Money for nothing?
People who sell over the internet may think that tax and VAT are very old-fashioned ideas – or may simply not have worked out how they apply. Not surprisingly, HMRC still wants a piece of the action.
A website offered goods at discounted prices. Customers subscribed for a ‘Redsave pass’ which was free for the first purchase, but then cost £19.95 a month until cancelled. It seems that many customers didn’t realise that they were paying for it, because the company received a great deal of money in months when no goods were purchased. It didn’t account for VAT on these receipts, claiming that it hadn’t supplied anything.
The Tribunal confirmed that the ‘right to a discount’ was something that the customer had bought, even if it wasn’t used, and that was VATable. The back tax owing was about £1m.
If you are selling over the internet, make sure you have thought through what taxes you need to account for – and if you are buying, make sure you read the small print!