In HMRC v Associated Newspapers [2015] UKUT 641 (1 December 2015), the UT allowed HMRC’s appeal in part, finding that Associated Newspapers (AN) was entitled to recover input tax only in relation to vouchers supplied by intermediaries.
HMRC appealed against two decisions of the FTT. In the first, the FTT had found that the provision by AN, free of charge to its customers, as part of a business promotion campaign, of vouchers redeemable at certain high street retailers was not a supply of services, so that no VAT was due under the VAT (Supply of Services) Order, SI 1993/1503, article 3. In the second decision, the FTT had held that AN was entitled to deduct any input VAT that arose on its purchase of the vouchers at a ‘blended’ rate reflecting an estimate of the liability to VAT on supplies by retailers on redemption.
The UT explained that it is a precondition for the application of the 1993 Order to services that the relevant person ‘has or will become entitled ... to credit for the whole or any part of the tax on their supply to him’ (article 6(b)). The tribunal therefore examined the issue of input tax first.
The UT observed that the vouchers were acquired for the purpose of the business promotion scheme to increase the circulation of AN’s newspapers and to facilitate the associated sales of advertising. It was that element of AN’s economic activity to which the acquisition of the vouchers was directly and immediately linked. The UT concluded that the costs associated with the acquisition of the vouchers were cost components of AN’s taxable activities, so that the input tax was deductible.
This was, however, subject to VATA 1994 Sch 10A para 4(2), which provides that the consideration for the issue of a retailer voucher is to be disregarded for the purposes of VAT. The UT explained that the effect of the provision was that retailers only accounted for VAT in respect of supplies of goods or services on redemption of the vouchers. As there was no separate obligation on retailers to account for VAT on the issue of the vouchers, AN was not entitled to recover input tax in relation to vouchers purchased from retailers. It could, however, recover input tax incurred on vouchers purchased from intermediaries.
Having established that input tax incurred on vouchers supplied by intermediaries was deductible, the UT had to decide whether the provision of the vouchers by AN to its customers was a supply of services under the 1993 Order, article 3. Agreeing with the FTT, the UT considered that the ‘strictly business-related purposes’ test should be applied, as there was no authority for the application of the more stringent test suggested by HMRC. The UT concluded that the provision of the vouchers by AN was for strictly business-related purposes and accordingly was not a supply of services so that no output tax liability arose.
Why it matters: The UT found that treating vouchers issued by retailers differently from those sold by intermediaries did not breach the principle of fiscal neutrality. It explained that AN’s net position would be the same in both cases, as it would be able to recover any VAT incurred on supplies by intermediaries and it would not suffer VAT on supplies by retailers.
In HMRC v Associated Newspapers [2015] UKUT 641 (1 December 2015), the UT allowed HMRC’s appeal in part, finding that Associated Newspapers (AN) was entitled to recover input tax only in relation to vouchers supplied by intermediaries.
HMRC appealed against two decisions of the FTT. In the first, the FTT had found that the provision by AN, free of charge to its customers, as part of a business promotion campaign, of vouchers redeemable at certain high street retailers was not a supply of services, so that no VAT was due under the VAT (Supply of Services) Order, SI 1993/1503, article 3. In the second decision, the FTT had held that AN was entitled to deduct any input VAT that arose on its purchase of the vouchers at a ‘blended’ rate reflecting an estimate of the liability to VAT on supplies by retailers on redemption.
The UT explained that it is a precondition for the application of the 1993 Order to services that the relevant person ‘has or will become entitled ... to credit for the whole or any part of the tax on their supply to him’ (article 6(b)). The tribunal therefore examined the issue of input tax first.
The UT observed that the vouchers were acquired for the purpose of the business promotion scheme to increase the circulation of AN’s newspapers and to facilitate the associated sales of advertising. It was that element of AN’s economic activity to which the acquisition of the vouchers was directly and immediately linked. The UT concluded that the costs associated with the acquisition of the vouchers were cost components of AN’s taxable activities, so that the input tax was deductible.
This was, however, subject to VATA 1994 Sch 10A para 4(2), which provides that the consideration for the issue of a retailer voucher is to be disregarded for the purposes of VAT. The UT explained that the effect of the provision was that retailers only accounted for VAT in respect of supplies of goods or services on redemption of the vouchers. As there was no separate obligation on retailers to account for VAT on the issue of the vouchers, AN was not entitled to recover input tax in relation to vouchers purchased from retailers. It could, however, recover input tax incurred on vouchers purchased from intermediaries.
Having established that input tax incurred on vouchers supplied by intermediaries was deductible, the UT had to decide whether the provision of the vouchers by AN to its customers was a supply of services under the 1993 Order, article 3. Agreeing with the FTT, the UT considered that the ‘strictly business-related purposes’ test should be applied, as there was no authority for the application of the more stringent test suggested by HMRC. The UT concluded that the provision of the vouchers by AN was for strictly business-related purposes and accordingly was not a supply of services so that no output tax liability arose.
Why it matters: The UT found that treating vouchers issued by retailers differently from those sold by intermediaries did not breach the principle of fiscal neutrality. It explained that AN’s net position would be the same in both cases, as it would be able to recover any VAT incurred on supplies by intermediaries and it would not suffer VAT on supplies by retailers.
