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HMRC internal manual

VAT Valuation Manual

Non-monetary consideration: part exchange: payments made by suppliers to retailers under money off coupon schemes or cash-back schemes

Where payments have been made by manufacturers or distributors as a result of operating a money-off coupon or cash back scheme, those payments will reduce their output tax. The manufacturer or dealer will have to demonstrate that the payments have been made to the retailers and consumers in the transaction chain and that the payments relate directly to successfully redeemed coupons following a retail sale of the goods. This follows the ECJ decision in Elida Gibbs (C-317/94).

Elida Gibbs was a manufacturer of toiletries and sold these products to wholesalers and retailers. The appeal concerned two promotions (money-off coupons and cash back) aimed at the final consumer, i.e. the public. Money-off coupons were distributed in various ways e.g. mail shots, printed in newspapers, printed directly on the packaging of Elida’s products etc. In some cases, Elida agreed with a retailer for the retailer to print and distribute coupons. The coupons offered the final consumer a discount on the price paid to the retailer and Elida then reimbursed the retailer. Cash back coupons were printed directly on the packaging of Elida’s products and offered the final consumer a cash refund of part of the purchase price paid. Any consumer who could satisfy the conditions printed on the coupon was able to claim the “cash back” payment direct from Elida.

The ECJ found in favour of Elida that both cash back payments to consumers and reimbursements to retailers allowed Elida to reduce the taxable amount of its supplies. In reaching this conclusion the Court considered the principle that VAT is a tax on the final consumer and the amount of VAT ultimately collected by a tax authority should not exceed the amount paid by the final consumer. To ensure the right amount of tax is paid at each stage the Court decided that Elida should not issue credit notes to their immediate customers - the wholesalers and retailers. Retailers must still account for output tax in respect of payments from manufacturers as well as the money paid by customers.