Business promotion schemes ― loyalty schemes

Produced by Tolley

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

  • Business promotion schemes ― loyalty schemes
  • What are loyalty schemes?
  • What VAT issues need to be considered?
  • What types of loyalty schemes can be implemented?
  • Payments to third party reward suppliers
  • Points schemes
  • Discount cards
  • What happens if the promoter is a different legal entity to the supplier of redeemer?
  • What are the VAT consequences of supplying rewards for points?
  • Practical points

Business promotion schemes ― loyalty schemes

This guidance note provides an overview of the types of loyalty schemes that can be implemented together with the associated VAT issues.

See the Business promotion schemes ― overview guidance note for more information on the other types of business promotion schemes that can be used by businesses.

See De Voil Indirect Tax Service V6.169 and V3.409 for more detailed commentary.

What are loyalty schemes?

A number of organisations participate in loyalty programmes which are designed to improve customer loyalty and increase sales. They also offer businesses with a marketing tool because they can analyse customer information in order to target marketing campaigns, etc. There are a number of different schemes in operation, but the main aim is to link purchases made to a reward or a reduction in the price paid for subsequent purchases by issuing points.

The loyalty scheme can either be a simple scheme where the reward is given by the original supplier when the customer has accumulated sufficient points to cover the purchase or part purchase or a more complex scheme that involves a number of different retailers, sponsors and reward suppliers. A typical example of a more complex scheme is the ‘Nectar’ scheme which is currently in operation and used by a number of different retailers and other types of businesses.

A typical retail example is where customers register as ‘collectors’ and they accumulate points on qualifying purchases. At a later stage the customer will exchange the reward points for goods and / or services

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