Taxation

VAT on car sold by car dealer for cash in part exchange for customer's car - dealer paying part exchange price above open market value - VAT to be assessed on agreed priceLex Services Plc v Customs and Excise Commissioners: ChD (Arden J): 20 July 2000

Car dealers sold cars to customers and took customers' old cars in part exchange.

In order to induce customers to purchase cars from them, the price offered to customers for their cars was higher than the dealers could obtain on resale of those cars in the open market.

The dealer was assessed to VAT on the basis of the agreed prices.

The VAT and duties tribunal upheld that assessment.

The dealers appealed on the ground that the consideration paid in each case was the cash plus the actual value of the part exchange car and not the price shown in the order form which included the inflated price for the part exchange car.

Kevin Prosser QC and Roger Thomas (instructed by Stephenson Harwood) for the dealers.

Rubert Anderson (instructed by Solicitors to the Commissioners) for the commissioners.

Held, dismissing the appeal, that in the absence of any specific guidance as to how to calculate the monetary equivalent of non-monetary consideration under s.19(3) of the Value Added Tax Act 1994 (which implemented Directive 77/388/EEC) where the part exchange price had been specifically agreed by parties for commercial reasons it was not open for the court to substitute for the agreed price its trade value and treat the transaction as if the customer had been given a discount on the list price of a new car; and that the court was bound to take the subjective value of the non-monetary consideration in accordance with the transaction as it had in fact been structured.