TC09596 - [2025] UKFTT 00895 (TC)

The issue in the appeal in Aimia was whether Loyalty Management was entitled to deduct, as input tax, the VAT element of the payments which it made to redeemers. Briefly, the case involved the operation of the Nectar card scheme and the entitlement to input tax on reward goods. The scheme works by giving reward points to customers who purchase goods from particular retailers. The points can then be used to obtain further goods or services from certain, specified, third-party suppliers. Aimia paid the suppliers for these goods and services and reclaimed the associated input tax. The input tax claim was refused on the basis that the goods were supplied to the individual customers, and not to Aimia. At [38], the Supreme Court in noted that caselaw of the CJEU indicates that, when determining the relevant supply in which a taxable person engages:

“…regard must be had to all the circumstances in which the transaction or combination of transactions takes place.”

At [73], the Supreme Court said this:

“73.

As the Court of Justice has explained many times, VAT is chargeable on each transaction in the production and distribution process only after deduction of the amount of VAT borne directly by the costs of the various price components. The court has consistently stressed that the deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities, and that the VAT system consequently ensures complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are subject in principle to VAT (see for example the statement of the Grand Chamber to that effect in Halifax plc & Others v Customs and Excise Commissioners (Case C-255/02) [2006] Ch 387 para 78).”

Lord Walker explained, at [114] and [115], that in cases where a scheme operates through a construct of contractual relationships, it is necessary to look at the matter as a whole in order to determine its ‘economic reality’, as follows:

“114.

But in developed economies wholly linear series of transactions are relatively unusual. Increasingly, businesses are organised so as to rely on subcontracting and outsourcing. Consumers are increasingly encouraged to obtain packages of goods and services put together by entrepreneurs. Many marketing schemes (such as that run by LMUK during the period now under consideration) operate through a construct of contractual relationships of some sophistication. It is a construct that is more like a web than a chain.

115.

In cases of that sort it is still necessary, in determining the proper amounts of output tax and input tax, to look separately at different parts of the web of transactions. But in determining the economic reality it is also necessary to look at the matter as a whole. This Court was not shown any authority establishing that a payment by A to B cannot be both consideration for a service supplied to A by B, and (as third-party consideration) an element of the consideration paid for a supply by B to C (in this case, the collector, who is usually, but not always, also the final consumer).”