Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Telecoms company Lycamobile UK has largely lost a £51mn dispute with tax authorities in the latest setback for the former Conservative party donor.
A tax tribunal this month ruled in favour of HM Revenue & Customs over the VAT treatment of customer “bundles” that were sold over a period of about seven years.
The ruling follows the company’s auditor earlier this year saying it was unable to sign off on Lycamobile UK’s accounts for 2022 and Lycamobile’s French entities being convicted of VAT fraud and money laundering in a separate case last year.
Lycamobile UK had argued it did not need to pay VAT unless consumers used the data, call and text allowances within the bundles. But the tribunal agreed with HMRC that VAT was chargeable at the point of sale — regardless of whether customers actually used the allowances.
One exception to the ruling covered certain bundles sold before November 2017, where the allowances were used outside the European Union.
Lycamobile is one of the world’s largest “mobile virtual network operators” with millions of customers; it uses agreements with operators to offer cheap services to consumers.
The tribunal ruling comes after the company’s financial statements for 2022, published last month, stated that auditors had “not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion”, including over the recoverability of a due balance of almost £150mn from related parties, directors and parties associated with directors, including loans to its founder Allirajah Subaskaran.
The accounts also recorded a £99mn provision in relation to the tax dispute, which directors had increased since the end of that year, and stated that no payment would be due until after a potential appeal had been heard.
While the tribunal’s ruling covered legal liability in principle, it said the size of the payment to be made should be determined between Lycamobile and HMRC “by mutual agreement or, if necessary, by us at a subsequent date”.
Lycamobile did not immediately respond to a request for comment. Lycamobile can appeal against the ruling.
HMRC said: “We are pleased with the judgment, which is consistent with the VAT treatment applied across the telecoms sector.”
Lycamobile UK gifted £2.15mn to the Conservative party between 2011 and 2016, according to the Electoral Commission.
Lycamobile’s French corporate entities were convicted of fraud with respect to VAT and money laundering in October, which prompted calls for then-prime minister Rishi Sunak to return donations.
Lyca Mobile France was appealing against the convictions and continued to “maintain its complete innocence”, Lycamobile said at the time.
Last year, a Tory official said: “All donations to the Conservative party are properly and transparently declared to the Electoral Commission, published by them, and comply fully with Electoral Commission rules.”