Leisure Pass Group Ltd v HM Revenue & Customs

In this judgment I refer to the appellant company as LPG, and to the respondents as HMRC. LPG appeals against a decision of the VAT and Duties Tribunal released on 20 September 2007. LPG sells a product which it calls the London Pass, and which is aimed principally at the tourist market. A member of the public who has purchased a London Pass is able for the period covered by it (which may be anything between one day and six days) to enter a large number of venues or ‘attractions’ in or around the London area without having to pay for admission at the attraction itself. The basic issue is whether LPG is liable to account to HMRC for VAT on the receipts which it obtains on sales of the Passes, or whether no VAT is payable at that stage because of a provision in Schedule 10A to the VATA 1994 about ‘face-value vouchers’. If the provision applies VAT is payable by the attractions to which the passholder goes, and LPG is not liable to pay VAT at all. There was correspondence about the issue between LPG’s advisers and HMRC in 2005 and 2006. It culminated in a letter from HMRC on 16 August 2006 giving notice that HMRC’s decision was that sales of the Pass by LPG attracted VAT at the standard rate, and that the provision about face-value vouchers did not apply.

LPG’s appeal to the tribunal was an appeal against that decision letter. The tribunal (Dr Avery Jones and Ms Sheila Wong Chong) dismissed the appeal, agreeing with HMRC’s decision. The central ground of the tribunal’s decision was that, on the detailed facts of the case, the statutory definition of ‘face-value voucher’ did not apply to the London Pass. More specifically a voucher, to be a face-value voucher, had to represent a right to receive goods or services ‘to the value of an amount stated on it or recorded in it.’ The London Pass could be regarded as a voucher, and it represented a right to receive services, namely admission to the various attractions, but it did not represent that right ‘up to the value of an amount’.

Despite the forceful arguments addressed to me by Mr Prosser QC and Mr Hitchmough on behalf of LPG, I agree with the decision of the tribunal and with the submissions presented in support of the decision by Mrs Whipple. I shall therefore dismiss this appeal.

Among the general principles of VAT are that (except where some specific provision enacts otherwise for any particular situation) the grant of a right in the course of a business is a supply of services, and the supplier is liable to account for VAT on the consideration for which the right is granted. The provisions which have that effect are familiar, and I will not prolong this judgment by setting most of them out. I will, however, quote the wording which specifies that the grant of a right is a supply of services for VAT purposes. Section 5(2)(b) of VATA 1994 is as follows (the italics being mine):

“5(2) Subject to [matters which are irrelevant in this case]

(b)

anything which is not a supply of goods but is a done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services.”

HMRC say, and the tribunal has agreed, that s.5(2)(b) covers this case. LPG contends that the sub-paragraph is excluded by the specific provisions for face-value vouchers contained in Schedule 10A to the VATA 1994. Schedule 10A was inserted into the Act in 2003, replacing a shorter provision which had been a feature of United Kingdom VAT law from its inception in the Finance Act 1972. In the last VAT consolidation the predecessor provision was VATA 1994 Schedule 6 paragraph 5. I will set out the whole of paragraphs 1, 2 and 3 of the present Schedule 10A, but someone reading this judgment for the first time might find three introductory observations helpful.

There have been several reported cases in which aspects of Schedule 10A or of its predecessor provision have been considered. I was referred to some of them and supplied with copies of (probably) all of them. I have reread the more significant ones, but I do not find anything in them which assists the decision in this case. As Mrs Whipple said at one point in her oral submissions, cases in this area vary substantially and are very fact-sensitive. This case revolves around the words at the end of paragraph 1(1) ‘to the value of an amount stated on it or recorded in it’. So far as I am aware, none of the cases has been specifically concerned with those words. Further, in the predecessor provision (which was the provision applicable in nearly all of the earlier cases) the words were not ‘to an amount’, but ‘for an amount’. The difference is only the replacement of one small word by another small word, but the difference may be significant nevertheless.

The tribunal made detailed findings of fact in paragraph 4 of its decision. Rather than trying to paraphrase or summarise the findings myself I will simply reproduce paragraph 4, with a few minor omissions.

