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Cite as: [2009] UKFTT 185 (TC)

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Waddell t/a LCD Plant Hire v Revenue & Customs [2009] UKFTT 185 (TC) (27 July 2009)
VAT - INPUT TAX
Cars

[2009] UKFTT 185 (TC)

TC00140

Appeal number: EDN/09/02

Motor Cars; partial input tax recovery claim disallowed; penalty imposed; Appeal dismissed in respect of civil input tax recovery; allowed in respect of civil penalty.

FIRST-TIER TRIBUNAL

TAX

ROBERT & LILLIAN WADDELL

T/A LCD PLANT HIRE Appellants

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS (VAT) Respondents

TRIBUNAL JUDGE: Mrs G Pritchard, BL., MBA., WS

(Member): James D Crerar, WS

Sitting in public in Edinburgh on Tuesday 7 July 2009

Mr Robert Waddell – for the Appellants

Mr B Haley – instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

The Appeal

The disputed decision under appeal is the Respondents decision to assess the Appellant pursuant to Section 73 of the Value Added Tax Act 1994 "VATA 1994" for disallowed input tax in respect of the period 04/07 arising on the purchase of a motor vehicle. In addition there was a disallowance of a proportion of input tax reclaimed described as "depreciation" amounting to £1,479.23. The amount of tax in dispute is £5,494.92. Separately in the course of the Tribunal it became apparent that a mis-declaration penalty had been assessed and issued to the Respondents on 02/09/08 in the sum of £907. This was also admitted to probation.

The Facts

Robert and Lillian Waddell carry on business as a plant hire company and farmers at Blackfaulds Farm in Falkirk. They specifically in relation to farming activities deal in pedigree pigs. The business has been registered for Value Added Tax with effect from 1 April 1973 which was originally in his father's name. The Appellants registration occurred in 2001 on the death of Mr Robert Waddell's mother.

In relation to the matter under appeal the Appellant had been contacted by the Respondents on 26 February 2008 to query some VAT declarations made. During the course of that enquiry it appeared that £5,494.92 of the input tax recovery related to reclaiming of tax on the purchase or "depreciation" of motor cars. Mr Waddell had claimed 50% of the Value Added Tax paid on a Landrover Discovery purchased for a total price of £54,178 and bearing Value Added Tax of £8,031.38 on 13/03/07. In the same VAT quarter he had claimed £1,479.23 as "depreciation". This in fact appears to be a staged claim in respect of VAT as Mr Waddell had adopted a very unusual method of reclaiming input tax. The sum related to a previous vehicle which he had owned. In respect of this VAT had been reclaimed to the extent of 50% but was outwith the time period for HMRC to make a recovery of the full amount. The Respondents disallowed the claim and issued the assessment. The assessment was for a greater amount but the other matters were uncontested. The Appellant protested firstly on the grounds that he was entitled to the recovery of the input tax because the business was the only use for the vehicle and secondly that depreciation could be part of the input tax recovery claim.

HMRC replied and explained that his insurance certificate would require to be for business use only. Mr Waddell provided his insurance cover which included business and social cover. He also explained that the car was used only for LCD Plant Hire for going to and from various places where machinery is hired out carrying and collecting spares etc and for collecting and delivering pigs. However the pigs are transported in a trailer and not in the vehicle.

There seems to have been some confusion with regard Mr Waddell being the sole trader as it is now clear that Mr and Mrs Waddell trade together from the same site. In addition to the business vehicle she has a separate vehicle insured in her name for social and business purposes.

HMRC was not satisfied that input tax recovery had been correctly claimed and issued the assessment which became the subject of this appeal.

The Law

Legislation

Section 24 of the Act provides that a taxable person can claim input tax in respect of goods or services used or to be used by him for the purpose of any business which he carries on.

Section 25 of the Act provides that a tax payer is entitled, at the end of each prescribed accounting period, to deduct input tax from output tax before rendering payment of the net amount of VAT to HMRC.

