5.6.3 The UK rules and solutions

In the UK, the VAT consequences of each scheme are set out in a notice.1 Under the ‘money off scheme’, manufacturers can reduce their taxable amount by the full amount that is actually refunded. Under the ‘cash back scheme’, the manufacturers can reduce their taxable amount (by the full amount of the refund) as well, provided the manufacturer has charged and accounted for UK VAT on the original supply to the wholesaler or retailer.

The rules in the notice that apply to the ‘cash back scheme’ also provide for a rule under which VAT registered traders receiving a ‘cash back’ have to reduce the taxable value of their purchase and they must reduce their input tax accordingly. Strangely enough, this rule is not included for ‘money off’ schemes. This is also the case for cross-border (re)payments: they are covered in the notice in case of cash-backs (no adjustment in case the recipient is in another Member State (it does not say anything about recipients outside the EU)) but not for money off schemes.

The notice addresses the issue regarding allocation of the payments/reductions to turnovers that are taxed at different rates (albeit only the zero rate or exemption with credit versus the other rates) but does not specify how this should be done in situations where allocation to specific transactions is not possible from a practical point of view.

The ‘gross-net-issue’ is touched upon in this notice from the perspective of the entity paying the refund (cross border funding does not lead to a decrease of the taxable amount) but not solved.