Date of issue: 14th July 2005

VAT IMPLICATIONS OF KNOWING YOUR CUSTOMERS

Businesses are aware of the need to know their customers in order to combat money laundering, but a leading Birmingham firm of chartered accountants says it is equally relevant when accounting for VAT.

Clement Keys, Birmingham says a recent case involving the supply of an adapted car to a person with disabilities has brought the issue of VAT rates sharply into focus.

Ford dealer Bentley and Bentley agreed to supply a new car to a disabled person who provided a declaration that it was for domestic or personal use and claimed zeroing as the vehicle was designed or adapted for use by a wheelchair user.

"Although the disabled person was indeed the intended user of the vehicle, the crux
of the matter is that the vehicle was not supplied directly to him but to a finance company which was providing him with funding," says director of VAT services Steven Simmonds.

"As a result of this error H M Revenue and Customs raised an assessment for unpaid VAT and the VAT Tribunal, on appeal, ruled that Bentley and Bentley was not entitled to zero-rate the supply as it had not been made directly to the disabled person.

"This case highlights why it is important to keep accurate records and ensure that you know who your customer is so as to avoid underpayment and the inconvenience of dealing with assessments as well as the possible expense of a VAT Tribunal."