On 31 May 2013, HMRC launched a consultation on its proposal to permit manufacturers to adjust their net VAT in respect of refunds made directly to the customers of retailers. It is proposed that full or partial refunds by reason of:

  • faulty products,
  • damaged products, or
  • customer dissatisfaction

will give rise to an adjustment, provided that the refund represents a reduction in the price paid for the item. No adjustment will arise if the manufacturer issues a discount voucher for use against future purchases or if it pays compensation for inconvenience or consequential loss. Currently, UK legislation permits a manufacturer to make an adjustment only in relation to refunds that it makes to a retailer. The proposed change arises as a result of the European Court of Justice (ECJ) decision in Elida Gibbs (C-317/94).

Responses to the consultation should reach HMRC by 31 August 2013.

Click here for more information on the consultation.