Commenting on announcements in the Budget that HM Revenue & Customs has now legislated to change the treatment of goodwill payments, Gary Harley, indirect tax partner at KPMG, said:
“We are delighted that HMRC has now legislated to change the treatment of goodwill payments by manufacturers to final customers, which means these businesses can now accelerate related VAT refunds. Following our representations to the EU Commission, on behalf of a number of white goods manufacturers, the government has announced that legislation will be introduced next year to permit manufacturers to make VAT adjustments when “goodwill” type payments are made directly to end customers.
“Typically, manufacturers make “goodwill” payments following complaints that goods produced by the manufacturer are faulty or damaged. Previously, HMRC had not permitted manufacturers to reduce the VAT they had paid on the original sale to a retailer or distributor when a later “goodwill” payment was made to individuals further down the transaction chain. HMRC’s original view was that, as the manufacturer had no contract with the end customer (and therefore had no legal obligation to make a payment along these lines), the payments should be treated as VAT free compensation.”
Harley went on to say:
“The Budget announcement confirmed that the relevant part of UK VAT law (Regulation 38 of the VAT Regulations) will be amended in 2014 following a consultation process aimed at identifying the precise circumstances under which manufacturer goodwill payments take place. This is great news for UK business: manufacturers should now review the extent to which the changes affect them and start compiling the necessary information so they can submit claims now and accelerate VAT refunds.”
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About KPMG:
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
