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Sales by reps cannot be used to recover input tax
VAT incurred by representatives of businesses involved in direct selling through independent individuals cannot be offset against the tax on sales to end customers, HMRC have reiterated
The department has issued Revenue & Customs Brief 19/14 in response to the First-tier Tribunal (FTT) decision in Avon Cosmetics Ltd (TC3311). The case had been referred the case to the Court of Justice of the European Union on the matter of the UK’s party-plan derogation, which ensures VAT is declared on retail sales made through non-VAT-registered taxpayers.
Avon sells samples and demonstration items to reps, who then sell products to customers, paying VAT on the supplies from the cosmetics firm – which the Revenue directed to account for VAT on sales by its reps at the items’ open market value, according to a UK derogation from the Sixth Directive, Article 11A(1)(a).
Avon asked the FTT to interpret UK legislation and the notice of direction, to allow recovery of the input tax incurred by representatives on samples on the basis they were costs of the supplies on which the cosmetics business was obliged to account for output tax.
The company also argued that the authorisation given by the EU council was unlawful because it put the firm at a competitive disadvantage compared to high street retailers.
“We remain of the view that the derogation has been applied correctly,” said HMRC. The tax authority will not appeal against the FTT’s decision.
