as was the case in F & I Services, the provision does not apply, but the decision does not tell one how much connection is required. That is a matter of interpretation of the provision.

8. Even in the book token example one does not know whether the shop that sells the book token or the shop that redeems it suffers a discount (or both of them do) but somebody must do so otherwise no business would agree to sell or redeem them and the book token issuing company would not make any profit, except in respect of the time it holds the money. The difference is that it is less transparent than the Appellant's selling an adult one-day Pass for £39 entitling the purchaser to visit attractions with a gate price of up to £70 for which the Appellant pays the gate price of the attractions visited less a discount of 20 to 40 per cent on average, such that the Appellant makes a profit. Parliament has dealt with the consideration for the voucher exceeding the face value but has said nothing about its not being supplied for less than the face value, which it could easily have done:

"(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."

We do not consider that we should imply any other restriction on the consideration for the voucher. Any discount suffered by the attraction on redemption of the Pass is expressly covered by para 3(1)(b) that the issuer:

"(b) undertakes to give complete or partial reimbursement to any such person from whom goods or services are so obtained."

The discount at that stage is expressly dealt with by the reference to partial reimbursement.

9. Miss Whipple's objection is really that if the Pass is a face value voucher the Appellant makes a profit that is not liable to VAT on the difference between the amount it sells the Pass for and what it pays to the attraction in respect of the use of the voucher. This seems to us to be inherent in the combination of, as we have found, the consideration for the supply of the voucher being capable of being less than the face value of the voucher and, as the legislation expressly contemplates, the payment to the supplier of the goods or service pursuant to the right represented by the voucher by the issuer being capable of being partial reimbursement. The consideration for the supply of the voucher by anyone, therefore including persons other than the issuer, is disregarded, and it is obvious that such persons will make a profit that is accordingly not liable to VAT (but for retailer vouchers it is only the consideration for the issue that is disregarded, see para 4(2) of Schedule 10A). The possibility of someone making a profit that is not liable to VAT seems inherent in the provision.
10. The issue is therefore whether the terms of the legislation are satisfied by the new terms of the Pass. In the previous appeal the Pass effectively represented a right to visit as many of the possible attractions as the purchaser wanted within the time of the validity of the Pass. The only reference to value was then that the computer system recorded the value of the face attractions that had been visited. The difference is now that there is a value stated on the Pass that cannot be exceeded in gate prices of attractions visited during the life of the Pass. For a one-day Pass it is £70, for a two-day Pass it is £140 and so on, so that for a six-day Pass it is £420. Miss Whipple concentrates on the fact that for a six-day Pass there is effectively no difference from before, although it is the case that currently the total face value of all the attractions is £483.50 so a purchaser can no longer even theoretically visit all of them. Mr Prosser concentrates more on the shorter-life Passes, where he contends that the £70 for a one-day Pass does represent an effective limit. He instanced that within the same geographical area a Passholder might visit St Paul's Cathedral (gate price £10), the Tower of London (£16.50), the Tower Bridge Exhibition (£6), the Globe Theatre (£9), HMS Belfast (10.30) and take the City Cruise (10.50), for a total gate price of £62.30, so that he could then not visit an attraction with a gate price of more than £7.70. This example shows that, while it might be difficult to do much more in a day, the £70 limit is not so unrealistic as to mean that the Pass did not genuinely and effectively represent "a right to receive goods or services to the value of an amount stated on it."
11. Miss Whipple contended that effectively the only limit was the time during which the Pass was valid. While we see force in Miss Whipple's contention that the effective limit for most Passholders is probably time, this does not mean that the value limit is not a real one, as is demonstrated by Mr Evans' statistic that over 50 per cent of purchasers of one-day passes will get to within one attraction of £70. This is a somewhat vague statistic because of the wide variation in gate prices between £2 and £17.95 but he was not asked exactly what this meant. We presume that it means that the Passholder was within about £15 (there are seven attractions with a gate price of £15 or over) to £17.95 of the limit. To continue Mr Prosser's example, according to the guide book the Passholder could still visit, in roughly the same area, Southwark Cathedral (£2.50), Tate Modern (audio guide £2.50), and All Hallows by the Tower (£2.50 guidebook), but not Britain At War Experience (£10.45), or the London Bicycle Tour Company (one hour's bicycle hire or a tour £17.95); it is not possible to pay the difference in cash. On this basis, although most Passholders will not be affected by the limit, in our view it cannot be said that that the limit is not a real one, or that the price of the Pass is not a prepayment for visiting the attractions. We therefore consider that the Pass "represents a right to receive goods or services to the value of an amount stated on it."
12. As to the "convenience" items, of entitlement to special offers typically free wine with a meal in a restaurant, or a reduced price for a particular activity, the ability to "beat the queue" and the convenience of not have to carry cash, on the previous appeal the Tribunal found that beating the queue, which was the item relied on principally by Miss Whipple, was a by-product of holding the Pass rather than a service to which the Passholder has a right. We reach the same conclusion. We consider that it is unrealistic to attribute any value to the convenience elements or to consider that the purchaser might buy the Pass because of them.
13. In the earlier appeal the Tribunal relied on para 3(3) as implying that "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." Sir Andrew Park in the High Court said at [10] he did not find tht particularly convincing. On reflection we consider that this point was wrong. The wording of para 3(3) provides that if the supplier of the good or services pursuant to the right conferred by the voucher fails to account for any of the VAT due on that supply, the consideration for the issue and earlier supplies of the voucher is no longer disregarded. Since a failure to pay part of the VAT disqualifies disregarding the whole of the consideration for the issue and supply of the voucher it cannot be taken to imply that the prepayment and the ultimate supply must be of the same value.
14. Accordingly, we allow the appeal. We direct Customs to pay the Appellant's costs of, incidental to, and consequent upon, the appeal to be determined in default of agreement by a Taxing Master of the Supreme Court.

JOHN F AVERY JONES

CHAIRMAN

RELEASE DATE: 9 January 2009

LON/08/1143 (corrected)