UT/2023/000044 - [2024] UKUT 00284 (TCC)

I begin by considering TalkTalk’s appeal against the FTT’s conclusion on the second issue. The FTT held that paragraph 4(1) did not apply because, in the case of services billed in advance, there were no terms ‘allowing a discount for prompt payment’ and, in the case of services billed in arrears, the SPD was a post-supply rebate of the consideration already due. TalkTalk contended that the FTT erred in law as set out in the three grounds of appeal reproduced at [12] above.

In broad terms, the first and second grounds require me to consider whether the FTT erred in deciding whether paragraph 4(1) applied on the facts as found by the FTT. In [128] of the Decision, the FTT adopted Mr Beal’s analysis that, for paragraph 4(1) to apply, the following six conditions must be satisfied:

I agree with this analysis of the requirements which must be met before the consideration for a supply can be regarded as reduced by a discount for prompt payment. Before me, Mr Hitchmough did not disagree with the formulation of the conditions but contended that the FTT’s legal analysis and conclusions were wrong. He submitted that the first five of the points above were satisfied in this case and the sixth point was not relevant as the payments in this case were not instalments. Mr Beal submitted that the FTT had correctly analysed the contractual and VAT positions in relation to services billed in advance and in arrears.

HMRC submitted that the time of supply should be determined under section 6(2) of the VATA or, alternatively, regulation 90 of the VAT Regs and, on that basis, did not contend that TalkTalk was paid in instalments. If, contrary to that analysis, TalkTalk’s supplies were considered to be a continuous and rolling supply of telecommunication services for a specific and limited duration then HMRC submitted that payments by customers during a minimum period were payments by instalments. In view of my conclusions below, the issue of instalment payments does not arise in this case and I do not consider it further.

As to the conditions in [29] above, there was no dispute that TalkTalk supplied services for consideration in money pursuant to an agreement with its customers. The first three conditions were therefore satisfied. The dispute in this case concerned the fourth and fifth conditions, i.e. whether the agreement between TalkTalk and the customers included terms that allowed a discount for prompt payment.

Mr Hitchmough submitted that:

He contended that the requirement that goods or services are supplied on terms allowing a discount for prompt payment means no more than that the customer has the option of paying less if they pay earlier. That was the case with the SPD. In all cases, the customer had the option of paying a reduced amount for the services they would receive in the month ahead if they paid within 24 hours of receiving their bill or a higher amount if they paid later. The same services were being supplied for the same period and on precisely the same terms save as to payment. It followed that the services were supplied on pre-existing terms allowing for the SPD and paragraph 4(1) was engaged.

Mr Beal submitted that services were supplied under the terms agreed for that particular supply. The offer and acceptance of the SPD was a supervening agreement, which was wholly outside the written terms of the agreement contained in or evidenced by the Ts&Cs and which supplanted the customer’s obligation to pay by direct debit for that month’s services. Services billed in advance were supplied when TalkTalk received payment from the customer. Where the SPD offer was accepted, there were no terms allowing a discount for prompt payment because there was only one payment under the amended Ts&Cs which had to be made within 24 hours of receipt of the bill.

For paragraph 4(1) of Schedule 6 to the VATA to apply, a supply must be made “on terms allowing a discount for prompt payment”. It is, therefore, crucial to identify the supply which is made and the terms on which it is made (see Virgin Media Limited v HMRC [2020] UKUT 100 (TCC) at [46] et seq). In this case, there is no difficulty in identifying the supplies made by TalkTalk. There is no doubt that the services were supplied on the terms contained in the Ts&Cs. The issue is whether there were any terms allowing a discount for prompt payment.

I consider that terms that allow a discount for prompt payment must provide for, at least, two payment dates: a standard due date for payment and an earlier optional payment date. The terms must then allow a discount if payment is made on the earlier date. I take this view because paragraph 4(1) implements (if only imperfectly) Article 79(a) of the PVD which provides that the taxable amount shall not include price reductions by way of discount for early payment. Accordingly, I interpret “discount for prompt payment” in paragraph 4(1) as referring to a discount for early payment.

