Business promotion schemes ― cash backs and loyalty schemes

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Business promotion schemes ― cash backs and loyalty schemes
  • Cash backs
  • Loyalty schemes
  • Manufacturer trade promotions
  • Manufacturer consumer promotions
  • Retail discount schemes

This guidance note provides an overview of the VAT treatment of cash backs and loyalty schemes. Businesses involved in supplying coupons and vouchers should read the Business promotion schemes ― coupons and vouchers guidance note for more information.

It should be noted that the VAT treatment of these types of business promotion schemes has been contested on numerous occasions and the relevant case law is listed below. Businesses would be advised to look at the relevant case law when either implementing a new scheme or reviewing an existing one in order to ensure that the correct VAT treatment is applied as this is very complex area of VAT.

Cash backs

A cash back is a payment made by the manufacturer either directly or via a recovery agency, to a wholesaler, retailer or customer. These can also be referred to as discount schemes, volume bonuses, etc. Payments are often made to trade customers as a reward for the volume of purchases made and payments to customers are normally made in respect of specific product promotions. These payments are made outside of the normal supply chain so the business cannot issue credit notes to reflect the reduction in the value of the original supply, so special VAT rules apply to these types of arrangements. These changes have resulted from the CJEU decision in Elida Gibbs and Commission v Germany.

Notice 700/7 ; Elida Gibbs [1996] STC 1387; Commission v Germany [2003] STC 301; Total UK Ltd [2007] STC 564 (all cases subscription sensitive); De Voil Indirect Tax Service V3.158 (subscription sensitive)

Manufacturers that give cash backs are entitled to reduce the VAT previously accounted for on the original supply. If a VAT registered business receives a cash back it must reduce the value of the original payment by the amount of cash back and reduce the amount of

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