In Virgin Media Limited v HMRC [2018] TC06730, the First-Tier Tribunal (FTT) ruled that the old prompt payment discount rules could not apply to those not using an annual upfront contract saver plan.

  • Around 5% of Virgin Media’s customers pay a saver price for fibre optic cable and phone services. This entitles the customer to pay a lower price overall but 12 months are paid for upfront.
  • The remaining customers pay on a monthly basis. Over a period of 12months they would pay a higher amount than those on the saver plan but these customers can terminate the contract before 12 months has passed.
  • Virgin Media accounted for VAT on both contracts only up to the lower saver price:
    • There view was that the reduced saver plan payment was due to a Prompt payment discount offered.
    • Those who chose the monthly plan simply didn’t take up the prompt payment discount.
    • In accordance with the VAT rules at the time, the VAT is based on the lower discounted amount regardless of whether or not the customer takes advantage of the discount offered.
  • HMRC took the view that the prompt payment discount rules did not apply as the saver terms only applied to those who paid the saver price and only after they had paid that price.
  • HMRC concluded that monthly customers received services for consideration of £13.99 per month and savers received 12 months’ worth of services for £120. On that basis, neither group were entitled to the special prompt payment discount rules.
  • HMRC assessed Virgin Media for over £63 million of VAT and over £3 million of interest, relating to 28 August 2012 to 30 April 2014.
  • Virgin Media appealed.

The FTT found as follows:

  • There were two distinct bargains and two distinct supplies:
    • The ability for a customer to pay the reduced annual rate was not provided in return for early payment of the monthly sums but for the provision of entitlement to receive 12 months services at a fixed rate with no right of termination.
    • The monthly customers had an agreement to receive the services for a month in return for the monthly fee. These customers had termination rights.
  • The services could not benefit from the prompt payment discount rules:
    • The monthly customers could have decided to take advantage of an offer to receive the services on a different basis. This would have changed the type of supply to a different one.
    • The saver terms only applied to the customers who chose to contract on the basis of paying the saver price.
    • As the same conditions did not apply to all customers and the supplies were different supplies, the monthly customers are not being offered a prompt payment discount which they have refused to take advantage of.

Virgin Media’s appeal was dismissed. The supplies were not subject to a prompt payment discount and VAT is due on the full monthly cost.

Editor’s note:

The rules on Prompt payment discounts changed on 1 April 2015. From that date, the VAT is not always the lower amount. Instead, the VAT is based on the amount of consideration paid, in other words, the lower VAT is only achieved if the prompt payment discount applies.


Discounts, Reward Schemes & Vouchers: VAT

Prompt payment VAT discount changes

External link Virgin Media Limited v HMRC [2018] TC06730