Upper Tribunal judgment relating to VAT and vouchers

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Summary
Business promotion schemes are
notoriously VAT complex and this
case is no different.
Essentially, the Tribunal has found
that AN is entitled to reclaim any
VAT it has paid on the purchase of
face-value vouchers to the extent
that VAT is actually chargeable on
the supply. Retailer vouchers –
vouchers issued by the retailer that
will redeem them – are relieved
from VAT at the point of issue.
Vouchers purchased from
intermediaries maybe subject to
VAT and, in such cases, AN is
entitled to deduct that VAT.
AN is not required to account for
Output VAT when they give the
vouchers to customers for no
consideration.
8 December 2015
Upper Tribunal
The Upper Tribunal (the Tribunal) has issued its judgment in relation to two appeals
by HMRC in relation to the VAT treatment of vouchers given away by the taxpayer as
part of a business promotion scheme.
The first appeal related to whether Associated Newspapers (AN) was entitled to
reclaim input VAT in relation to the purchase of vouchers and the second appeal
related to whether AN was required to account for output tax on the free supply of the
vouchers to its customers.
In a complex and lengthy judgment. the Tribunal has partially allowed HMRC's appeal
in respect of the first issue and has dismissed HMRC's appeal in respect of the second.
Under the UK's VAT law, the issue of 'retailer' vouchers is relieved from VAT. VAT is
only collected on the ultimate supply of goods or services and no VAT is chargeable at
the time the vouchers are issued. As a consequence, in AN's case, there was no input
VAT to claim on the purchase of retailer vouchers. However, where AN purchased
vouchers through an intermediary, then to the extent that any VAT was payable on the
purchase, it was clear that a direct and immediate link existed between the cost of the
vouchers and AN's taxable sales of newspapers and advertising. As such, any VAT
chargeable on these vouchers was reclaimable in full. HMRC's appeal was therefore
partially allowed and partially dismissed.
On the question of output tax, the Tribunal considered that the free supply of the
vouchers to customers satisfied the 'business purpose' test. In other words, the motive
for buying the vouchers and then giving them away to customers was to increase
newspaper sales and the sale of advertising space. As a consequence, AN was not
required to account for any output VAT on the free supply of the voucher.
Comment – business promotion schemes involving vouchers are often VAT complex.
Businesses buying vouchers as part of a promotion scheme will need to take account
of this judgment. It is not clear whether HMRC will appeal on the points on which it
lost. However, this is a binding judgment upon which taxpayers may now rely.
HMRC v Associated Newspapers
Case Alert
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556