Debenhams Loses Credit Card Appeal

Government wins an appeal against a credit card scheme used by high street stores that could have cost the Treasury millions of pounds a year in lost VAT. The Treasury brought the case against Debenhams after the company began using a scheme where it asked customers using a credit or debit card to pay a card-handling fee, 2.5pc of the purchase price, to a subsidiary company, Debenhams Card Handling Services.

High Court judge Mr Justice Lindsay overturned the tribunal's decision in June last year. HM Customs appealed, and yesterday the Court of Appeal reinstated the decision on the grounds that Debenhams is responsible for paying VAT on 100pc of any money paid by a customer. Under the old scheme Debenhams only had to pay VAT on 97.5pc of the full price. An independent tax tribunal ruled against the scheme in 2003 when it was estimated that 70 retailers would use the scheme by 2004 at an annual cost of £300m to the taxman.