Insights

Lycamobile – Court rules VAT due upfront and in full on mobile bundle plans

Sue Rathmell · Posted on: February 26th 2026 · read

This insight, co-authored by Sue Rathmell and Aaron Norman, explains that the Upper Tribunal has upheld the decision of the First Tier Tribunal (FTT) that VAT is due upfront on the sale of mobile plan bundles, rejecting Lycamobile’s argument that VAT should only arise when customers actually use their allowances.

Who should read this?

Telecoms operators offering bundles of allowances (minutes, texts, data).
Digital and subscription-based businesses offering packages that include multiple rights or services.

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What happened?

Lycamobile is a mobile virtual network operator, and the case concerned its prepaid mobile bundles, which give customers allowances of minutes, texts and data to be used over a set period. They also offered other bundles that had value-added services, such as a horoscope/joke subscription service or non-EU roaming.

Historically, Lycamobile accounted for VAT only on the used elements of the bundle, when they were used by the customer. This has been common practice across the sector, as seen in the earlier case of Hutchison 3G v HMRC. This VAT treatment represents a significant saving for Lycamobile, who acknowledged only 5-10% of bundles are utilised.

Lycamobile had two main arguments to support this position.

Their first was that a plan bundle was only a “right to future services” - a preliminary transaction where enough information to tax is not known - meaning VAT should only arise when (and to the extent that) the services were actually consumed. The inclusion of other services in the bundles was argued to further demonstrate uncertainty at the time of purchase.

Their second argument was that the bundle plans constituted a multi-purpose voucher, where VAT would similarly be accounted for on usage.

Unsurprisingly, HMRC disagreed, stating that the supply is one of telecommunication services and occurs when payment is made. The additional services were ancillary and followed the same treatment. This would mean VAT is due on the full amount of consideration received.

HMRC raised assessments for periods from 2017 to 2019, totalling £50 million. Lycamobile then appealed to the FTT, which dismissed the appeal in favour of HMRC back in July 2024.

Lycamobile appealed the FTT decision on several grounds. The Upper Tribunal held that the supply is the availability of the allowances for a fixed period, and customers pay for that availability, regardless of how much they actually use. The uncertainty argument was deemed to relate to the pre-payment tax point rules, rather than general VAT principles.

They also ruled the plans are ‘not vouchers to be exchanged for future services; they represent services which have already been supplied’. The appeal was therefore dismissed.

What affected businesses should do now

Businesses should review and reassess their VAT accounting in light of this decision, considering whether a voluntary disclosure will need to made to HMRC for unpaid VAT over the last four years. As this is an Upper Tribunal decision, it is binding on businesses that have the same fact pattern.

As the decision states, the issue is a simple question, but as with most things in VAT, getting to the answer can be a long and complex process. Combining general VAT principles as well as the voucher rules, this is an area that will need to be closely monitored.

It’s clear HMRC have taken a less than forgiving view on this practice, identifying it as a sector to target to recover underpaid VAT, along with potential penalties and interest.

This decision also has implications for other sectors, such as businesses offering streaming services.

It is possible Lycamobile will appeal to the Court of Appeal, given the amount of money at stake, so this may not be the end of the story

Talk to us

MHA’s Indirect Tax team advises telecoms operators and digital businesses on VAT for bundled services, roaming, digital products and voucher structures. Please contact Sue Rathmell or Aaron Norman or your usual VAT advisor for more information and assistance.