[2010] UKFTT 95 (TC)

TC00406
VAT – consideration – value of consideration when not entirely made up of cash – appeal dismissed

FIRST-TIER TRIBUNAL
TAX

 	
					MR. GRENVILLE DUNCAN	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Lady Mitting (Judge)
		J D Kippest (Member)
			
Sitting in public in Birmingham on 17 December 2009

The Appellant appeared in person

Mr. Richard Mansell, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2010
DECISION

1.	We had some initial difficulty establishing whether or not there was an appealable issue before the tribunal.  Mr. Duncan carries on a business selling used motor vehicles and a dispute had arisen between Mr. Duncan and the Commissioners over his operation of the margin scheme and more specifically on his record keeping.  Correspondence had been exchanged; there had been telephone calls and there had been visits but an impasse had been reached which culminated in the Commissioenrs issuing a letter to Mr. Duncan on 20 March 2009 advising him that he had to bring his records and method of accounting for VAT into the prescribed manner, failing which an assessment for under-declared tax would be raised.  For reasons which we explain below, Mr. Duncan was unwilling to alter his method of record keeping and brought the matter to the tribunal.  On analysis, it was apparent that at the core of the dispute was the value which Mr. Duncan attributed to the consideration on a sale when he took in a part exchange vehicle.  This had a direct effect on the selling price upon which he based his output tax calculations.  As this is an appealable matter, it was agreed by both parties that the tribunal should confine its deliberations to the single issue of the value of the consideration when payment was made part in cash and partly by way of a part exchange vehicle.
2.	Mr. Duncan’s method of accounting on such a sale is to treat the selling price at the point of the sale as only the cash element received.  The sales invoice issued to the customer states the cash received from the customer and it also details the part exchange vehicle but attributes no value to it on the invoice.  The selling price of the vehicle entered in the stock book is again only the cash element and the output tax due on this sale is calculated, whether in full or on the margin, by reference only to the cash received.  There is therefore at the time of the supply an under-declaration.  However when the part exchange is eventually sold, Mr. Duncan pays the output tax on the full selling price.  The sale of the part exchange vehicle may well take place in the same VAT quarter as the first sale and there would then be no loss to the Revenue but, on occasion, the second sale could fall in a subsequent quarter which would give rise to an underdeclaration in the first quarter, made good in the subsequent one.
3.	It was Mr. Duncan’s case that he never attributed a value to the part exchange when he took it in.  He merely negotiated the best deal which he could to secure the sale and the part exchange vehicle had no value to him until he sold it, and it was only at that stage, when he knew what he could sell it for, that the true value could be ascertained.
4.	Mr. Duncan explained that if he were to attach a value to the part exchange when he took it in, there was no guarantee that he would be able to realise this amount on its sale and in that case he would end up paying tax which he had no means of recovering later.  Equally Mr. Duncan did not like his customer knowing the value which he attributed to a part exchange vehicle but if he had to put it on the invoice then this would be known to the customer.
5.	We should make it clear that we found Mr. Duncan to be an honest and straightforward witness.  There was no suggestion that he was in any way seeking to avoid the payment of tax and indeed Mr. Duncan told us that at no time had any of the officers who visited him spotted any loss to the Revenue.  It was, as Mr. Mansell pointed out a question of the mechanics and of the timing.
6.	There was no doubt as to the timing of the supply.  Pursuant to Section 6(2) Value Added Tax Act 1994, the timing of the supply was clearly “when the deal was done”.  At this point, the goods were made available to the customer, the cash element changed hands, the title of the part exchange passed to Mr. Duncan and the customer drove his new car away.  This was the time of the supply and it is therefore at this time that the true value of the consideration has to be calculated.
7.	Section 19(3) of the Act provides:
“If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration.”
It is perfectly clear from this Section that the value of the consideration is not merely the cash but whatever other elements may go towards constituting it.  In this case when Mr. Duncan sells a car, the selling price in effect is made up of a combination of cash element and the value of the part exchange vehicle.  The calculation of the output tax due on that sale must be based upon the value of the entire consideration, mainly the cash element plus the part exchange.  Treating, therefore, the determination of the value of the consideration as the matter under appeal, then the appeal is dismissed.
TC/2009/09808

LADY MITTING
JUDGE
Release Date: 26 February 2010