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13th February 2014

Vouchers and business promotion schemes create a number of unique issues from a VAT perspective. Over recent weeks there have been a number of VAT cases concerning vouchers.

A recent case considered vouchers (referred to as ‘secret money’) provided to customers at lap dancing or table dancing clubs to spend when they run out of cash. If a customer wanted to purchase £100 of vouchers their credit card would be debited £120, the taxpayer would then treat the £20 as a standard rated commission.

If a customer redeemed £100 of vouchers with a self-employed dancer, the club would deduct a 20% commission when the voucher was exchanged for cash by the dancer. The club contended that the 20% retained was for an exempt supply of ‘‘dealings in credit guarantees or any other security in money’. The total VAT at stake was £549,258.

The Tribunal accepted that if each step of the process was considered individually the VAT liability would support the taxpayer’s case. However, the Tribunal concluded that there was a single supply of services by the taxpayer to the dancers, which is paid for by means of entrance fees and the premium in Secrets money. The premium was effectively providing the dancers with access to the non-cash customer market and the facility to exploit that market from the taxpayer’s premises and using its resources.

This case is interesting as the Tribunal has acknowledged that a charge for the swapping of vouchers for physical currency is a VAT exempt supply, however they have then taken the view that the amount being retained by the taxpayer is for something completely different.

If you or your clients are considering new business promotion schemes or voucher payment methods, we must stress the importance of considering the VAT implications carefully. Although on one hand the scheme you are creating may appear to be a great marketing opportunity, it is essential to identify any potential VAT costs in relation to it.

About the Author

The VAT People are leading VAT and Customs Duty consultants based in the North West of England. We work with a wide range of businesses throughout the UK as well as assisting our accountancy colleagues to unravel the thorny VAT issues for their clients. We are one of the UK's largest and most comprehensive sources of VAT and Customs advice, our consultancy team having over 140 years of experience in VAT and Customs gained in either HMRC or a Big 4 accountancy practice environment.

Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.

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Article Published/Sorted/Amended on Scopulus 2014-02-19 09:05:42 in Tax Articles

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