This is a re-issued version of Revenue & Customs Brief 67/07.
This Revenue & Customs Brief article explains the VAT treatment of rebates, credit notes and similar transactions relating to business promotions between suppliers and their customers.
Revenue & Customs Brief 08/07 explains the VAT treatment of manufacturers’ cash back payments. That brief covers payments that occur outside the direct supply chain. This brief explains the correct VAT treatment for supplier discounts, volume rebates and charges made by the customer when promoting the suppliers’ products.
The table below outlines the differing forms that these transactions take and their VAT treatment.
With effect from 1 January 2008, you are required to apply the correct VAT treatment as outlined. We do not wish to create any unnecessary business cash flow problems where there is little or no revenue at risk. Therefore, no retrospective action will be taken on transactions occurring before that date.
| Type | Principles | VAT position |
|---|---|---|
| Over-rider | % discount paid to the customer monthly/quarterly/annually Customer usually invoices manufacturer Pence per case rebate |
Follows liability of goods |
| Long-term retro | Pence per case rebate Customer invoices manufacturer Volumes expressed in cases |
Follows liability of goods |
| Business protection deals | One-off lump sum Usually paid annually Customer invoices manufacturer Protects the business with the customer |
Taxable |
| Third party rebate or end-user rebates | Rebate paid to customer for supplies to one of their customers
or paid to customer of manufacturers’ customer National account manager will often supply volumes/wholesaler reports Based on pence per case or percentage Customer invoices manufacturer |
See Revenue & Customs Brief 08/07 |
| Short-term retro | Pence per case either bought during the period or sold during
the period Given to customer either as multisave or price promotion Customer invoices manufacturer |
Follows liability of goods. |
| Price promotions | Off invoice discounts No action by customer |
Follows liability of goods. |
| Multisave | Based on triggers (EPOS systems) and redemption rate Includes BOGOF, three for price of two, two for £1.50 etc Customer invoices manufacturer on basis of volume sold |
Follows liability of goods. |
| Lump sums | One-off payment to secure best spot in store eg gondola ends
and ends of shelves Usually attached to a promotion (STR, PP, MSV) |
Taxable |
| Agreements and advertising allowances | Like business protection deals Applies in main to smaller outlets Customer invoices manufacturer |
Taxable |
| Consumer marketing | Often in-store Supplier invoices manufacturer |
Taxable |
EPOS - Electronic Point of Sale
BOGOF - Buy One Get One Free
Issued 12 January 2010
