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HMRC internal manual

VAT Valuation Manual

Apportionment of monetary consideration: is there a single consideration: relevant Tribunal cases

In H.B. & D.D. Geddes (LON/88/681), the Appellant bought, sold and repaired cars. When selling second-hand cars, the Appellant usually supplied a policy of mechanical breakdown insurance (“warranty”). The “warranty” qualified for exemption. Customers were told “at some stage” during the price negotiations that the price included £250 for the “warranty”.

Customs had issued an assessment on the basis that, because the “warranties” only cost some £75 each and the price paid for the car and “warranty” was a single consideration, a proper apportionment of the total selling price had not been performed and some of the value properly attributable to the car had been attributed to the “warranty.”

The Tribunal found that each supply had been made for a separate consideration, that for the warranty being the £250.

In Thorn EMI PLC (LON/91/2317) the nature of a supply of television rental was considered. Two subsidiaries of the group registration were involved, one supplying the televisions at a rental, the other supplying repair insurance. Customers that hired televisions were required to obtain repair insurance.

Until 15 August 1988 hire agreements did not specify the insurance separately. Under the new arrangements new customers had to sign two contracts, one with each subsidiary. Existing customers were informed that their rentals were being split into two parts, one for the hire and one for the insurance and were asked to sign their agreement to the change. The charges were collected as a single payment, 70% being attributed to the rental and 30% to the insurance.

Customs argued that there was a single supply of insured televisions and the charge should be wholly standard-rated. The Appellant’s argument was that there were two supplies made under two contracts with two suppliers, even though both considerations were paid over as a single payment. The Tribunal found in the Appellant’s favour.