Revenue and Customs Commissioners v Associated Newspapers Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 December 2015 |
| Neutral Citation | [2015] UKUT 641 (TCC) |
| Date | 01 December 2015 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Lord Justice David Richards, Judge Roger Berner
Kieron Beal QC, Michael Jones and Simon Pritchard, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Appellants
John Walters QC, instructed by KPMG LLP, appeared for the Respondent
Value added tax – Retailer vouchers – Value Added Tax Act 1994 (“VATA 1994”), Sch. 10A – Provision of vouchers to customers free of charge as part of business promotion scheme – Whether a right to claim deduction of input tax on acquisitions of vouchers from issuer retailers or intermediaries – Principal VAT Directive (Council Directive 2006/112/EC), art. 167, 168– Held: input tax was recoverable from intermediaries, but not retailers – Whether provision of vouchers free of charge gives rise to an output tax charge – Value Added Tax (Supply of Services) Order 1993 (SI 1993/1507), art. 3, 2006/112/EC, art. 26 – Held: no output tax due-HMRC appeals allowed in part, otherwise dismissed.
The Upper Tribunal (UT) heard HMRC's appeals against two connected First-tier Tribunal (FTT) decisions concerning the input VAT and output VAT position of vouchers used as part of a sales promotion scheme. The UT upheld the FTT decision regarding output tax, finding that VAT was not due on the vouchers given away free of charge because this was for strictly business-related purposes and accordingly was not deemed to be a supply of services. The UT allowed HMRC's appeal in part in respect of the input tax recovery for vouchers issued by retailers only (and not intermediaries).
HMRC appealed against two connected decisions of the FTT.
In the first, Associated Newspapers Ltd TAX[2014] TC 03256 (“ANL1”), the FTT decided that the provision by Associated Newspapers Limited (“ANL”) of vouchers free of charge to its customers as part of a business promotion campaign, redeemable at certain high street retailers such as Marks & Spencer, was not to be treated, by art. 3 of the Value Added Tax (Supply of Services) Order 1993 (“the 1993 Order”), as a supply of services in the course or furtherance of ANL's business, and was accordingly not subject to output VAT in that respect.
In the second, Associated Newspapers Ltd TAX[2015] TC 04586 (“ANL2”), the FTT decided that ANL was entitled to deduct any input VAT that actually arose on ANL's purchase of the vouchers for the purpose of its business promotion schemes, both from the retailers themselves and from intermediaries.
In the UT, the arguments by HMRC were as follows:
The judgement in ANL1, threw HMRC's accepted policy on retail vouchers into disarray as stated in Information Sheet 12/03:
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.
The effect, therefore, of the FTT's decision in ANL1 would be that to the extent that input tax was recoverable by ANL on its purchases of the vouchers, that input tax would be recoverable without a matching charge to VAT which would otherwise apply under the 1993 Order.
The question then in ANL2 was about the recoverability of input tax in the circumstances of this case. HMRC's arguments in this respect, which were rejected by the FTT, and which were repeated in this appeal, were first that under the Value Added Tax Act 1994 (“VATA 1994”), Sch. 10A, the initial issue of retailer vouchers by retailers should be treated as being made for no consideration, and thus as not giving rise to input tax, and secondly that in any event any input tax actually incurred by ANL, such as on purchase of vouchers from an intermediary, was directly and immediately attributable to an onward supply of the vouchers on which no output tax was charged, and which was consequently outside the scope of VAT, and was therefore not recoverable.
The combined result of the two FTT decisions, according to HMRC, was that ANL was entitled to reclaim input tax paid to voucher retailers (such as Marks & Spencer), but was not required to account for any output tax on the onward supply of that voucher free of charge to its customers.
Although these appeals were dealt with by the FTT considering the output tax issue (ANL1) before the input tax issue (ANL2), the UT considered the issues in the reverse order, because it is a pre-condition for the application of the 1993 Order to services that the “relevant person” (ANL), “has or will become entitled … to credit for the whole or any part of the tax on their supply to him” (1993 Order, art. 6(b)).