“4.

We heard evidence from Mr Darren Evans of the Appellant and had a bundle of documents. We find the following facts:

(1)

The London Pass is a voucher the size of a credit card containing a microchip. The Pass is sold to visitors to London and entitles the holder during the period of its validity to visit without payment any of about 55 attractions comprising places of interest, historic houses, museums, galleries, tours and cruises and leisure activities (“attractions”) which are listed in a 120 page guide (“the Guide”) which is given to purchasers of the Pass. …

(2)

A particular attraction may be visited only once during the validity of the Pass. Before April 2006 an attraction visited on one day could be visited again on each other day during the validity of the Pass.

(3)

The price of the Pass varies between £34 for a one-day adult Pass to £74 for a 6-day adult Pass; child Passes are also sold for between £18 and £48 respectively. Passes are also available for 2 and 3 days. The Pass has a final end-date about 18 months after issue. The days during which it is valid are counted from the first day of use. About 55 to 60 per cent of sales are from the Appellant’s website, and the rest are sold in retail outlets. All but 13 per cent of purchasers are from abroad. …

(4)

The Guide lists the advantages of the Pass as “not only great value and convenience, but also enables you to beat the queues at selected attractions.” In attractions where there are likely to be queues for payment on entry the attractions will have a separate entry point for Passholders.

(5)

The Appellant contracts with the operator of each of the attractions to allow the Passholder entry without further payment. The attraction is entitled to refuse admission in accordance with its own admissions procedure. The attraction has to inspect each Pass in accordance with operational procedures. If the computer system is not working the attraction will check that the Pass has been signed and dated and will maintain a written record of use. For each entry with a Pass the Appellant pays a fee to the attraction that is negotiated with the attraction which is between 20 and 40 per cent below the gate price. Payment is made monthly by the Appellant. The Appellant agrees to include a page of information about the attraction in its Guide.

(6)

On arrival at the attraction, the Pass is swiped in a card terminal owned by the Appellant which confirms its validity, that is within the period of validity, and records the card details, including the date and time of the visit. These details are downloaded to the Appellant’s computer overnight and at the same time the card terminal at the attraction is informed of the issue of new cards.

(7)

The Appellant’s computer system records for each Pass the following information.

(a)

In the period before October 2005, a list of the attractions visited with the date and time, the card number, its duration, the price that the Appellant will pay to the attraction and the normal entry price, the cost of the Pass and the “benefit to card holder,” being the difference between the cost of the Pass and the cash price of the attractions visited. Information about the rest of the attractions was stored elsewhere on the computer system and was readily available.

(b)

The computer system was not working between October 2005 and 28 March 2006 owing to a dispute with the software provider.

(c)

Between 28 March 2006 and 15 October 2006, the information is similar to that before October 2005 but containing a summary showing the total price to be paid by the Appellant to the attractions visited, the gate price, the price of the Pass and the benefit to the Passholder (based on the gate price) and to the Appellant (based on the price it pays to the attraction).

(d)

From 16 October 2006 a page shows for each Pass the full list of the attractions and the gate prices (being the price current at the date of issue of the Pass); those visited are shown in bold with the date and time against them. The price paid by the Appellant to the attraction is not shown. The total of gate prices and the amount used and unused is shown. This cannot be accessed by the Passholder, who can merely ring a number shown in the Guide and be told the total gate price for the attractions not visited as at 6 am that day. Hardly anyone uses this facility.

(8)

It is common ground that holders of the Pass will not in practice visit all the available attractions, although one party once succeeded in doing so with a 6-day Pass.

(9)

The Guide shows the gate price to the public of each attraction. The total of all the gate prices is £464.40 for an adult Pass and £256.60 for a child Pass. The calculation does not include the value of the other benefits.

(10)

Entry at some of the attractions is liable to VAT and in others it is exempt. Exempt ones comprise 21 out of 55 attractions and about 60 per cent of payments by the Appellant to attractions because the exempt attractions include some of the most popular ones, such as Hampton Court Palace, the London Zoo and Windsor Castle.”

