The Court of Appeal (CA) case: Associated Newspapers Limited (ANL) considered the VAT treatment of free vouchers.
Business promotions are an area of VAT which continues to prove complex. This is further exacerbated by changes to the legislation at EC and domestic level and ongoing case law. A background to the issue of vouchers here
And a background to the hearing of this particular case at the Upper Tribunal here
Background
The appeal concerned the VAT consequences (in respect of both input and output tax) of promotional schemes carried out by ANL in order to boost the circulation of the newspapers: Daily Mail and the Mail On Sunday. ANL gave away Marks & Spencer vouchers to people who bought these newspapers for a minimum of three months. The questions where whether attributable (to the provision of the vouchers) input tax was recoverable, and, was there a deemed supply such that output tax was due on the vouchers. One scheme was managed for ANL by The Hut.com Limited. The Hut received a fee for its services which was subject to VAT and which ANL sought to deduct as input tax. The Hut also purchased the retailer vouchers in batches (usually at a discount) and invoiced them to ANL at cost and also subject to VAT. In another scheme, ANL purchased vouchers directly from Marks & Spencer.
Decision
HMRC sought to rely on paragraph 14 of VAT Information Sheet 12/2003, viz: “Where face value vouchers are purchased by businesses for the purpose of giving them away for no consideration (e.g. to employees as ‘perks’ or under a promotion scheme) the VAT incurred is claimable as input tax subject to the normal rules. Output tax is due under the Value Added Tax (Supply of Services) Order 1993. Therefore all vouchers given away for no consideration will be liable to output tax to the extent of the input tax claimed”.
However, the CA agreed with the decisions made at the Upper Tribunal. Although the vouchers were given away (no consideration) input tax was recoverable because there was an overarching business purpose for the expenditure (increasing sales). Additionally, it was decided that the provision of the vouchers was not caught by the deemed supply rules so there was no output tax due when the vouchers were given away to readers. ANL also sought to reclaim input tax on vouchers purchased directly from Marks & Spencer – usually at a discount from their face value, but at a price which purported to include VAT. The CA also agreed with the UT on this point; that no VAT was charged on these retailer vouchers, and consequently, there was no input tax to recover.
Commentary
An interesting case, and one that will reward with a reading in full. It does seem that HMRC’s views on vouchers need revising in light of this decision. As always, if your business, or your clients’ businesses, are involved with vouchers in any way it is important to ensure that the VAT treatment is correct. This is especially relevant in light of; previous case law, recent changes to the rules applicable to the treatment of vouchers (as set out in the link above) as well as this specific case.
Please contact us should you wish to discuss this matter.