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Supermarket Cash Voucher Machines Win VAT Exemption

Car SupermarketThousands of machines have in recent years appeared on supermarket premises which shoppers can use to change the contents of their piggy banks into redeemable vouchers. In an interesting case for the financial services industry, the company that operates them has convinced a tribunal that the service it provides is exempt from VAT.

Almost 2,000 of the machines have been installed in UK supermarkets since 2000. After counting change from customers’ money jars, and taking a 9.9 per cent commission, vouchers are printed that have to be used on the same day. The majority of them are swiftly redeemed in the supermarkets where the machines are located. Shoppers also have the option of using the machines to donate to charity.

For 15 years, HM Revenue and Customs (HMRC) accepted that VAT did not have to be charged on such transactions. However, HMRC subsequently had a change of heart, prompting an appeal by the company to the First-tier Tribunal (FTT).

HMRC argued that what the company’s customers were paying for was to have their coins sorted and counted in order to save the time that they would otherwise spend doing the task themselves and taking the coins to the bank. However, the company submitted that counting and sorting coins was ancillary to its customers’ primary objective of obtaining money in a more convenient and usable form.

In upholding the company’s arguments and allowing the appeal, the FTT found that the service provided by the machines was akin to buying travellers’ cheques or changing money into different denominations or currencies at a bank. The transactions were financial in nature and thus fell within items exempted from VAT by virtue of Group 5 of Schedule 9 of the VAT Act 1994.