Avon Vat Case in The UK – Direct Selling Companies

The recent judgement by the European courts to uphold HMRC’s position on the Directive issued to Avon all those years ago will have come as major disappointment to all Direct Selling companies in the UK.

Pan European

By Allan Bell – Director at PAN European Solutions.

The argument that HMRC has relied on is now upheld in the court. Still, there are many Direct selling organisations, which have not received the Notice of Direction and can, quite properly, pay output tax on the wholesale price. This, again, creates an unfairness and a competitive advantage to those companies, which pay the lower level of tax. That HMRC may ultimately catch up with those companies and issue the Notice of Direction does not seem to us to correct this injustice. At least it can’t be back dated.

It has been suggested that sellers can obviate some of the tax lost, because of their inability to reclaim tax on their costs, by registering for Vat themselves, but we know that this is not practical for most, because of the increased administration this causes to the smallest of businesses.

A further complication to the situation is “own use” whereby DSO’s can reduce their marginal rate of tax to reflect the fact that some of the sales of product are not ultimately sold on, or, if they are, the direct sellers gives a discount against RRP. As tax advisors, we like this, as it creates opportunities for us to generate consultancy work, saving our clients tax, but we feel that an opportunity to simplify the complex tax regime in the UK has been lost.

To conclude, we must face the fact that the argument we have made for the last forty years or so has been lost. The industry, which we support and believe in, will always be disadvantaged by these rules, and the unfairness of the system is perpetuated.

We will always be available to advise on other ways to minimise the VAT effect on affected companies.