VAT Associate Director Grant Thornton
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VAT: Dine in with free-ish wine

15th Jun 2018
VAT Associate Director Grant Thornton
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Marks and Spencers food hall entrance in Friar Street
istock_Roger Utting Photography

Daniel Rice takes a closer look at those free wine deals which are offered by certain supermarkets when the customer buys a main course, side dish, and dessert.  

They say there’s no such thing as a free lunch, but is there such a thing as a free drink?

If I make a colleague a cup of coffee and give it to them, it’s clearly a free drink. I’d be unlikely to get away with charging them for it, and I’d definitely not be charging VAT on the coffee. If I buy myself a new car, and the showroom gives me a complimentary frothy cappuccino while I wait to collect it, I’m pretty sure nobody is accounting for any VAT on the drink.

But if I buy a sandwich-snack-smoothie lunch deal combination from a supermarket, you can be sure VAT will be accounted for at the appropriate rate on each of the items purchased.

So what made Marks & Spencer (M&S) think that they don’t need to account for VAT on the wine in its 'dine in two for £10' offer? And so began another VAT tribunal (case TC06471).

VAT on promotional offers

There have been plenty of case law in the past in relation to the VAT complexities arising from promotional offers. This latest case has arisen partly due to the unusual and specific facts of the case, but also because there was sufficient VAT at stake (over £11m) to make it a worthwhile argument for M&S to take on.

Key issues

There were four key issues argued in the first-tier tribunal:

  1. The correct VAT treatment of the wine element of the promotion
  2. The effect of the bespoke retail scheme agreement entered into between M&S and HMRC.
  3. The effect of the deemed supply rules.
  4. The recovery of input tax by M&S on wine purchased by it and disposed of under the promotion

For a detailed summary of any of these issues, it’s worth reading the full case – it’s mostly too technical/dull to repeat here. Issue number one turned out to be the key to the decision.

Tribunal decision

In essence, the tribunal shot down the arguments put forward by M&S, which were:

  • well-worded promotional material, which referred adamantly to the “free wine” available when purchasing the “dine in two for £10” offer; and
  • no refund at all would be given if a customer sought to return just the wine

The FTT concluded that the economic reality remained that a customer is paying £10 and receives four items in return:  a main course, a side dish, a dessert, and a bottle of wine.

When viewed in this context, it’s very difficult to see an argument for not accounting for VAT at the standard rate on the wine element.


If the offer had been called “drink and dine for £9.99”, perhaps this argument never would have arisen – but “dine in two for £10” meant there was just enough uncertainty for the case to be argued all the way to the tribunal. 

Given the amount of VAT at stake, I wouldn’t be at all surprised if an appeal to the Upper Tribunal comes next.


Replies (3)

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By alan.rolfe
18th Jun 2018 08:54

M&S seem to lose all their VAT cases. Are they being poorly advised?

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By rememberscarborough
18th Jun 2018 13:13

Easy one for M&S to win - just make all wine free....

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By Justin Bryant
28th Jun 2019 14:53

They lost the appeal I see:

Disappointing as I used to always buy this £10 free wine offer.

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