Associated Newspapers Ltd v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Lady Justice Black,Lord Justice Jackson |
| Judgment Date | 10 February 2017 |
| Neutral Citation | [2017] EWCA Civ 54 |
| Docket Number | Case No: A3/2016/0680 |
| Court | Court of Appeal (Civil Division) |
| Date | 10 February 2017 |
[2017] EWCA Civ 54
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
Lord Justice David Richards and Judge Roger Berner
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Jackson
Lord Justice Patten
and
Lady Justice Black
Case No: A3/2016/0680
A3/2016/0697
Kieron Beal QC and Simon Pritchard (instructed by The General Counsel and Solicitor to HM Revenue and Customs) for the Revenue
John Walters QC (instructed by KPMG LLP) for Associated Newspapers Limited
Hearing dates: 13 and 14 December 2016
Approved Judgment
Introduction
This appeal is concerned with the VAT consequences (in respect of both input and output tax) of two promotional schemes carried out by Associated Newspapers Limited ("ANL") in order to boost the circulation of the Daily Mail and the Mail on Sunday.
The first of these schemes (referred to by the acronym SPICE (Sales Performance Improvement by Circulation Excellence)) operated between 2007 and 2010. It involved the purchase from retailers such as Marks & Spencer of vouchers which were issued by the retailers directly to ANL usually at a discount from their face value but at a price which purported to include VAT. The face value of the vouchers varied between £10 and £100 during different times of the scheme and they were redeemable in that amount against the purchase of goods or services from the retailer who issued them. The customers of ANL were contractually entitled to the vouchers if they complied with the terms of the scheme by purchasing the newspapers seven days a week for the relevant promotional period but in that event they received the vouchers free of charge. Retailer vouchers were also provided to the participating newsagents relative to the number of their customers who qualified under the scheme. As a result of SPICE, the circulation of both the Daily Mail and the Mail on Sunday increased over the period of the scheme.
The other scheme which began in 2011 is described as the Mail Rewards promotion. Customers who wished to participate in the scheme would register an account with ANL. All copies of the Daily Mail and the Mail on Sunday during the period of the promotion contained unique reference numbers which could be registered by customers either online or by telephone against their accounts. The system then credited them with points which could be redeemed for various rewards including retailer vouchers.
The second scheme (and its underlying computer system) was managed for ANL by The Hut.com Limited ("the Hut") under a contract dated 25 May 2011. The Hut received a fee subject to VAT which ANL could deduct as input tax. It also purchased the retailer vouchers in batches (usually at a discount) and invoiced them to ANL at cost but also subject to VAT. A customer who participated in the scheme became contractually entitled to receive the vouchers from ANL once he or she had acquired the relevant number of points but otherwise free of charge.
Communications between ANL and HMRC about the correct tax treatment of the voucher schemes began in 2007 in relation to SPICE. ANL informed HMRC that it intended to reclaim the input tax charge to VAT made by Marks & Spencer but did not propose to account for output tax on the supply of the vouchers to its own customers. It received a temporary ruling from HMRC accepting that tax treatment but in July 2009 ANL was informed that the policy contained in paragraph 14 of VAT Information Sheet 12/2003 would now apply. This stated that:
"Where face value vouchers are purchased by businesses for the purpose of giving them away for no consideration (e.g. to employees as 'perks' or under a promotion scheme) the VAT incurred is claimable as input tax subject to the normal rules. Output tax is due under the Value Added Tax (Supply of Services) Order 1993. Therefore all vouchers given away for no consideration will be liable to output tax to the extent of the input tax claimed".
I shall come to the provisions of the 1993 Order in more detail when I deal with the issue of output tax. But it is worth noting by way of introduction at this stage that the legislation is derived from what is now Article 26 of the Principal VAT Directive ("PVD") which treats as a supply of services for consideration (and therefore a taxable supply) a supply of services carried out free of charge for the private use of the taxable person or his staff "or more generally for purposes other than those of his business". Where these conditions are met the free supply is treated as one for consideration and under the 1993 Order this will give rise to a charge to output tax limited to the amount of any input tax otherwise allowable in respect of the supply.
