Tax tribunal rejects HMRC claims that the double-glazing specialist’s cashback offer is an attempt to sell loans
Double-glazing specialist Everest’s results will be warmed up by a £3m tax boost this year after the firm won a tax tribunal case over cashback offers it makes to customers on home improvements.
Everest had challenged demands from HM Revenue & Customs for £1.9m in unpaid VAT after the taxman claimed the offer was not really cash back but an inducement to take out a loan. The case covers a period from 2003 to 2006 but Everest has continued to use the cashback model. The company’s most recent accounts contain a provision of £2.9m for VAT.
The case revolved around a 10% rebate offer Everest made to customers if they took out a loan from Clydesdale Bank to finance windows or other home improvements, and kept the loan account open for at least six months. The 10% cashback related to the value of the loan rather than the windows.
Under tax rules, cashback reduces the value of the item sold and therefore the liability to VAT. The taxman tried to argue, unsuccessfully, that this offer was simply an attempt to get people to take out a loan and, being unrelated to the original purchase, could not be used to reduce the tax bill. The loan is exempt from VAT.
Everest devised its cashback scheme in 2000, said the judgment, issued earlier this month. Customers using the scheme tend to spend up to twice as much on home improvements as those who pay in cash, the double-glazing specialist told the tribunal. The case documents revealed that the cashback scheme underpins £60m of the company’s turnover.
VAT specialists said the case would be studied closely by other companies that operate cashback schemes.
Paddy Behan, of Behan & Co, said: “If Everest had not been as careful in devising their paperwork they might have lost this case. Others would do well to read the case and check their marketing against it.”
As well as ruling in Everest’s favour, the tribunal turned down a request from HMRC to refer the case to the European court of justice.
Everest’s most recent accounts, to 31 October 2009, showed a pre-tax profit of £6.5m on turnover of £165m. The company is owned jointly by private equity group Hutton Collins, entrepreneur Brian Kennedy and its management.
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