Incorrect procedure

The taxpayer manufactured UPVC windows and doors which it supplied to retailers and wholesalers. In addition at its own cost the appellant installed sample windows and doors into the showrooms of its customers.

As part of the agreement the taxpayer sent the customer an invoice for the promotional items which it only had to pay if it broke the terms of the agreement. The invoices were recorded in a separate promotional account created for each customer.

The taxpayer accounted for VAT on the invoices but in 2003 decided this was incorrect. The customer did not owe the amount and as ownership of the goods remained with the taxpayer there was no supply therefore no VAT was due.

The taxpayer tried to correct the VAT position by making internal adjustments crediting each individual promotional account with an amount equal to the amount...