VAT-Coupons/Vouchers

Introduction

This case deals with VAT on vouchers but with a twist – the customer purchased certain goods and was given a mix between a voucher and a coupon (i.e. a voupon); the voupon can be used as a credit when the customer purchased other specified goods.

The Facts

The taxpayer, Boots, ran five sales promotions as part of which a customer who purchased goods to a value of at least £15 received a document called a voupon. This entitled the customer, on presentation, to a credit of £5 against the value of certain specified brands of goods subsequently purchased from a Boots’ store.

Each of the five voupon promotions operated in the same way and were designed to encourage customers to purchase qualifying goods and to make subsequent purchases of the products specified in the promotion in order to redeem the voupons. The volume of sales, the number of transactions and their average value all increased during the periods when the promotions were in operation.

At the time of all five of the voupon promotions Boots accounted for VAT under the terms of a bespoke retail scheme agreed with HMRC on 24 June 1998. The Scheme excluded from the agreed accounting and valuation methods 14 matters including “sales of gift vouchers”. These had therefore to be dealt with by way of separate calculation in accordance with the relevant accounting principles applicable to them. The amount paid for gift vouchers (which the customer purchased and which can be used as payment for any products sold in a Boots’ store) was not accounted for as part of Boots’ turnover on the sale of the voucher but was accounted for on redemption of the voucher by including in the turnover calculation the full price of the goods purchased with the voucher.

A new Group VAT Manager joined Boots and considered the VAT treatment adopted in respect of the voupon promotions. He entered into correspondence with HMRC in which he maintained that Boots had incorrectly accounted for VAT on the voupons – the consideration received from the customer on the qualifying purchase should have been apportioned between the goods and the voupon and therefore reduced by £5. The value of the redemption goods purchased using a voupon ought to have been increased by £5.

On 28 November 2003, HMRC informed Boots that in 2002 and 2003 they would be permitted to account for tax on the value of the qualifying goods less the face value of the voupon but on the full value of the redemption goods. On 11 December 2003 they repaid the sum of £3,354,435. However, on 10 January 2005 the November 2003 decision was withdrawn and on 23 March 2005 an assessment was issued to recover most of the tax repaid in December 2003.

Boots appealed to the VAT Tribunal against this assessment. The VAT Tribunal found in favour of Boots. HMRC appealed to the High Court.

The Issue

This appeal centres on what actually occurred between the parties in November 2003 and whether the Tribunal's conclusion that there was an agreement to value the voupons according to the method contended for by Boots was sustainable in the light of the evidence before it.

The Decision

The High Court found against the taxpayer by allowing Revenue's appeal.

The reason for the judgment was that there was no agreement between Boots and the Revenue. It was found that the Tribunal fundamentally misconstrued the correspondence and made a finding unsupported by any of the evidence. In support of this view, the Judge noted that the new Senior VAT Manager was satisfied that a specific VAT Notice gave Boots the entitlement to treat the voupons according to his treatment and that he had not sought agreement with HMRC.

In summary, the letter of 28 November 2003 was in respect of specific query and did not amend the bespoke retail scheme.

The judgment is available online at http://www.bailii.org/ew/cases/EWHC/Ch/2009/487.html.