A decision on whether or not VAT is recoverable on payments made by suppliers to a loyalty scheme operator is to be handed down in the Supreme Court tomorrow.

In the matter of HMRC v Aimia Coalition Loyalty UK Limited (formerly known as Loyalty Management UK Limited), the court will determine whether Aimia, the operators of the well-known Nectar loyalty scheme, are entitled to recover VAT on payments made by suppliers under the scheme.

The matter - which has run since 2007 - has landed back in the Supreme Court after the Court of Justice of the European Union (CJEU) ruled that it will be for the national court to determine whether the payments made also included consideration for a supply of services corresponding to a separate service, where a transaction comprises multiple features and acts.

The dispute began when Aimia - which owns, operates, and manages the Nectar scheme and Nectar eStores - tried to reclaim as input tax, the VAT on its payments to suppliers on the basis that those payments were for a supply of 'redemption services' to Aimia by the suppliers.

Under the scheme, Aimia's customers received Nectar points for goods purchased and could then use the points to acquire further goods and services for reduced or no cost.

Aimia entered into contracts with retail suppliers who agreed to issue points to customers making purchases from them and to pay Aimia a specified sum per point issued. Under the scheme the operator would also enters into contracts with various suppliers under which if the latter supplied goods or services to customers either partially or wholly in exchange for points, then Aimia paid them an agreed value per point. The suppliers also provide the Aimia with sales statistics and information related to this process.

HMRC decided that VAT was not recoverable as it considered the payments made to the suppliers, as third party consideration for supplies, made by the latter to its (HMRC's) final customers.

The current appeal before the Supreme Court follows a series of referrals and overturned decisions, which have seen the case go from the VAT Tribunal through to the High Court, the Appellate Committee of the House of Lords, and the CJEU.

The Supreme Court will also consider whether the case of Redrow Group plc - which was relied upon by the Court of Appeal in its ruling - remains 'good law' following the CJEU's conclusions, and 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.