A motor trading company has ended up more than £30,000 out of pocket on the sale of a £192,000 Rolls Royce Phantom after the tax authorities refused to accept that it had been adapted and supplied for the personal use of a wheelchair-bound buyer and was thus zero-rated for VAT.
The company had claimed back overpaid input tax in respect of the vehicle on the basis that it fell within a VAT exemption afforded in respect of vehicles supplied to wheelchair users. However, HM Revenue and Customs (HMRC) argued that the company had been duped by fraudsters and should have been alert to the well known problem of the tax break being used for dishonest purposes.
As was common with such high-value vehicles, the sale was arranged through an agent and the company had no direct contact with the buyer. Documents had been obtained which appeared to confirm that the buyer was paraplegic and the company believed that £13,000 was to be spent on adapting the vehicle for a disabled user.
Following the sale, the company had alerted the tax authorities after spotting the Rolls Royce for sale, at a substantially increased price, in a motor trade magazine.
HMRC agreed that the person named as the buyer did in fact exist – but pointed out that he was a disabled man living in a mobile home park and was unlikely to have the wherewithal to buy a Rolls Royce.
In dismissing the company’s appeal, the First-tier Tribunal accepted HMRC’s case that the company had been warned of the widespread abuse of the VAT exemption and that it ‘should have realised’ that the transaction was not a genuine sale of a vehicle for the personal use of a disabled person.
Pointing to ‘substantial flaws’ in the relevant documentation, the Tribunal noted that no written record had been kept of the adaptations said to have been carried out to the vehicle and that the buyer’s name had been spelt in two different ways on forms. The buyer had not paid for the vehicle himself; nor had the company’s salesman ever laid eyes on him. In the circumstances, the company had taken insufficient steps to ensure that the transaction was genuinely capable of being zero-rated.