In HMRC v Associated Newspapers Ltd [2015] UKUT 641 (TCC), the Upper Tribunal (UT) has confirmed that supplies of vouchers for no consideration are not subject to VAT if supplied for a business  purpose.


To enhance the sale of its newspapers, from 2007 to 2010, the taxpayer ran a promotion under which its publications could be purchased for half their normal retail price. Potential customers were supplied with half price coupons which were redeemable at newsagents for a promotional period of 3 months. At the end of the promotional period, if the customer had continued to purchase the newspapers throughout the period, they were entitled to a voucher from a high street retailer (the “First Scheme”).

In 2011, the taxpayer ran a further promotion. Under this promotion, the customer was supplied with unique reference numbers. These numbers were printed on certain publications. If the customer registered the numbers with an online or telephone account they would be supplied with “points” which could be redeemed for either rewards or a voucher from a high street retailer (the “Second Scheme”). Vouchers were purchased by the taxpayer either directly from retailers or from an intermediate taxable supplier.

The dispute concerned the following two issues, which were the subject of two separate appeals before the FTT:

  • whether there was a liability to account for output VAT on the face value of the vouchers given away for no consideration in the First Scheme; and
  • whether the taxpayer was entitled to deduct input VAT on the vouchers purchased in the First and Second Scheme.

By two decisions dated 24 January 2014 and 13 August 2015, the FTT found in favour of the taxpayer on both issues. HMRC appealed each decision to the UT. The appeals were combined and heard together.

The UT’s decision

The UT considered each issue in turn:

The output tax issue

The UT agreed with the FTT that it was the “strictly business-related purposes” test that applied in the context of the provision of vouchers to customers. The supplies of vouchers for no consideration to customers purchasing the taxpayer’s newspapers were therefore not subject to VAT as they were supplied for the taxpayer’s business purpose. HMRC’s appeal on this point was dismissed.

The input tax issue

In the view of the UT, the taxpayer could in principle deduct the input tax which arose on the supply of the vouchers as they had a direct and immediate link with the business. HMRC’s appeal in relation to this issue was also dismissed.

However, the UT disagreed with the FTT’s analysis that input tax arose on the issue by the retailers of the vouchers. Paragraph 4(2) of Schedule 10A to the Value Added Tax Act 1994, deems the consideration on issue of the vouchers by retailers to be zero. The issue of the voucher does not therefore bear VAT and the consequence is that no VAT was due from the supplies and none was paid. The taxpayer was therefore not entitled to recover VAT in respect of the retailers’ vouchers.

The UT considered its view on the construction of Schedule 10A to be compatible with the principle of fiscal neutrality, as the position for purchases from retailers directly and from intermediaries would be the same. As a matter of law, no input tax would be capable of being claimed by any recipient of such a supply, whether a company in the position of Associated Newspapers, or a company (intermediary) making onward supplies. Distortion is only introduced if you take into account HMRC’s concession for intermediaries to deduct input tax on voucher acquisitions, which is not part of the legislative code.

In light of this conclusion, the UT set aside this part of the FTT’s decision and re-made it to determine that no input tax arises on the supplies and the taxpayer was not entitled to a deduction in that respect.


This is an important decision and may have implications for a range of business promotion and incentive schemes, for example, tickets to concerts or sporting events. Businesses for whom this decision is likely to be relevant, should seek appropriate professional advice.

The UT’s decision is available to read here.