United Kingdom VAT & Duties Tribunals Decisions

Ford Motor Company Ltd v Revenue & Customs [2007] UKVAT V20028 (19 February 2007)

20028

VALUE ADDED TAX -- car manufacturer offering a bonus scheme under which manufacturer paid sums on behalf of the customer monthly to HP company within manufacturer's VAT group -- documentation expressed this to be a reduction in the capital sum due under HP agreement -- Payment of capital or the customer's interest?-- payment of capital -- appeal allowed

LONDON TRIBUNAL CENTRE LON/2005/0936

FORD MOTOR COMPANY LIMITED Appellant

- and - THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS Respondents Tribunal: ADRIAN SHIPWRIGHT (Chairman) TONY RING CTA (Fellow)

Sitting in public in London on 4 and 5 December 2006

Jonathan Peacock QC, for the Appellant, instructed by Peter Neale-Smith CTA

Alison Foster QC and Benjamin Williams Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007 DECISION

Introduction

1. This appeal by the Appellant ("Ford") is against a decision on review by the Respondents ("HMRC") contained in a letter dated 12 August 2005. This confirmed HMRC's view that certain payments made under the Ford Bonus Retail Program ("the Bonus Scheme") did not in HMRC's opinion reduce the taxable consideration for VAT purposes.
2. The amount of tax at stake is less than £25 per month^[1]. We were told by HMRC, in what their Counsel herself described as a Jury point, that a significant sum of tax would be at stake if HMRC did not succeed. This decision is a decision in principle only as the Parties requested.
3. The structure of this decision is as follows:

Heading	Paragraph(s)
(1)Introduction	1-3
(2)The Issue	4-6
(3)The Parties to the Transactions	7-8
(4)The Law	9-11
(5)The Authorities	12-13
(6)The Evidence	14-16
(7)The Findings of Fact	17
(8)The Parties' Submissions in Outline	18-21
(9)Discussion	22-39
(10)Conclusion	40

The Issue

4. The issue for consideration in this decision is, what is the amount of the taxable consideration in the particular circumstances of the case which involved only one transaction? However, both the parties asked us to take note of what the position would be if the arrangement were promulgated as a promotion to the public.
5. We record that we have done this to the extent that we consider we properly can but would warn those considering this decision that it is a decision on the particular facts before us and on the particular assumptions made. Any other case would need consideration on its particular facts which may well distinguish it.
6. There was no issue raised in this case as to:

(1) Jurisdiction^[2];

(2) Abuse;

(3) Sham;

(4) Supply by the customer to Ford companies;

(5) Third party consideration for the purchase of the car.

The Parties to the transactions

7. The parties involved are:

(1) Ford Motor Company Limited ("Ford")

Ford is the well known car manufacturer and the representative member of the Ford Group of Companies.

(2) FCE Bank plc ("FCE")

FCE is a regulated bank. It is a member of the Ford Group of companies for VAT purposes.

(3) The Dealer

The dealer in this case is a Ford franchised dealer. It is an independent company, a separate legal entity which is not owned by the Ford Group. There are some franchises which are owned and operated by the Ford Group. This is not the case here.

(4) The Customer – "Mrs Angela Mulliner"

The customer is an individual who is an employee of FCE. She was entitled to a staff discount which she received. This is not in issue in these proceedings. It was essentially dealt with by credit note. We were asked by both parties not to name her in our decision. As we do not consider that it is necessary for the decision, a fair trial or other reasons of justice to do so we have not named her. Instead we have used the fictitious name Mrs Angela Mulliner^[3].

(5) The VAT Group

Ford and FCE are members of the same VAT group. Ford is the representative member. Hence Ford is the Appellant in this case. We use the expression Ford to refer to the company or group as the context requires.

8. We record that we have seen the full details of the parties involved and the full documentation. The parties asked us not to identify the customer nor to reveal commercially sensitive information which request where possible we have sought to comply with.

The Law

The Legislation

9. The Law in so far as is relevant is contained in Articles 1 to 5 and Article 11 of the Sixth Directive.
10. Article 11 insofar as is relevant reads:

"A. Within the territory of the country

1. The taxable amount shall be:

(a)    in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;

(b)    in respect of supplies referred to in Article 5(6) and (7), the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined at the time of supply;

(c)    in respect of supplies referred to in Article 6(2), the full cost to the taxable person of providing the services;

(d)    in respect of supplies referred to in Article 6(3), the open market value of the services supplied. "Open market value" of services shall mean the amount which a customer at the marketing stage at which the supply takes place would have to pay to a supplier at arm's length within the territory of the country at the time of the supply under the conditions of fair competition to obtain the services in question.

