Commissioners of Customs and Excise v Hartwell Plc

A voucher accepted as part payment is non-monetary consideration. Its monetary equivalent is the consideration obtained by the supplier for issuing it, rather than its face value. A voucher issued without payment therefore has a nil monetary equivalent.

Where goods and ancillary vouchers form a single composite supply, paragraph 5 of Schedule 6 to the Value Added Tax Act 1994 applies only if a separable part of the consideration is attributable to the vouchers. Contractual consideration supporting the promise embodied in a voucher does not itself establish consideration for VAT purposes.

Hartwell Plc supplied replacement cars and issued two kinds of voucher. A Purchase Plus voucher was accepted as part payment and was intended to replace the motor trade practice of inflating the value of a part-exchange vehicle. Hartwell also included three vouchers for future MOT tests in the price of a replacement car.

The VAT and Duties Tribunal upheld the Commissioners’ treatment of the Purchase Plus allowance as an increase in the part-exchange value. It also held that the MOT vouchers were ancillary to the supply of the car. Patten J allowed Hartwell’s appeal on both issues.

The Commissioners appealed. The questions were how the Purchase Plus voucher should be valued and whether paragraph 5 of Schedule 6 to the Value Added Tax Act 1994 required an amount attributable to the MOT vouchers to be disregarded.

1. The appeal was dismissed on the Purchase Plus issue and allowed on the MOT voucher issue. Chadwick LJ delivered the leading judgment. Arden and Ward LJJ agreed with that disposition.

2. The Purchase Plus voucher formed part of the non-monetary consideration obtained for the replacement car. The taxable amount depended on what was obtained for the supply, irrespective of whether it came from the purchaser, a finance company or another person. The voucher’s face value did not determine its monetary equivalent.

3. The relevant transaction for valuing the Purchase Plus voucher was its issue by Hartwell to the customer. Hartwell issued it without receiving payment or other consideration having an established monetary value. Its monetary equivalent was therefore nil. The separately agreed trade or market value of a part-exchange car could not be increased merely because a finance company treated the voucher as part of the customer’s deposit. That would impermissibly rewrite the transaction.

4. The provision of a replacement car and three MOT vouchers constituted a single composite supply. The car was the principal element and the vouchers were ancillary. Chadwick LJ nevertheless held that this classification did not alone determine the application of paragraph 5 of Schedule 6 to the Value Added Tax Act 1994.

5. The contractual enforceability of Hartwell’s promise to provide future MOT tests did not establish separate consideration for VAT purposes. Nothing obtained by Hartwell for the composite supply could be attributed separately to the MOT vouchers. They were included in the price and supplied whether or not the customer wanted them. Paragraph 5 therefore had no application.

6. Arden LJ preferred the additional ground that the ancillary supply shared the VAT treatment of the principal supply under the general single-supply principle. Ward LJ considered that principle to perform a more limited classificatory function, but agreed with Chadwick LJ that the vouchers were supplied for no separately attributable consideration.

The Commissioners’ application succeeded only on the MOT voucher issue. Hartwell was refused permission to appeal to the House of Lords.

1. Court of Appeal (Civil Division): The Commissioners’ appeal was dismissed on the Purchase Plus issue and allowed on the MOT voucher issue: [2003] EWCA Civ 130.
2. High Court, Chancery Division: Patten J allowed Hartwell’s appeal from the tribunal on both issues. No citation is stated.
3. VAT and Duties Tribunal: The tribunal dismissed Hartwell’s appeal against the Commissioners’ ruling concerning Purchase Plus vouchers and rejected its claim concerning MOT vouchers. No citation is stated.