I make three observations on the foregoing quotation from the tribunal’s decision.

After setting out the facts, the tribunal summarised the submissions of the parties. It then referred to two authorities, Commissioners of Customs & Excise v Granton Marketing Ltd [1996] STC 1049, and HMRC v IDT Card Services Ireland Ltd [2006] STC 1252. However, as far as I can see the tribunal derived no real assistance from the authorities for the purposes of this case – a view which I share, as I have said in paragraph 6 above. The tribunal’s discussion of the issues begins in paragraph 9 of the decision. In paragraph 13 it observes:

“The question is whether the supply in this appeal can be fitted into the definition of face-value voucher.”

The tribunal concludes that the answer is: no. The core of its reasoning is set out in paragraphs 14 and 15. I entirely agree with those paragraphs, and I think it is appropriate for me to reproduce them in full.

“14

The main difficulty with the definition is over the final words “to the value of any amount stated on it or recorded in it,” which it is not immediately apparent that they are satisfied. Mr Prosser puts forward a strong case for saying that if, as we have decided, one can include the Appellant’s computer system as part of the electronic form of the voucher, the face value “recorded in it” is the gate price for each of the separate attractions. Mr Prosser would read the recorded value requirement as satisfied by saying that there is a separate right to admission to attraction No.1 to the face value of its gate price, a separate right to admission to attraction No.2 to the face value of its gate price, and so on, while recognising that the total of those gate prices is not a particularly relevant figure.

15

We consider that while Mr Prosser’s interpretation is ingenious it stretches the wording too far, even though we would like it to fit on grounds of neutrality. We consider that the right to receive goods or services that the Pass represents is a single right to free entry to such of the attractions as the holder chooses to visit, which should not be dissected into a series of separate rights to admission to each attraction each with its own recorded value. That single right is not “to the value of an amount stated on it or recorded in it” which implies that the holder can in a meaningful way spend up to a given value on the goods or services represented by the voucher. With, say, a book token (which clearly falls within Sch 10A), the value shown on it is highly relevant. Here, having purchased the Pass, the gate price of each of the attractions is irrelevant to the Passholder, save that he may want to know that he has received value from the Pass in the form of paying less for it than the gate price of those attractions he decides to visit. The value does not become relevant merely because one can determine that the Pass represents an arithmetic total of gate prices that reduces when an attraction is visited. The right represented by the Pass is not, viewed realistically, that the holder has the right to visit attractions to any stated (or recorded) value; it is to visit such of the attractions he chooses. It might be different if the Pass entitled the holder to admission to attractions having a gate price up to the value of £X (with X depending on the number of days’ validity of the Pass).”

The tribunal then, in paragraph 16, makes a separate point about paragraph 3(3) of Schedule 10A. I do not find that point particularly convincing, but I need not enlarge upon it, because the main ground of the decision is that set out in paragraphs 14 and 15, about the definition of ‘face-value voucher’ in paragraph 1 of Schedule 10A. If what the tribunal said there is correct, it is sufficient in itself to require the appeal to be dismissed, and what is said in paragraph 16 is in the nature of a grace note: something which might be an additional reason for the appeal failing, but not something which is essential before that result can follow.

In the outcome the tribunal dismissed the appeal.

The appeal to the High Court, which in the event was heard by me, gave rise to quite lengthy skeleton arguments or other forms of written submissions – four documents produced on behalf of LPG and two on behalf of HMRC – and resulted in a hearing that extended into two days. I fear that I may not be doing full justice to the submissions, but I have to say that, in my opinion, there is one short and conclusive point which resolves this case. The definition of ‘face-value voucher’ in paragraph 1(1) of Schedule 10A does not apply to the London Pass. For the definition to apply the Pass would have to represent ‘a right to … services to the value of an amount stated on it or recorded in it.’ The Pass does represent a right to services, but it is not a right to services to the value of an amount stated on it or recorded in it.

