NEXT HAS BEEN HIT with a multi-million pound tax bill after losing a battle with the taxman.
The case, heard at a VAT tribunal, found Next was unable claim VAT back on catalogues that were in effect being given to customers for free. Its bill is understood to equate to £1m a year from 2004.
Next had argued that its catalogues were effectively paid for by the customer. However, the judge ruled that as customers were credited for the cost of the catalogue on their first bill, it was essentially provided for free.
Next sent the brochures out at a cost of £3.75 to customers who requested one, plus long-term customers. The catalogue’s cost was added to the customer’s first bill, but the bill included a credit of roughly the same amount to the delivery charge. Customers who did not order any goods were not charged for the catalogue.
Next claimed that this was a marketing strategy designed to convince customers they were getting delivery charges for free. However, judge Colin Bishopp ruled that the brochure was, in fact, free as no customer paid for it.
The judge said that the “perceived VAT saving, important though it was, was not the primary objective” and the scheme would have taken place had there been no tax incentive.
A Next spokesman said it was considering appealing the decision.
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