Many marketing and promotional campaigns offer ‘free’ goods to customers. A tax tribunal’s decision has, however, established the truth of the popular saying that there is no such thing as a free lunch, or for that matter a free bottle of wine.
The case concerned a high street retailer’s offer of three food dishes for £10, with the bonus of a ‘free’ bottle of wine. The food items were zero-rated for VAT, but the wine, if not provided free, would be subject to VAT at 20 per cent. HM Revenue and Customs (HMRC) took the view that the food and wine were sold as a single package and that about 70p in VAT was thus payable on each £10 sale.
In challenging that decision, the retailer argued that the aggregate shelf price of the three food items included in the deal was always more than £10 and that it followed that the wine had to be considered ‘free’. That argument was, however, rejected by the First-tier Tribunal, which found that, as a matter of commercial common sense, the wine could only be described as ‘free’ in the marketing sense, as in ‘buy two, get one free’.
In rejecting the retailer’s challenge to that ruling, the Upper Tribunal (UT) noted that the wine was usually the single most costly item in the deal and that, if a customer simply walked into one of the retailer’s stores and asked for a free bottle of wine, he would be given short shrift. In contractual terms, customers made an offer to buy the food and wine at the till for £10, and that offer was accepted by the retailer when it took payment of £10 for all four items.
