In this case relating to Tesco's right to recover as input tax the VAT charged to it by service providers under the Tesco Clubcard scheme, the FTT has held that Tesco can reclaim the VAT, broadly following the Supreme Court's decision on input VAT recovery under the Nectar card scheme.

In this case, Tesco Freetime made contractually agreed payments to the participating businesses under the scheme to partly reimburse them for the cost of providing services to Tesco Clubcard holders when the cardholders redeemed their points with the service providers (for instance, for a free meal at a restaurant).

HMRC sought to argue that there were differences to the Nectar card scheme and that, in this case, Tesco was simply paying third-party consideration (i.e., was simply paying the cardholders' bills for the services provided).

The FTT held that the service providers were also providing a "fulfilment" service to Tesco under the terms of the scheme and that the economic reality of the arrangement was that the cardholders bore the cost of the scheme as part of the price that they paid for their shopping and that Tesco then paid the scheme service providers for fulfilling their obligation to Tesco to provide the contracted services to the cardholders.