The words of the definition require two elements to be present: (1) there must be an amount to the value of which the Pass confers on the holder a right to services; and (2) that amount must be stated on or recorded in the Pass. Like the tribunal, I base my conclusion on element (1), not on element (2), but I comment briefly on element (2) first.

As regards element (2), the ‘amount’ which counsel for LPG say exists and satisfies one of the requirements of the definition is either (a) the aggregate of all the normal admission prices (‘the gate prices’) of all the attractions to which a holder of a Pass can have free admission, or (b) the aggregate of the gate prices of all the attractions at which any particular holder of the Pass exercises his right of free admission. Neither of those amounts appears on the face of the Pass itself. However, the gate prices of all the attractions are included in the information stored on LPG’s computer, and the microchip on each Pass enables whatever use may be made of the Pass to be linked up with those prices. The tribunal thought that that was sufficient to satisfy element (2) in paragraph 13 above. I have my doubts about that, because a holder of the Pass does not have access to the computer system. However, the Pass contains the words ‘For full conditions of use please see The London Pass guidebook.’ Each Passholder is supplied with a guidebook; the guidebook lists all the attractions at which the Pass can be used; and in the case of each attraction the guidebook includes the amount of the gate price in the information which it gives. So if a Passholder wanted to know what ‘amount’ was, in his case, the aggregate of the gate prices of all the attractions, or was the aggregate of the gate prices of the attractions which he visited, he could work it out. He would have no need of the information, but he could discover it if he wanted.

I move on to element (1), which in my judgment is the crux of this case. The Pass must represent the right to receive services ‘to the value of an amount …’. In my opinion the word ‘to’ means ‘up to’ the value of the amount. (The tribunal took the same view: see the third sentence of paragraph 15 of the decision.) The statute contemplates, and applies only to, a voucher which has a monetary limit placed upon it, in the sense that, when the monetary limit is reached, the voucher is exhausted and cannot be used any further. A book token, which the tribunal instances in paragraph 15 of its decision, is a familiar example and a good example. If a person has a £25 book token he can use it to acquire books for a value of up to £25 without further payment. If he wants to acquire books which will cost more than £25 he has to pay the difference in cash, and once he reaches the £25 ceiling the token – the voucher – is exhausted. The face value of the book token – £25 in the example – is highly relevant to the holder.

There is no parallel in the case of the London Pass. There are limits on the use of the Pass, but they are not monetary limits; and so they are not limits by reference to an ‘amount’. The effective limit is a limit of date. A Pass is valid for a limited number of days after its first use, and expires when those days have elapsed. Neither the aggregate of the gate prices of all the attractions in the booklet nor the aggregate of the gate prices of the attractions actually visited by the Passholder has anything to do with whether, and if so for how long, the Pass continues to be in force or not. Another limit – almost entirely a theoretical limit – is a limit by reference to the number of attractions at which the Pass can be used. In the extremely rare case of a Passholder visiting all of the attractions within the period of the Pass’s validity (something which has only ever happened once according to the evidence) the Pass can no longer be used. That again is a limit to which the aggregate of the gate prices is totally irrelevant.

Mr Prosser and Mr Hitchmough are right that it is possible to work out the arithmetic total of all of the attractions in the booklet or of all of the attractions which a particular Passholder visits. That arithmetic total is an ‘amount’. However, in contrast to examples like book tokens to which the definition of face-value voucher does apply, it is an amount which is wholly irrelevant to the use which may be made of the Pass. As the tribunal said at the end of paragraph 16 of its decision, it might be different if the Pass entitled the holder to admission to attractions having a gate price of up to £X. But that is not how the London Pass is structured.

In my judgment the clear inference from the requirement that, to be a face-value voucher, a voucher needs to state or record the amount ‘to’ which the holder is entitled to receive goods or services is that Schedule 10A is dealing with – and only dealing with – vouchers in the case of which the holder may run out of the money represented by them. The London Pass never expires because the holder has exhausted the monetary amount of it. As I have said, it expires because it has gone out of time or because (theoretically, though unlikely to happen in practice) it has been used already at all of the attractions.

