Cash backs and loyalty schemes

Produced by Tolley
Cash backs and loyalty schemes

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

  • Cash backs and loyalty schemes
  • Cash backs
  • Cross border
  • Telecommunication services
  • Loyalty schemes
  • Payments to third party reward suppliers
  • Point schemes
  • Manufacturer trade promotions
  • Retrospective discounts
  • Loaning business assets
  • More...

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

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 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.

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

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