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HMRC internal manual

VAT Time of supply

Actual tax points: payments: exceptions to normal treatment of deposits and pre-payments

Introduction

The Tribunal and Courts have, on the whole, upheld our interpretation of time of supply law when it comes to deposits and pre-payments. But there are two exceptions you might come across. These are the cases of Nigel Mansell Sports Cars Ltd(VTD 6116) and The Old Chigwellians Club (VTD 2332).

Nigel Mansell Sports Cars Ltd

The company was a Ferrari dealer. The demand for new Ferrari cars far out stripped supply and buyers might wait a number of years before one became available. It was the company’s practice to require prospective customers to pay a deposit before being admitted to the waiting list. It was maintained by the company that this did not necessarily mean the customer would eventually be supplied with a car or that those on the list the longest would take priority over those admitted later. For example, preferential treatment was said to be given to buyers who genuinely wished to own a Ferrari, as opposed to those suspected of purchasing a car for speculative purposes. Once a car became available a customer would be required to complete an order form and pay a further deposit based on the price of the car. The Tribunal accepted the company’s argument that no tax point arose on receipt of the original deposit. This was on the grounds that at that time there was only;

‘an agreement to make an agreement which did not amount to a contract, nor did it give rise to any supply so that in our judgement the receipt of the £5,000 [note: this was the amount of the original deposit] by the Appellant Company was not received in respect of any supply.’

Old Chigwellians Club

The club was set up for former pupils of the school. Payment for future life membership was collected together with school fees during the time the pupil attended the school. On leaving pupils might choose not to join the club or might not be elected as a member. In both cases the amounts previously paid would be refunded. The Tribunal held that the payments under these arrangements did not create a tax point for future life membership of the club. This was on the basis that:

‘the Club did not make any supply of services in respect of any pupil until that pupil had expressed a wish to be elected as a Life Member and was in fact so elected.’

Wider application

Both cases turn on their rather unusual circumstances. That is why neither was appealed to the High Court. Nevertheless, they may still be cited. In most cases they should be distinguishable on their facts, but if you do become aware of similar cases you should seek further guidance from Place & Time of Supply Team.