VATSC06650 | Consideration: Change in Consideration: Manufacturer refunds

Elida Gibbs (C-317/94) and Commission v Germany (C-427/98) were framed in terms of promotional reimbursements where the customer was encouraged to purchase the goods by use of a money-off coupon at the point of sale or the promise of a later reimbursement of some of the retail purchase price. HMRC did not see these cases as covering payments by manufacturers to consumers for damaged or faulty goods; we continued to see that as compensation and outside the scope of VAT.

Following representations and a consultation HMRC accepted that the application of the ECJ judgements was wider than we had originally thought. It also extended to cover any cash repayment made by “a taxable person who, having no contractual relationship with the final consumer but being the first link in a chain of transactions which ends with the final consumer” (Elida para 31).

With effect from 1 April 2014 the VAT Regulations (SI 1995/2518) Regulation 38ZA modifies Regulation 38 to include “manufacturer refunds”. VAT Information Sheet 03/14 was issued as initial guidance on the application of Regulation 38ZA.