First-tier Tribunal (Tax)

[2010] UKFTT 7 (TC)

TC00326

Appeal number MAN/08/8100

FIRST-TIER TRIBUNAL

TAX

                                   WILLIAM J. HETHERINGTON                  Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS (VAT)         Respondents

TRIBUNAL : IAN WILLIAM HUDDLESTON (JUDGE)

                        JOHN ADRAIN FCA

Sitting in Belfast on 5^th August 2009

© CROWN COPYRIGHT 2009

S.13 HODA 1979 – use of rebated fuel in a motor vehicle – use for private and not business purposes – onus of proof not discharged – Appeal Dismissed

DECISION

The Appeal

1.               This appeal relates to a notice of assessment to excise duty which was originally raised in the sum of £7,363.  That amount was subsequently reduced to £4,115, after it came to light that the Appellant owned the vehicle for a shorter period than originally attributed to him and that the period of the fuel audit was consequently reduced.

2.               HMRC have formally reviewed the case as required under Section 15 of the Finance Act 1994.

The Facts

3.               The facts of the case are as follows.

4.               William J. Hetherington ("the Appellant") lives at 31 Main Street, Pomeroy, County Tyrone, BT70 2QH.  On the 19 May 2007, a police officer observed the Appellant fuelling a ford transit mini bus (registration DHZ 2745) from a rebated gas (or red diesel) pump.  The vehicle ("the vehicle") was seized by the police and removed to their premises in Omagh, pending inspection.  That inspection was carried out on the 24 May 2007 when a sample of fuel was drawn from the vehicle's running tank.  That sample showed that rebated gas oil (or red diesel) was present. 

5.               The Appellant was interviewed on that occasion and provided the following information.

(a)             he had owned the vehicle since 13 January 2005 (in fact this ultimately was found to be incorrect, in that he actually acquired it on the 13 January 2006).  The vehicle was purchased for £1,000;

(b)             it had been taxed for use on the public road and MOT'd until September 2007;

(c)             the Appellant did not drive or operate any other vehicles;

(d)             when interviewed, the Appellant said he was a self employed welder, not registered for VAT, but off work due to illness;

(e)             he indicated that he normally fuelled the vehicle at Tesco in Dungannon, but that it had last been fuelled the previous Saturday in Carrickfergus;

(f)              fuel was paid for in cash, but he only very occasionally kept fuel receipts;

(g)             on this occasion he had fuelled the vehicle with about £20 of rebated fuel by mistake and, at the time of fuelling, the tank was almost empty.  The running tank had a capacity of 60/70 litres;

(h)             he had not used much fuel over the preceding period – about £20 per week;

(i)              he would normally cover 300 to 400 miles per week;

(j)              at the time that the vehicle was stopped, the mileage was 159,338;

(k)             the Appellant also produced an MOT Certificate which showed that on the last vehicle test (29 August 2006) the mileage was 131,982.  The difference between the two figures gave a mileage of approximately 27,000 for an eight month period between the vehicle test date and the date that the vehicle was stopped.  When this was put to him, the Appellant said that the high average mileage (approximately 3,500 per month) was due to frequent trips to Belfast because his wife was attending hospital there, and two trips to England. 

(l)              When asked, he said that the vehicle was not used as a taxi, that he had never taxied, and that he did not hold a psv licence for the vehicle;

(m)           the Appellant, when questioned, indicated that he was aware of the difference between "red" and "white" diesel, and that red or rebated fuel was for agricultural use and that it was an offence to drive a vehicle on the public road using rebated fuel or red diesel.

6.               As a result of the interview, a fuel audit was carried out.  The Appellant produced only ten fuel receipts to substantiate legitimate fuel purchased.  As a result, the fuel audit revealed a substantial deficit in the volume of fuel required to complete what was in relative terms a very large mileage.   An assessment was issued.

7.               The initial assessment of £7,363 covered the period from the 14 January 2005 (the date that the Appellant had initially said was the date that he had acquired the vehicle) to 18 May 2007 (being the date the vehicle was stopped by the police).

8.               It subsequently transpired, however, that the Appellant had acquired the vehicle a year later and therefore the assessment was reduced to £4,115 being the amount attributed to the actual period of ownership.

9.               The methodology adopted in calculating the assessment was as follows:

(a)             the difference between the mileage at detection (159338) and the mileage at the last MOT test date (29 August 2006) (131982) was 27,356 in what was a period of 38.42 weeks;

(b)             this established an average mileage of 712 miles per week, which was then applied to the entire period of ownership (subject to the adjustment to that mentioned above).

