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A picture of a light bulb | Bulb Energy's refer a friend scheme sparks VAT clash
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Bulb Energy's referral scheme sparks VAT clash

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In a VAT dispute, the first tier tribunal ruled that Bulb Energy’s refer a friend scheme, involving credits for successful referrals, is a non-monetary consideration, which affected the energy company’s calculation of output VAT.

13th Dec 2023
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This first tier tribunal (FTT) case looked at a “refer a friend” scheme and considered whether successful referrals amounted to non-monetary consideration.

VAT on transactions/barters

The starting point is that VAT is due based on the value of consideration given for a supply. 

Most commonly, and easiest to identify and value, is when consideration is wholly in money.

In some cases, consideration may not be in money – for example, a marketing company may provide some social media content for a tech company in exchange for some hardware.  The fact that the consideration is not in money, does not change the fact a supply has been made, and that any applicable VAT should be declared on that transaction. 

VATA1994, s19 states “If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration.”

The refer a friend scheme

Bulb Energy Limited (Bulb) supplied energy to business and retail customers and operated a refer a friend (RAF) scheme. Under the scheme, when a new customer signed up with Bulb, they were provided with a personalised electronic referral link which the customer could forward to anyone.

When the recipient clicked on the link, they were taken to a website where they could sign up as a customer of Bulb. If that happened, both the referrer and the new customer received a credit against their energy charges.

The amount of the credit depended on whether the new customer switched to bulb for both electric and gas, or just for one, but ranged from £25-£75.

A customer could make multiple referrals and so receive multiple credits.

So what was the issue?

Bulb had been declaring output VAT to HMRC based on the amount of payment received.  The RAF credit was treated as a reduction in the value of the supply of energy to the customer.

In some limited cases, the customer would receive a payment of the credit amount, rather than having it set against their account.  In those cases, the amount payable for the energy did not reduce and so VAT was declared on the full amount received, with no discount applied.

Bulb said that the referral was just a performance of a contingency which resulted in a discount, thereby reducing the value of the energy supplies, and therefore output VAT was due on the discounted amount only.

HMRC argued that a successful referral amounted to non-monetary consideration for part of the energy supply.  If that was the case, output VAT would be due based on the full, pre-discount fee for the power.

The tribunal analysed various cases in which similar questions had been addressed.  These are too numerous to cover here in full but most centred around the need to ascertain a ‘direct link’ between the supply and the consideration received. If such a link existed then this would amount to non-monetary consideration.

Conclusion

In summing up, the judge said: “When a recruit signed up, they were rewarded for signing up (by having their energy costs reduced just for signing up and potentially being compensated by a further reduction to address penalty costs of leaving their existing supplier). What they received is a discount in the true sense of that phrase.”

“The referring customer, on the other hand, received something entirely different. They received a reduction in their energy costs to reward them for doing something which was additional to what was required of them as customers of Bulb.”

As such, the judge concluded that the services provided to Bulb by referrers, when they successfully referred Bulb to recruits and so earned a RAF credit, amounted to non-monetary consideration. That consideration was part of the consideration given by those customers for energy supplied to them by Bulb.

The credit received by the new customer signing up to Bulb remained a discount.

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