Leslie Allen & Waqar Shah
Tax Journal
27 April 2015

VAT focus, Kumon: credit notes and contingent discounts

The First-tier Tribunal in Kumon Educational UK Company Ltd decided that a reward payment made by Kumon to its franchisee/instructor should be treated as a contingent discount; and as such was deductible from income for VAT purposes. The FTT took a commercial approach and did not artificially dissect the supplies. The FTT also stressed the importance of substance over form when considering the VAT treatment of payment for services. The decision is of interest to those clients that rely on ‘contingent discounts’ as part of their business as this could mean a significant VAT saving.

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