V16.1023 VAT treatment of refunds made by manufacturers
Information Sheet 3/14, April 2014
Purpose of this Information Sheet
This Information Sheet explains the VAT treatment of certain “refunds” made by manufacturers (and other “first suppliers”) direct to “final consumers” who have purchased their goods from a final supplier (usually a retailer). An explanation of what these terms mean in this context is given in section 1.3 below.
Any manufacturer or other first supplier in the UK who makes refunds direct to final consumers (see paragraph 1.3.2).
Any VAT registered final consumer who receives a cash refund from a first supplier in relation to goods purchased from a retailer (see paragraph 1.3.3).
Under EU law the net amount of VAT collected by HMRC on a supply to a final consumer cannot be greater (nor less) than that due on the total amount paid by the final consumer. If the final consumer receives a refund or reimbursement of the purchase price, then the total amount paid by him or her will be reduced and the VAT previously accounted for must be adjusted accordingly.
Normally, it is the retailer who will refund money to the customer if goods are faulty or damaged. Where the goods are subject to VAT, the retailer must make an adjustment under the VAT Regulations 1995 (SI 1995/2518) reg 38 (“reg 38”) to reclaim the VAT paid to HMRC on the original transaction. Also under reg 38, a VAT registered final consumer must make a corresponding adjustment in relation to any VAT reclaimed