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VAT Memo 2007-2008 Newsletter Issue 1

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Output tax  

 

Cash back awards

See VM ¶1030

In general, a cash back award reduces the value of a supply. A recent case considered when a payment can be treated as a cash back award or an inducement to enter into a contract.
It was held that a payment cannot be treated as a cash back award (and consequently cannot reduce the value of a supply) if:

- the payment of the cash back was not solely linked to the supply of the goods; and

- there were conditions attached to the payment that were dependent upon other external factors.

Although the case concerned only cash back offers, the impact of the decision could be extended to cover other customer offers, such as the provision of free goods etc (see ¶6524).

Memo points In this particular case, a supplier (JAG) bought mobile phone handsets to sell on at a loss. At the point of sale JAG offered the customer cash back if he signed up for an airtime contract with a network (i.e. a line rental provider) for a minimum period, with the actual contract being made between the customer and the network.
The network paid JAG commission for this sign up, provided the customer stayed with the network for at least 3 months, which enabled JAG to honour its cash back commitment.
JAG had contended that the cash back could be used to reduce the value of their supply of handsets. It was however held that the cash back payment was in fact an inducement.

JAG Communications (Plymouth) Ltd [2007] (VTD 20002)

 

Mobility aids for the elderly

See VM ¶1110

From 1 July 2007, the installation and supply of the following mobility aids for the elderly are reduced-rated, if they are for use in domestic accommodation:

- grab rails;

- ramps;

- stair/bath lifts;

- built in shower seats or showers containing built in seats; and

- walk-in baths with sealable doors.

A person is elderly if they are over 60 years of age at the time of the supply.

SI 2007/1601
Sch 7A Group 10 VATA 1994

 

Private use of business supplies

See VM ¶1526

Where goods are temporarily taken out of a business there is a supply of services which is valued at accounting cost. This particularly affects traders applying the Lennartz method of input tax accounting (¶1842), where all input tax is recovered upfront and output tax is accounted for on any subsequent private use.
The accounting cost is calculated by applying straight line depreciation over a prescribed period, which was to be reduced following the Budget 2007.
HMRC have announced that this reduction will not now take effect until 1 November 2007. At that time, regulations will set out how taxpayers must account for any private use of business assets.

HMRC Brief 56/07

 

 

 

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