Briefing - VAT - High Court supports retail VAT schemes - HMCE appeals.

(From Financial Director)

A recent High Court judgment came down in support of retailers' VAT avoidance schemes, in which customers sign away 2.5% of the purchase price to a card services company. But what's the position in the emerging chip & PIN environment?

A few years ago, accountancy firms started selling a VAT reduction scheme to their retail industry clients. The amount of money saved appeared to be small - just 37p for every GBP100 of turnover - but this adds up to millions of pounds for each of the scores of retailers that have adopted the scheme.

Customs & Excise launched a legal challenge and were successful before the VAT tribunal. But earlier this year, the High Court overturned the decision and allowed so-called 'PITA plans'. This is how the scheme typically works:

- When a retailers' customers pay by credit or debit card and sign their receipt, small print at the bottom says that 2.5% of the value of the transaction is paid by the customer to a named card services subsidiary of the retailer.

- The fine print makes clear that the total purchase price is not affected, regardless how the customer pays.

- The 2.5% fee paid to the card services company is not vatable.