Any Input VAT on bank charges?

ISTR that the VAT office has challenged this in the courts and won, but this is going through appeal so the VAT office is rather quiet on this matter until the appeal court has done with their review of the case. Not sure when this is due or if this has already happened?

"Jonathan Bryce" wrote

... in which case, as I suggested before - in terms of reclaiming any input VAT, surely it should be HMC&E's view which should prevail (until and unless changed). In other words, reclaim the "full" amount, ignoring the 2.5% !

That's my boy..!

As I said earlier, most of em just make it up...

It seems odd that they would win at all. After all, processing financial transactions is outside VAT which is why we do not get VAT charged on bank charges or merchant services fees for taking cards.

If I reduced the sale price by 30p (or whatever it is) for business customers paying by BACS to cover their banks charges, it would be the same thing (i.e. part of sale price not VATed as paying for a financial transaction processing fee). Yet, would the VAT office then make their bank charge VAT on the bank charges? No. So why is this "trick" a problem?

In June 2004, the High Court handed down a judgment in Debenhams Retail Plc v Commissioners of Customs & Excise [2004] EWHC 1540 (Ch) that, in part, overturned the VAT Tribunal decision in Customs favour.

Customs intend to appeal the judgment to the Court of Appeal.

Background

The issue in Debenhams is the lawfulness of a tax avoidance scheme used by Debenhams and over 70 other High Street retailers to reduce the amount of VAT they pay to Customs.

When customers pay for goods by credit card, small print on the receipts asks them to pay a 2.5% 'card-handling' charge. The price the customer pays for the goods is the same as for a cash sale but retailers claim the 2.5% is exempt from VAT as a supply of financial services.

Implications of the judgment

Customs' view remains that the Debenhams scheme does not achieve in law what it sets out to do and we will seek to have the High Court judgment overturned. However, notwithstanding the ruling of the High Court, it is important to recognise that:

(a) In June 2003 Customs won decisively on all points in Tribunal before the President; and

(b) Debenhams' appeal has been allowed by the High Court subject to the adjournment of 'ancillary supply' and 'Halifax' arguments. It is clear that the High Court has not reached a final view. It is also clear that the Tribunal's decision on the 'Halifax' argument, which was won by Customs, has not been overturned.

The legal effect of the card-handling scheme has not been finally decided by the High Court and is in any event subject to ongoing litigation in higher Courts.

In Customs' view, retailers using the scheme should continue to account to Customs for VAT on the full price paid by customers for standard rated goods. Claims already lodged with Customs for VAT accounted for on the purported card-handling charge, and any subsequent claims retailers may wish to make, will be held in abeyance, and not repaid, until the value for VAT has been finally determined by the Courts.

If a retailer chooses to complete future VAT returns and account for VAT on less than the full price paid by the customer, Customs will treat such returns as incorrect. In the expectation that Customs will ultimately be successful in the courts, we will raise assessments for underdeclared VAT and the retailer may be liable to misdeclaration penalty and interest."

Probably for ease of administration reasons and so that the petrol station can avoid any potential problem should they be challenged by HMC&E.

The till systems have to handle both zero rated items (food), and positive rated items, fuel, sweets and chocolates, and maybe even exempt (postage stamps). With a mixture of goods there is always the possibility of calculating the wrong amounts.

In addition, since a supply of fuel of over £100 needs a fully detailed tax invoice to be issued, that would involve the cashier obtaining the customers trading name and address. That would significantly lengthen queues at the till.

So for both those reasons I guess they choose to act on the safe side, and simply state the receipt is not one for VAT. Then they're fully covered.

But it would probably be an offence knowingly to tamper with such a document.

Rgds

__ Richard Buttrey Grappenhall, Cheshire, UK __________________________

It is a problem when a VAT registered person purchases goods from a store with this policy.

Lets say I go to PC World (who I think operate this scheme) and I purchase a PC for 1500 on my company mastercard I would expect to be able to reclaim vat on the full purchase price. (223.40 of vat to reclaim).

On my receipt I then notice that 2.5% of the sale price is payable to "PC world financial services" for "card processing costs", which means that I cannot reclaim vat on the full 1500 - I can only reclaim vat on 1455 (only

The net result is that I have lost out on 6.70, as that's the amount of vat they have prevented me from reclaiming.

PC world are probably correct if they supplied all the details required in S 16.6.1

Rgds

__ Richard Buttrey Grappenhall, Cheshire, UK __________________________

Because the VAT lawyers made the case that someone paying by cash would not benifit from saving the 2.5% (or whatever) so therefore in their view this is a VAT fiddle. ISTR that the court agrees, but it has gone to appeal for precisely the reasons you quoted!

Hang on - you are allowed to charge someone a surcharge for different types of payment, and this is, in effect, for VAT registered customers, a surcharge (they pay more) if paying by card.

From the retailers point of view, they have to pay a percentage of the retail price (inc VAT) to process the payment yet cannot claim the VAT back on that.

The other thought is that banks manage to charge a percentage in bank charges (with no VAT) for handling cash. Surely retailers could employ a finance company to handle their cash and card transactions at the same

"Adrian Boliston" wrote

Are you sure? :-(

"Adrian Boliston" wrote

Are you sure you can't? ;-)

"Adrian Boliston" wrote

Suppose you noticed on a receipt (from a retailer who *didn't* operate the scheme being discussed) that you'd paid 117.50 for a standard-rated item, and the receipt said "VAT @17.5% = 10.00" (not 17.50, ie a mistake was made on receipt). Obviously the receipt is incorrect - would you then reclaim just 10.00 input VAT or the full (correct!) 17.50 ? :-)

"Adrian Boliston" wrote

Actually, 2.5% off 1500 would leave 1462.50 gross of standard VAT, which therefore includes 217.82 VAT and the "loss" would be 5.58 (not 6.70).

"Nogood Boyo" wrote

In that case, (business) customers of those retailers should also "continue to account to Customs for VAT on the full price paid ..." !

"Nogood Boyo" wrote

So they'll also need to treat the customer's returns as incorrect, if they have accounted for their purchases using the retailer's figures.

"Nogood Boyo" wrote

... and the customers??!

I'm not convinced that saying "this is not a vat receipt" actually stops it being a VAT receipt if the right information is present.

HMCE have now lost at the appeal court and the case is going on to the House of Lords.

Indeed, if they printed "this is not a piece of paper", would that have any effect either?

And I went on to quote chapter and verse from the HMCE site (with a correction to the maximum limit from £100 to £250).

Try reading the rest of the thread before posting! :-)

So, when a judgement is handed down we can ignore it if there are still further appeals in process? I doubt if the man in the street would get away with that if the boot was on the other foot.

A couple of years ago, when I used Safeways supermarket, not for petrol but for goodies off the shelf, a VAT receipt from the till operator could be provided if it was requested before the goods were passed through the scanner. The printed receipt indicated which items were zero rated and 17.5% rated and printed net total, VAT and gross total.

I don't know Safeways, under new management, still do this as I passed on my shopping chores to someone else that couple of years ago. However if anyone uses Safeways / Morrisons perhaps a request for a VAT receipt at the till cold be revealing.

However doing shopping chores at Boots and asking for a VAT receipt listing which items were zero rated and which were not was time consuming and an utter failure at all levels of management. They were completely incapable of doing so. Even requests to HO were ignored. In the end a complaint to HMC&E resolved the problem.