On 13 August 2015, the First-tier Tribunal (in Associated Newspapers Ltd v HMRC5) held that input tax could be recovered on the acquisition of retail vouchers that were passed on to customers participating in the taxpayer’s subscription promotion.

The Tribunal’s interpretation of Schedule 10A (Face-Value Vouchers) to the Value Added Tax Act 1994 was that, for VAT purposes, it effectively merges the retailer’s supply of the voucher with the ultimate supply on redemption (to the voucher-holding customer). For the retailer, there is on this interpretation one single taxable supply, treated as made when the customer redeems his or her voucher. The true effect, in the Tribunal’s eyes, of the critical provision in the legislation is to relieve the retailer of the obligation to account for output VAT at the time of supply of the voucher. The legislation does not, on this view, prevent input VAT from arising for the original recipient of the retail voucher (ie the taxpayer who then, for no consideration, passes it on to its participating customer). Such input VAT was held to be recoverable.

In a separate, but related, appeal heard last year the Tribunal held that no output VAT was due on supply of the vouchers by the taxpayer to its customer. HMRC has appealed against that earlier decision (due to be heard in October 2015).

The decision can be viewed here.