UK High Street Retailers Caught Up In VAT Row

by Caroline Maxwell, Tax-News.com, London

15 February 2002

The UK Customs and Excise department revealed on Wednesday that it is heading for a 'big punch-up' with some of the nation's leading retailers.

The dispute with companies such as Tesco, Sainsbury's, Dixons, Currys, and PC World has arisen over credit and debit card handling fees, which the retailers claim are exempt from VAT.

Last year, many large high street chains introduced a scheme whereby customers paying for goods with a credit or debit card are charged a fee, which is then cancelled out by a discount of the same amount, leaving the total price unchanged. The companies claim that the fee is exempt from VAT, and have thus withheld it, but the Customs department has questioned the validity of this procedure.

According to reports, one major retailer has already been presented with a tax assessment indicating the amount of VAT which Customs and Excise considers has been underpaid, and has disputed the figures. The resultant VAT tribunal, which is expected later this year, will decide upon the issue, but could mean that the Government can claim back millions of pounds if the verdict goes in their favour.

Explaining the reasoning behind Customs' decision to pursue the case, a department spokesman observed that: 'The artificiality of the scheme is demonstrated by the fact that customers who pay cash are not given a discount.'

However, a spokeswoman for the Dixons Store Group, which also owns Currys and PC World said on Wednesday that the card handling scheme was a legitimate business practice which 'helps keep our prices low'.

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