November 2013

Fraudulent credit card payments are consideration for VAT supplies – Dixons Retail ECJ VAT Decision

The European Court of Justice (CJEU) has released its decision in the case of Dixons Retail plc. (C-494/12).  The Court considered the scenario where someone purchases goods with a stolen credit card, with the fraud being discovered after the goods have been handed over.  Under current practice if someone shoplifts goods there is no supply for VAT purposes as no payment has been made.   However where payment is made, albeit with a stolen card, a supply is deemed to have been made, as a payment is received by the retailer from the credit card company in the value of the transaction in question.  Dixons questioned this – if the payment was not consideration for a supply but rather compensation of some sort, no VAT would be due.

The Court held that Dixons was making a supply of goods to the customer, regardless of whether it later transpired that the purchase was made using a fraudulent credit card.  Further, the Court held that the payment received was consideration as there was a direct link between the sale of the goods and the payment made.  It did not matter that the payment was funded by the card provider, rather than the individual who used the fraudulent card.

As there was a supply of goods for consideration the payment received by Dixons from the card provider included an element of VAT.

What now?

This means that the existing practice of accounting for VAT on the payment received from the credit card company and retained by the retailer will continue.

There still remains an opportunity for retailers to consider whether a business is making all appropriate adjustments when calculating its daily gross takings on which VAT will be accounted for.  Should you wish to discuss DGT adjustments, either under your bespoke retail scheme, or under one of the standard retail schemes, please contact Sean McGinness on 01962 735 350.

We met with the HMRC Travel Policy and Treasury team yesterday to discuss the outcome of the recent ECJ case on the Tour Operators’ Margin Scheme (TOMS). The main focus was the impact that the case has on the UK’s VAT Transport Company arrangement and the basis of the UK TOMS calculation. The following is a high level summary of the outcome:

Further to our news item “The CJEU case on the tour operators’ margin scheme” published on 14^th October 2013 we are due to meet with the HMRC Policy Team who are responsible for Travel and Tourism on the 14^th November 2013. The purpose of the meeting is to discuss the impact that the case will have on the UK travel industry with particular reference to how the inclusion of wholesalers in the Tour Operators Margin Scheme (‘TOMS’) will impact on the UK HMRC sanctioned Transport Company arrangement. We will also be raising the concerns that we have regarding the possibility of moving to a transaction by transaction calculation basis for those operating under the scheme.

We are currently collecting feedback from the industry and would welcome any comments or questions you may have so that we can feed these back to HMRC. If you would like to contribute or if you would like to discuss the impact of the case in more detail please do not hesitate to contact Martyne Pearson on 01962 737 951 or via email martyne.pearson@thevatconsultancy.com.