Was an allowance on a part-exchange car a discount?
In N & M Walkingshaw v HMRC [2015] UKUT 123 (18 March 2015), the UT found that an allowance for a part-exchange car was not a discount on the replacement car.
The issue was the value of a supply of a car where the customer had provided a car in part-exchange and the vendor had paid a part-exchange price in excess of the value of the part-exchange car.
The UT observed that the taxpayer’s case depended on equating the open market value of the replacement car with the amount of an equivalent cash transaction. The cash price for the replacement car would be a discounted price which would represent its open market value.
However, agreeing with the FTT, the UT found that the value of the replacement car should not be determined by reference to an equivalent cash transaction, but by reference to the actual transaction expressed in terms of a monetary value. The customer had chosen to provide part of the consideration by way of a part-exchange and the vendor had chosen to provide an over-allowance on the part-exchange car in preference to a discount on the replacement car. The effects of those choices could not be altered.
The key question was therefore: ‘What is the consideration in money which would be payable by a customer for the replacement car in the context of a part-exchange of the part-exchange car?’ The UT pointed out that ‘just as there is no unique or correct retail commercial price, so too there is no unique or correct consideration in money which would be payable by a customer in the context of a part-exchange’.
There was therefore no scope for arguing that the value of the replacement car was anything other than the price agreed by the parties. The over-allowance was therefore immaterial in this respect.
Why it matters: The taxpayer’s case was seemingly simple; the over-allowance on the part-exchange car amounted to a discount by the vendor. However, the UT found that the over-allowance could not affect the price of the car which had been agreed between the parties. According to the FTT decision, this was one of 50 related appeals worth a total of £33m.
Was an allowance on a part-exchange car a discount?
In N & M Walkingshaw v HMRC [2015] UKUT 123 (18 March 2015), the UT found that an allowance for a part-exchange car was not a discount on the replacement car.
The issue was the value of a supply of a car where the customer had provided a car in part-exchange and the vendor had paid a part-exchange price in excess of the value of the part-exchange car.
The UT observed that the taxpayer’s case depended on equating the open market value of the replacement car with the amount of an equivalent cash transaction. The cash price for the replacement car would be a discounted price which would represent its open market value.
However, agreeing with the FTT, the UT found that the value of the replacement car should not be determined by reference to an equivalent cash transaction, but by reference to the actual transaction expressed in terms of a monetary value. The customer had chosen to provide part of the consideration by way of a part-exchange and the vendor had chosen to provide an over-allowance on the part-exchange car in preference to a discount on the replacement car. The effects of those choices could not be altered.
The key question was therefore: ‘What is the consideration in money which would be payable by a customer for the replacement car in the context of a part-exchange of the part-exchange car?’ The UT pointed out that ‘just as there is no unique or correct retail commercial price, so too there is no unique or correct consideration in money which would be payable by a customer in the context of a part-exchange’.
There was therefore no scope for arguing that the value of the replacement car was anything other than the price agreed by the parties. The over-allowance was therefore immaterial in this respect.
Why it matters: The taxpayer’s case was seemingly simple; the over-allowance on the part-exchange car amounted to a discount by the vendor. However, the UT found that the over-allowance could not affect the price of the car which had been agreed between the parties. According to the FTT decision, this was one of 50 related appeals worth a total of £33m.
