VAT treatment of refunds made by manufacturers
HMRC have published a summary of responses together with draft secondary legislation following the closure of a consultation on the VAT treatment of refunds made by manufacturers. The publication of the consultation followed the Government’s announcement as part of the 2013 Budget measures to introduce legislation that will allow manufacturers to adjust their VAT to take account of refunds they make to final consumers.
The term ‘refund’ refers to a payment made by a manufacturer directly (or via a third party) to the customer of a retailer. These payments may be made for a number of reasons such as faulty products, damaged products or customer dissatisfaction.
Previously, HMRC had rejected claims from manufacturers on the basis that the manufacturer had no direct relationship with the final customer and that any payments were compensatory payments free of VAT. However, complaints were made to the European Commission on the UK’s treatment of these refund claims.
The new legislation is expected to be introduced on 1 April 2014 and should ensure that UK law expressly accords with EU law on this issue.