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Court of Appeal VAT decision could have major implications for businesses involved in the voucher market

Gareth Bevan 27 October 2017 No comments

The Court of Appeal decision in the case of Associated Newspapers Limited (ANL) was released last week and, if it stands, will have major implications for businesses involved in the voucher market. In this blog, we provide our initial reaction to the ruling before following up with a more detailed review of the judgement next week.


The case issues

The case concerned two separate issues regarding the VAT treatment of vouchers used in a sales promotion scheme by ANL and follows previous hearings at both the First-tier Tribunal (FTT) and Upper Tribunal (UT). These issues were:

  1. Whether output VAT was due on vouchers given away free in a promotion scheme.
  2. Whether input VAT incurred on the purchase of the vouchers, both directly from retailers and from intermediate vouchers suppliers, could be reclaimed.


The outcome

On the first issue the Court of Appeal held that VAT was not due on vouchers which were given away since this was done to encourage an increase in its circulation and therefore for business purposes.

In relation to the second issue, the Court of Appeal ruled input VAT was only recoverable on the purchase of vouchers from intermediaries and not on vouchers purchased directly from retailers.

The reason for this mismatch in treatment is due to the fact retailers and intermediaries do not account for output VAT on vouchers in the same way:

  • A retailer doesn’t account for output VAT when a voucher is issued – VAT is only accounted for when the voucher is used to purchase goods and services.
  • An intermediary is required to account for output VAT when it sells a voucher.

For this reason, the Court of Appeal took the view that input VAT should only be reclaimed on vouchers purchased from intermediaries.


Initial conclusion and the wider impact

This decision goes against current HMRC policy (as outlined in its VAT Information Sheet 12/03). Unless the case is appealed to the Supreme Court, HMRC will need to change their policy and in future disallow the recovery of VAT on the purchase of vouchers from a retailer.

Clearly, this ruling has wider implications for the both the voucher industry and businesses offering promotional schemes. If the decision stands then it seriously undermines the viability of many existing voucher intermediary business models and therefore has major implications for businesses. We highly recommend affected businesses closely monitor HMRC’s reaction to this decision, ensuring they understand the implications to their business model.


More information to come

We’ll be reviewing this judgement in greater detail over the coming week and we’ll prepare a more detailed response. So, check back with us then for more information. In the meantime, if you have concerns about how this ruling could affect your business model, please get in touch.