2. The taxable amount shall include:

(a)    taxes, duties, levies and charges, excluding the value added tax itself;

(b)    incidental expenses such as commission, packing, transport and insurance costs charged by the supplier to the purchaser or customer. Expenses covered by a separate agreement may be considered to be incidental expenses by the Member States.

3. The taxable amount shall not include:

(a)    price reductions by way of discount for early payment;

(b)    price discounts and rebates allowed to the customer and accounted for at the time of the supply;

(c)    the amounts received by a taxable person from his purchaser or customer as repayment for expenses paid out in the name and for the account of the latter and which are entered in his books in a suspense account. The taxable person must furnish proof of the actual amount of this expenditure and may not deduct any tax which may have been charged on these transactions. …

C. Miscellaneous provisions

1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.

However, in the case of total or partial non-payment, Member States may derogate from this rule…".

11. The UK has implemented this in section 19 and Schedule 6 VATA. This is to be construed so as to accord with the Directive so we have mainly considered the Directive.

The Authorities

12. We were provided with copies of the following authorities which we have read and considered:

Elida Gibbs v CCE [19997]2 WLR 477

CCE v Primback Limited [2001] STC 803

Eastbourne Town Radio Cars Association v CCE [2001] UKHL 19

WHA v CCE [2004] EWCA 559

Autolease Holland v Bundesamt fur Finanzen [2005] STC 598

CCE v Loyalty Management [2006] EWHC 1498

CCE v Reed Personal Services Limited [1995] STC 588

Trafalgar Tours Limited v CCE [1990] STC 127

Debenhams v CCE [2005] STC 1155

CCE v Thorn Materials Supplies Limited 1998] STC 1106

ECC v Germany [2003] STC 301

Peugeot v HMRC Case 19260

13. We were also provided with extracts from the Consumer Credit Act and related regulations.

The Evidence

14. An agreed bundle of documents was produced. There was no objection to any of the documents and they were all admitted in evidence. An agreement between Ford and FCE was produced on the second day of the hearing. No objection was taken to this and it was admitted in evidence.
15. We heard evidence from one witness. He was Paul Flanagan, the Appellant's Manager, Retail Marketing. A witness statement was provided for him. This stood as his evidence in chief. He was cross-examined.
16. The Parties asked us to assume that the Bonus Scheme had been implemented as a full promotion by Ford. They asked us to bear this in mind in reaching our decision and findings which we have done. In doing so we have reminded ourselves that we have no jurisdiction to decide hypothetical questions and that we are strictly only concerned with the one transaction before us (see also paragraph 5).

Findings of Fact

17. From the evidence we make the following findings of facts.

General:

(1) We find the matters, in so far as they are factual, at paragraph 7 headed "Parties to the transactions".

(2) Ford, as a volume manufacturer, aims to have a suite of rebate offers intended to appeal across the range of potential buyers.

(3) Only one transaction has taken place so far under the Bonus Scheme described below. It is that transaction which is the subject of this appeal.

(4) The Bonus Scheme, in broad terms, was designed to reduce the output tax payable on the sale of the car and to do so in a way that had cashflow advantages to the Ford group. This was desirable for Ford as the Ford Group's financial position is not as strong as it has been - Suggest delete – see letter.

(5) The Bonus Scheme had not been implemented as a full scale promotion as yet as it would need substantial changes to Ford's systems (including computer systems) which would involve significant expenditure. Ford was unwilling to commit to this without knowing the proper VAT treatment.

(6) Accordingly, a pilot transaction was undertaken. This is the subject of the appeal.

The Bonus Scheme

(7) The essence of the Bonus Scheme is that:

(a) Ford sells the car to the Dealer;

(b) The Dealer sells the car to FCE;

(c) The Customer enters into a standard HP Agreement with FCE. The Customer is then entitled to the Bonus.

(8) Customers who enter into an HP Agreement to finance the purchase of the car are entitled to a Ford Bonus which is a series of payments by Ford to FCE which reduces the amount payable each month to FCE by the customer provided the customer complies with the conditions.

