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HMRC internal manual

VAT Finance Manual

Credit, debts and related services: credit and related services: charge, store, loyalty and affinity cards

Charge cards

With charge cards, such as American Express or Diners Club, settlement of the existing balance must be made at the end of each month. There may or may not be a spending limit.

Where the payment is made in one go there is no supply because there has been no consideration.

The annual charge made by the card issuer is exempt under item 2.

Note: American Express also operates a conventional credit card.

Store cards

Store cards have the character of a credit card, but with acceptance limited to particular outlets. The cardholder is initially given time to pay until the monthly statement. The cardholder will then either repay in full or be permitted to pay a minimum fixed sum. In consideration for further time to pay, interest will be charged on the outstanding balance. This interest charge is exempt.

Some store cards also act as a form of loyalty card or scheme, whereby users of the card are awarded points which can then be exchanged for vouchers or used to purchase further goods and/or services. Where a store card also provides loyalty points as well as credit please contact the VAT Supply Policy Team for assistance.

Affinity credit card schemes

An affinity credit card is a ‘co-branded’ card, one being the actual credit card issuer (e.g. Bank of Scotland, Halifax etc) and the other being a company or brand name. Affinity credit card schemes can involve

  • a charity (see paragraph below) or
  • an organisation or interest group, such as the Civil Service Motoring Association (CSMA) or British Airports Authority (BAA), that endorse a ‘co-branded’ credit card and recommend its use to its members or supporters.

The partner will receive a commission or similar income, usually linked to the taking out and subsequent usage of the card. CSMA and BAA are defined below.


Charities have been granted a special concession that recognises a donation element in the affinity card scheme. For full particulars concerning this concession, please refer to paragraph 5.3 in VAT Notice 701/1 Charities. This concession is only available to charities. Non-charitable organisations operating an affinity credit card scheme are subject to the normal VAT rules.


The affinity credit card provider

The credit card provider is providing a grant of credit and its income would be exempt under item 2. If it out sources the management of the credit then any charges made to it by the outsource provider will be taxable because only the management of the credit by the credit provider is exempt (see VATFIN3135).

The affinity credit card partner

The partner in the scheme may provide the credit card company with various services, for example:

  • introduction of clients
  • product development
  • marketing and promotion
  • negotiating the provision of member benefits.

For this it will receive a commission or similar income, usually linked to the taking out and subsequent usage of the card.

If the partner is introducing its members, supporters or customers to a credit card provider and meets the criteria set out in VATFIN3130 then it is providing exempt intermediary services.

The following are always standard rated:

  • marketing and promotional services supplied in isolation
  • clerical functions such as providing a list of names or access to a database.

The liability of this income has been the subject of two appeals - Civil Service Motoring Association (‘CSMA’ - [1998] STC 111) and the joined cases of BAA PLC & Institute of Directors (‘BAA’ - [2003] STC 35).

The case of the CSMA concerned an ‘affinity’ credit card, offered to CSMA members by Frizzell Banking Services (‘FBS’). CSMA negotiated with FBS for the introduction of its members on favourable terms. For this they received commission from FBS based on a percentage of any credit taken on a card.

The Court of Appeal found in providing its service CSMA was acting as an intermediary. It stated that that there was no express reference in either *[Article 13B(d)(1)] or the [UK exemption in operation at the time (the VAT Act 1983, Schedule 6, Group 5, item 5 - the making of arrangements for any transaction comprised in items 1 …’)] *to ‘particular’ transactions or to ‘specific’ grant of credit’. With regard to whether the legislation was to be construed as implicitly restricted to activities in relation to particular transactions for the specific grant of credit, the Court found that the wording of the legislation refer to the doing of things antecedent to, and directly leading to an exempt transaction.

In a joint hearing in the Court of Appeal, BAA and IOD successfully argued that they were carrying out exempt intermediary services under UK and EU law.

The Court of Appeal found that the principal service was of introducing BAA and IOD members to the banks for the purposes of the granting of credit under terms previously negotiated by BAA and IOD with their ‘affinity’ banks (albeit that the Court found that this wasn’t a determining factor). Any marketing or promotional activities were regarded as necessary activities prior to the act of introduction.

The Court of Appeal also said that as part of their introductory service, both BAA and IOD were doing more than selling their databases listing shareholders and members. This service included the issue of application forms and the receipt and checking of completed application forms.

Therefore, in determining the liability of affinity agreements, it will be necessary to establish whether the trader is doing more than selling a list of names to the relevant bank. If there is no additional work preparatory to the act of introduction, the supply will still be a taxable supply.