Retailers lose VAT case relating to fraudulent transactions

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In a judgement that could have an impact on most retailers, Dixons Retail plc has lost its case before the European Court of Justice.

The Court has ruled that where a customer fraudulently uses a bank card to obtain goods from a retailer and the retailer receives payment of the price through the card system, there was a supply of goods for consideration. As a result the retailer is required to pay VAT on the supply.

Dixons argued that it had not made a supply of goods as the payment was not made for the goods and the monies received were likely to be compensation as opposed to payment.

The Court decided that a supply of goods had been made and that the payment received was consideration for a supply as there was a direct link. It was irrelevant that the goods were paid for fraudulently.

HMRC accepted that if someone pilfers an item of clothing from a shop, there is no supply for VAT purposes. Should someone steal an item of clothing by using someone else’s credit card however, there is deemed to be a supply.

If you are in the retail sector and you feel that you may not be accounting for VAT correctly on such supplies, please do not hesitate to contact us.

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