CPG Logistics Ltd v Revenue & Customs [2010] UKFTT 345 (TC) (23 July 2010)

CPG Logistics Ltd v Revenue & Customs [2010] UKFTT 345 (TC) (23 July 2010)

The tribunal held that the compromise agreement was a global settlement covering both trading arrears and unamortised investment claims. The total consideration received (£1 million) was to be apportioned pro rata between these claims. The shortfall attributable to trading arrears, on which VAT had been accounted for, qualified for bad debt relief under section 36 VATA. The compromise agreement did not replace the original consideration for the supplies but was a receipt referable to the original consideration, and the statutory test is whether there is an outstanding amount after set-off of receipts against the original consideration written off.

Citation
[2010] UKFTT 345 (TC)
Parties
Appellant: C P G Logistics Limited; Respondents: The Commissioners for Her Majesty’s Revenue and Customs (VAT)
Jurisdiction
United Kingdom
Judgment Date
23 July 2010
Procedural Posture
VAT Bad Debt Relief Appeal / First Tier Tribunal (tax), Final Decision
Outcome
Appeal allowed
Legal Topics
VAT, Bad Debt Relief, Compromise Agreements, Attribution of Payments
Tax Law Commercial Law VAT Bad Debt Relief Compromise Agreements Attribution of Payments

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Parties

C P G Logistics Limited

Appellant

The Commissioners for Her Majesty’s Revenue and Customs (VAT)

Respondents

Procedural Posture

VAT Bad Debt Relief Appeal / First Tier Tribunal (tax), Final Decision

Legal Issues

  1. 1 Whether the appellant is entitled to bad debt relief under section 36(1) of the Value Added Tax Act 1994 for unpaid trading arrears after a compromise agreement with its debtor.
  2. 2 How to attribute consideration received under a compromise agreement between multiple claims, including trading arrears and unamortised investment sums.

Ratio Decidendi

The tribunal held that the compromise agreement was a global settlement covering both trading arrears and unamortised investment claims. The total consideration received (£1 million) was to be apportioned pro rata between these claims. The shortfall attributable to trading arrears, on which VAT had been accounted for, qualified for bad debt relief under section 36 VATA. The compromise agreement did not replace the original consideration for the supplies but was a receipt referable to the original consideration, and the statutory test is whether there is an outstanding amount after set-off of receipts against the original consideration written off.

Court Disposition

Appeal allowed

Orders

  • HMRC to pay the appellant's costs, to be assessed if not agreed