In Simple Energy Limited v HMRC [2023] TC08995, the First Tier Tribunal (FTT) found that credits awarded to customers under a refer-a-friend scheme amounted to a non-monetary consideration for the supply of energy. Output VAT was due on the value of the credits.

  • Simple Energy Limited was the representative member of the VAT group of which Bulb Energy Limited (Bulb) was a member.
  • Bulb, an energy supplier, operated a refer-a-friend scheme whereby existing customers were provided with a personalised electronic referral link which they could pass to potential new customers.
  • Where the refer-a-friend link successfully signed up a new customer, both the existing customer (the referrer) and the new customer received a credit of between £25 and £75 against their energy charges.
    • Multiple referrals could be made by existing customers meaning that multiple credits could be received.
  • Bulb treated the referrals as the performance of a contingency which resulted in a Discount, reducing the value of the energy supply made by Bulb to the referrer.
    • In effect, Bulb accounted for output VAT based on the payments it received from its customers, net of the refer-a-friend credits.
  • HMRC disagreed, arguing that a successful referral under the refer-a-friend scheme was the provision of a service by the referrer, to Bulb.
    • In HMRC’s view, this service was a non-monetary consideration for energy supplied by Bulb, meaning that output VAT should have been accounted for on Bulb’s charges before the refer-a-friend credits were applied to each customer's account.
  • HMRC issued a decision to this effect, which was upheld on Statutory review. Bulb Appealed to the First Tier Tribunal (FTT).

The FTT found that:

  • How existing customers referred Bulb under the refer-a-friend scheme was sufficient to meet the requirement that something was provided by those customers, by way of consideration, notwithstanding that at the point of referral nothing was done for or provided to Bulb.
    • There was a direct legal link between what was required of referrers participating in the refer-a-friend scheme (making introductions via their referral link) and Bulb’s obligation to reward customers who successfully used their referral link.
    • There was a direct link between the referrers' actions and the refer-a-friend credits: a referral was an essential condition for the refer-a-friend credit.
    • There was a direct relationship between the benefits which Bulb obtained from the actions of referrers and the amount Bulb was willing to pay: every successful referral resulted in a refer-a-friend credit.
    • The credit given to referrers was the subjective value in the money put by Bulb and its customers on the service performed by referrers.
  • When a new customer signed up under the refer-a-friend scheme, they were rewarded for signing up by having their energy costs reduced by their refer-a-friend credit.
    • This contrasted with the position of the referrer, who received something different. Referrers received a reduction in their energy costs as a reward for doing something additional to what was required of them simply as a Bulb customer.
  • The services provided to Bulb by referrers, when successfully referring Bulb and thereby earning a refer-a-friend credit, were non-monetary considerations.
    • This was part of the consideration given by those customers for energy supplied to them by Bulb.

The appeal was dismissed.

Useful guides on this topic

Discounts, Reward Schemes & Vouchers: VAT
Loyalty and reward schemes come in various shapes and sizes and the VAT implications may vary depending on the type of scheme offered. This guide covers some common schemes.

Groups (VAT)
What are the conditions for forming a VAT group? What rules apply once a VAT group is in place?

Goods or services for VAT
What are goods and what are services for VAT? The answer may have an impact on the time of supply, the place of supply and in some cases the rate of the supply. The answer is not always as straightforward as it may seem.

External link

Simple Energy Limited v HMRC [2023] TC08995