BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
 You are in: Programmes: Working Lunch  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
Working Lunch Wednesday, 4 June, 2003, 16:55 GMT 17:55 UK
Credit card clampdown
A tax tribunal has opened up a can of worms over the handling charge on credit card payments by large retailers.

In a test case, an independent tax tribunal has given its support to Customs & Excise to close an alleged avoidance scheme worth up to 200 million a year.

Handling charge

The loophole is over the 2.5% handling charge that many High Street retailers automatically include in the bill.

The charge does not make your purchase more expensive for payments with a credit card.

The price is exactly the same as it would be for cash or cheque purchase.

Exempt

But the VAT would only be paid on 97.5% of the price of the goods.

The 2.5% would be exempt from tax because financial services do not attract VAT.

This 2.5% is paid to the retailers' own subsidiary companies for "handling".

Avoidance

HM Customs and Excise say this is tax avoidance.

'There is no financial service involved at all,' says Chris Talby from Customs.

"No financial service at all." say Customs & Excise
"It was set up deliberately to slice off a percentage of the payment made and treat that as a financial service which is exempt from VAT.

"The tribunal found that this was not correct and supported our view that this was a tax avoidance scheme."

Approximately 50 retailers practice these measures.

Customs maintain that this in turn gives the bigger retailers a competitive advantage over their smaller rivals.

Imbalance

The measures have been in practice for around two years, and were introduced, argue retailers, to redress an imbalance.

"What we're trying to do here is to get the VAT that the retailer pays more closely in line with the money they receive once it's gone through the financial transaction route." says Patrick Walker from PricewaterhouseCoopers.

Patrick has worked with many retailers on the measures and is resolutely opposed to the decision taken by the tribunal.

"The retailer, under the current arrangements, as defended by Customs, will be paying more VAT on a greater amount of cash than they actually receive. We don't think this is fair"

Retailers paying too much VAT: tax expert

The handling charge for the credit card payment could be anything between 1% and 2.5% according to Patrick, and is perfectly legitimate.

And while it's commercially unworkable to have two different prices, one for cash and one for credit card payments, the retailers maintain that they should not lose out for providing a credit card service.

An appeal by retailers is likely and a final decision might not come for another two or three years.

Home
View latest show
About us
Consuming Issues
Rob on the road
Lunch Lessons
Guides & factsheets
Story archive
Names, numbers & links
Contact us

Watch us on BBC Two
Monday, Tuesday, Thursday 12:30pm
Wednesday 1:30pm
Friday 12pm

RELATED LINKS
Internet links:


The BBC is not responsible for the content of external internet sites


 E-mail this story to a friend

Links to more Working Lunch stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes