First National Telecom Services Ltd v Her Majesty's Revenue & Customs

Facts

First National Telecom Services Ltd appealed against assessments to value added tax totalling £1,329,234 covering the eight prescribed accounting periods from 1 December 2001 to 30 November 2003. The calculation of the assessments was not in dispute; what was in issue was input tax claimed in those periods which the Commissioners contended was not properly deductible. At the material time 7% of the appellant's turnover came from the supply of telecommunication services direct to consumers and 93% from the purchase and resale of phone cards. The cards were issued by several Irish companies, which sold them to the appellant at less than the face value stated on them, at a margin allowing the appellant to resell them profitably to retailers and other distributors, still below face value. Consumers could use the vouchers to obtain telecommunications services at full face value from companies that had arrangements with the Irish issuers. The Irish authorities took the view that no VAT was chargeable on the sales to the appellant, so no input tax arose on the cards themselves, and none was claimed. The input tax in dispute related to the appellant's overheads, which it recovered in full on the footing that all its supplies were taxable. The Commissioners contended that the card sales were outside the scope of VAT, restricting recovery to 7%.