Weekly VAT Update – 4 April 2017
Brewery rebates not passed on to publicans
In this First Tier Tribunal case, Redwood Birkhill (Redwood) appealed against an assessment for £182,000 in respect of brewery discounts not passed on to its publican customers.
Redwood negotiates discounts with Tennents and Heineken in relation to four categories of publicans. During the hearing, an entirely hypothetical mathematical example was used: a brewer having a wholesale price of £500, paying Redwood a volume rebate of £200 which, in turn, pays a publican a discount/rebate of £150. The retained discount, the exact amount of which the publican is unaware, is therefore £50.
This case was concerned with the VAT status of the retained £50. Redwood argued that, if HMRC is correct that Redwood is making a supply to the publicans, it is impossible for the publicans to complete their VAT returns accurately as they don’t know the value of the supplies HMRC says they are making to Redwood. It argued that it is clear that Redwood pays the publicans money in exchange for the right to use the publicans’ barrelage, but no money passes between Redwood and the publicans. So either there is no supply between Redwood and the publicans, or the consideration is the fact that Redwood procures a discount for the publicans. Redwood says this is unlikely because it feeds into the amount due by the publicans to the brewers for the cost of the beer. In neither of these situations is there a “consideration”. HMRC changed its initial view and argued that it is Redwood who has made a supply to the publican – the supply being the “organising/facilitating the aggregation of the purchases made by the individual publicans in order to achieve increased discounts for members of the publicans’ group”.
The brewers are free to make commercial decisions on whether or not to adjust VAT on the payment of the discounts, in line with current HMRC guidance. Accordingly, HMRC was prepared to accept the difference in VAT treatment that Redwood received from Heineken and Tennents. The Tribunal stated that the publicans accept that, while they will receive a higher discount than they could achieve on their own, they pay for this service by forgoing a part – albeit, an unknown part – of the discount payable on their sales of the retained discount, and by allowing Redwood to use the barrelage. The Tribunal considers that there has been a supply of services for consideration within the meaning of the VAT legislation, and that there is a direct link between the service provided and the consideration received. The consideration is the retained discount, by Redwood, for its services for combining barrelage and negotiating discounts for the publicans and is, therefore, subject to VAT. The appeal was therefore dismissed and the assessment confirmed.
Article 50 and Vat and duties legislation
As has been well reported, on 29 March the Prime Minister informed the EU of the UK’s intention to withdraw from the EU, and a white paper called the “Great Repeal Bill” has now been published. The white paper confirms that case law from the Court of Justice of the European Communities (CJEC) will continue to be regarded as relevant. Any issue in UK law that is derived from CJEC case law at the point that we leave the EU will be determinative and have the same precedent status as decisions made in the UK Supreme Court. A Customs bill will be introduced to deal with duties, and there will be a new Customs Declaration service. The white paper acknowledges the difficulties that will be faced in setting up a new duties regime.