BLACKPOOL PLEASURE BEACH (HOLDINGS) Limitedappellant

19014

VAT — amusement park operator — market-value vouchers — whether voucher offer by appellant to selected pairs of visitors to one park on payment of £52 for two vouchers including voucher claimed by appellant to be market-value voucher worth £16 for wristband for a single person at another park made for consideration — if so, whether vouchers face-value vouchers or supplied for consideration — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

BLACKPOOL PLEASURE BEACH (HOLDINGS) LIMITEDAppellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISERespondents

Tribunal: David Demack (Chairman)

Sitting in public in Manchester on 14, 15 and 16 February 2005

Miss Valentina Sloane of counsel instructed by Messrs Baker Tilly, chartered accountants, Manchester, for the Appellant

Mr Owain Thomas of counsel instructed by the solicitor for the Customs and Excise for the Respondents

© CROWN COPYRIGHT 2005

DECISION

Introduction

1.This case is concerned with face-value vouchers, a term defined in paragraph 1(1) of Schedule 10A to the Value Added Tax Act 1994 (see paragraph 21 below). A trader who issues such a voucher is required to account for output tax on it if, and thus only when, it is redeemed.

2.During the summer of 2003, the appellant company, Blackpool Pleasure Beach (Holdings) Ltd (“BPB”), by a company within its VAT group, offered a customer at its Blackpool Pleasure Beach amusement park on payment of £26 a wristband entitling him to enjoy unlimited rides on one day. But selected pairs of customers, each one purchasing such a wristband, were also presented with a voucher for a free one-day wristband for one person at BPB’s Southport Pleasureland amusement park. As the cost of a one-day individual wristband at Pleasureland was £16, BPB claimed to have issued a pair of participating customers with a face-value voucher to that value. The Commissioners of Customs and Excise did not accept that BPB had issued a face-value voucher in those circumstances, and by letter of 19 December 2003 required it to account for output tax on the £52 consideration received, rather than on the £36 for which it had been accounting. BPB appealed against that requirement and was on 27 January 2004 assessed to tax of £10,277. Its appeal has been treated throughout as against the assessment.

3.The Commissioners’ principal case is that there was no consideration for the vouchers issued by BPB. Alternatively, first, they maintain that the vouchers were not face-value vouchers and, secondly, they contend that, if the vouchers were face-value vouchers, they were supplied for consideration. The success of any one of those claims would be fatal to BPB’s appeal.

The Facts

4.I base my findings of fact on the contents of an agreed bundle of copy documents, and the parol evidence of Mr Peter Cornthwaite, the group finance director of BPB, Mr Philip Levy and Mr Jonathan Wheeler, both of whom are specialist tax avoidance officers of the Commissioners.

5.BPB is the representative member of a group, the companies in which operate amusement parks. Amongst its parks are Blackpool Pleasure Beach and Southport Pleasureland. The former is the larger of those two, having an income from ride wristbands in 2002 of £8.3 million. Entrance to both parks is free, but customers are required to pay to take rides of their choice. They may purchase tickets for individual rides, or for ride wristbands which entitle them to take unlimited rides in a specified period.

6.In 2002, as part of a general business review, BPB considered with its accountants and VAT advisers ways of increasing revenue by the use of business promotion schemes. It was attracted to a voucher offer designed to encourage customers to spend money at sites other than the one they were visiting. BPB expected that, if implemented, such an offer would increase sales revenue, and provide VAT benefits both in its not having to account for tax until vouchers were redeemed and in its not being liable for tax on unredeemed vouchers. It was advised that the tax benefits would be greater the lower the percentage rate of voucher redemption, and would continue to be beneficial until the redemption rate rose to about 15 per cent.

7.BPB was particularly interested in introducing an offer that would generate additional income at Pleasureland, that park being unprofitable. It concluded that it would be sensible for any offer to relate to ride wristbands, for 50 per cent of its income consisted of ride income, and of that about 60 per cent was attributable to ride wristband sales. Further, since most customers at BPB sites arrived in pairs, it considered that if it provided a voucher for one person to visit Pleasureland, it could expect to receive additional income both from a ride wristband sale to the person accompanying the voucher holder, and other purchases by the pair.2003 was considered “ripe” for a voucher offer as Southport had received European and English tourism funding, and was being redeveloped as a major tourist destination. In 2003, the full price of a one-day wristband for an individual at the Pleasure Beach was £26, and at Pleasureland £16. But many customers paid less than the full price as BPB offered customers a variety of discount vouchers and money-off coupons.BPB determined to offer selected pairs of Pleasure Beach customers, each buying a one-day ride wristband for £26, a voucher for a free one-day ride wristband for one person at Pleasureland, the offer to run from 7 July 2003 to 24 August 2003 (“the voucher period”). (But, in the event, the voucher offer was not made from 19 to 22 July, and from 2 to 10 August 2003 (all dates inclusive) when BPB made other offers). The voucher could not be used in connection with any other then current promotional offer of BPB, and was valid only until 28 September 2003; it could not be exchanged for cash, or for any other wristband or ticket.

