The VAT Treatment of a Business Promotion Scheme

As part of a business promotion scheme, Associated Newspapers Ltd (ANL) purchased retail vouchers from various popular retailers and provided these to customers who bought the newspaper throughout a promotional period. The retail vouchers, typically for a value of £5 each, were supplied to newsagents who would then provide them to each participating customers.

 HMRC had previously ruled that output tax was due on the provision of these vouchers by ANL free of charge due to input tax having been reclaimed on their purchase. However, on appeal to the First-Tier Tribunal, it was concluded that the main aim of acquiring the retail vouchers was to increase the sales of the newspapers under the promotion scheme with the result that input VAT was indeed recoverable. Furthermore, the Tribunal ruled that the distribution of these vouchers by ANL should not be treated as a supply of services in course or furtherance of business and should not be subject to a liability to account for output VAT on their provision.

 HMRC appealed this decision and on the Upper Tribunal hearing the case, they landed on the side of the taxpayer, upholding the First-Tier Tribunals decision.  However, the Upper Tribunal did not allow ANL to recover ”deemed” input VAT on the purchase of vouchers directly from retailers.

 The VAT treatment of business promotion schemes is rarely straight-forward so to clarify your businesses VAT position regarding any schemes of this nature that are in place, or that are being considered, seek expert advice.

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