These are not therefore provisions designed specifically to deal with free promotions involving the supply of vouchers. Their purpose is to ensure equal treatment between taxable persons and final consumers by ensuring that where business goods or services are used for private purposes by the taxable person he should be treated as the final consumer in respect of their acquisition. This is achieved by cancelling out any allowable input tax on the purchase of the goods and services by the imposition of output tax on their otherwise free onward supply.
If ANL was otherwise entitled to deduct input tax on the supplies of retailer vouchers it used for the purpose of the two schemes, the provisions of the 1993 Order would, if applicable, annul the financial benefit by imposing a counter-balancing charge to output tax on what (if free) would not otherwise constitute a taxable supply. The customer pays nothing extra in order to obtain the vouchers and HMRC contended that this brought the supply of the retailer vouchers within paragraphs 2 and 7 of Schedule 10A of the Value Added Tax Act 1994 (" VATA") which was introduced to prescribe the VAT treatment of face-value vouchers under UK law in the absence of any EU-wide directive on that issue. Paragraph 2 treats the issue of a face-value voucher (which these were), or any subsequent supply of it, as a supply of services and paragraph 7 treats the supply of a face-value voucher as part of a composite transaction for no additional consideration as a supply of the voucher for no consideration.
But Schedule 10A also has an application in respect of the input tax which ANL seeks to deduct in respect of its purchase of the retailer vouchers. Paragraph 4(2) requires the consideration for the issue of a retailer voucher to be disregarded unless it exceeds the face value of the voucher. The issue of a voucher which falls within paragraph 4 is not therefore treated as a taxable supply for VAT purposes and VAT is recovered on the full value of the supply by the retailer of the goods and services as payment for which the voucher is redeemed.
In the case of the SPICE scheme, Schedule 10A is relied on by HMRC as one reason why ANL is not entitled to deduct input tax in respect of its direct purchase from Marks & Spencer and others of the retailer vouchers. If that is right then no issue about output tax arises in respect of those supplies. But in relation to the Mail Rewards scheme where the vouchers were purchased through the Hut as intermediary, paragraph 4 of Schedule 10A has no application and it is accepted in principle that these were taxable supplies of services in respect of which the Hut charged and accounted for VAT at a blended rate which reflects the VAT liability of the retailer on the supplies it makes on the redemption of the vouchers. The issue in respect of those vouchers and more generally in respect of the SPICE scheme is whether any input tax payable in respect of the purchase of the vouchers is deductible as a cost component of either a taxable supply made by ANL or as part of its overheads. ANL contends that the vouchers were acquired for use in connection with the making of taxable supplies of newspapers and advertising and that therefore (subject to Schedule 10A) any input tax is deductible. HMRC contend that the purchase of the vouchers was inextricably linked with their own onward supply to customers as part of the two schemes in neither case for consideration. If this is right they maintain (and ANL accept) that they were used for making a non-taxable supply and no input tax is deductible. In these circumstances, the issues about the effect of the 1993 Order do not arise.
Although many of these issues are interlinked and the incidence and recoverability of input tax determines both the application of the 1993 Order to the onward supplies of vouchers and whether that issue even arises, the first issue which came to be decided in the First-tier Tribunal ("FtT") was the output tax issue. In its decision released on 24 January 2014 the FtT (Judge Poole and Mr Adams) allowed ANL's appeal against the decision of HMRC that output tax was chargeable on the supply of vouchers by ANL to its customers under article 3 of the 1993 Order.
In a further decision released on 13 August 2015 the FtT went on to decide that any input tax which arose on the purchase of the vouchers was nonetheless deductible and as mentioned it was accepted that when the vouchers were purchased from an intermediary, input tax arises on the whole consideration at the retailer's blended rate. The FtT accepted that the supplies of vouchers purchased by ANL were used for the promotion of its sales of newspapers and that in the case of vouchers acquired directly from the retailers paragraph 4(2) of Schedule 10A should be read...
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