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VAT refund changes come into effect for manufacturers

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VAT Information Sheet 3/2014 explains changes introduced with effect from 1 April 2014, following consultation, to allow manufacturers – including importers who start the supply chain in the UK – to adjust their VAT accounts where they provide certain refunds directly to final consumers that have purchased goods from a final supplier, usually a retailer.

The CJEU in Elida Gibbs (C-317/94) held that a manufacturer was entitled to adjust its VAT to take account of reimbursements paid directly to final consumers under a promotion scheme. Elida Gibbs did not concern manufacturers providing refunds to dissatisfied consumers, and HMRC previously saw these as compensation payments which are outside the scope of VAT. HMRC now accepts that refund payments of this type can in some cases represent reductions in the consideration received by the manufacturer. The new reg 38ZA (of SI 2014/548) therefore expressly provides for adjustments in both Elida Gibbs reimbursement and dissatisfied customer refund scenarios.

This new information sheet replaces Revenue and Customs Brief 78/09, which set out HMRC’s previous view of the application of Elida Gibbs. The information sheet does not prescribe the records that a manufacturer should maintain for the purposes of the new regulation, but explains that they should be sufficient to enable HMRC to verify that the VAT credit has been correctly claimed; for example, correspondence between the manufacturer and the final consumer before the refund is agreed would be a record to keep.

Manufacturers may be entitled to seek recovery of VAT not already adjusted in past periods subject to the normal capping rules – four years from the end of the VAT accounting period in which the refund was made.

Issue: 1212
Categories: News , Indirect taxes , VAT