RCB/8/07 VAT—manufacturers' “cash back” payments
Revenue & Customs Brief, Issue 8. 6 February 2007
This Revenue & Customs Brief article explains the VAT treatment of “cash backs” and what businesses should do if they pay or receive “cash backs”, or have paid or received them in the past.
The term “cash back” refers to a payment usually made by a manufacturer directly (or via a recovery agency) to the customer of a wholesaler or retailer – mostly in recognition of the volume of purchases. Similar payments may also be made under manufacturers' discount schemes, or may be referred to as volume bonuses or described in similar terms. Such payments occur outside the direct supply chain and as a result credit notes should not be used.
HMRC has become aware that some businesses have been accounting for “cash back” payments incorrectly. Some manufacturers have reduced their output tax, some have not. Some have made retrospective claims for overpaid output tax, but the recipients of those “cash backs” have not necessarily reduced their input tax.
The treatment of payments of this nature was laid down by the European Court of Justice (ECJ) in two cases: Elida Gibbs (C-317/94)