Readers’ forum: Is VAT due on customer incentive discount?

One of my clients trades as a high-end florist and is registered for VAT.

If an existing customer recommends her business to their friends colleagues and relatives and the new customer makes the contact known at the time and they place their first order with my client then she will give the existing customer £20 off their next order of flowers for each new introduction. By way of example if the original order was £150 then: £150 order – less three successful leads (which means a £60 discount) = £90 sale including VAT ie output tax is £15.

The above arrangement seems straightforward for VAT purposes but a colleague tells me that the £60 is not a discount but a non-monetary consideration from the existing customer ie output tax is £25 on the deal for my client based on £150 x 1/6.

What...