UK - Upper Tribunal Ruling in GBP 10 million Case on VAT and Prompt Payment Discounts

The Upper Tribunal decided in the GBP 10 million VAT-related case between Talk Talk Telecom Limited (Talk Talk), a fixed and mobile phone, TV, and internet access supplier for retail and commercial customers, and the Commissioners for HMRC, the UK's tax, payments, and customs authority.

Matters of the Case and Tribunal Ruling

This case dates back to 2014 when Talk Talk offered its retail customers a 15% Speedy Payment Discount (SPD). This discount was triggered if the customers made monthly payments within 24 hours of receiving invoices for services that Talk Talk provided. 

Talk Talks concluded that SPD fell under the category of prompt payment discounts under the then-applicable VAT rules. Therefore, they calculated VAT on the discounted amount, regardless of whether the discount was triggered. During the investigation, it was determined that only 3% of the retail customers paid their invoices within 24 hours, whereas the remaining 97% paid the total amount for services.

The rules later changed in 2014, affecting services that Talk Talk supplied. The new rules only allowed a discount for prompt payments if the payment was made under the terms that allowed the discount. This meant that the SPD reduced the value of the supplies made by Talk Talk only when consumers paid their invoices within the first 24 hours.

Talk Talk still claimed that transactions for services supplied before this change did not fall under the scope of new rules and that they correctly calculated and collected VAT. However, the HMRC did not share this opinion and assessed that Talk Talk owes GBP 10,606,226 for unpaid VAT.

Talk Talk appealed against this decision, but the First-tier Tribunal and the Upper Tribunal confirmed HMRC's decision. In its final decision, the Upper Tribunal stated that terms of supply by the Talk Talk remained the same, requiring customers to make payment within 24 for the SPD to be accepted. Since most customers did not make those payments, the Tribunal concludes that they did not accept the SPD, meaning Talk Talk received full and not discounted amounts. 

The Upper Tribunal dismissed the appeal, and Talk Talk is obliged to pay the VAT due per UK laws.

Conclusion

Almost ten years have passed since the HMRC issued its first letter to Talk Talk about their due VAT and this ruling by the Upper Tribunal. This shows that court procedures like this may last for years, imposing additional costs and operational burdens on businesses. 

In addition to costs related to court procedures, cases like this show the importance of understanding and applying the correct rules for any business operation and how the wrong interpretation of rules can lead to substantial financial losses.

Source: The National Archives - TalkTalk Telecom Limited v The Commissioners For HMRC, Deloitte