10.            Subsequent to the issue of the assessment, the Appellant appointed the firm of  Patrick Fahy & Company, Solicitors to represent him. 

11.            There followed a good deal of correspondence between that firm and HMRC – largely debating whether or not a formal request for a review had been made.  I shall not delve into that correspondence, save to say that it appeared to be unnecessary to some extent.  In the final instance, however, HMRC did undertake a review, and the review letter upholding the assessment was issued on the 21 July 2008.

12.            That review:

(a)             stated that the reviewing officer was satisfied that rebated fuel had been detected in the vehicle;

(b)             that the existence of that fuel provided the assessing officer with the basis for examining the Appellant's use of fuel and for carrying out the fuel audit;

(c)             confirmed that the methodology adopted (which is summarised above) was found to be sound, subject only to a minor arithmetical  adjustment;

(d)             concluded that the methodology was consistent with HMRC policy and guidance, and that therefore the assessment had been properly raised.

13.            The reviewing officer did accept that the MOT Certificate confirmed that the vehicle was a private vehicle and not one licensed for carrying passengers.  Equally it was accepted that the registration of the vehicle showed that it had been registered as "private / light goods".  It seems to the Tribunal, however, from the review that the Appellant's original comment, given as it was under caution, that he was self employed welder, taken together with the very high mileage, had led the reviewing officer to take the view that the vehicle was being used for something more than simply private use.

14.            The reviewing officer therefore:

"…… concluded that, in the absence of any information ……. to the contrary, it was likely that he [the Appellant] was in business (as a self employed welder or otherwise) and that he had used his vehicle for business purposes over the period."

15.            In terms of the evidence produced by the Appellant as part of the audit, the reviewing officer did have regard to the ten or so fuel receipts for the purchase of approximately 218.78 litres of derv in the period between the 27 March and 9 July 2007.

16.            Those receipts were for small cash payments (each approximately £20) and the reviewing officer considered that the Appellant would have needed to purchase at least this amount of fuel every day in order to cover the recorded mileage over the period.

17.            Whilst the assessment itself was upheld, it was subsequently reduced in light of HMRC's discovery that the vehicle had been acquired on the 13 January 2006 as opposed to the 13 January 2005.

18.            By a letter of 19 September 2008, the Appellant's solicitors were advised of the reduction of the assessment to a figure of £4,115.  It is that amount which remains in dispute and is the subject of this Appeal.

            The Law

19.            Section 12 of the Hydro Carbon Oil Duties Act 1979 ("HODA") provides for a rebate of duty to be applied on oil which is delivered for home use.

20.            Section 12 of HODA states that rebated duty is not allowed on oil which intended for use in road vehicles.  In particular, Section 12(2) states:

"No heavy oil, on whose delivery for home use rebate has been allowed …….. shall:

(a)        be used as fuel for a road vehicle; or

(b)        be taken into a road vehicle as fuel;

unless an amount equal to the amount for the time being allowable in respect of rebate on like oil has been paid to the Commissioners."

21.            Section 15 of HODA then provides that any person who breaches Section 12 is liable to a penalty levied under Section 9 of the Finance Act 1994.

22.            Section 13(1A) of HODA provides the Commissioners with the statutory power to assess:

"An amount equal to the rebate on like oil …….. as being excise duty due from any person who used the oil or was liable for the oil being taken into the road vehicle."

23.            HMRC's case is that all of the statutory conditions have been met, and that the assessment has been properly raised in line with the Commissioners' established policy.

24.            It is perhaps worth noting at this stage that the Commissioners' policy is not, in normal circumstances, to carry out a fuel audit or raise an assessment against private motorists who are detected using rebated fuel.  This, however, is an extra statutory concession, because there is no such distinction made under HODA between private or commercial users.  HMRC simply adopt that policy because, as I understand it, their view is that where a person is trading and is found to be using rebated fuel illegally, that person ought, in the normal course, be able to establish, as part of a fuel audit, more accurately the quantity of legitimate fuel which he or she may have purchased – it obviously being a requirement that business users retain their records not just for that purpose but for all the facets of taxation to which business users tend to be subject.