(9) The transactions may be represented diagrammatically as follows:



The stages

(10) The stages involved are as follows:

i. the car is made;

ii. the car is advertised when there is a promotion;

iii. the Customer makes inquiries about the cars;

iv. the Customer is given information about that car and its costs including if the car is bought on HP Ford will make the Ford Bonus available;

v. the Customer decides to buy the car on HP;

vi. the Customer enters into the standard FCE HP Agreement;

vii. the Customer is provided with the Bonus Certificate;

viii. Ford makes payments to FCE on behalf of the Customer that are accepted by FCE as reducing the amount payable by the Customer.

ix. An Agreement between Ford and FCE provided for this.

The Documentation

(11) A customer may make inquiries about buying a car. This may be in response to an advert if the full promotion was in force.

(12) In the particular transaction an advert was emailed to the customer, Mrs Angela Mulliner. This read "We would like to offer you the opportunity of inviting you to take advantage of a new exciting promotion being offered by Ford Motor Company Ltd in conjunction with Ford Credit entitled the 'Ford Bonus' promotion. Please find attached the advertising material and an explanatory leaflet that explains how the scheme works and will hopefully answer any questions you may have concerning the promotion. If you are interested in purchasing your next Ford vehicle under this promotion please contact [X Any Plum car salesmen?] who will take you through the arrangements"

(13) This was sent on the day the car was actually delivered to the customer and the HP agreement was signed.

The Submissions of the Parties

The Appellant Submissions in outline

18. In essence, the Appellant submitted that:

(a) the issue in this case was what was the proper amount of the chargeable consideration;

(b) this is to be determined in accordance with Article 11 of the Sixth Directive bearing in mind the principle of neutrality;

(c) The ECJ had decided that the amount of the chargeable consideration was not to exceed the amount that the final consumer paid in determining the amount of VAT due. This required the consideration paid to be reduced by any money off or money back coupons etc;

(d) the authority for this is Elida Gibbs;

(e) Primback does not detract from this. It is an application of Elida Gibbs. The amount paid between the finance house and the retailer did not reduce the amount paid by the final consumer on which the final consumer paid VAT;

(f) The question is the characterisation of the payment. The documents say it is in effect a reduction of the purchase price. The question is then is there anything that requires one to modify this. Here there was clear documentation that should be applied.

(g) The case law did not require one to do so. Accordingly, the appeal should be allowed.

HMRC's Submissions in outline

19. In essence, HMRC submitted:

(a) The proper analysis is that the 'real deal' when looked at from the customer's perspective is an 'interest free deal' rather than a reduction of the capital;

(b) Accordingly there was no effect on the chargeable consideration as there was no reduction in the chargeable consideration just a payment of the interest.

20. Ms Foster invited us to find as facts:

(1) The real deal was for the provision of an interest free credit arrangement;

(2) The payments to be made were equal to the amount of the credit and accordingly were payments of credit and not a reduction in the purchase consideration. This was clearly the "real deal".

21. She asked us to deduce a customer would be familiar with interest-free credit deals. This is what a customer, such as Mrs Angela Mulliner would have perceived was the deal here. It was what Ford presented to the customer. This was what Ford intended according to Mr Flanagan's evidence, how the evidence was presented and how the Explanatory Note should be read in a way which at best could be said to be neutral.

Discussion

Introduction

22. The essential questions here in our view are:

(a) Whether the payments by Ford have the effect at law of reducing the principal payable under the HP Agreement;

(b) How is that to be treated for VAT purposes;

(c) What is the chargeable consideration?

23. We note that under paragraph 1 Schedule 4 VATA a supply under an HP Agreement is treated as a supply of the goods bailed.

Effect of Bonus Payments

24. The contractual arrangement between Ford and FCE was effectively providing for the Ford bonus to reduce the principal.
25. The arrangement between Mrs Angela Mulliner and FCE provided for her to make the payments. Ford agreed with Mrs Angela Mulliner to make the Bonus payments. There was no tripartite agreement. However, FCE accepted the payments made by Ford as reducing the principal under the HP agreement. No arguments as the subrogation or banker's discretion were addressed to us. We considered that FCE exercised its discretion to reduce principal rather than interest. We do not see that in the circumstances, Ford's discharge of part of Mrs Angela Mulliner's debt to FCE gives rise to rights of subrogation at Law or in equity bearing in mind the contractual arrangements between Ford and Mrs Angela Mulliner and FCE and Ford. The Contracts (Third Party Rights), 1999 was excluded but we do not consider that this affects the matter. The commercial arrangement was for the Ford Bonus to reduce the principal payable by Mrs Angela Mulliner to FCE.
26. We consider the effect at law of the bonus payments was to reduce the principal payable under the HP arrangements. In other words, the amount paid by the final consumer was reduced.

