Debenhams has lost its bid to overturn a court decision that it must pay VAT on the 2.5% credit card handling charge it includes in its prices.
In a long-running battle with HMRC, Debenhams has argued that it should only account for VAT on 97.5% of the price of goods paid by customers, because this includes a 2.5% handling fee - effectively a banking charge, which is exempt from VAT under European law. HMRC has argued that VAT is payable on 100% of the amount received from customers.
After appealing to a VAT tribunal and losing, Debenhams appealed to the High Court against HMRC's position and won. However, in July the Court of Appeal quashed the High Court's decision, and ruled that Debenhams must account for VAT on the total 'ticket price' of goods, because this was the same whether customers paid by cash or by card. The appeal judges also commented that Debenhams' credit card handing fee was introduced "in order to produce a position whereby less VAT is paid than was paid previously and for no other reason".
Following a hearing last week, the Law Lords have now refused Debenhams permission to appeal to the House of Lords against the July ruling.
The case could have massive implications for other high street shops operating a similar handling charge scheme.
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