The Supreme Court has ruled that VAT is recoverable on payments made by suppliers to a loyalty scheme operator with three of the five judges supporting the decision; however, they have asked for further submissions from both parties.
In HMRC v Aimia Coalition Loyalty UK Ltd (formerly Loyalty Management UK Ltd (LMUK)) [2013] UKSC 15, the court decided that Aimia, operators of the Nectar loyalty scheme, are entitled to recover VAT on payments made by suppliers under the scheme.
Under the scheme, Aimia's customers received Nectar points for goods purchased and could use the points to acquire further goods and services for reduced or no cost. The Supreme Court held that the CJEU guidance was 'right to deduct VAT as part of the EU system of VAT and that it was intended to relieve a trader entirely of the burden of the VAT payable or paid in the course of all his economic activities'.
It concluded that suppliers make taxable supplies to LMUK and that 'the payments made represent the value to LMUK of the services provided'. LMUK should, therefore, be 'entitled to deduct from the VAT for which it is accountable that VAT charged by the suppliers, so that it only pays VAT on the added value for which it is responsible'.
Previously, HMRC said that VAT was not recoverable as it considered the payments made to the suppliers as third-party consideration for supplies, which were made by the latter to its final customers.
The decision brings to an end a series of court hearings. which began in 2007 and saw the case go from the VAT Tribunal to the High Court, the House of Lords and the CJEU.
In reaching a decision, the Supreme Court considered whether the case of Redrow Group plc ([1999] 1 WLR 408), relied upon by the Court of Appeal in its ruling, remains 'good law' following the CJEU's conclusions.
Another factor considered was whether the principle of fiscal neutrality applies, to the effect that the operators of the loyalty scheme should be entitled to recover all VAT incurred in respect of its payments to suppliers.
The court ruled that 'the parties should be afforded an opportunity to make written submissions on the form of order to be made'.