VAT characterisation

27. HMRC asked us to treat this for VAT purposes as "an interest free deal" as it was according to HMRC from the customer's perspective. In other words, HMRC asked us to find that Mrs Angela Mulliner or any other customer for that matter, would see this as an interest free deal. We consider that Mrs Angela Mulliner or any other customer would perceive the arrangement as reducing the amount they had to pay. They would not perceive it is an interest free deal as they would not be interested in the mechanics by which their payments were reduced. There was no evidence that this would be perceived other than for what it was ie, a price reduction and particularly no evidence that Mrs Angela Mulliner or any other customer would see this as an interest free deal. We find this as a fact. The customer is only interested in the cost to the customer in terms of the amount of money payable each month.
28. We do not consider that any of the VAT case law requires us to do differently. There is no argument as to sham or abuse raised here. Debenhams does not require recharacterisation but the discovery of the real transactions. We find here, that there is an HP agreement between Mrs Angela Mulliner and FCE , which requires (inter alia) payment of principal. Part of the payment of principal is met by Ford on behalf of Mrs Angela Mulliner.
29. We find that the principal is reduced for VAT purposes which reduces the amount by which VAT is charged on the Customer.

What is the chargeable consideration?

30. This question requires us to consider two ECJ cases in particular. These are Elida Gibbs and Primback.
31. In Elida Gibbs the ECJ said:

"19. The basic principle of the VAT system is that it is intended to tax only the final consumer. Consequently the taxable amount serving as a basis for the VAT to be collected by the tax authorities cannot exceed the consideration actually paid by the final consumer which is the basis for calculating the VAT ultimately borne by him".

This is the crucial point here. This is what is to be applied here.

32. The ECJ continued:

"20. Thus in Staatssecretaris van Financiën v Hong Kong Trade Development Council (Case 89/81) [1982] ECR 1277 at 1285, para 6 the court held that it was apparent from EC Council Directive 67/227 of 11 April 1967 on the harmonisation of the legislation of the member states concerning turnover tax (the First Directive) (JO 71 14.4.67 p 1301 (S Edn 1967 p 14) that one of the principles on which the VAT system was based was neutrality, in the sense that within each country goods should bear the same tax burden whatever the length of the production and distribution chain.

21. That basic principle clarifies the role and obligations of taxable persons within the machinery established for the collection of VAT.

22. It is not, in fact, the taxable persons who themselves bear the burden of VAT. The sole requirement imposed on them, when they take part in the production and distribution process prior to the stage of final taxation, regardless of the number of transactions involved, is that, at each stage of the process, they collect the tax on behalf of the tax authorities and account for it to them.

23. In order to guarantee complete neutrality of the machinery as far as taxable persons are concerned, the Sixth Directive provides, in Title XI, for a system of deductions designed to ensure that the taxable person is not improperly charged VAT. As the court held in its judgment in Gaston Schul Douane Expediteur BV v Inspecteur der Invoerrechten en Accijnzen, Roosendaal (Case 15/81) [1982] ECR 1409 at 1426, para 10, a basic feature of the VAT system is that VAT is chargeable on each transaction only after deduction of the amount of VAT borne directly by the cost of the various price components of the goods and services. The procedure for deduction is so arranged that only taxable persons are authorised to deduct from the VAT for which they are liable the VAT which the goods and services have already borne.

24. It follows that, having regard in each case to the machinery of the VAT system, its operation and the role of the intermediaries, the tax authorities may not in any circumstances charge an amount exceeding the tax paid by the final consumer".

33. The ECJ also considered what is the amount of the consideration. It was said:

"27. According to the court's settled case law, that consideration is the 'subjective value', that is to say, the value actually received in each specific case, and not a value estimated according to objective criteria (see Hong Kong Trade Development Council [1982] ECR 1277 at 1287, para 13, Naturally Yours Cosmetics Ltd v Customs and Excise Comrs (Case 230/87) [1988] STC 879 at 894, [1988] ECR 6365 at 6390, para 16, and Boots Co plc v Customs and Excise Comrs (Case C-126/88) [1990] STC 387 at 408, [1990] ECR I-1235 at 1266–1267, para 19).

