In TalkTalk Telecom Limited v HMRC [2024] UKUT 00284, the Upper Tribunal (UT) found that supplies were not made on terms allowing a discount for prompt payment. VAT was chargeable on the invoiced amount.
Between 1 January and 30 April 2014, TalkTalk offered most of its retail customers a 15% discount on certain services if they paid their bills within 24 hours of receiving them. This was called the Speedy Payment Discount (SPD).
- Around 3% of customers received the SPD during the period.
- TalkTalk accounted for VAT on the discounted amount in all cases where the SPD was offered, regardless of whether the customers had genuinely paid within 24 hours of receiving their bills.
- HMRC raised an assessment for £10.6m because the SPD offer only reduced the Consideration for VAT purposes where customers had paid the reduced amount.
- HMRC's view was that there was no reduction in VATable consideration when the discount was not taken up (i.e. in 97% of cases).
- TalkTalk appealed to the First Tier Tribunal (FTT).
For the period covered by this decision, where a Prompt payment discount was offered under a contract with terms allowing for it, VAT was chargeable on the discounted amount regardless of whether the discount was taken up.
The FTT dismissed TalkTalk’s appeal, finding that:
- Where services were billed in advance, there were no contractual terms allowing a discount for prompt payment: the contract was merely varied. The variation of terms happened simultaneously with payment being made. This meant there was no term allowing for a discounted payment to be made on a future date.
- Where services were billed in arrears, the discount was an offer to accept a lower sum with an earlier payment date to discharge a pre-existing contractual obligation. This represented a post-supply rebate.
TalkTalk Appealed to the Upper Tribunal (UT), which upheld the decision of the FTT. The UT found that:
- TalkTalk’s Terms and Conditions (Ts&Cs) remained the same, without any provision for a discount for a prompt payment, unless and until the SPD offer was accepted by the customer by making payment within 24 hours.
- Where a customer did not accept the offer of the SPD, the Ts&Cs did not change at all. There was no provision for a discount for a prompt payment.
- The services supplied to the customers who did not accept the SPD offer were not provided on terms allowing a discount for prompt payment.
- TalkTalk was required to account for VAT on the full amount received from customers who did not accept the SPD offer.
The appeal was dismissed.
Comment
The prompt payment discount legislation has been amended since the period covered by this decision.
Since 1 May 2014 (in the case of telecommunication and broadcasting services), the consideration for a supply on terms which allow a discount for prompt payment is only treated as the discounted amount where, among other conditions, payment is made in accordance with the terms that allowed the discount (i.e. where the discount is taken up).
Useful guides on this topic
Discounts, Reward Schemes & Vouchers: VAT
Loyalty and reward schemes and vouchers come in various shapes and sizes and the VAT implications may vary depending on the type of scheme offered. This guide reviews the treatment of some common schemes and case law.
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