The Appellant’s Case

25.            In the notice of Appeal which was served after the review, the Appellant gave the following grounds of appeal:

"I believe the assessment arrived at failed to take account adequately of representation made by me.  The vehicle concerned, whilst it is a psv type vehicle, is not used for this purpose and was MOT'd like a regular car."

26.            The Appellant gave evidence under oath.

27.            He appeared to the Tribunal to be a credible witness, explaining that he had bought the mini van largely because it was cheap and was in fact a vehicle which he had had previously been in the habit of renting to transport his extended family to and from their holiday home in Donegal.

28.            HMRC suggested that the average mileage for a rural user is 9,000 miles.  This was not contradicted by the Appellant, but by way of explanation of the higher than normal mileage the Appellant gave evidence that:

(a)             for at least a six month period within the assessment period he had been bringing his wife, who had been diagnosed with a cancer related illness, to receive treatment in Belfast – a round trip of approximately 100 miles;

(b)             that both during that period and beyond, he travelled at least three, perhaps four, times per week to the family holiday home in Donegal – a round trip of approximately 160 miles;

(c)             that during the period the Appellant had made at least two trips to England – a total mileage of 2,000 miles.

29.            The Appellant was adamant that the vehicle had never been used for anything other than for personal use, and that he did not, therefore, retain very many receipts to establish the use of lawful fuel. 

30.            As to the occasion in question, the Appellant gave evidence that it was simply a mistake that he filled up with red diesel and that he had noticed his mistake on the forecourt of the petrol station simply because the pump was delivering a higher than average amount for the £20 of fuel which he was putting into the running tank.

31.            In cross examination, the Appellant gave evidence that his income at the relevant time consisted mainly of statutory sick pay and other benefits yielding a total of approximately £100 per week.  When asked how he could afford to run the vehicle over 27,000 miles in a period of eight months, the Appellant suggested to the Tribunal that his son and daughter contributed to the running costs.

32.            As regards the excess mileage, it appeared to the Tribunal, and was conceded by the Appellant, that even based on the evidence that the had given that there was a considerable shortfall between the 27,000 miles which the vehicle had covered in the eight month period, and the mileage which he had attempted to explain in the course of his evidence.

33.            HMRC's methodology for calculating the assessment was put to the Appellant in that they had based the assessment on an average mileage of 712 per week.

34.            The Appellant acknowledged that this was high, but could give no greater explanation for the mileage than that already provided.

35.            The Appellant confirmed that he was not involved in any business activity, nor had he been completing tax returns for any of the period to which the fuel audit related.

            Decision

36.            From the evidence adduced, we find that the Appellant, in all probabilty, was simply using the vehicle for private use, although we remain very unclear as to how the excess mileage over that which the Appellant has tried to explain was made up.  There is clearly a discrepancy of some magnitude, which is strange, given the running costs involved and the Appellant's personal financial circumstances at the relevant time.

37.            The main issue, however, is that once the Appellant had been found with rebated fuel in his running tank, two things arise:

(a)             the first is that HMRC were entitled to carry out a fuel audit and, as we know, the consequences of that fuel audit resulted in their raising an assessment to excise duty.  This they did and, on the evidence, we cannot fault the methodology which HMRC adopted in making their calculation – at least insofar as the revised assessment is concerned;

(b)             the second consequence follows as an immediate result of the assessment, namely that the onus of proof falls to the person found misusing rebated fuel to prove legitimate use – an onus that can be discharged either through the review process or, if it goes that far, the appeal process.  The fact that the onus passes to the person alleged to have defaulted is one of the principles set out in HODA  - and these apply regardless of whether the offender is a private or a business user – the legislation makes no distinction, nor can this Tribunal.  In the present case, the Appellant did produce some ten fuel receipts.  Those were taken into account in the assessment which has been issued.  If other cogent evidence had been produced, that too, we have no doubt, would have been taken into account. 

38.            It is not enough under the legislation as it stands, however, for a defaulter to say that simply because he or she is a private user that they should, therefore, be excused.  The fact or nature of a particular use does not alter the fact that the onus of proof is on the Appellant in such circumstances to establish legitimate fuel use.

39.            As I have already said, we found the Appellant to be a credible witness but, regrettably, he did not discharge the onus of proof which falls upon him to establish legitimate fuel use for the mileage covered.

40.            In those circumstances, therefore, we dismiss the Appeal.

41.            No order as to costs.

IAN WILLIAM HUDDLESTON
TRIBUNAL JUDGE

RELEASE DATE: 8 January 2010