In their judgement the Court confirmed that M&S should have added VAT to their meal deal that promoted food plus a free bottle of wine for £10.
Marks & Spencer changed their “Dine for £10” offer to include food and a free bottle of wine. They asserted that the supply of the food element was zero rated for VAT purposes and as the wine was included for no consideration then no VAT should charged.
HMRC disagreed and issued an assessment for £12m.
The case was taken on appeal to the First Tier Tribunal where judgement found in favour of HMRC. In their summing up the judges found that the wine was not supplied free as M&S contended but was offered conditionally. Customers could only obtain it by paying £10 and taking the food items. Effectively this meant is was supplied for consideration.
Although customers could choose not to take the wine and the price for the food would still be £10, the court decided that this did not mean that the wine was free. They concluded that the term ‘free’ was being used in a marketing sense, in the same way as ‘buy one get one free’.
Even if there was no supply of wine for a monetary consideration, the FTT concluded there would still be a deemed supply for VAT as it was a transfer out of business stock.
Readers with restaurant clients should take note of this case if they offer potentially “free” standard rated items on their menus and are not apportioning value to the supply for VAT purposes. Food for thought.
This case is to be reported in our printed newsletter for subscribers next month.