Lycamobile loses £50m VAT case as tribunal sides with HMRC on prepaid bundles

The Upper Tribunal has ruled against Lycamobile in a long-running VAT dispute with HMRC.

The decision, handed down by Mr Justice Cawson and Judge Thomas Scott has significant implications for all MVNOs and prepaid bundle pricing models.

In a judgment handed down earlier this month, the tribunal dismissed Lycamobile’s appeal and upheld earlier findings that VAT should be charged when prepaid plan bundles are sold, rather than when customers actually use the minutes, texts or data included in those bundles.

The case centres on Lycamobile’s sale of prepaid “plan bundles” to UK customers between 2017 and 2019. Lycamobile treated VAT as due only when customers consumed the services in the bundle. HMRC argued VAT should be paid upfront at the point of sale and issued assessments totalling more than £50m.

The Tribunal ruled that VAT had to be charged on the full amount of the bundle and not just the portions used.

Bundles are not vouchers

The tribunal agreed with HMRC’s core argument that the bundles are supplies of telecoms services, not vouchers redeemable for services later.

Customers buying bundles were paying for guaranteed access to specified allowances such as call minutes, texts or data over a fixed period, typically 30 days. That right of access was considered the “real supply” for VAT purposes.

This meant VAT was due on the full bundle price even if customers used only a fraction of the allowance, as is common in prepaid markets.

Only around five to 10 per cent of allowances were typically used on average. The tribunal said this supported the idea that customers were buying guaranteed availability rather than pay-per-use services.

The tribunal also rejected Lycamobile’s argument that bundles should be treated as electronic multi-purpose vouchers, finding that voucher rules in VAT legislation did not apply to Lycamobile’s prepaid plans.

Implications

The ruling clarifies HMRC’s stance on VAT timing and removes a potential tax advantage associated with unused allowances for MVNOs and prepaid distributors.

The decision is relevant to operators selling SIM-only prepaid bundles through retail partners or digital channels which is a core business model for many MVNOs serving migrant communities and price-sensitive segments.

Lycamobile positions itself as one of the UK’s largest MVNOs and argued that bundle purchases were only a preliminary step before services were consumed.

But the tribunal disagreed, comparing bundles to subscription services such as streaming or gym memberships, where customers pay for availability regardless of usage.

For the mobile channel, that interpretation could affect:

  • MVNO tax liabilities: Operators may need to account for VAT on bundle sales immediately, increasing cash-flow pressure.

  • Pricing models: Some MVNOs may review bundle pricing or allowance levels if unused capacity still attracts VAT.

  • Retail margins: Retailers selling prepaid bundles could see margin changes if operators adjust pricing to reflect tax treatment.

  • Finance processes: Teams will need clarity on VAT timing for bundles versus PAYG credit sales.The tribunal recognised an exception linked to historic EU VAT rules on “effective use and enjoyment” outside the EU. Some bundles with non-EU roaming features could require retrospective adjustments where services were used abroad, but only for limited periods before November 2017.

Wider market impact

The tribunal recognised an exception linked to historic EU VAT rules on “effective use and enjoyment” outside the EU. Some bundles with non-EU roaming features could require retrospective adjustments where services were used abroad, but only for limited periods before November 2017.

 

READ THE JUDGEMENT 

 

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