28. In circumstances such as those in the main proceedings, the manufacturer, who has refunded the value of the money-off coupon to the retailer or the value of the cash-back coupon to the final consumer, receives, on completion of the transaction a sum corresponding to the sale price paid by the wholesalers or retailers for his goods, less the value of those coupons. It would not therefore be in conformity with the directive for the taxable amount used to calculate the VAT chargeable to the manufacturer as a taxable person, to exceed the sum finally received by him. Were that the case, the principle of neutrality of VAT vis-à-vis taxable persons, of whom the manufacturer is one, would not be complied with.

29. Consequently, the taxable amount attributable to the manufacturer as a taxable person must be the amount corresponding to the price at which he sold the goods to the wholesalers or retailers, less the value of those coupons.

30. That interpretation is borne out by art 11C(1) of the Sixth Directive which, in order to ensure the neutrality of the taxable person's position, provides that, in the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount is to be reduced accordingly under conditions to be determined by the member state".

This shows this approach is be taken both in Article 11A and 11C. We have done so.

34. The Court then considered how long a chain is relevant to neutrality. It said:

"31. It is true that that provision refers to the normal case of contractual relations entered into directly between two contracting parties, which are modified subsequently. The fact remains, however, that the provision is an expression of the principle, emphasised above, that the position of taxable persons must be neutral. It follows therefore from that provision that, in order to ensure observance of the principle of neutrality, account should be taken, when calculating the taxable amount for VAT, of situations where a taxable person who, having no contractual relationship with the final consumer but being the first link in a chain of transactions which ends with the final consumer, grants the consumer a reduction through retailers or by direct repayment of the value of the coupons. Otherwise, the tax authorities would receive by way of VAT a sum greater than that actually paid by the final consumer, at the expense of the taxable person".

35. The Court decided:

"34. In view of all the foregoing considerations, the answer to the first question submitted must be that art 11A(1)(a) and art 11C(1) of the Sixth Directive are to be interpreted as meaning that where (a) a manufacturer issues a money-off coupon, which is redeemable at the amount stated on the coupon by or at the expense of the manufacturer in favour of the retailer, (b) the coupon, which is distributed to a potential customer in the course of a sales promotion campaign, may be accepted by the retailer in payment for a specified item of goods, (c) the manufacturer has sold the specified item at the 'original supplier's price' direct to the retailer and (d) the retailer takes the coupon from the customer on sale of the item, presents it to the manufacturer and is paid the stated amount, the taxable amount is equal to the selling price charged by the manufacturer, less the amount indicated on the voucher and refunded. The same applies if the original supply is made by the manufacturer to a wholesaler rather than directly to a retailer.

35. The answer to the second question must then be that art 11A(1)(a) and art 11C(1) of the Sixth Directive are to be interpreted as meaning that where (a) in the course of a promotion scheme a manufacturer sells items of goods at the 'manufacturer's price' direct to a retailer, (b) a cash-back coupon for an amount stated on the packaging of those items entitles the customer, if he proves purchase of one of those items and satisfies other conditions printed on the coupon, to present the coupon to the manufacturer in return for payment of the stated amount, and (c) a customer purchases such an item from a retailer, presents the coupon to the manufacturer and is paid the stated amount, the taxable amount is equal to the selling price charged by the manufacturer, less the amount indicated on the coupon and refunded. The same applies if the original supply is made by the manufacturer to a wholesaler rather than directly to a retailer".

We have sought to apply this in this case.

36. Primback seems at first blush to diverge form Elida Gibbs. However, on closer scruntiny it is clear that it is just an application of Elida Gibbs. The credit transaction merely gave the funding to the final consumer to pay the consideration. It did not reduce it. Accordingly the consideration paid by the final consumer was not altered and remained the same. This is not the case here.
37. The ECJ said:

"21. By its questions, which it is appropriate to examine together, the national court is essentially asking whether on a proper construction of art 11A(1)(a) of the Sixth Directive, where a supply of goods for consideration has the following features: (i) a retail trader sells goods in return for payment of the advertised price which he invoices to the purchaser and which does not vary according to whether the customer pays in cash or by way of credit; (ii) should the purchaser so request, the acquisition of the goods is financed by the provision to him of interest-free credit by a finance company distinct from the seller; (iii) the finance company gives an undertaking to the purchaser that it will pay to the seller on the purchaser's behalf the sales price advertised and invoiced by the seller; (iv) the finance company in fact pays to the seller, pursuant to agreements concluded with the seller but of which the purchaser is unaware, a sum less than the price advertised and invoiced; and (v) the purchaser repays to the finance company a sum equal to the price advertised and invoiced, the taxable amount for purposes of calculating the VAT payable on the sale of the goods consists only of the amount actually received by the seller, or whether, on the contrary, the taxable amount consists of the full amount payable by the purchaser".

