UK - VAT Treatment of Mobile Plan Bundles

On July 18, 2024, the First-tier Tribunal (FTT) made a significant decision in case no. TC09243 sheds light on treating plan bundles for VAT purposes, which Lycamobile UK Ltd. sold to UK customers. 

The case, spanning VAT periods from July 2012 to August 2019, holds crucial implications for the UK telecommunications industry.

Facts Of the Case

Customers purchased SIM cards pre-loaded with credits corresponding to the amount paid. These credits could be used to access telecommunication services on a pay-as-you-go (PAYG) basis, or customers could choose plan bundles that offered specific amounts of calls, texts, or data. 

These plan bundles were valid for specific periods, after which unused allowances would expire. Although there were numerous variations of plan bundles during this period, Lycamobile consistently accounted for VAT only when the allowances were used and only to the extent they were used.

Lycamobile argued that, for VAT purposes, these services were supplied only when the customer used them rather than when purchasing the plan bundle. 

However, the FTT took a different stance, disagreeing with Lycamobile's argument. They sided with HMRC, asserting that VAT was due on the total amount paid for the plan, regardless of whether the services were used. 

Furthermore, the FTT clarified that the plan bundles should not be considered vouchers. This ruling meant that the VAT rules for vouchers did not apply, and VAT was due on the entire payment for the bundles, with a possible adjustment for non-EU roaming charges before 1 November 2017.

Conclusion

The ruling underscores that VAT is chargeable on the total consideration paid for plan bundles at the time of purchase, irrespective of whether the services within the bundle are used. This represents a significant victory for the HMRC, as Lycamobile UK Ltd has to pay more than GBP 50 million in VAT.

Source: The National Archives - Case No. TC09243, Deloitte