If you have a business which sells goods and offers flexible payment, the decision in Littlewoods Limited v HMRC [2025] UKFTT 01602 (TC) is a must-read.
Littlewoods is well-known in the UK as a business which sells various domestic goods through its websites and offers flexible payment terms (sometimes interest-bearing, sometimes not). Since Littlewoods focuses on the “families on budget” segment, its customers would regularly take those payment terms. So much so that c21% of revenue was interest on loans in financial year 2015/16.
Let’s say Littlewoods procures photographs of an own-brand dress it intends to sell. Littlewoods sells thousands of such dresses. Shoppers often take flexible payment options and, as a result, Littlewoods earns significant revenue from interest (not only from sales of dresses).
If Littlewoods pays VAT on the modelling and studio fees, can it recover the input VAT in full? Does the photograph taken relate exclusively to the dress (VATable) or partly to the interest-bearing credit (VAT exempt)?
HMRC argued that since the photographs led to credit sales which led to interest income, the input VAT should be apportioned.
Fortunately for Littlewoods, the Tribunal allowed the taxpayer’s appeal. The input VAT incurred in procuring the photographs was directly and immediately linked to the taxable sale of goods. It was linked (but only indirectly) to interest revenue.
The Tribunal took webpage layout into account. While the photographs were shown near to marketing of flexible payment methods on the Littlewoods website pages, the photos themselves did not include such marketing. If the shopper clicked for more information on flexible payment, the photo would vanish. The photo provided the appearance of the product to the shopper – it didn’t itself provide any better understanding of credit terms and conditions.
We think this is a reasonable decision that will be welcomed by similar retailers.
Would you like to know more?
To discuss the VAT implications of your business retail activities – including your marketing, and flexible payment options for your customers – get in touch with Allon Greenstein or Luigi Lungarella, or send us an enquiry.
