M&S to fight Customs over VAT

Backed by paymaster general Dawn Primarolo, Customs intends the effort to block an avoidance scheme promoted by accountancy firms which imposes a ‘VAT exempt handling fee’ on credit card transactions.

But M&S said this week that it was ‘confident’ of being right and accused Customs of using ’emotive’ language about the issue.

Its complaint concerns a decision by many high street retailers to include a ‘handling fee’ of around 2% on a credit card transactions. The fee is considered a financial service and as a result assumed to be VAT exempt by retailers, including M&S.

Customs says it is not a real fee because cash paying customers receive no discount.

Ray Gale, taxation manager at M&S, said: ‘The term VAT avoidance is an emotive term. They see this as a loss of revenue but we see it as revenue they are not entitled to because there is a commercial reality underlying the structure we have adopted.’

He said handling fees simply recognised that customers benefited from credit cards while retailers bore the cost.

‘All retailers are doing is making transparent the price charging mechanism,’ said Gale.

The crackdown is expected to hit a number of large retailers advised by accountancy firms.

A spokesman for Debenhams said the store was confident charging a VAT exempt fee was right.

PricewaterhouseCoopers said it had advised clients to use the ‘handling fee’ arrangement because it believed it was ‘within the existing legal framework’.

A PwC spokesman said: ‘If Customs wish to challenge the legality of such arrangements, we would suggest the place to do this is in the courts, not in the press.’


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