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Fraudulent credit card transactions – possibility of reclaim?

By November 21, 2012Uncategorized|VAT news

The UK Tax Tribunal has referred an appeal by Dixons against HMRC to the European Court of Justice (CJEU).  The issue is whether VAT should be accounted for on credit card transactions which are found to be fraudulent, for example where a credit card has been cloned, or obtained dishonestly by the person using it.

HMRC argues that there has been a supply at the point the card is accepted for payment.

Dixons argues that the payment, which is ultimately made from the card provider, is compensation akin to that received under an insurance policy and therefore not consideration for a supply.  This is on the basis that the retailer pays a fee to the card provider which contractually covers the retailer should they perform the necessary checks and the transaction still turns out to be fraudulent. The case is not considering the VAT treatment of charge backs (i.e. where a retailer has to pay money to the card company as it has not met its obligations when accepting the card).

What does this mean for retailers?

If Dixons are successful with their argument, the value of the cash retained by the retailer in these circumstances is not consideration for a supply and therefore the VAT accounted for as part of Daily Gross Takings (DGT) should be reduced.

As the Tax Tribunal has referred the issue to the CJEU they must feel there is merit in the arguments being presented.  It is therefore recommended that any business which accepts credit cards at the point of sale considers what the value of the compensation received from the card provider is over the past four years to establish if it is worthwhile making a protective claim.

Additionally, it presents an opportunity for retailers to consider their retail schemes and whether they are maximising the DGT adjustments that they could be making as we often see businesses where standard or even bespoke adjustments agreed with HMRC in the past are not being made, resulting in too much output tax being accounted for.

Leisure industry

Whilst the CJEU referral is fundamentally about  the supply of goods to customers, the case also raises the question of whether suppliers in the leisure industry who have supplied services eg cinemas, ticket agencies, and it is later discovered that the transaction is fraudulent, also have an opportunity to make a claim.  Again, it may be worthwhile considering whether a protective claim could be submitted.

It should be noted that it is likely that the issue could take a few years to resolve.  However, by making a protective claim now businesses are ensuring that they can maximise the claim for the past as it is only possible to go back four years from the current date for historic claims, and if businesses wait until the decision is made, older periods will then be out of time.

If you would like to discuss this further please contact Sean McGinness on 01962 735 350.

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