In Lycamobile UK Ltd v HMRC [2026] UKUT 00074 (TCC) the Upper Tribunal confirmed that VAT on prepaid telecoms bundles arises at the point of sale, not upon usage. The decision has significant implications for any business selling prepaid service packages, subscriptions or access-based products.
Lycamobile is a mobile virtual network operator selling UK customers prepaid "Plan Bundles": packages lasting for a fixed period (usually 30 days) entitling the customer to a specified amount of call minutes, texts and data. Customers paid a fixed price upfront and were entitled to use those allowances during the bundle period, with any unused allowances expiring at the end of the period.
What was the core legal issue?
The core legal issues are fundamental for VAT purposes: what is the taxable supply, and when does it occur? Specifically, does Lycamobile make:
- a supply when it sells the bundle (so a supply of availability or access), or
- a series of supplies only when the customer actually uses allowances?
Lycamobile argued that the “real supply” only occurred on use, relying on cases involving vouchers or prepaid rights to future services. HMRC argued that the supply was the right to guaranteed access to telecoms services for a fixed period at a fixed price.
What did the Tribunal decide?
The Upper Tribunal endorsed the First‑tier Tribunal’s structured approach:
- First, identify what the supply actually is in the economic and commercial reality.
- Only then ask when VAT becomes chargeable on that supply.
Key finding
The Tribunal rejected the argument that uncertainty about future usage prevents a supply from arising. It emphasised that VAT law clearly recognises supplies consisting of availability or access, even where the customer may not fully use what they have paid for.
On the facts, the Tribunal found that customers were not purchasing a vague right to future services. Rather, they were buying guaranteed availability, a fixed package of telecoms access for a fixed price over a fixed period.
The fact that many customers used only a small proportion of their allowances did not undermine this analysis. Instead, it supported the conclusion that customers were paying for certainty and availability, not merely consumption.
Accordingly, VAT became chargeable at the point the bundle was sold, not when allowances were used.
Were the bundles vouchers?
Lycamobile also argued that the bundles should be treated as vouchers such that VAT would arise only on redemption.
The Tribunal rejected this. The bundles were not instruments accepted as consideration in exchange for services nor did they represent a monetary value being drawn down over time. Instead, they reflected services already supplied in the form of access and availability.
What does this mean for businesses?
Supply of “availability” is real and taxable
The key takeaway is that VAT can arise on the sale of access or availability, even where actual usage is low or uncertain. The Tribunal was clear that low utilisation, or even extreme under-utilisation, does not mean VAT should follow usage.
This principle is highly relevant not just for telecoms businesses, but for any business selling, for example:
- prepaid service bundles;
- subscriptions;
- memberships;
- digital access packages; or
- time‑limited passes or entitlements.
Where the commercial reality is that the customer is paying for guaranteed access at a fixed price, VAT is likely to arise upfront at the point of sale.
Voucher arguments face a high bar
The decision makes clear that voucher treatment will be closely scrutinised. There must be a genuine instrument accepted as consideration and, typically, a monetary value that is drawn down.
Overall, the decision reaffirms that VAT analysis starts with identifying the real supply in its commercial reality. For many prepaid and subscription-style products, that supply will be the upfront grant of access and VAT will follow at that point.
Businesses offering these types of products should review their VAT treatment carefully in light of this decision. If you have any questions about how this case may affect your business, please do not hesitate to contact our Tax team.
Thank you to Will McGoldrick for contributing to this article.
