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In the Virgin Media Ltd First Tier Tribunal (FTT) case a number of issues were considered. These were:

• whether payment handling charges were exempt via: The VAT Act 1994, Schedule 9, Group 5, items (1) and (5)
• whether the supply was separate from other media services
• which VAT group member made the supply?
• whether there was an intra-group supply
• whether there was an abuse of rights

Background

Virgin Media Limited (VML) provided cable TV, broadband and telephone services (media services) to members of the public. It was the representative member of a VAT Group which also contained Virgin Media Payment Limited (VMPL).

If customers choose not to pay by direct debit, they were required to pay a £5 “handling charge”. The handling charge was paid to VMPL and passed to VML on a daily basis. The issue was; what was the correct VAT treatment of the charge?

Contentions

The appellant argued that the £5 charge was optional for the customer and the collection of it was carried out by VMPL and was exempt as the transfer or receipt of, or any dealing with, money. Further, that, despite being members of the same VAT group, there was nothing in the legislation which forced the VAT group to treat supplies by separate entities within that group as a single supply to a recipient outside the group.

HMRC contended that there was a single taxable supply and thus no exempt services were provided and, in fact, VMPL was not making a supply at all (and therefore not to VML as the group representative member).  In the first alternative, if it were decided that there was a supply, such a supply was an ancillary component of a single taxable supply by VML as representative group member and not by VMPL as per the Card Protection Plan case. In the second alternative, if both decisions above went against HMRC, that the service provided by VMPL fell outside the exemption so that it was taxable in its own right.

Decision

It was found that:

• there was a single supply made to customers
• the supply was made by VML as the representative member of the VAT group
• the £5 handling charge was an integral part of the overall supply
• if not integral, the handling charge was an ancillary supply such that it took on the VAT treatment of the substantive supply
• therefore, VMPL does not make any supply to the end users of the overall service
• if VMPL does make a supply, it is an intra-group supply to VML which s disregarded for VAT purposes
• VMPL does not have a free-standing fiscal identity for VAT purposes
• if the FTT is wrong on the above points and VMPL does make a supply of payment handling services to customers, these supplies are taxable and not exempt (per Bookit and NEC) as the supply is simply technical and administrative and does not amount to debt collection
• the arrangements do not constitute an abusive practice. The essential aim of the transactions are not to secure a tax advantage so HMRC’s argument on abuse fails

Therefore, the appeal was dismissed and a reference to the CJEU was considered inappropriate and output tax was due on the full amount received by the group from customers.

Summary

This was a complex case which suffered significant delays. It does help clarify a number of interconnected issues and demonstrates the amount of care required when planning company structures and the VAT analysis of them.