The Court of Appeal has released its judgment in this case concerning the VAT treatment of vouchers under two different promotion schemes. The vouchers were typical high street gift vouchers. The taxpayer bought some of the vouchers directly from retailers and some of the vouchers from an intermediary. The Court has followed the Upper Tribunal (UT) finding that no output tax is due when vouchers are given away but that input VAT is not recoverable on the purchase of vouchers direct from retailers.
The promotions in question were:
The Court noted the difficulty as to where to begin but approached the case by considering the following three issues:
Were the supplies of vouchers to ANL cost components of a taxable supply by ANL? – taxpayer win
This essentially asks, if VAT is charged on the supply of vouchers to ANL, whether input VAT is recoverable under Article 168 of the VAT Directive. The Court agreed with the UT’s approach, which in turn led it to conclude that the vouchers were purchased to increase the sales of newspapers and advertising space (taxable supplies). Whilst it is correct in causal terms to link the purchase to the free provision of the vouchers, as they had to be bought before they could be given away and that is what the purchase was used for, there is no link from the voucher purchase to the free provision of the vouchers to customers from an economic perspective. The vouchers were therefore cost components of ANL’s taxable revenue generating activities.
Are the supplies of free vouchers deemed supplies? – taxpayer win
The Court noted the UK’s legislation is based upon Articles 16 and 26 of the VAT Directive. The purpose of these articles is to prevent a taxable person deducting input tax on goods and services and then putting them to private/non-business use without an output VAT charge. The Court agreed with the UT that if the purchase has met the requirements of Article 168 no VAT is due when supplied to customers under a business promotion scheme.
Can input VAT recovery be made on purchases of vouchers direct from the retailer? – taxpayer loss
This question concerns the impact of VATA 1994, Sch 10A, paragraph 4(2), which disregards the consideration for the initial issue of the multi-purpose voucher by the retailer to the extent it does not exceed face value. The Court concluded that there is no legally enforceable obligation on the retailer to account for VAT on the issue of the voucher. The Court noted that the UK is free to adopt its own rules on vouchers. The Court concluded that ANL’s European rights were not infringed and therefore it had no right to input VAT recovery on these direct purchases.
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