It is worth adding that, if LPG’s case was correct, the face-value voucher provisions would have a surprisingly wide impact. Suppose that a person buys a theatre ticket from a ticket bureau, and suppose that (as is likely to be the case) the price of the ticket is printed on it. If Mr Prosser and Mr Hitchmough are correct I do not at present see why the ticket should not be a face-value voucher, with the VAT consequences being worked out in accordance with Schedule 10A. I would be very surprised if that is what happens in practice, and it would certainly not be in accordance with cases decided when the predecessor provision of Schedule 10A was in force. See for example Customs & Excise Commissioners v Richmond Theatre Management Ltd [1995] STC 257.

In this connection I should mention one submission made by Mr Prosser and Mr Hitchmough. It was that the London Pass (giving access, as it does, to 55 different attractions) could be regarded as if it was, or as if it contained, 55 individual passes, each having a face value equal to the normal gate price of the particular attraction to which it related, and each being valid only for between one and six days corresponding to the period of validity of the actual Pass purchased by a customer. The Pass is not, of course, structured in that way, nor realistically could it be. But even if it was I do not think that it would create either one face-value voucher to which Schedule 10A applied, or 55 separate face-value vouchers, to each of which the Schedule applied. Fifty-five admission tickets, sold together, would not be one face-value voucher, nor would they be 55 face-value vouchers.

Essentially what I have said in the foregoing paragraphs contains the reasoning which leads me to my conclusion. I have nothing more to say which bears directly on the issue for decision. There were some issues raised in the hearing which, in my opinion, I need not spend time on. They include whether any significance should attach to additional benefits such as the facility at some attractions of by-passing queues for entry. They also include the correctness or otherwise of what the tribunal said in paragraph 16 of its decision about paragraph 3(3) of Schedule 10A, a matter to which I have alluded in paragraph 10 above. Whatever the position on those matters might be, they are not going to change my decision. There are, however, three other points on which I do wish briefly to comment before ending this judgment.

First, Mr Prosser and Mr Hitchmough seek to make much of the circumstance that, if HMRC are correct, VAT is chargeable on the entire price paid by a purchaser of a London Pass, yet many of the attractions come within the exemption category in VATA 1994 Group 13. This, counsel say, leads to a distortion: visitors with London Passes do not benefit from the supplies which the attraction makes being exempt from VAT. This, I think, is what prompted the members of the tribunal to say at the beginning of their paragraph 15 that they would have liked Mr Prosser’s interpretation ‘to fit on grounds of neutrality’. I see the point, but I accept Mrs Whipple’s answer to it, which is that it is a result brought about by the choice of LPG to parcel together in one Pass rights of admission both to the VAT-exempt attractions and to VAT-liable attractions. In such a case, where there is only one supply, the price for the greater convenience both to the company and to the purchasers of having everything wrapped up in a single package is bound to be the loss of exemption for the parts of the package which, if they had remained distinct, would or might have benefited from an exemption. A similar point is made in the recent decision of the Inner House of the Court of Session in Highland Council v HMRC [2007] STC 1280.

Second, if Schedule 10A meant that sales by LPG of London Passes did not attract VAT when they were made, there would be a different inconsistency with the basic policy of the VAT system. Further, it would in my opinion be a more fundamental inconsistency than that which LPG identifies and which I have discussed in the foregoing paragraph. The policy is that, if a person receives a payment or other consideration for the supply of something which the person is in business to supply, then, exemptions and zero-ratings apart, VAT should be payable; further VAT should be payable when the supply is made, and in principle the liability should not be affected by waiting to see what use the recipient makes of what has been supplied to him. If LPG is right in this case, that policy is not fulfilled. A supply by LPG of a London Pass is complete when a customer buys the Pass, regardless of how much or how little use the customer makes of it. The extreme case would be a customer who buys a Pass, pays the full price for it, but in the event never uses it at all. In my opinion the policy of the VAT system is that in such a case LPG should be liable to account for VAT on the consideration which it receives from the customer. (An analogy would be the sale of a theatre ticket where in the event the purchaser does not turn up to see the play. VAT is obviously payable by the theatre.) If LPG’s submission in this case is correct, VAT would not be payable by reference to the price received by LPG from the customer who never uses his Pass. Obviously the generality of cases are not as extreme as that, but LPG must surely have costed out its operations on the basis that, taking all of its purchasers collectively, they will pay more to it for their Passes than it has to pay to the various attractions at which the purchasers use the Passes. As a matter of policy VAT should be payable on the difference, but it would not be if Schedule 10A applies in the manner for which LPG contends. The Highland Council case, to which I referred in the previous paragraph, supports what I have said in this paragraph also.

