Loyalty Management Group (LMG), the company which operates the Nectar loyalty points scheme, has won a landmark judgment against HM Revenue and Customs (HMRC) in a VAT case at the Court of Appeal.

The Court of Appeal upheld a court decision that businesses offering reward goods to customers in exchange for redeemed Nectar points were making supplies of services to LMG for VAT purposes. LMG had, therefore, incurred VAT input tax on the supplies, and could recover it – the point contested by HMRC.

Daniel Lyons, Deloitte indirect tax partner, said a defeat for LMG could have threatened the existence of Nectar and other loyalty schemes.

“Given the frequency of these arrangements in the retail sector, the amounts of VAT in question are potentially very large indeed,” he said.

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