In Go City Limited vs HMRC, the first tier tribunal (FTT) couldn’t see the attraction in HMRC’s four assessments of a leisure-pass business to VAT totalling £9,309,954.
The taxpayer sold leisure passes to consumers. The passes entitled the consumers to use credits to visit certain attractions operated by third parties. Each pass contained a certain number of “credits” and would expire after a specified time period. The contractual arrangements were such that when a customer presented the pass at a participating attraction, the operator would grant the taxpayer the right of admission and the taxpayer would then supply the right of admission to the consumer.
The taxpayer argued that these arrangements gave rise to two alternative VAT analyses. The passes were either “multi-purpose vouchers” within the meaning of Schedule 10B, VATA 1994 or, alternatively, packages of credits for use by a consumer in gaining access to certain services whose precise description was, crucially, unknown to the taxpayer at the time of issue.
The VAT consequences were the same under either analysis: no VAT was due until the pass was used at an attraction, at which point VAT was due only on the value of the credits used. Credits that were unused at the point that the voucher expired were therefore not subject to VAT.
Just the ticket
HMRC disagreed with these analyses, but (at least to begin with) it wasn’t entirely sure why.
The FTT heard that after the taxpayer submitted its 03/19 VAT return (in May 2019), HMRC requested detailed workings. These were provided on 7 June 2019. The taxpayer then met with HMRC in November 2019. Further information was provided by the taxpayer in January 2020 at HMRC’s request.
In June 2020, HMRC wrote to the taxpayer explaining that it had unresolved concerns about the VAT treatment adopted by the taxpayer. That letter raised the possibility of HMRC making assessments despite not being sure of its views as to the correct technical treatment to “protect our [HMRC’s] position”, before the expiry of two years following the end of the taxpayer’s 03/19 VAT return period, at which point any assessment would be out of time.
Solid ground
The FTT saw evidence of internal HMRC correspondence from 21 January 2021, in which HMRC acknowledged that the taxpayer’s technical position was “seemingly solid” and which suggested that HMRC considered its prospects of success in challenging it “poor”.
Notwithstanding these apparent concerns, HMRC issued a document purporting to be a notice of assessment for the 03/19 VAT return period on 17 March 2021. It contained wording explaining that it was “not a fully considered decision” and that “HMRC’s final position on this matter has yet to be confirmed”. When the document was issued, no corresponding assessment was entered into HMRC’s ledger and no debt was recorded as owing to HMRC. A similar document was issued in the same way in respect of the 06/19 VAT return period.
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The FTT had no difficulty finding that these documents were not valid assessments. It agreed with the taxpayer’s argument that, firstly, it was a prerequisite to HMRC raising a VAT assessment that an HMRC officer had formed a view that the relevant VAT return was incorrect and, secondly, no officer had formed such a judgment at the time the documents were issued. That was clear from the wording on the notices of assessments themselves, as well as HMRC’s internal discussions.
The FTT also found the assessments to be invalid for the further reason that, due to the unorthodox way in which they had been raised, no VAT debt had become due to HMRC.
The price of admission
Somewhat awkwardly for HMRC, one of its officers gave evidence in her witness statement that she had formed the view that the VAT returns were incorrect, only to contradict that evidence under cross-examination. The FTT agreed with the taxpayer that the change in position “plainly” affected that officer’s credibility.
The officer’s change in position was triggered by HMRC being directed by the FTT to disclose the 21 January 2021 correspondence during the hearing after the officer alluded to it earlier in cross-examination. It was not clear to the FTT why HMRC had not disclosed it earlier but HMRC did not in any event resist its disclosure.
HMRC did, however, unsuccessfully resist the disclosure of other documents evidencing discussions in various internal HMRC meetings about the strengths of its technical position. These came to light during the taxpayer’s cross-examination of the other HMRC officer who had given witness evidence.
The FTT also recorded its view that that other officer was “not an entirely straightforward witness” after he initially claimed that it was “not at all unusual” for HMRC to issue assessments before a decision had been made on the technical merits of a taxpayer’s position but, when shown an email he had been cc’d into in which a senior officer stated that they couldn’t think of a single case in which that had happened, was forced to amend his evidence.
Tour-tuous hearing for HMRC
The taxpayer had also appealed against two other (valid) assessments. The FTT found firmly in favour of the taxpayer on the technical merits and those assessments were cancelled.
The FTT rejected HMRC’s argument that the passes couldn’t be multi-purpose vouchers because they were tickets. The passes would have been vouchers, not tickets, under the previous iteration of the vouchers legislation (Schedule 10A, VATA 1994), and the new legislation in Schedule 10B VATA 1994 had not changed the definition of tickets. It also rejected HMRC’s argument that the taxpayer’s contractual arrangements placed it outside the definition of a multi-purpose voucher because it provided only a single service of acquiring admission for the taxpayer – an argument that the FTT considered would lead to double taxation.
Similarly, the FTT agreed with the taxpayer’s other argument that it was supplying a credits package which gave rise to a VAT liability only when those credits were redeemed for admission. It found as a fact that the taxpayer had no control over what attractions the consumer would redeem the credits on the pass for and that it followed from established EU (pre-Brexit) case law that this meant that VAT was only when the credits were redeemed for admission to an attraction.
The FTT also rejected HMRC’s further argument that the taxpayer had used the wrong methodology to account for VAT. It found that the approach adopted by the taxpayer was consistent with the purpose of the voucher legislation whereas HMRC’s proposed methodology would lead to the same number of credits for the same attraction entailing a different VAT liability for each individual passholder.
Trip hazard
All in all, not a grand day out for HMRC. Nevertheless, the case serves as a warning to taxpayers seeking to rely on the voucher legislation or the case law on credit packages to defer (or perhaps even bring forward the time of their supplies) that HMRC appears motivated to challenge these positions – particularly where the sums at stake are substantial.