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Tax Case - Discounts 2010 UKFTT 621TC


Andrew Needham - Expert Author

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Everest Ltd v Revenue & Customs [2010] UKFTT 621 (TC)

The Appellant supplies home improvement products and services to members of the general public. Specifically, the Appellant is a well-known supplier and fitter of double-glazing and other related home improvement products and services, such as replacement windows, doors and conservatories, mainly to the general public.

 A customer can choose to pay for the Appellant’s supply by paying a deposit and then taking out a loan with Clydesdale Financial Services Ltd (“Clydesdale”), subject to receiving credit approval.

In the Appellant’s experience, the order value is higher if funded by credit than if paid in cash by the customer. In addition, if the customer opens a loan account with Clydesdale, the Appellant receives commission from Clydesdale. Clydesdale can recover any commission paid to the Appellant if the customer settles the loan account within 4 months of the advance date.  Clydesdale also pays the Appellant the full net cash price of the Appellant’s home improvement supply to the customer, i.e. the full price minus the deposit paid by the customer.

The Appellant’s promotional literature from time to time makes reference to various discounts and promotions offered. One such promotional offer was a “cash back” of 10%: the Appellant represents to its potential customers that if they open a loan account and keep it open for at least 180 days after the loan is taken out, the Appellant will pay the customer 10% of the amount of the loan. This is described by the Appellant as a ‘cash back’ offer.

The Appellant’s practice was to adjust its VAT account to reduce its VAT liability if it paid 10% of the loan amount to the customer, as it treated the amount paid to the customer as a reduction in the customer’s consideration for its supply.

It is agreed that the above arrangements give rise to three distinct supplies:

a. First, there is a home improvement supply from the Appellant to the customer. The consideration for this supply is the payment by the customer to the Appellant.

b. Secondly, there is the exempt supply of credit by Clydesdale to the customer. The consideration for this supply is the payment of interest from the customer to Clydesdale.

c. Thirdly, there is the supply of introduction services from the Appellant to Clydesdale, i.e. the introduction of the Appellant’s customer by the Appellant to Clydesdale. The consideration for this supply is the payment of commission from Clydesdale to the Appellant.

HMRC wrote to the Appellant on 24th April 2006 and informed it that they considered that the “cash back” offer was an inducement for the customer to enter into a loan agreement with a third party. The Respondents therefore stated that the Appellant was not entitled to reduce the value of its supply by the value of the payments made to customers under the “cash back” scheme.

Having considered all of the facts The Tribunal found in favour of the Appellant and agreed that the ‘cash back’ was a discount and the VAT due on the transaction had been properly reduced.

About the Author

Andrew Needham is a Director of VAT Specialists Limited, headed by Chartered Tax Adviser Andrew Needham who has a degree in Law from UCNW Bangor and is a specialist in indirect taxes.  Andrew has over 20 years experience in VAT having spent 7 years in HM Customs & Excise, firstly as a VAT inspector, then as a departmental trainer, and finally in a headquarters policy unit dealing with the introduction of the EU single market.

VAT Specialists Limited, 31 Bisham Park, Runcorn, Cheshire WA7 1XH.

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Article Published/Sorted/Amended on Scopulus 2011-01-13 17:48:53 in Tax Articles

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