The definition of a motor car is contained in the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222) ("the 1992 Order"), in which it is defined as follows:

""Motor Car" means any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

(a) is constructed or adapted solely or mainly for the carriage of passengers; or

(b) has to the rear of the driver's seat roofed accommodation which is fitted with side windows, or which is constructed or adapted for the fitting of side windows … …"

Under paragraph 7(1), there is a general exclusion from the recovery of input tax in relation to purchases of motor cars unless the motor car is a "qualifying" motor car. Paragraph 7(2)(A) details what is required for a motor car to qualify on business purpose grounds.

"(2)(E) For the purpose of paragraph (2)(A) [ie, the definition of a qualifying motor car)] the relevant condition is the letting on hire, supply, acquisition of importation (as the case may be) is to a taxable person who intends to use the motor car either ……

(a) exclusively for the purposes of a business carried on by him, but this is subject to paragraph 2(G) below; or

(b) ………."

Paragraph 2(G) qualifies (2)(E(a) in the following way:

"(2)(G) A taxable person shall not be taken to intend to use a motor vehicle exclusively for the purposes of a business carried on by him if he intends to:

(a) ………………….

(b) make it available (otherwise than by letting it on hire) to any person (including where the taxable person is an individual himself or where the taxable person in a partnership, a partner) for private use, whether or not for a consideration".

The relationship of paragraphs 2(E) and 2(G) or the Purpose Test and the Availability Test as the Chairman referred to 2E and 2G in the decision Faith v HMRC MAN08/0598 are relevant. The Chairman went on to state and we agree that these were specifically considered by the Court of Appeal in the case of Customs and Excise Commissioners v Upton (trading as Fagomatic) [2002] STC640. The facts of that case concerned a trader who carried on business as a cigarette vending machine operator. For the purposes of impressing his customers and staying ahead of competitors, he bought a Lamborghini motor car. He subsequently argued that the VAT incurred should be recoverable as input tax. The grounds were that he proposed to use the car exclusively for the purposes of his business. The VAT and Duties Tribunal who heard the case allowed the trader's appeal finding that, on the facts of the case, the trader had no intention of making the car available for his private use, and that therefore the tax should be deductible. That decision was appealed and Sir Andrew Morrett Vice Chancellor allowed the appeal on the grounds that a car might be "made available" if it was available in fact, and the owner did nothing to prevent its private use. The trader appealed and, upon appeal, the Court of Appeal upheld the Vice Chancellor's decision and, more importantly, challenged the basis on which the first instance Tribunal treated the Availability Test (as per paragraph 2(G)(b)) as being, in effect, the same as the Purpose Test contained in paragraph 2(E).

In the Upton Case the primary judgment was given by Peter Gibson LJ who stated at paragraph 22 of the judgment:

"The very fact of his [ie the trader's] deliberate acquisition of the car whereby he makes himself the owner of the car and the controller of it, means that at least ordinarily he must intend to make it available to himself for private use, even if he never intends to use it privately" [Emphasis added]

and at paragraph 23:

"… what is plain is that the Tribunal did not recognise that Mr Upton's deliberate action in acquiring the car and obtaining insurance permitting private use was to make the car available to himself for private use and that he must be taken to have intended that result in the absence of evidence to the contrary, even if he did not intend to use the car privately".

In short, the thrust of the Upton case is that on the acquisition of a car the tax payer, if he is successfully to reclaim VAT, must not only establish the Purpose Test (ie exclusivity of business use) but, in addition, he must also have done something specific which makes clear that the vehicle has been put beyond or is not available for private use. That requires a very high onus of proof, but nonetheless it is the position of the current law.

The Chairman went on to say "Although it is not strictly in point and I digress slightly but I refer to dicta in the case of CEC v Elm Milk Limited [2006] EWCA 164. There (at paragraph 36) Lady Justice Arden states as follows:

"The convoluted nature of the provisions demonstrate that Parliament regards the deduction of VAT on the purchase of cars as the exception rather than the rule, and something that is to be subject to rigorous scrutiny and the satisfaction of tough conditions"."