8.BPB advertises its promotional offers through the press, by handing out promotional leaflets and brochures, and on its website. But the Pleasureland voucher offer was not advertised by any of those means. Nor was it mentioned in BPB’s price lists – boards about 4 feet high and 2 feet 6 inches wide containing details in letters and numbers about 2½ ins high of its various tickets and wristband prices. The price lists are located at each entrance to the Pleasure Beach, and at each till counter behind the till operator.

9.The Pleasureland voucher offer was not made to all pairs of Pleasure Beach customers purchasing two one-day wristbands, but only to those pairs selected by BPB’s till operators, at their discretion. If those customers who received the voucher offer did not wish to take advantage of it, under its terms and conditions of trade as amended for the duration of the voucher period (see paragraph 13 below) they were entitled to purchase the two wristbands for the discounted price of £36. But BPB’s till operators were instructed not to offer the discounted price to pairs of customers unless they specifically requested it. BPB justified its process of selecting pairs of customers as being aimed at those most likely to take up the voucher offer, e.g. family couples, but it simultaneously allowed it, tap like, to turn the offer on and off whenever it chose. The significance of that ability becomes apparent when account is taken both of an admission by Mr Cornthwaite that if too many discounted tickets had been sold the voucher offer would not have been viable, and the fact that the fewer the sales at the discounted price the more beneficial the voucher offer to BPB in VAT terms. That fact can be demonstrated by comparing an example of the financial benefits of the scheme Mr Cornthwaite prepared for presentation to the BPB board with another, assuming the same number of vouchers issued, but adopting the actual redemption percentage rate achieved (0.0011 per cent – see paragraph 17 below).

10.Mr Cornthwaite assumed that 10 per cent of pairs of ride wristband sales would be made at a reduced price of £36, and vouchers would be redeemed at a rate of 3 per cent of 100,000 issued. His calculation, which follows, clearly shows that the improvement would in no small measure be due to VAT savings of £208,000.

£
Cash with promotion / 4,544
Cash without promotion / 4,426
Total cash saving / 118
Total cash saving made up as to:
VAT saved at point of sale / 214 / (90,000 @ 2.38)
VAT later incurred at point of redemption / (6)
208
Impact of BPB sales at reduced value
Gross sales 10,000 @ (16) / (160)
VAT thereon 10,000 @ 2.38 / 24
(136)
72
Additional net sales Pleasureland
Wristbands / 28
Non Wristbands / 28
Less incremental cost of sales at Pleasureland / (10)
118

11.(I need not set out the comparative calculation for it merely substitutes the sub-total of £136.20 for that of £72,000 in the section entitled “Impact of BPB sales at reduced value”, giving a resultant total cash saving of almost £190,000 as opposed to £118,000).

12.BPB has 11 standard terms and conditions of trade. It claims that they are invariably displayed at its ticket counters and information offices. For the reasons set out in paragraph 15 below, I do not accept the claim. The standard terms and conditions, which contain no mention of the prices of tickets or wristbands, are printed on a single sheet of A4 paper, and are displayed in a perspex stand for protection.

13.BPB added two additional terms and conditions to its standard terms for the duration of the voucher period. For reasons which were not explained, they were included at numbers 7 and 8, and read:

“7.For the period July 7 2003 to August 24 2003 inclusive the price of a pair of adult wristbands purchased together includes a sixteen pounds voucher for one all day wristband at Pleasureland, Southport, redeemable before September 28 2003.

8.Provided the request is made prior to sale guests who do not want the offer in 7 above may purchase a pair of adult wristbands for a combined price of thirty six pounds.”

14.Coupled with the fact that the additional terms and conditions were inserted about the middle of the amended terms, the values of the items on offer were included in words rather than figures, making them less eye catching and perhaps unlikely to be read by a person scanning the document quickly.

15.Mr Cornthwaite also claimed that, in time for the launch of the voucher offer on 7 July 2003 and throughout the voucher period, the amended terms and conditions were on display at all main (i.e. approximately 10) ticket counters at the Pleasure Beach, but he admitted that he personally did not check to ensure that they were so displayed. I am unable to accept that claim, and whilst two reasons for my doing so, being findings of fact, immediately follow, I add other reasons at paragraph 46 in my conclusion. On 12 August 2003, Mr Wheeler paid an unannounced visit to the Pleasure Beach. He found but a single copy of BPB’s terms and conditions on display in the whole park, and it was in standard terms: it thus contained no mention of the Pleasureland voucher offer. The amended terms and conditions were however on display at some ticket counters on 13 August 2003, when Mr Levy and Mr Wheeler paid a pre-arranged visit to the Pleasure Beach. At some, but not all, of those counters where the amended terms were not to be found, the standard terms were on display.

