Customs news - Interest free credit

The European Court of Justice ruling in favour of Customs in Primback Ltd (Case C-34/99) [2001] STC 803, related to the VAT treatment for goods sold on interest-free credit.

Earlier temporary guidelines for such goods were issued following a previous decision from the Court of Appeal, which found against Customs. They explained what options were available to affected taxpayers, pending the final decision from the European Court. In essence, taxpayers whose circumstances were the same as Primback were allowed to follow the decision held by the Court of Appeal, so that the value of the taxable supply was the amount received by the taxpayer, and not the amount paid by the customer.

A taxpayer could implement the Court of Appeal's ruling by choosing to claim refunds of tax said to be overpaid, and/or apply the Court's decision to future transactions. However, Customs stated that if they were ultimately successful, they would seek to recover any amounts repaid, as well as amounts not paid on later transactions, together with interest. Customs now intend to do this.

Taxpayers who decided to implement the Court of Appeal's ruling fall into three categories:

* Taxpayers who successfully claimed a refund as overpaid tax will now be required to make a repayment. These businesses should make a voluntary disclosure to their local VAT office, so that repayment can be arranged as soon as possible.

* In some cases Customs have raised assessments, but have delayed collection pending the outcome of the European Court of Justice. Action will now be taken to collect the assessments, and taxpayers will be contacted in the near future.

* Taxpayers may not have had assessments raised for some or all periods when they have been applying the decision of the Court of Appeal. However, if they now know that they have under-declared tax on returns, they should make a voluntary disclosure to their local VAT office. If a voluntary disclosure is not made, and Customs discover the error, the taxpayer may be liable to a misdeclaration penalty.

(Source: Customs Business Brief 11/01 dated 21 August 2001.)

Issue: 3824 / Categories: