 Who gets the VAT back?
In VAT, it is not always the case that the person who pays the bill is entitled to recover the VAT on it. In order to recover the VAT, the taxpayer has to show that, firstly, it was the recipient of the VAT supply to which the invoice relates, and, secondly, that the VAT supply was for the purposes of its VATable business. Merely paying a bill for another person does not permit the payer to claim back the VAT.
These rules, however, are potentially subject to change as the House of Lords has referred the case about the VAT treatment of the Nectar cards to the European Court of Justice. The case will be an important one as it will answer the question of whether loyalty schemes can be run VAT efficiently. In particular, it will answer the question whether the VAT on the “free gifts” can be recovered by the businesses concerned or is an irrecoverable cost of running the scheme. But it will probably also determine more generally who (if anyone) can recover VAT on supplies made to or paid by other persons.
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