Court carves turn about for VAT on ski lift passes
The upper tribunal has ruled that lift passes sold at an indoor ski centre should be subject to 5% VAT, overturning the FTT decision from 2018. Neil Warren explains why this is an important case.
One of the most worrying aspects of our VAT system is how two different courts can consider the same facts about a source of income and reach different conclusions about its VAT liability. If the judges can’t agree on the basic facts, how can taxpayers be expected to get things right?
Sadly, the days when we could ask the local VAT office for a written ruling are long gone. However, the safety-first approach of just charging 20% VAT, would not be accepted by a prudent customer who knows he cannot claim input tax on incorrectly charged VAT.
Liability of lift passes
The upper tribunal decision in the case of Snow Factor Ltd  UKUT0025(TCC) (Snow Factor) is a case in point.
The issue considered by the court was whether the sale of lift passes to skiers at an indoor ski and snowboard centre qualified for 5% VAT as a supply of transport in a suspended transport system capable of carrying no more than nine passengers (VATA1994, Sch 7A, Group 13, Item 1).
Alternatively, was the reality that the customer was paying for the right to use the ski slope, so the pass should be subject to 20% VAT?
The first tier tribunal and HMRC said the supply was standard rated but the upper tribunal disagreed.
Note (1) of the Group 13 in Schedule 7A excludes the 5% rate where the business or a connected party also supplies the right to use facilities at a “place of entertainment, recreation or amusement”. This would seem to apply to Snow Factor, but the key fact put forward by the taxpayer was that the company made no charges to use the slopes.
The only payment made by the customer was to use the lift with a pass that “specifies the date and window of time within which the pass can be used.”
Here is the UT’s analysis of the situation and why it allowed the taxpayer’s appeal:
- It was possible for very fit athletes or experienced skiers, to access the ski slope by walking up the slope rather than use the lift. It might be hard work but definitely possible and allowed by Snow Factor.
- Even though only about 1% of skiers took this energy-sapping option, the fact that it was possible meant there was “an absence of reciprocity” between the lift and slope. In other words, it was possible for customers to enjoy the slope without payment – therefore, the lift pass must relate only to the transport.
HMRC argued that the skiers parted with their cash because they wanted access to the ski slope “without the effort and inconvenience of walking up the slope” – they were not paying for the transport. The perception of the customer was the key factor in determining the nature of the supply.
This has always been a key issue since the 1999 ECJ case of Card Protection Plan Ltd (C-349/96), but the upper tribunal rejected this argument.
I have enjoyed reviewing this case once again but I still find myself agreeing with HMRC and the first tier tribunal.
To put it bluntly, imagine if a customer purchased his lift pass, and then got to the top of the lift, all kitted out in his expensive gear and looking forward to an exciting bit of skiing down the 168-metre slope.
If the customer had got off the lift and discovered that the slope had been closed due to a technical problem, would he ask for (and receive) a refund of his money? I suspect the answer might be ‘yes’ which is why the upper tribunal’s decision is very controversial.
Perhaps HMRC will try and wipe out this decision by taking their appeal to a higher court.