In relation to services billed in advance, the FTT found, at [129], that the SPD offer was not a unilateral variation of the Ts&Cs but an offer by TalkTalk to vary them in relation to (a) the charges for the services; (b) the timing of payment; and (c) the payment method used by customers made on a month by month basis. The FTT held that the Ts&Cs were only varied for that month if the customer actually accepted the SPD offer for that month by paying 85% of the amount due within 24 hours of receiving the bill. Where that happened, the FTT concluded in [131] that the Ts&Cs were varied when the customer made the payment in accordance with the SPD offer which was also the time of supply of the services. The FTT found in [136] that the Ts&Cs did not contain any term under which a lesser amount was payable if payment were made earlier, i.e. allowing a discount for prompt payment. The FTT held in [144] that there was no contractual term allowing a discount for prompt payment unless and until the customer accepted the SPD offer by paying for the services within 24 hours of receipt of the bill. I agree with the FTT’s contractual analysis.

In the case of customers who took up the SPD offer, the Ts&Cs were varied, for that month only, to reduce the amount payable for the services if payment of 85% of the amount billed was made within 24 hours of receipt of the bill, which act signified acceptance of the offer. Paragraph 4(1) only applied to reduce the value of supplies to the customers who did not accept it if the offer of the SPD was itself a variation of the Ts&Cs to allow all customers to obtain a discount for prompt payment if they paid the bill within 24 hours. Although TalkTalk could unilaterally change the Ts&Cs by giving its customers notice in writing and/or publishing the changes on the TalkTalk website, I do not consider that the SPD offer was a unilateral change to the Ts&Cs because it did not purport to make any changes to them and no revised Ts&Cs were sent to the customers or published on the website which incorporated the SPD offer. TalkTalk simply offered each month, and for that month only, to accept a lower payment than was due under the Ts&Cs if certain conditions were met. If the SPD offer was not a unilateral variation of the Ts&Cs, they remained the same unless and until the SPD offer was accepted by the customer making the payment in accordance with the offer. For those customers who did not accept the offer of the SPD, the Ts&Cs did not change. They were required to pay the billed amount in full and the payment was collected by TalkTalk by direct debit.

The Ts&Cs did not include any provision for a discount for a prompt payment unless and until they were amended by acceptance of the SPD offer. That means that the supplies of services to the (majority of) customers who did not accept the SPD offer were not supplied on terms allowing a discount for prompt payment. The services were supplied at the time when the payment was received by TalkTalk. For those customers who did not pay within 24 hours, the supplies were made on the terms of the original, i.e. unamended, Ts&Cs which did not include any term allowing a discount for earlier payment. It follows that TalkTalk was required to account for VAT on the full amount received from customers who did not accept the SPD offer. It is, of course, not suggested that TalkTalk should account for VAT on the full amount billed where the customer accepted the SPD offer and TalkTalk only received 85% of the amount billed.

I can deal with the services billed in arrears quite briefly. Section 6(3) and (4) provides that services are supplied on the earlier of when they are performed and when the supplier receives payment. Under Article 90, the time of supply is the date the supplier receives payment. The FTT held that section 6(3) applied and the services had already been supplied by the time that the SPD offer was made. It was accordingly not a discount for early payment but an offer to accept a lower sum than was due under the Ts&Cs. The FTT characterised that as a post-supply rebate and not a discount for prompt payment.

The same analysis of paragraph 4(1) and the contractual position applies to services billed in arrears as applies to services billed in advance. Whether the time of supply of the services billed in arrears falls to be determined under section 6(3) and (4) or regulation 90 is not determinative. The key point is that the services supplied to customers who did not take up the SPD offer were not supplied on terms allowing a discount for prompt payment.

For completeness, I record that I heard submissions on the interaction between the timing of the contractual variation and the time of supply, whether paragraph 4(1) applies where the terms allow for a lower sum to be paid immediately (for example, when the contract is made and before an invoice is issued and the services are performed) and also whether no prompt payment discount can attach where payment and supply were simultaneous. I have not found it necessary deal with those points because, on my view of the legislation and the facts, those points are not relevant in this case.

As I am dismissing the appeal against the decision of the FTT, it is not necessary for me to consider the points raised in the Respondents’ Notice. Although I heard full argument in relation to those points, I have concluded that it would not be appropriate to engage in what would be only an obiter discussion of them.