16.Mr Cornthwaite explained that, in common with most commercial enterprises, BPB’s sales staff are trained to maximise sales revenue, and thus begin by trying to sell BPB’s highest priced article (in the case of the Pleasure Beach in 2003, a ride wristband for one person and show tickets valid for one day costing £30). If they are unsuccessful, they then offer couples a pair of ride wristbands (in 2003 for £52). Mr Cornthwaite also said, “Customers will have read the promotional literature and notices at the sales area of the park so will have made an informed choice and know precisely what they want to purchase by the time they reach the front of the queue. Sales staff were expressly instructed that customers who wished to refuse the offer were entitled to a pair of the Pleasure Beach ride wristbands at the discounted price of £36. The fact that customers could refuse the offer is demonstrated by the fact that some did so”. I doubt that most customers read BPB’s promotional literature and notices, but I accept that BPB’s staff were “expressly instructed” that customers refusing the Pleasureland voucher offer were “entitled” to purchase wristbands at the discounted price. (I use the expression “entitled to purchase” advisedly, and contrast it with “offered”).

17.During the voucher period, BPB issued 4502 Pleasureland vouchers (of which 159 were redeemed), but only 5 pairs of wristbands were sold at the discounted price of £36. That represented a rate of 0.0011 per cent of the customers who received the voucher offer. Of those five pairs, Mr Cornthwaite said that two, or possibly three (he claimed to be unable to remember which), were sold to customers who requested the discounted price post-payment, so that whilst strictly not entitled to it, they received it as a “goodwill gesture”. I accept his evidence in that behalf as fact.

18.Two customers paying £52 for a pair of one-day wristbands and receiving the voucher offer during the voucher period received a single printed receipt on which it was stated that they had paid £36 for a pair of adult wristbands at the Pleasure Beach, and £16 for a Pleasureland voucher. The receipt also stated that the moneys paid were “Non-refundable”.

The Law.

19.Although it plays little part in my decision, as a matter of courtesy I include at this point the law governing face-value vouchers. The European law is to be found in EC Council Directive 77/388 of 17 May 1977 (“the Sixth Directive”) . It provides at Article 10:

“1. (a)‘Chargeable event’ shall mean the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled.

2.The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed … However, where a payment is to be made on account or goods are delivered or the services are performed, the tax shall be come chargeable on receipt of the payment and on the amount received.

By derogation from the above provisions, Member States may provide that the tax shall be chargeable for certain transactions or for certain categories of taxable person, either … - no later than receipt of the price”

20.And the relevant parts of Article 11 of the Sixth Directive provide:

“1.The taxable amount shall be:

(a)in respect of goods and services … everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;

3.The taxable amount shall not include:

(b)prices discounts or rebates allowed to the customer and accounted for at the time of supply.”

21.The domestic legislation relating to face-value vouchers was included in the Finance Act 2003 and is now to be found in Schedule 10A to the 1994 Act. Paragraph 1 of Schedule 10A provides:

“(1)In this Schedule ‘face-value voucher’ means a token, stamp or voucher (whether in physical or electronic form) that represents a right to receive goods or services to the value of an amount stated on it or recorded in it.

(2)References in this Schedule to the ‘face-value’ of a voucher are to the amount referred to in sub-paragraph (1) above”

22.Paragraph 4 of Schedule 10A provides:

“(1)This paragraph applies to a face-value voucher issued by a person who—

(a)is a person from whom goods or services may be obtained by the use of the voucher, and

(b)if there are other such persons, undertakes to give complete or partial reimbursement to those from whom goods or services are so obtained.

Such a voucher is referred to in this Schedule as a ‘retailer voucher’.

(2)The consideration for the issue of a retailer voucher shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds the face-value of the voucher.

(3)Sub-paragraph (2) above does not apply if —

(a)the voucher is used to obtain goods or services from a person other than the issuer, and

(b)that person fails to account for any of the VAT due on the supply of those goods or services to the person using the voucher to obtain them”.

23.Paragraph 7 of Schedule 7 provides:

“Where —

(a)a face-value voucher (other than a postage stamp) and other goods or services are supplied to the same person in a composite transaction, and

(b)the total consideration for the supplies is no different, or not significantly different, from what it would be if the voucher were not supplied,

the supply of the voucher shall be treated as being made for no other consideration”.

Submissions of the Parties

24.In relation to the Commissioners’ contention that no consideration was attributable to the Pleasureland vouchers, Miss Sloane, counsel for BPB, submitted that their analysis was simply incorrect.