Associated Newspapers – Court of Appeal of England and Wales finds that purchases made for promotional free on-supplies were part of the VAT-creditable overheads of a taxable business

A UK newspaper (ANL) paid VAT on its purchase of vouchers from Marks & Spencer and an intermediary, which it then provided free to those readers subscribing to its Sunday editions for the promotional period. HMRC argued that ANL was not entitled to recover any input tax on the vouchers because it had acquired the vouchers for on-supply at no consideration. Patten LJ found that there had been a sea change in the European VAT jurisprudence and that, now, the right way of looking at it was that the vouchers were part of the cost of promoting the taxable supply of ANL newspapers, so that any input tax was recoverable. He stated:

[I]n economic terms, the cost of purchasing the vouchers was…part of ANL's overall expenditure in the production and sale of its newspapers which the vouchers were intended to promote. The fact that the vouchers were provided free to buyers of the newspapers merely serves to confirm that they were cost components of the business rather than the onward supply of the vouchers.

The ETA has a specific regime dealing with gift certificates and vouchers (as well as with “free supplies.”) This case instead might be most relevant as shedding additional doubt on the CRA approach of emphasizing the “first order supply” for which an input has been acquired.

Neal Armstrong. Summary of Associated Newspapers Ltd v HM Revenue & Customs [2017] EWCA Civ 54 under ETA s. 141.02(1) – procurative extent.