Debenhams Wins Appeal Over VAT Ruling

by Robin Pilgrim, LawAndTax-News.com, London

01 July 2004

A High Court ruling delivered on Tuesday has found in favour of UK department store chain Debenhams, overturning an earlier tax tribunal ruling which stated that the retailer was seeking to avoid paying its full value added tax liability.

Debenhams was one of the first retailers in the United Kingdom to introduce a system which split payments from customers using credit or debit cards between the money for the goods and a 2.5% card-handling fee. Other large retail groups, such as Tesco, Marks and Spencer, Boots, WH Smith and J. Sainsbury all have similar schemes in place.

The Treasury has suggested that this represents an attempt to avoid paying VAT on the full price, but Debenhams argues that the revenues from card-handling services should be exempt from VAT because they are financial services, and therefore exempt under European law.

With some £300 million in revenue at stake, the Treasury has announced its intention to immediately appeal the ruling, and to lobby other EU states in order to amend EU VAT law.

"We will appeal this decision to the Court of Appeal and we will work immediately with other member states to amend EC VAT law to put this matter beyond doubt," economic secretary to the Treasury, John Healey explained on Tuesday.

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