Supply of goods or services - taxpayer issuing vouchers to members of loyalty scheme on basis of points awarded for purchase of goods - no consideration given by scheme member for vouchers

Tesco plc v Customs and Excise Commissioners: CA (Lords Justice Schiemann, Latham and Jonathan Parker): 14 October 2002

The taxpayer operated a 'Clubcard' scheme, awarding points to customers joining the scheme when they purchased certain 'premium' goods from its supermarkets.

At the end of each quarter the points were converted to vouchers which the customer could redeem on payment for goods (the redemption goods).

There were also three 'third party' schemes.

Under the first, a retailer would agree with the taxpayer to award Clubcard points to its customers to be converted to vouchers in the same way as points earned for purchases from the taxpayer, the retailer paying the taxpayer the amount of the discount given to the customer on the purchase of redemption goods, plus an administration charge.

Under the second, suppliers of goods to the taxpayer would agree to award extra Clubcard points during a particular period or in respect of the supplier's products.

The taxpayer also issued a credit card which could be used as a Clubcard.

The VAT and duties tribunal held that the taxable amount of the goods in respect of which points were awarded was the full retail price.

Mr Justice Ferris [2002] EWHC 2131 (Ch); [2002] STC 1332, upheld that decision.

The taxpayer appealed.

Roderick Cordara QC and Paul Key (instructed by Dario Garcia) for the taxpayer; Christopher Vajda QC and Tim Ward (instructed by the Solicitor, Customs and Excise) for the commissioners.

Held, dismissing the appeal, that it had to be determined objectively, without regard to whether the customer thought he was paying for the voucher, and having regard to the scheme's economic purpose, whether vouchers issued under it fell within paragraph 5 of schedule 6 to the Value Added Tax Act 1994; that paragraph 5 only took effect where there was a grant, for a consideration, of a right to receive goods or services for an amount stated on a token, stamp or voucher on which the quantification of the right appeared; that under the basic scheme it was impossible to say that there was monetary consideration for the issue of a voucher when a member purchased premium goods; that even if the member paid for something else in addition to the premium goods, that something else could only be the points which he 'earned' on purchase of the premium goods and he could not be taken to have paid for a voucher or vouchers; and that the same applied to third parties who never received a voucher, but merely reimbursed the taxpayer in respect of its cost of the points in question.