TaxPersonal TaxE&Y helps set VAT precedent

E&Y helps set VAT precedent

Big Five firm Ernst & Young has helped an automotive finance house win a precedent-setting dispute with HM Customs & Excise over a VAT bad debt relief claim.

The dispute stemmed from a customer who defaulted on monthly repayments for a motor vehicle purchased under a high purchase agreement with the finance house.

Customs took the view that any apportionment of unpaid amounts must be attributed to the earliest supply made which it considered to be the delivery of the car, rather than the supply of credit.

This meant that a default on payment towards the end of the credit period would allow the finance house no relief from VAT payments as it would not include an ‘interest’ amount.

The finance house argued that attribution should be on a ‘straight line basis’ as each instalment payment was a mixture of interest and capital right up until the end of the repayment periods.

The matter was due to come before the VAT and Duties Tribunal from the 22-24 October, but Customs decided to withdraw its appeal and allow E&Y’s client its tax claim for all defaulted payments, and indicated that it had changed its policy on the administration of bad debt relief claims.

In the future the ‘straight line’ method of apportioning unpaid amounts to capital and interest would be used.

E&Y tax adviser Peter Jenkins said the outcome of the case could potentially benefit other companies that provide higher purchase credit, allowing them to make claims going back three years, and to apply the ‘straight line’ method of allocation for the future.

The finance house said it was a ‘victory for common sense’, adding that Customs had adopted a ‘narrow view’ that was contrary to EU VAT law.

Customs is due to publish a Business Brief on the changes to VAT bad debt relief in the near future.

Links

Customs’ VAT page

Related Articles

Inheritance tax is 'unfit for modern society' and should be abolished, says think tank

Personal Tax Inheritance tax is 'unfit for modern society' and should be abolished, says think tank

3w Alia Shoaib, Reporter
Rent-a-room relief – the survey says…

Personal Tax Rent-a-room relief – the survey says…

2m Helen Thornley, ATT Technical Officer
What should the OTS prioritise in its review of inheritance tax?

Personal Tax What should the OTS prioritise in its review of inheritance tax?

4m Alia Shoaib, Reporter
LITRG urges government to consider tax changes in disability work plan

Administration LITRG urges government to consider tax changes in disability work plan

5m Lucy Skoulding, Reporter
HMRC appeal rejected in Tottenham Hotspur case

Administration HMRC appeal rejected in Tottenham Hotspur case

6m Emma Smith, Managing Editor
HMRC urged to clarify impact of income allowances on Self-Assessments

Personal Tax HMRC urged to clarify impact of income allowances on Self-Assessments

7m Alia Shoaib, Reporter
New trading allowance: simplicity, but not as we know it

Administration New trading allowance: simplicity, but not as we know it

7m Emma Rawson, ATT Technical Officer
Wealthy individuals could circumvent top tax rate rises

Personal Tax Wealthy individuals could circumvent top tax rate rises

9m Alia Shoaib, Reporter