In Phoenix Optical Technologies v HMRC [2015] UKFTT 463 (14 September 2015) the FTT found that the transfer of a business asset under a compromise agreement was subject to VAT.
Under an out of court settlement with a customer Phoenix had transferred a machine to the customer as it had not had sufficient funds to pay the claim in full. The machine had previously been used in Phoenix’s business and the issue was whether this transfer was a supply for VAT purposes (VATA 1994 Sch 4 para 5(1)).
The FTT found that there was no reason why the transfer of an asset under a settlement agreement should fall outside Sch 4 para 5(1) particularly since no such exception was provided for. The FTT added that the consideration for the transfer of the machine was the customer’s agreement not to pursue its claim.
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