Third, I wish to say something about the relationship between the VAT which I believe LPG is liable to pay upon the sales by it of London Passes and the VAT payable on admission charges received by VAT-liable attractions, that is attractions which do not come within the exemption provided for by Schedule 9 Group 15. If I thought that there would be a doubling up of VAT liability in such a case I would need to think very carefully before adhering to the conclusion which I have reached that LPG is indeed liable to account for VAT, and is not relieved of the liability by Schedule 10A. I should stress that what I am about to say was scarcely touched on at all in the hearing. It is only my personal view, and it has been reached without the benefit of submissions by counsel about it. Mrs Whipple did mention in passing something about a case which has been referred to the Court of Justice of the European Communities, but I know nothing about that case.

The point is best explained by an example. Assume that customer X buys a London Pass from LPG for a price which I will assume to have been 100. HMRC say, and the tribunal and I agree, that LPG is liable to account for VAT by reference to that price. VAT on a VAT-inclusive price of 100 is 14.89. Now assume that customer X uses his Pass to visit several attractions and that some of them are VAT-liable attractions. Customer X does not have to pay for his admissions, but LPG does. The admission charges which LPG pays are lower than the gate prices because of discounts which it has negotiated with the attractions. (See paragraph 4(5) of the tribunal’s decision, quoted in paragraph 7 of this judgment above.) I will assume that the total of the amounts payable by LPG to the VAT-liable attractions for the visits by customer X is 50. (For simplicity I have assumed exactly half of my original assumed figure of 100.) The 50 is a VAT-inclusive price, and the attractions are liable to account to HMRC for the VAT which is included. The amount so included is 7.445.

So, by reference to a transaction whereby Customer X paid 100 to LPG and LPG paid on 50 to VAT-liable attractions which Customer X visited, LPG has accounted for output tax of 14.89, and the attractions have accounted for output tax of 7.445. The two together amount to 22.334, which would be the VAT contained in a VAT-inclusive price of 150, not 100. Does that mean that one consequence of Schedule 10A not applying is that there is an overpayment of VAT? As I have said, this question was not effectively discussed in the hearing, but I believe that the answer is: no. The reason is that LPG should be entitled to input tax credit for the VAT content of the amounts which it pays to the non-exempt venues. So LPG is liable to account to HMRC for output tax of 14.89, but it is entitled to credit against HMRC for input tax of 7.445. The attractions account for VAT of 7.445, and LPG also accounts for VAT of the same figure, reached by taking output tax of 14.89 and crediting against it input tax of 7.445, producing a net liability on LPG’s part of 7.445. The total VAT liability of the VAT-liable attractions and of LPG taken together is 14.89, which is appropriate and is not an overpayment. I do not know whether that is what happens in practice, but in my view it is what ought to happen. Further, I think that I can, at least tentatively, make the assumption that it is what happens, because if it did not I have little doubt that I would have heard about it in the appeal.

I would only add that, although it is Customer X who actually goes to the attractions and who in that sense enjoys the services which the attractions provide, the attractions also provide services to LPG. They provide to LPG the services of allowing entry to its customers, and for doing that they receive payments from LPG. It is entirely appropriate that LPG should have input tax credit for the VAT element in the payments which it makes. Further, I believe that that treatment is in accordance with the decision of the House of Lords in Customs & Excise Commissioners v Redrow Group Ltd [1999] STC 161.

I have no other specific observations to make. For the reasons which I have set out in this judgment, I dismiss LPG’s appeal.