Lex Service plc v Customs and Excise Comrs

For VAT purposes, the monetary equivalent of non-monetary consideration is determined by reference to the particular transaction. “Subjective value” means the value attributed for that transaction, not an independent market or trade value. Where the parties have agreed the value of goods or services supplied in exchange, that agreed value governs. The same approach applies whether the non-monetary element consists of goods or services. VAT neutrality does not permit the court to restructure a transaction merely because another arrangement would have the same economic effect. In a part-exchange transaction, the value agreed for the exchange is distinct from a lower value used only for a later cancellation or refund.

The Court of Appeal heard four conjoined VAT appeals. In the appeal concerning Lex Services Plc, a car dealer supplied vehicles partly for cash and partly in exchange for a customer’s vehicle. The sale documents recorded a “Part Exchange Price” and a lower “True Value”, the latter governing the refund payable if the customer cancelled and the part-exchange vehicle could not be returned.

The VAT tribunal and Arden J held that the part-exchange vehicle formed part of the consideration at the Part Exchange Price. Lex argued that the taxable amount should instead reflect the True Value, said to be the vehicle’s trade value. The central issue was which figure represented the monetary equivalent of the non-monetary consideration for the original supply.

1. Disposition. The Lex appeal was dismissed with costs.
2. Applicable principle. Under Value Added Tax Act 1994, section 19, and article 11A(1)(a) of the Sixth Directive, the taxable amount for a supply involving non-monetary consideration is the monetary equivalent of the consideration in the transaction actually made. The inquiry is the value attributed for the purposes of that transaction, rather than an independent market value.
3. Agreed value. Where the parties have agreed the value of the non-monetary element, that agreement determines its value. Where they have not agreed a value, the court asks what value the supplier, as recipient of the consideration, attributed to it for the transaction. The approach applies equally to goods and services. The principles stated in Naturally Yours Cosmetics Ltd v Customs and Excise Commissioners and developed in Empire Stores Ltd v Customs and Excise Commissioners, Rosgill Group Ltd v Customs and Excise Commissioners and Customs and Excise Commissioners v Westmorland Motorway Services Ltd did not require a different result.
4. Lex transaction. The part-exchange car was part of the consideration for the Lex car. The documentation expressly recorded £2,000 as the Part Exchange Price, and the customer signed an invoice recording the sale of the part-exchange car to Lex at that price. The lower True Value served a distinct purpose: it limited the refund payable on cancellation. It was not the value agreed for the original supply.
5. Neutrality. The principle that VAT should not exceed the amount borne by the final consumer does not require transactions with the same economic effect to receive identical treatment. The court could not recast the transaction as one involving a discount off the Lex car’s price or substitute the part-exchange car’s trade value for the agreed Part Exchange Price.

1. Court of Appeal. The appeal by Lex Services Plc was dismissed with costs.
2. High Court (Chancery Division). Arden J dismissed Lex’s appeal from the London VAT tribunal’s decision. The judgment is reported at [2001] STC 697.
3. Value Added Tax Tribunal. The tribunal had upheld the Commissioners’ treatment of the part-exchange vehicle at the Part Exchange Price.