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Car fraud...tax implications

A client purchased a car from a seemingly reputable company via a bank transfer for £9,000. It seems she has been the victim of a scam , although she received an invoice the car and money seems to have disappeared.

She intended to use the car for business (with say 15% private use deduction).

If she never sees her money or car again how if at all should she treat the loss for tax purposes.

1. If we establish the car did exist could we claim £9,000 addition less disposal £0 = £9,000 balancing allowance then deduct private proportion.

2. If the car didn't exist , could we still claim the above treatment given the fact she had an invoice and purchased the "car" in good faith?

3. If not is their a specific deduction for fraud or any other way to get relief.

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14th Mar 2012 11:01

Oops

I guess the requirements for capital allowances aren't met (no ownership of the car)...

If the making of the payment constitutes a criminal offense for your client, then it won't be tax deductible (BIM43105).

In any other case I would have expected the cost to be allowed as a revenue deduction akin to theft from the business along the lines outlined in BIM45850.... but it would require the payment to have been made wholly & exclusively for the purposes of the trade.  I'm not convinced that this test would be met since the individual seems to have purchased the vehicle privately, and it was never actually used in the business.  She could only have claimed the 85% business use if she had actually used it 85% in the business, and in this case she has used it 0% in the business.  It does seem harsh, but I can't seem to find a better conclusion.

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By bbsltd
14th Mar 2012 11:58

mmmmm...

Thanks for that , its a difficult and if no relief available a harsh situation.....

Think the fact that the previous car was used 85% in the business should point to the fact that the new car would have the same use and could satisfy the wholly and exclusively test.

The car was also purchased out of business income.

Does having received and paid the invoice in good faith constitute ownership?

If for instance a second hand printer was purchased for £30 in the same way and didn't turn up would it make a difference 

 

Thanks for pointing out Bim 45850 , but in Bim 45851 it says

"The loss of stock-in-trade or of cash in hand by fire, burglary, theft or the negligence of an employee is, in the ordinary course of events, an allowable deduction. "

It may be possible to argue that it is theft of the money , and claim the full £9,000,

I think at the least the payment was wholly and exclusivly for the trade (otherwise that would make all cars purchased with private use , non deductible) but full disclosure and some negotiation with the HMRC will be required required

 

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16th Mar 2012 11:36

What was stolen...

was it a car or just money. The client never actually took ownership of the car - indeed it is likely that the car she thought she was purchasing never actually existed. This is the theft of money by fraud in the same way as if it were taken from the business's bank account or stolen from the safe one night.

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16th Mar 2012 11:45

Bad debt?

If you'd sold a car but weren't paid, that would be a bad debt.

In this case, you've sold the money for the car, which will not be paid.  Is this not also a bad debt, or are we into semantics?

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16th Mar 2012 11:52

Never Purchased

PWJ has just stolen my thunder!

I agree that what has been stolen has been money rather the car.  As such the 15% private use etc. etc. should never come into play.  The car was never substantially delivered and therefore ownership never occurred.

I feel the key point here is whether the money lost was actually paid out of the business account.  If so, then your client has a far better chance of establishing that the attempted expenditure was being made on behalf of the business.

And finally, I am assuming that the deception has been reported to the police.  The tax authorities will see this loss as a potential scam (i.e. you pay your mate £9,000 and claim it as tax deductable) and they will need to be able to see that it is indeed a fraud.  They may also make a judgment over whether your client has been negligent (aka stupid) in falling for if; though I do not know whether not being stupid is a requirement for claiming the loss.

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16th Mar 2012 12:51

Is that so?

 

 

Both the responses refer to the “wholly and exclusively” test. I have always understood that this test only applies to revenue expenses. The car purchase would be a capital expense. The division of capital allowances are made on a “..just and reasonable basis..” See CAA 2001 s 77(2).

 

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By Wilbur
16th Mar 2012 12:58

Money; that's what I want!

 

I agree with all the above who are concentrating on the financial aspect, not the fact that the 'intended' purchase was a fixed asset with motoring expense and/or VAT implications. The crime that has taken place is the theft of a sum of money, a deception or fraud if you prefer.

What may confuse the issue with regard accounting entries, or simplify it, is whether or not your client has an insurance policy that will cover the 'loss'?

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16th Mar 2012 14:07

Don't forget . . .

 . . . your responsibilities under s330 PoCA 2002 / MLR 2007 to file a Suspicious Activity Report with SOCA unless one of the exceptions applies.

David

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17th Mar 2012 11:05

Car Fraud - Bad debt

You have a duty to report to SOCA.

The loss of money from the bank account is a charge to Bad Debts

The captal allowance and private use scenario is totally spurious to this loss and to the fraud that has been committed by a supplier. 

 

 

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By bbsltd
19th Mar 2012 14:44

Update

Thank you for all your comments they have been very helpful....

This is an update to the story

Having discussed the transaction with the client , they had purchased the car from a seemingly reputable website , the client had phoned companies house regarding the company prior to the transaction who confirmed they had a 7year + history in filing accounts.

The scammers had basically stolen the companies name and the website had a similar address with "motors" substituted for "motor", the picture of the car was taken from an unconnected advert in ebay and had been sold several times.

 The registered address of the innocent company was their accountants office who have received several calls from people similarly scammed .

The possible saving grace for my client is that the scammers had phoned her the day of the transfer to say they had given her the incorrect bank details and could she transfer the money to another. It seems the account had been put on "stop" the same day by their bank , so it maybe the money is still in the account , but according to the police it may be several months before this can be established and before it can be taken out

 

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