Upper Tribunal Tax and Chancery Chamber

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

Fecha: 11-Jun-2024

Introduction

Introduction

The Appellant (‘TalkTalk’) supplies fixed and mobile telephone, pay TV and broadband internet access services to retail and commercial customers. This appeal is only concerned with supplies to retail customers.

Between 1 January and 30 April 2014, TalkTalk offered most of its retail customers a 15% discount on certain services if they paid their bills within 24 hours of receiving them. This was called the Speedy Payment Discount (‘SPD’).

Until 30 April 2014, paragraph 4 of Schedule 6 of the VAT Act 1994 (‘VATA’) provided:

“(1)
Where goods or services are supplied for a consideration in money and on terms allowing a discount for prompt payment, the consideration shall be taken for the purposes of section 19 as reduced by the discount, whether or not payment is made in accordance with those terms.
(2)
This paragraph does not apply where the terms include any provision for payment by instalments.”

TalkTalk considered that, in relation to services supplied to customers to whom the SPD was offered, VAT was only chargeable on the amount billed to those customers less the SPD, whether or not the customers paid quickly enough to receive the SPD. Only around 3% of customers actually received the SPD during the period. The other 97% of customers did not pay their bills within 24 hours and paid TalkTalk the full amount billed, typically by direct debit. Between 1 January and 30 April 2014, TalkTalk accounted for VAT on the discounted amount in all cases and regardless of whether the customers had actually paid within 24 hours of receiving their bills.

It was common ground that if TalkTalk were correct in their reading of paragraph 4(1), the UK would have failed to implement Articles 73 and 79(a) of Directive 2006/112/EC (the ‘Principal VAT Directive’ or ‘PVD’) correctly.

Paragraph 4 was amended with effect from 1 May 2014. The amendment applied to relevant supplies which included the services supplied by TalkTalk. From that date, the consideration for a supply on terms which allowed a discount for prompt payment was only treated as the discounted amount where, among other conditions, payment was made in accordance with the terms that allowed the discount. As a result of the amendment, the SPD only reduced the value of TalkTalk’s supplies where the customers paid their bills within 24 hours and obtained the SPD.

The Respondents (‘HMRC’) did not agree that paragraph 4 applied to services supplied by TalkTalk to all customers to whom the SPD was offered between 1 January and 30 April 2014 and issued two appealable decisions, namely:

(1)

a decision, in a letter dated 9 February 2015, that the SPD offer only reduced the consideration for VAT purposes where customers had actually paid the reduced amount, and that there was no reduction when the discount was not taken up; and

(2)

an assessment for £10,606,226 to recover the VAT underpaid during the relevant period.

TalkTalk appealed against HMRC’s decision and the related assessment to the First-tier Tribunal (Tax Chamber) (‘FTT’). At the hearing, there were two issues for the FTT, namely:

(1)

whether paragraph 4(1) had the meaning contended for by TalkTalk; and

(2)

whether, on the facts of the case, paragraph 4(1) applied to TalkTalk.

In a decision released on 21 December 2022 with neutral citation [2023] UKFTT 12 (TC) (‘the Decision’), the FTT dismissed TalkTalk’s appeal. References to paragraphs in the Decision are in the form “[**]”.

10.

In relation to the first issue, the FTT held at [80] that:

“Para 4(1) means what it says, namely that where goods or services are supplied on terms allowing a discount for prompt payment, consideration is deemed to be reduced by the amount of the discount, whether or not the customer obtains the discount as the result of paying promptly … [and] it is not possible to construe Para 4(1) so that it is consistent with the PVD, because to do so would go entirely against the grain of the provision, and would ‘cross the boundary between interpretation and amendment’.”

11.

On the second issue, the FTT held at [162], that none of the supplies made by TalkTalk came within paragraph 4(1) because, in summary:

“(1)
In relation to services billed in advance, there were no terms ‘allowing a discount for prompt payment’. This was because the contract was only varied (so that the customer paid a lower amount for a particular month) if the customer accepted the SPD offer for that particular month by making the payment within 24 hours. The variation of the terms happened simultaneously with the payment, and there was no term allowing for a discounted payment to be made on a future date.
(2)
In relation to services billed in arrears, the SPD was an offer by TalkTalk to accept a lower sum with an earlier payment date to discharge a pre-existing contractual obligation, and was thus a post-supply rebate of the consideration already due. Again, Para 4(1) did not apply.”

12.

With the permission of the FTT, TalkTalk appealed to the Upper Tribunal (‘UT’) against the FTT’s conclusions on the second issue on three grounds:

(1)

The FTT erred in concluding that in order for paragraph 4(1) to be engaged, the option to pay a discounted sum had to exist in the context of a pre-existing contractual relationship.

(2)

Further and alternatively, even if the FTT was correct about the need for a pre-existing contractual relationship, the FTT erred in law by holding that the option to pay a discounted sum under the SPD payment offer did not exist in the context of a pre-existing contractual relationship.

(3)

Further, the FTT erred in law by holding that the time of supply was set by the basic time of supply rules in section 6(3) and 6(4) VATA and therefore that the time of supply for services billed in arrears was when the services were performed.

13.

HMRC served a Respondents’ Notice in which they sought to uphold the FTT’s decision for the reasons relied on by the FTT in relation to the second issue and on the following further grounds:

(1)

Paragraph 4 must, as far as it is possible to do, be given a conforming construction to read consistently with Articles 73 and 79(a) of the PVD so that it only applies where the customer actually pays the discounted sum.

(2)

Where the customer was contractually obliged to accept supplies of services from TalkTalk for a minimum term, the payments made by the customer throughout that term were payments by instalments with the result that para 4(1) was disapplied by paragraph 4(2).

14.

TalkTalk was represented by Mr Andrew Hitchmough KC with Mr Quinlan Windle. Mr Kieron Beal KC and Mr Andrew Macnab appeared for HMRC. I am grateful to counsel for their clear submissions, both written and oral, on behalf of the parties. Although I have reviewed and considered them when writing this decision, I have not found it necessary to refer to each and every argument advanced or all of the authorities cited in setting out my decision in this appeal.

15.

For the reasons set out below, I have decided that TalkTalk’s appeal must be dismissed.