In a recent case (C-520/10) decided by the European Court of Justice (ECJ) Lebara, a telecommunications company, came out victorious over HMRC in what is being called a landmark decision. Lebara is a provider of telecommunication services established in the U.K. that provides pre-paid phone cards to distributors for resale. Many of the distributors are established in other member states. HMRC had taken the position that Lebara owed VAT at two stages — first when the cards were sold to the distributors and then again when an end user activated a card. Lebara challenged that position claiming that their only taxable relationship was with the distributors. The ECJ agreed saying that Lebara was only engaged in one sales relationship, the one with its distributors. The distributors are in turn responsible for the relationship with the end users.
In response to this case the government has announced legislation to be included in Finance Bill 2012 which will amend the VAT rules relating to the treatment of face-value vouchers so that VAT will be due when such vouchers are first issued. Although the legislation will apply from 10 May, any VAT due arising from its passage will not become payable until the Finance Bill 2012 receives Royal Assent.
HMRC has published Revenue & Customs Brief 12/12 which explains the implications of the new legislation with specific examples.