Court ruling on VAT decision affects retailers’ interest free offerings

Dixons Carphone plc, which recently brought a VAT case to the First-tier Tribunal regarding the sale of goods on interest free terms, has had its case dismissed by the Courts. Retailers have been following this case with interest, and the decision may require businesses in the industry offering similar finance options to review their current arrangements to ensure they are protecting their position. 

The Case

Dixons Carphone Plc (DSG) offers customers the opportunity to purchase goods using interest free credit/buy now pay later deals. The court papers reveal that the purchase is funded in part by a loan provided by a third-party credit provider. DSG only received part of the loaned amount from the credit provider, the difference between the amount that was loaned, and the amount paid to DSG was referred to as “the subsidy”. 

DSG argued that the subsidy represented a discount on the value of the goods sold and so only accounted for VAT on the amount received from the credit provider, not the price at which the goods were offered to the customer.

For example, a tablet costs £1,200 (£1,000 plus VAT) but if the customer accepts an interest free credit option, DSG provided a subsidy of £120 to the credit provider. DSG argued that it should only account for VAT on the amount received from the credit provider, in this case £1,080.

The tribunal decided that DSG was not correct, and the VAT due was based on the price at which the goods were offered for sale to the customer. 

Who’s affected and what does this mean for retailers? 

Retailers that offer/or are considering offering high-value items to consumers on interest free credit terms will be affected by this case. It may allow such businesses to realise a saving (or remain competitive with retailers that will be considering this matter) should a future decision be found in DSG’s favour.

How can we help?

If you are in a position where you are considering similar offers, we can assess whether it is feasible to amend the current arrangements so that you can benefit from a decision in DSG’s favour and therefore realise a VAT saving. 

This decision also acts as a catalyst to review your customer incentives more generally; we have experience across a range of sectors of developing and implementing VAT efficient incentive options, which we can use to review and develop your current offering.

If you would like to discuss with a member of our specialist VAT team, or have any queries on this please contact Phil Munn, Jane Bennion or your usual VAT contact.