Windfall repayments are legal

The VAT-registered taxpayer company supplied cars on hire purchase (HP) terms.

If there was a consensual termination of a contract following which the vehicle was sold HMRC accepted that the taxpayer was to be treated under number 38 of VAT Regulations 1995 as having made the supply of HP in return for a consideration reduced by the amount of the sale proceeds.

But the Revenue did not accept the rule applied when the HP customer defaulted and the car was repossessed and sold at auction by the taxpayer.

The High Court in CRC v General Motors Acceptance Corporation (UK) plc [2004] STC 577 decided the rule did apply in relation to repossessed vehicles leading the taxpayer in this instance to make a claim for bad debt relief for the period from 1978 to 1997 on the basis HP contracts had been ended because the agreed sale price...