In Dixons Carphone PLC v HMRC [2018] TC06731, the First-Tier Tribunal (FTT) found that a subsidy deducted by a provider of interest free credit to Dixon’s customers did not override the original gross sale price for VAT.

  • Customers buy goods from Dixons on a buy now pay later agreement.
  • A third party, LaSer, lends the customer money on interest free terms, at the request of Dixons, to cover the cost of the goods.
  • LaSer pay Dixons less than the sale price of the goods, retaining a ‘subsidy’ as a condition of it agreeing to the interest free loan to the customer.
  • Dixons contend that the subsidy reduces the consideration for the supply of the goods to the amount payable after the subsidy. The lower amount Dixons receives after this ‘Discount’ should be the amount subject to VAT.
  • HMRC’s view is that the economic reality is there are four supplies:
    • Supply of goods by Dixons to customer.
    • Supply of credit by LaSer to customer.
    • Supply of introductory services by Dixons to LaSer.
    • Supply of credit facilities for customers by LaSer to Dixons.
  • HMRC contend that the agreement between Dixons and LaSer had no impact on the amount subject to VAT, Dixons are supplying a customer with goods for an agreed price, part of which is paid on behalf of the customer by LaSer.

The FTT decided as follows:

  • LaSer are making a supply to Dixons:
    • Dixons were willing to allow LaSer to deduct and retain a subsidy to compensate them for providing interest free loan facilities to Dixons’ customers.
    • LaSer’s economic return is satisfied by Dixons by way of the subsidy.
    • The commercial reality is that LaSer is providing a service of credit facilities to Dixons. This enables Dixons to generate more sales.
  • The subsidy is consideration for that supply by LaSer to Dixons:
    • It is clearly linked to credit facilities made available by LaSer.
    • The favourable terms offered by LaSer to Dixons’ customers are at Dixons’ request.
    • Under the agreement LaSer are entitled to deduct and retain the subsidy from any payment it makes to Dixons, suggesting further that it is not part of a supply to customers by Dixons but a separate supply by LaSer to Dixons.
  • Based on the above the subsidy does not reduce the original sale consideration due to Dixons. It is a separate transaction.

The FTT dismissed the Dixons’ appeal, finding that the full consideration, i.e. the cost of the goods which the customer agrees to pay, is subject to VAT, not the lower amount that Dixons receive as a result of the subsidy.


Discounts, Reward Schemes & Vouchers: VAT

External link Dixons Carphone PLC v HMRC [2018] TC06731