In the case of Total UK Ltd v Revenue and Customs Commissioners [2007] All ER (D) 253) (Oct)) , the taxpayer entered into a sales promotions scheme whereby it provided customers who bought fuel at filling stations, with face value vouchers which could be redeemed at certain national retailers (e.g. Boots). The vouchers were earned by collecting “points” per litre of fuel purchased. Total sought to reduce the output tax due on the supply of the fuel by the value of the voucher which it purchased from the retailers. The Court of Appeal has recently overturned the High Court decision and ruled that the consideration for the supply of fuel cannot be reduced by the value of the vouchers purchased by Total.

In another case also involving a “points reward” scheme, Loyalty Management UK Ltd [2007] All ER (D) 66 (Oct)), the taxpayer ran a customer loyalty scheme (nectar points), whereby customers earned loyalty points which could be used to obtain goods or services from third party suppliers. The suppliers charged the taxpayer a fee for the supply of redemption services. The taxpayer claimed that it was entitled to reclaim the VAT element on the “redemption” fee charged by the participating suppliers of goods/services to the taxpayers’ customers. The Court of Appeal has recently overturned the High Court decision and found in favour of the taxpayer.

Both of these cases demonstrate the complexities associated with applying legislation and case law to business promotion schemes and the inconsistent treatment applied by HMRC. It is still possible to structure business promotion schemes in a tax efficient manner but the impact of VAT should be considered at an early stage.

If you are involved in similar arrangements, we would be interested to hear your thoughts and experiences of dealing with HMRC.