Vouchers and Promotion Schemes Flashcards
Describe the case of Loyalty Management UK (Aimia)
The company operated a sales promotion scheme, intended to reward regular customers. Under the scheme, customers who purchased good from certain retailers received nectar points which they could use to acquire further goods and services from specified suppliers.
Aimia paid the suppliers for the goods and services and reclaimed the input tax. HMRC rejected the claim saying the goods had been supplied to the customers not Aimia.
The COA allowed Aimia’s appeal applying Redrow. The CJEU held that payments made by Aimia to redeemers (retailers) who supply loyalty rewards (goods) to customers’ must be regarded as being the consideration, paid for by a third party, for a supply of goods to those customers, or a supply of services to them.
What is the significance of the Romima & Others [2020] case?
Chips issued to customers in a club as a form of currency with which customers could pay dancers and staff did not fall within item 1 group 5 schedule 9
These were held to be single purpose vouchers with VAT on the consideration received by the customer
What is the significance of the M&S dine in for two for £10 - free wine [2019] case
Held that wine supplied ‘free of charge’ as part of a promotional offer was subject to VAT
To benefit from the promotion, customers were required to pay for three food items plus the wine in one single till transaction
The issue was whether the £10 should be apportioned between the food items and wine or whether the wine was supplied free of charge
The UT confirmed that the £10 should be apportioned. The economic reality was that M&S were offering four items. M&S would only provide the wine if the customer bought three food items.
Describe the Elida Gibbs Ltd [1996] case
Elida Gibbs manufactured toiletries and sold the products to both retailers and wholesalers. To promote sales it:
- Issued money off coupons which customers could present to a retailer in part payment for EG products and for which retailers sought reimbursement from EG
- Printed cashback coupons directly onto packaging which entitled customers to a cash refund from EG
The company claimed a repayment of output tax on which it had previously accounted for, contending that the reimbursement of money off coupons and cashback payments constituted a retrospective discount which reduced the consideration for its supplies.
The CJEU agreed, holding that the discounts allowed by the manufacturer were deductible, but credit notes should be issued to customers. This left the VAT position unchanged.
What is the significance of the Elida Gibbs case?
Applies to multi save promotions where you ‘buy two, get a third free’ and manufacturers make payments to retailers towards the cost of their promotions.
Manufacturers can reduce their output tax by the amount paid to the retailer to support their promotion where it relates to product liable to VAT at the standard rate.
The payments received by the retailer are further consideration for the supply to the customer upon which VAT is due and the amounts received should be included in the retail scheme’s takings.
Cashback and part payment vouchers can be retrospective discounts, however, credit notes must be issued for discounts.
What is the significance of the Granton Marketing and Wentwalk Ltd [1996] case
Cards which entitled the holder to a complimentary meal and wine at certain restaurants were held not to be vouchers and their supply was standard rated
What is the significance of the Boots Co Plc [1990] case?
Money off coupons are not to be treated as consideration when used to buy other goods but are simply evidence to the entitlement of a discount.
Describe the Everest Ltd case
The company paid cashbacks to customers who entered into agreements to carry out home improvements using a loan facility. Argued they reduced the consideration for taxable supplies of home improvements.
HMRC argued that the cashback was rather an inducement to borrow the money from a particular source and to keep that loan agreement open for a particular period, and it would therefore not reduce the taxable consideration.
The tribunal held that payment by the company to the customer was not for a supply of services by the customer but in reality was identical to other incentives offered by the company and should be treated as a discount.
There were three distinct supplies:
1. Taxable home improvement supply by Everest to the customer
2. Exempt supply of credit from Clydesdale to the customer
3. Exempt introduction supply from Everest to Clydesdale
What is the significance of the Jag Communications Ltd case?
Jag sold mobile phones and gave customers a cashback that was higher than the value of the whole phone.
It received a payment from a telecoms provider if customers took out a contract, it rebaited some of this payment to the customers.
The court held that JAG could not reduce its outputs by paying cashbacks, resulting in negative cashbacks. The customer was providing a service to Jag rather than satisfying a contingency.
Describe the Kuwait Petroleum [1999] case
The company ran a promotion scheme under which customers were offered vouchers with the purchase of fuel to redeem on goods and services
Whether or not customers accepted the vouchers, the price of fuel was the same
The CJEU held that the amounts paid by customers were entirely attributable to their original purchases and no part of the payment should be attributed to the reward goods
The reward goods were gifts
Describe the case of Total UK [2006]
Ran a promotion scheme which involved issuing face value vouchers
It reclaimed output tax on the basis that the cost of providing the vouchers was a retrospective discount.
The COA held that the scheme was essentially the same as Kuwait Petroleum in that it was not possible to regard the redemption of vouchers as part of the same transaction as the sale of fuel with vouchers.
The fact that the scheme was promoted as something that would provide treats rather than cashback meant it was a gift scheme like Kuwait
Describe the case of Simple Energy Limited
Representative member of the VAT group which Bulb Energy Limited was a member
Bulb operated a refer a friend scheme whereby customers were provided with a personalised electronic referral link which they could pass to new customers and both the existing & new customer received £25-£75 credit
Bulb treated the referrals as performance of a contingency which resulted in a discount, reducing the value of the energy supply.
HMRC argued that it was a provision of services by the referrer to Bulb, and the service was non-monetary consideration for the energy supplied by Bulb, meaning output VAT was due.
The FTT found that the refer a friend schemes were non monetary consideration
Describe the case of Talk Talk Ltd
Offered retail customers a 15% discount on certain services if they paid their bill within 24 hours of receiving them - only 3% of customers took it up, but Talk Talk accounted for VAT on the discounted amount.
The UT held that without the provision of the discount in the T&Cs for prompt payment, unless the SPD offer was accepted by the customer by making payment within 24 hours, the customer did not accept the SPD and the T&Cs did not change.
Talk Talk was required to account for VAT on the full amount received by customers who did not accept the SPD offer
