HM Revenue & Customs v FindMyPast Limited

The Inner House of the Court of Session has refused an appeal by The Commissioners for Her Majesty’s Revenue and Customs (HMRC) against a ruling by the Upper Tribunal in an appeal by Findmypast Limited, a company providing access to genealogical and ancestry websites which claimed repayment of the value added tax (VAT) accounted for in respect of unredeemed vouchers. The following is a summary of the opinion of the court.

The court upheld a decision of the Upper Tribunal, which decided that VAT only became chargeable when a customer redeemed vouchers to access records on a website, reversing a decision of a First-tier Tribunal to the effect that VAT was due as soon as the customer purchased the vouchers. 

Findmypast customers who wished to search for historical records on the website could do so without charge. In order to view or download records, a customer had to pay a subscription for a fixed period or use a Pay As You Go (PAYG) process. 

During the period between September 2008 and 10 May 2012 Findmypast (the taxpayer) accounted for VAT on the price of PAYG vouchers at the time when they were sold. The result was that tax was paid not only in respect of vouchers that were used to access genealogical records but also in respect of vouchers that remained unredeemed.  

In the present proceedings the taxpayer claimed repayment of the VAT accounted for in respect of unredeemed vouchers during the relevant period. 

The First-Tier Tribunal held that what the customer acquired was a “package” including the means of access to the records on the website, with a facility to search these, and then to access and download particular items. On that basis the supply for VAT purposes was made at the outset, when the package was purchased. 

Secondly, the First-Tier Tribunal held that the document issued by the taxpayer did not qualify as a “face-value voucher”, as the PAYG vouchers could be obtained by purchase, gift or in a promotion, and the consideration would vary in each case. 

Thirdly, the Tribunal ruled that a section of the Value Added Tax Act 1994 dealing with “pre-payments” was applicable, as the nature of supply was known at the outset, and there was a “direct link” at the time of payment. Consequently, the appeal by Findmypast (the taxpayer) was unsuccessful. 

Reversing the decision of the First-tier Tribunal, the Upper Tribunal held first that the use of the search engine was not part of any “package” paid for by a customer when he purchased a subscription or PAYG credits. What the customer bought, which was in addition to his free use of the search facility, was the right to access individual documents as and when he chose to do so, up to the limit of the credits purchased. On that basis the service was provided or supplied when the individual documents were accessed. There was no link between the payment made by a PAYG customer and the use of the search facility. 

Secondly, the Upper Tribunal held that the PAYG credits were a face-value voucher that satisfied the requirements of Schedule 10A of the 1994 Act. They were a voucher in electronic form that represented a right to receive services “to the value of an amount”, and that amount was “recorded in it”. 

Thirdly, in relation to the prepayment argument, the customer bought a certain number of credits, but it was by no means clear that he would know what he could purchase with those credits; different documents or categories of document might command different prices, and what the customer could buy with his credits depended upon the current “price” for those documents; prices might vary over time. Thus it could not be said that at the time of purchase of the credits the services to which the customer was entitled were fixed or clearly identified, meaning section 6(4) of the 1994 Act did not apply. 

HMRC appealed to the Court of Session.  Refusing the appeal, the court observed that the taxpayer essentially provided two services: a general search function and the viewing and downloading of specific documents, and that the critical question was what the consideration was for the amounts paid by PAYG customers. 

The opinion of the court, delivered by Lord Drummond Young, states: “In our opinion the consideration for those payments is the viewing and downloading of specific documents.  The customer is engaged in genealogical research.  He requires particular documents in order to carry out that research – documents related to the particular family that he is investigating.  It is those documents that provide the necessary information about family history, and they are only available through use of the viewing and downloading service.  It is that service, and that service alone, that can only be accessed by making use of the PAYG credits.” 

The search function, by contrast, which is available free of charge to the general public as well as to PAYG and subscription customers, is no more than a means towards the customer’s ultimate end. 

The opinion continues: “For the foregoing reasons we are of opinion that the taxpayer’s analysis of the nature of the supply is correct. The consideration for the payments made by customers to obtain PAYG credits is the ability to view or download particular items on the taxpayer’s website, and does not extend to the general search facility that is available both to customers and to the public.” 

The court further held that the payments made by PAYG customers were not “prepayments” within the meaning of section 6(4) of the 1994 Act. 

The opinion of the court states: “If a prepayment is to be chargeable to VAT, it must relate to a particular supply of goods or services, with a direct link between the goods or services and the consideration paid in advance.  Unless such a link exists, the payment made in advance of the supply is a mere payment to the general account of the customer, without a sufficient link to the service that is to be supplied.  In the present case, the uncertainties are significant.  It is plain that a substantial number of PAYG credits are never redeemed, and there is obviously no link with a service in such cases.” 

On the question whether the PAYG credits constituted a voucher, the court disagreed with the conclusion of the Upper Tribunal and held that they did not.  The third and fourth of the requirements of paragraph 1(1) of Schedule 10A, which require that the right represented by the voucher should be “to the value of an amount” and that that amount should be “stated on” or “recorded in” the voucher, were not satisfied. 

Lord Drummond Young states: “In our opinion the PAYG credits, or vouchers, issued by the taxpayer, do not amount to face-value vouchers, but are rather mere credits that permit the customer to view and download particular documents on the taxpayer’s website, through the operation of the taxpayer’s accounting system.  As we have already indicated in discussing the nature of the vouchers, we are of opinion that they are not purchased for their own sake but as a means to view or download documents. That is quite different from the typical face-value voucher. 

“The wording used indicates that the value must be recorded within the voucher itself; that appears to us to be of the essence of a face-value voucher which represents particular rights.  In the present case, however, the PAYG voucher itself does not contain information that ‘states’ or ‘records’ the amount of the credits; that amount can only be ascertained through access to the taxpayer’s own accounting records.  It is only there that the actual value of the PAYG voucher can be discovered, because that depends upon the prices currently charged for viewing or downloading particular documents on the website.” 

The opinion of the court concludes: “For the foregoing reasons we agree with the result reached by the Upper Tribunal, on the basis that the nature of the taxpayer’s supply to PAYG customers was the supply of genealogical records selected by a customer and viewed or downloaded by that customer, and that the payments made by customers when they purchased PAYG credits did not amount to a prepayment within the meaning of section 6(4) of the Value Added Tax Act 1994.  We consider that the PAYG credits did not amount to face-value vouchers within the meaning of Schedule 10A of the 1994 Act; on this matter we agree with the decision of the First-tier Tribunal.  Nevertheless, on the basis of our decision on the nature of the supply and the prepayment issue, we will refuse the appeal.” 

The full Opinion of the Court can be accessed via the Scottish Courts and Tribunals Service website.

The Right Hon Lord Carloway (Colin John MacLean Sutherland)

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Lord Carloway was appointed as Lord President of the Court of Session in December 2015 and was installed as the new head of Scotland's judiciary in January 2016. He has been a Senator since February 2000 and was appointed to the Second Division of the Inner House in August 2008, before becoming Lord Justice Clerk in August 2012.

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The Right Hon Lady Dorrian (Leeona J Dorrian)

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The Right Hon Lady Paton (Ann Paton)

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The Right Hon Lord Menzies (Duncan Adam Young Menzies)

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The Rt Hon Lord Drummond Young (James Edward Drummond Young)

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