UK brand owners lose 400m case

UK brand owners could drop the use of money-off vouchers and cash-back promotions after failing to have VAT removed from such schemes.

Brand owners who give consumers promotional money-off for their goods have to pay VAT on the sale price of the goods, rather than on the discounted price.

In a test case brought by Unilever subsidiary Elida Gibbs (now Elida Fabergé) and retail chain Argos, the Advocate General of the European Court of Justice has recommended that the UK tax authorities are right to make the companies pay VAT on the original sale price of goods.

If the brand owners had won their claim to pay VAT on the discount price, they and other UK companies could have won a payback worth up to 400m from UK Customs & Excise.

Coopers & Lybrand VAT specialist Dennis Knowles, who advised Elida Gibbs on the case, says that brand owners are now considering other ways of running money-off promotions in order to avoid paying VAT on the original price.

Knowles says: “The time might be right for brand owners to look at other opportunities. Another way is to lower prices to the retailer and have a joint promotion, though this does not have the same impact.”

He says Coopers & Lybrand is looking at alternative methods of running money-off promotions, though he refused to give details.