Many motor lessors and dealers may soon know whether they can
recover very substantial sums in VAT reclaims. These arise in
connection with manufacturers’ volume bonuses.
The problem with bonuses first came to light back in 1996 with a
landmark ruling by the European Court of Justice (ECJ) in the Elida
Gibbs case. Prior to that, volume bonuses had been treated under UK
VAT as distinct supplies of services to the manufacturers by the
relevant dealers or lessors. Elida Gibbs meant that they should
have been treated as discounts from the net car prices charged by
the manufacturers.
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This made a real difference in cases where VAT
cannot be reclaimed by the bonus recipients, which has always been
the case for dealers’ demonstrator cars. For leasing fleets VAT was
non-recoverable up to 1995, and for daily rental operations it was
so until 1992.
The reclaims are all for periods before 1997 when
the VAT treatment of bonuses was changed following Elida Gibbs. In
some cases they can go back to the introduction of VAT in 1973.
“The motor industry may be helped by the
outcome of a separate case fought by Marks & Spencer. That
concerned chocolate Jaffa cakes, which for some years had been
wrongly classified as taxable confectionery rather than zero-rated
food”
After the leading case, the UK authorities enacted
new time limits to try to stop back claims running over more than
three years. However, in January 2008 the House of Lords held, in
the light of related ECJ rulings, that these retrospective time
limits contravened European law.
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By GlobalDataTaxpayers were then given until 1 March this year
to put in any reclaims arising from Elida Gibbs.
It is still possible HM Revenue & Customs may
try to resist the claims by invoking a separate UK VAT law
concerning ‘unjust enrichment’ (UE), that is designed to stop VAT
reclaims where the taxpayers could not be expected to identify and
refund customers who would have ultimately borne the burden of
overpaid VAT.
Here the motor industry may be helped by the
outcome of a separate case fought by Marks & Spencer
(M&S).
That concerned chocolate Jaffa cakes, which for
some years had been wrongly classified as taxable confectionery
rather than zero-rated food.
The ECJ, to whom the House of Lords had referred
the M&S case, found in favour of M&S on the key issues in
European VAT law last April. This month the Law Lords formally
resolved the case in M&S’s favour, since HMRC had found no
further grounds to contest it.
In the M&S case the UK’s UE restriction was
found to breach European laws on “fiscal neutrality”, as the UE law
applies only to “payment traders” (for example, those making net
periodic payments of VAT), and not to “repayment traders” who
receive net payments for recoverable input VAT.
M&S is a payment trader, but the point was that
it has to compete directly against other retailers whose sales
consist mostly of zero-rated foods and are therefore repayment
traders.
Some experts believe that the motor industry case
is comparable to that of M&S. For lessors, though normally
payment traders, can occasionally be repayment traders in
particular periods such as when renewing their fleets.