It concluded that only if the answer to ANL2 were to be that it was entitled to deduct input tax on its purchase of vouchers from either or both of the retailer or an intermediary, that the issue in ANL1 could arise.
The UT said that there are two circumstances that fell to be considered in determining whether ANL was entitled to deduct input tax on its purchases of the vouchers:
The first is where the purchase is directly from the retailer. In that case HMRC asserted that by virtue of the disregard, up to face value, of the consideration for the issue of that voucher in accordance with VATA 1994, Sch. 10A, para. 4(2), no input tax on that supply.
The second is that in any event, whether the vouchers are acquired on issue from a retailer or from an intermediary, any input tax was not to be allowed as a deduction because it is directly and immediately attributable to the provision of the vouchers by ANL free of charge, which provision is therefore outside the scope of VAT.
The UT spent some time reviewing the European legislation and case law that covered retail vouchers, including the Argos (Argos Distributors Ltd v C & E Commrs ECASVAT(Case C-288/94) [1997] BVC 64), Elida Gibbs (Elida Gibbs Ltd v C & E Commrs ECASVAT(Case C-317/94) [1997] BVC 80), AstraZeneca (Astra Zeneca UK Ltd v R & C Commrs ECASVAT(Case C-40/09) [2011] BVC 101) and Kretztechnic (Kretztechnik AG v Finanzamt Linz ECASVAT(Case C-465/03) [2006] BVC 66) cases.
It concluded that the clear starting point, is whether costs incurred, have a direct and immediate link to a particular transaction first, or if that is not clear, to the economic activities of the business as a whole and this needs to be addressed by reference to factors which are both objective and economic.
In addition, the link had to be more than a causal link (from the newly handed-down “Sveda” UAB v Valstybine mokesciu inspekcija prie Lietuvos Respublikos finansu ministerijos ECASVAT(Case C-126/14) [2015] BVC 36.
Although it may be possible to identify a connection, such as physical or legal, between certain costs and a particular transaction, such as a share issue or the sale of shares, that connection will not be conclusive of a direct and immediate link, unless it reflects the economic reality.
In its judgment, having regard to all the circumstances and viewed objectively from an economic perspective, the UT held that the answer in this case was plain. The vouchers were acquired for the purpose of the business promotion scheme to increase the circulation of ANL's newspapers, and also to facilitate the associated sales of advertising.
The costs associated with the acquisition of the vouchers were cost components of the sales of the newspapers and of advertising, and thus cost components of transactions within the scope of ANL's taxable activities. The output supplies by ANL in that respect were taxable supplies, and input tax was accordingly deductible.
The UT decided that any input tax which arises on a supply to ANL of the vouchers which it provides to its customers free of charge as part of the business promotion schemes that were the subject of this appeal, were in principle deductible in respect of intermediaries.
That principle applied equally to input tax which arises on the issue of vouchers by retailers to ANL.
However the UT held that the question in that case was whether, having regard to VATA 1994, Sch. 10A, para. 4(2), which provides that the consideration for the issue of a retailer voucher is to be disregarded for the purposes of the VATA except to the extent (if any) that it exceeds the face value of the voucher, in this case no input tax would arise at all on such supplies, and there would thus be nothing for ANL to deduct.
The UT concluded that the FTT made no error of law in respect of its finding that, to the extent input tax arises on a supply to ANL of vouchers which ANL provides, as part of the business promotions schemes, to its customers free of charge, ANL was entitled to deduct that input tax.
The appeal of HMRC in that respect was therefore dismissed.
On the other hand, the UT concluded that the FTT made an error of law in finding that input tax arose on the issue by the retailers of the vouchers.
The UT accordingly allow HMRC's appeal to that extent by determining that no input tax arises on such supplies, and that consequently ANL was not entitled to a deduction in that respect.
The UT then considered the output tax issue (from ANL1).
The question was whether the provision of the vouchers by ANL to its customers free of charge as part of the business promotion schemes was to be treated, by art. 3 of the 1993 Order, as a supply of services.
The question, which turns on the analysis of the relevant provisions of the Principal VAT Directive (PVD) that appears from the case law of the Court of Justice, is whether ANL provided the vouchers “for a...
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