Submissions to the Tribunal

Mr Waddell submitted that his vehicle was used only for business purposes. He frequently finds work away from home and uses the vehicle for home to business purposes. Although he keeps the plant-hire equipment etc at home he requires to get work outside using the equipment and hiring the equipment and to that extent he requires home to business use. He accepted that the vehicles in respect of which the input tax recovery assessment had been made were both motor cars. They had full specifications as motor cars and had no adaptations other than fitting of tow bars. He had carried out no adaptations to convert them to anything other than a motor car as that would devalue them on resale. He had adopted the system of trying to recover only the VAT which would eventually equate with the VAT on a resale value. It was a rather curious means of calculating his input tax recovery claim. It also appears that he then staged repayment claims which he referred to as "depreciation". In addition it appeared he has also charged VAT on the sale of the vehicle. Before he purchased the latest Landrover Discovery he had attempted to buy an American Pickup but was unable to purchase one with a diesel engine in this country and would have had to import it which he considered too difficult. He accepted that the recent purchase was a very high specification sports vehicle but he required the engine power for the towing purposes with trailer as the previous vehicle had made life very difficult when he was towing pigs home from England. The type of pedigree pigs they matured on the farm required to be purchased in the South of England. Both his adult children who could drive had vehicles of their own. He had three other under-driving age children at home. He had absolutely no requirement to use the Landrover Discovery for private purposes. He and his wife did not take holidays nor did they socialise. He did not keep the vehicle separately locked away except during one period when he had no work beyond the farm and in order to preserve the disc brakes during winter had locked the vehicle under shelter. This was not the usual habit. The Appellant had made no reference to any cases but did refer us to a copy of an advertisement which showed that a conversion of a Landrover Discovery could be made at a cost of £1500 which would come with a certificate showing that it met the criteria for an input tax recovery claim. However Mr Waddell's vehicle was not so adapted.

The Respondents Case

Mr Haley referred us to the legislation quoted above and to the quoted case John Andrew Thomas Faith v Commissioners of HMRC appeal no MAN/08/0598 which set out 2 tests which had to be met namely the purpose test which was on the issue of whether the vehicle was a motor car which is not in dispute. The second is the more familiar availability test. He suggested that although Mr Waddell only used the vehicle for business purposes that the vehicle was a motor car and that if it had been required in an emergency of any sort it would be available for a social use. Because the vehicle was available it therefore could not meet the criteria set out in the legislation or case law. He suggested in particular since there had been no substantive adaptations and since it is registered as a motor car and insured for purposes which include social domestic and private use, that the availability test was satisfied.

The Decision

The Tribunal finds the following facts:-

In the first place we are satisfied the vehicle falls within the definition of a motor car as set out in paragraph 2 of the 1992 Order. This is also shown on the receipt for payment at page 34 of the bundle of evidence.

It would be excluded from recovery of input tax pursuant to paragraph 7 of the 1992 Order except to the extent that it is (a) a qualifying motor car and (b) the relevant condition is satisfied.

We find based on the Appellant's evidence that the purpose test is satisfied. There is no doubt in our mind that the Appellants purposes in purchasing this vehicle were exclusively for a business purpose and his evidence on that was clear and interesting. On the matter of the specification as a sports vehicle and costs considerably more than the basic price due to additional provisions we were satisfied that he required more power under his bonnet in order to tow animals in his trailer long distances.

However on the availability test there is absolutely no doubt that the vehicle was available for private use. It was not separately locked away. It was on the premises where the family lived. Although his two children who drive have vehicles of their own and are not insured to drive the vehicle, his wife could drive the vehicle although she had a vehicle of her own. The Appellant had carried out no adaptations to convert the vehicle in any manner of way. It lends credibility in our view to the availability of the vehicle for private use. As was pointed out to Mr and Mrs Waddell at the Tribunal there was really no way that they would not use this vehicle in the event of an emergency when Mrs Waddell was perhaps away from home for a purpose other than a business purpose.

We were therefore satisfied that the Value Added Tax which had been reclaimed as outlined above was not recoverable by the Appellants.

On the matter of the mis-declaration penalty however we were satisfied that the Appellant was entirely credible and had made an honest mistake. In the circumstances Mr Haley conceded that the mis-declaration penalty would be withdrawn. To that extent only the Appeal is successful, otherwise it is refused.

Expenses

No expenses are due to or by either party.

MRS G PRITCHARD, BL., MBA., WS

TRIBUNAL JUDGE

RELEASE DATE: 27 JULY 2009