Business promotion schemes can be a vital part of a commercial strategy, but the companies running them must be aware of all of the relevant VAT regulations surrounding these schemes to ensure they run smoothly.

A tribunal case from 2017 demonstrates how complex these rules can sometimes be, and underlines how important it is for businesses to make themselves familiar with all of their VAT obligations before launching a scheme involving vouchers, giveaways or other similar promotions.

Navigating a complex system of rules

In the case in question, Associated Newspapers Ltd (ANL) was forced to launch an appeal with the First-Tier Tribunal after HM Revenue & Customs (HMRC) attempted to recover VAT from the organisation for a voucher-based business promotion scheme.

ANL’s scheme involved purchasing retail vouchers from various popular brands and providing these to customers who bought the newspaper throughout a promotional period. The retail vouchers, typically valued at £5 each, were supplied to newsagents, who would then provide them to participating customers.

HMRC argued that output tax should be due on the provision of these vouchers by ANL, due to input tax having been reclaimed on their purchase. However, on appeal, the First-Tier Tribunal concluded that the main aim of acquiring the retail vouchers was to increase sales of the newspapers under the promotion scheme, meaning that input VAT should be 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 therefore should not be subject to a liability to account for output VAT on their provision.

HMRC appealed this ruling, resulting in the Upper Tribunal upholding the First-Tier Tribunal’s original decision in favour of ANL. However, the Upper Tribunal did not allow ANL to recover deemed input VAT on the purchase of vouchers directly from retailers.

The lesson for businesses

The complexity of this case and the mixed outcome for ANL underline the fact that the VAT treatment of business promotion schemes is rarely straightforward. As such, it is always worth considering and reviewing your business’s VAT position regarding any schemes of this nature that are in place, or that are being discussed for the future.

For further guidance on how VAT rules are applied to business promotions, you can consult the official GOV.UK information. For more tailored advice on how specifically to apply these regulations to your own activities, speak to one of our VAT consultants by calling our free VAT helpline on 0333 3638 012.

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