38. It continued:

24. According to settled case law, consideration within the meaning of that provision is the subjective value in each specific case and not a value estimated according to objective criteria (see, inter alia, Argos Distributors Ltd v Customs and Excise Comrs (Case C-288/94) [1996] STC 1359 at 1372, [1997] QB 499 at 529, para 16).

25. It follows that the determining factor in this regard is the existence of an agreement between the parties for reciprocal performance, the payment received by the one being the real and effective countervalue for the goods furnished to the other.

26. In the case in the main proceedings, the parties to the contract of sale agreed that the consideration for the goods would be their price as advertised, known in advance by the customer and invoiced to him by Primback, there being, moreover, no variation in that price according to whether the customer pays in cash or makes use of the credit offered by the retailer and provided by a finance house.…

48. By calculating VAT on the total price advertised and invoiced by the seller, the commissioners are not therefore charging a taxable person such as Primback an amount of tax exceeding that ultimately borne by the final consumer (see Elida Gibbs Ltd v Customs and Excise Comrs (Case C-317/94) [1996] STC 1387 at 1403 and 1404, [1997] QB 499 at 561 and 562, paras 24 and 31). In contrast, if the tax authorities were able to charge VAT only on a fraction of the price invoiced to the purchaser and payable by him, as Primback argues, a portion of the advertised price of the goods sold to the final consumer would not be subject to tax, with the result that the principle of fiscal neutrality would be infringed.

49. In view of all of the foregoing considerations, the answer to the questions submitted must be that on a proper construction of art 11A(1)(a) of the Sixth Directive, where a supply of goods for consideration has the following features: (i) a retail trader sells goods in return for payment of the advertised price which he invoices to the purchaser and which does not vary according to whether the customer pays in cash or by way of credit; (ii) should the purchaser so request, the acquisition of the goods is financed by the provision to him of interest-free credit by a finance company distinct from the seller; (iii) the finance company gives an undertaking to the purchaser that it will pay to the seller on the purchaser's behalf the sales price advertised and invoiced by the seller; (iv) the finance company in fact pays to the seller, pursuant to agreements concluded with the seller but of which the purchaser is unaware, a sum less than the price advertised and invoiced; and (v) the purchaser repays to the finance company a sum equal to the price advertised and invoiced, the taxable amount for purposes of calculating the VAT payable on that sale consists of the full amount payable by the purchaser".

39. The transactions in question here involve the sale of goods including the HP transaction (see paragraph 1 Schedule 4 VATA). The goods in question are the car in all the transactions under consideration (ie the sale and the HP transaction). Thus Elida Gibbs and not Primback applies here. The principal in the HP transaction which is the amount payable by the final consumer is accordingly reduced. The amount on which the final consumer pays VAT is reduced and accordingly the amount on which VAT is applied between Ford and the Dealer, the Dealer and FCE cannot exceed the VAT chargeable on consideration payable by the final consumer, Mrs Angela Mulliner as reduced by the Ford bonus.

Conclusion

40. We have found that:

(1) The payment is a payment of capital reducing the amount of the principal due from Angela Mulliner under the HP contract.

(2) The amount of VAT which Angela Mulliner pays is by reference to this reduced amount.

41. Accordingly, the appeal is allowed with costs.
ADRIAN SHIPWRIGHT
CHAIRMAN RELEASE DATE: 19 February 2007

LON/2005/0936

Note 1   The actual adjustment was £12.45 per month.    [Back]

Note 2   As to this see the decision of Dr John F Avery Jones CBE released on 13 January 2006.HMRC’s application to strike out the appeal was dismissed.    [Back]

Note 3    For details of this name and its origin see the The Millennium Wodehouse Concordance by Tony Ring, Volume 2 at pages 72 and 107. There is no suggestion of any similarity between the actual customer and the fictitious character in the choice of this name. It is done purely for convenience.    [Back]