Was wine supplied as part of a promotion free of charge?
Our pick of this week's cases
In Marks and Spencer v HMRC [2018] UKFTT 238 (10 April 2018), the FTT found that wine supplied by Marks and Spencer (M&S) as part of a promotion was not supplied for nil consideration.
The appeal related to a promotional offer by M&S, described as ‘Dine In for £10 with Free Wine’, under which customers may buy three specified food items for £10 and receive a ‘free’ bottle of wine. The issue was whether the £10 should be apportioned between the food and wine or whether, as M&S contended, the wine was supplied free of charge for VAT purposes.
The FTT observed that retailers that offer promotions lower their aggregate profit margin on the items comprised in their offers, compared to their retail sales price, in the expectation that this will be compensated for by changes in customer behaviour. The FTT therefore noted that the aggregate shelf price of the items comprised in the offer was generally higher than £10 with the wine being the most valuable item.
The FTT also noted that a business may provide goods or services which are free in the normal (non-marketing) sense of the word. For instance, a retailer might provide free samples of food or beverages, or even give away promotional materials, such as branded pens, mugs or bags. Kuwait Petroleum [1999] STC 488 confirms that, in such a case, goods or services may be provided for nil consideration.
However, M&S’s ‘Dine In’ promotion was a single offer and receipt of the wine was conditional on payment of the £10 and the purchase of the food items. Customers therefore paid £10 in order to receive the three food items and the wine, and the price must be allocated between the four items for VAT purposes. The FTT added that the fact that the wine was the most expensive item in the promotion confirmed that this was the economic and commercial reality.
Finally, M&S had entered into a bespoke retail scheme agreement with HMRC in February 2014 and M&S contended, as an alternative argument, that the wine and dine promotion was in all material respects the same as the promotions covered by the agreement, so that HMRC was bound by it. The FTT found, however, that the wine and dine promotion had not been introduced at the time of the agreement and that it was not clear on the terms of the agreement that the promotion was covered by it.
Why it matters: The FTT observed that neither the decided cases on ‘free’ goods or services, nor HMRC’s practice in that area provided a ‘coherent and consistent set of principles’ which could be applied to determine the VAT position in any particular case. The tribunal noted: ‘In a masterpiece of understatement, Mr Nabi [group head of tax at M&S] observed during his cross-examination that “the concept of free items has a chequered history”.’ The FTT therefore emphasised at the outset of its decision that it was not going to lay down or attempt to lay down any principle of wide application to the VAT treatment of ‘free’ goods.
Also reported this week:
S Davies v HMRC - Sale of employee shares and TCGA 1992 s 144ZA
Was wine supplied as part of a promotion free of charge?
Our pick of this week's cases
In Marks and Spencer v HMRC [2018] UKFTT 238 (10 April 2018), the FTT found that wine supplied by Marks and Spencer (M&S) as part of a promotion was not supplied for nil consideration.
The appeal related to a promotional offer by M&S, described as ‘Dine In for £10 with Free Wine’, under which customers may buy three specified food items for £10 and receive a ‘free’ bottle of wine. The issue was whether the £10 should be apportioned between the food and wine or whether, as M&S contended, the wine was supplied free of charge for VAT purposes.
The FTT observed that retailers that offer promotions lower their aggregate profit margin on the items comprised in their offers, compared to their retail sales price, in the expectation that this will be compensated for by changes in customer behaviour. The FTT therefore noted that the aggregate shelf price of the items comprised in the offer was generally higher than £10 with the wine being the most valuable item.
The FTT also noted that a business may provide goods or services which are free in the normal (non-marketing) sense of the word. For instance, a retailer might provide free samples of food or beverages, or even give away promotional materials, such as branded pens, mugs or bags. Kuwait Petroleum [1999] STC 488 confirms that, in such a case, goods or services may be provided for nil consideration.
However, M&S’s ‘Dine In’ promotion was a single offer and receipt of the wine was conditional on payment of the £10 and the purchase of the food items. Customers therefore paid £10 in order to receive the three food items and the wine, and the price must be allocated between the four items for VAT purposes. The FTT added that the fact that the wine was the most expensive item in the promotion confirmed that this was the economic and commercial reality.
Finally, M&S had entered into a bespoke retail scheme agreement with HMRC in February 2014 and M&S contended, as an alternative argument, that the wine and dine promotion was in all material respects the same as the promotions covered by the agreement, so that HMRC was bound by it. The FTT found, however, that the wine and dine promotion had not been introduced at the time of the agreement and that it was not clear on the terms of the agreement that the promotion was covered by it.
Why it matters: The FTT observed that neither the decided cases on ‘free’ goods or services, nor HMRC’s practice in that area provided a ‘coherent and consistent set of principles’ which could be applied to determine the VAT position in any particular case. The tribunal noted: ‘In a masterpiece of understatement, Mr Nabi [group head of tax at M&S] observed during his cross-examination that “the concept of free items has a chequered history”.’ The FTT therefore emphasised at the outset of its decision that it was not going to lay down or attempt to lay down any principle of wide application to the VAT treatment of ‘free’ goods.
Also reported this week:
S Davies v HMRC - Sale of employee shares and TCGA 1992 s 144ZA
