First-tier Tribunal (Tax)

[2011] UKFTT 292 (TC)

TC01154

Appeal number TC/2010/01076

VALUE ADDED TAX – claim to deduct as input tax the VAT charged on the supply of a motor car, business entertainment expenditure and expenditure on clothing and ‘meals/trips’ – the motor car was acquired with the intention that it would be used exclusively for the purposes of the Appellant’s business but no legal or physical restraint was put on its use to prevent it being used for private use – the motor car was therefore made available for private use following Customs and Excise Commissioners v Upton (t/a Fagomatic) and the claim in respect of it failed pursuant to the VAT (Input Tax) Order 1992, paragraph 7  – likewise the claim in respect of business entertainment expenditure failed pursuant to paragraph 5 of the same Order – but the claims in respect of clothing and ‘meals/trips’ were allowed as being relative to goods or services used or to be used for the purposes of the Appellant’s  business – appeal allowed in part

FIRST-TIER TRIBUNAL

TAX CHAMBER

HELLESDON LEATHER AND CLOTH COMPANY LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Value Added Tax) Respondents

TRIBUNAL: JOHN WALTERS QC

JOHN AGBOOLA MBA FCCA

Sitting in public in Norwich on 14 April 2011

Mr. T. Milton, Director, for the Appellant

Mr. B. Robinson, Officer of HMRC, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.     Hellesdon Leather and Cloth Company Limited (“the Appellant”) appeals against an assessment to value added tax (“VAT”) for the period 01/09, originally in the amount of £7,747 plus interest, but reduced on review to £7,672 plus interest (of £155.87).  That amount relates to the recovery of input tax alleged by the Respondent Commissioners (“HMRC”) to have been wrongly claimed, as follows:

On the purchase of a Range Rover car (“the Vehicle”) £7,421

On entertainment expenditure £25

On clothing expenditure £19

On expenditure on ‘meals/trips’ £207

Total £7,672

2.     The Appellant’s Notice of Appeal dated 4 January 2010 gave as its grounds for appealing simply that the Vehicle was used only for business (delivery of furniture, etc) and not for anyone’s private use.  No mention was made of the other expenditure and HMRC came to the appeal hearing thinking that it was only the input tax on the Vehicle which was in issue.

3.     Mr. Milton, for the Appellant, made clear that he wished to contest all the items and we allowed an appropriate amendment to the Appellant’s Notice of Appeal, having ascertained that Mr. Robinson, for HMRC, was able to deal with an appeal against the recovery of the input tax claimed on the other expenditure.

4.     Mr. Milton gave evidence at the hearing and was not cross-examined by Mr. Robinson.  From his evidence it is clear, and we find as a fact, that the Vehicle is a ‘motor car’ within the meaning of paragraph 2 of the VAT (Input Tax) Order 1992 (SI 1992/3222) (“The Order”) – which was not disputed – and that the Vehicle was purchased by the Appellant with the intention that it would be used exclusively for the purposes of its business.

5.     However, we also find as a fact that there is no legal or physical restriction imposed on the use of the vehicle to ensure that it is not in fact used by any person (most obviously Mr. Milton or another director) for private use.

6.     Accordingly we hold, following the judgment of the Court of Appeal in Customs and Excise Commissioners v Upton (trading as Fagomatic) [2002] BVC 451, [2002] WCA Civ 520, that the Vehicle was ‘made available (otherwise than  by letting it on hire) to’ the directors ‘for private use’ within the meaning of paragraph 7(2G)(b) of the Order, with the consequence that the Appellant is not to be taken for the purposes of the Order as having intended at the time of the acquisition of the Vehicle to use it exclusively for the purposes of its business – see: paragraph 7(2G) of the Order (the introductory words).

7.     In consequence the VAT on the supply to the Appellant of the Vehicle is excluded as a matter of law from any credit under section 25 of the VAT Act 1994 (i.e. from ranking as creditable input tax) by paragraph 7(1) of the Order – the ‘relevant condition’ (see: paragraph 7(2)(a)(iii) and paragraph 7(2E) of the Order). Paragraph 7(2E) makes reference to paragraph 7(2G) considered above.

8.     In case the Appellant considers this conclusion is harsh, the Tribunal adds the comment that, by the Order, the Treasury has decided (and the House of Commons has approved) a very strict test for the credit of VAT on a purchase by a business of a motor car.  As HMRC correctly argued, it is not sufficient for these purposes that the car was truly acquired by the Appellant solely for business purposes, the applicable legislation requires that in addition an effective legal or physical restraint must be in place preventing private use of the car by anyone who would in the normal way be entitled to use (even for business purposes) a motor car acquired by the Appellant.  The absence of any such legal or physical restraint is, unfortunately for the Appellant, fatal to its claim in respect of the Vehicle.

9.     Similarly, the Order (by paragraph 5) excludes from credit as input tax under section 25 VAT Act 1994 any tax charged on the supply of goods or services used or to be used by the person supplied (in this case, the Appellant) for the purposes of business entertainment.  The Appellant has not shown that its use of the goods or services to which the £25 VAT claimed as input tax relate are excluded from being use for the purposes of business entertainment for the purposes of paragraph 5 of the Order and therefore the assessment of this amount must stand.

10.  On the other hand the Appellant has shown, by the oral evidence of Mr. Milton, that the expenditure on clothing (relevant VAT charged of £19) and ‘meals/trips’ (relevant VAT charged of £207) was expenditure on goods or services used or to be used for the purposes of the business and HMRC accepted at the hearing that these items of VAT were properly creditable as input tax under section 25 VAT Act 1994.

11.  The appeal is therefore allowed in part (re: the VAT referable to clothing and ‘meals/trips’) but otherwise dismissed (re: the VAT referable to the Vehicle and the entertainment expenditure).

Right to apply for permission to appeal

12. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN WALTERS QC

JUDGE OF THE FIRST-TIER TRIBUNAL

RELEASE DATE: 4 May 2011

© CROWN COPYRIGHT 2011