First-tier Tribunal (Tax)

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Cite as: [2013] UKFTT 97 (TC)

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William Cadbury v Revenue & Customs [2013] UKFTT 97 (TC) (04 February 2013)
VAT - ZERO-RATING
Imports

[2013] UKFTT 97 (TC)

TC02515

Appeal number: TC/2011/03817

VALUE ADDED TAX – Import of motor cruiser – Value Added Tax Act 1994 Schedule 8 Group 12 item 2 (i) – whether import zero rated under relief provisions relating to use by persons with disabilities – No – Appeal dismissed

FIRST-TIER TRIBUNAL

TAX CHAMBER

	WILLIAM CADBURY	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S	Respondents
	REVENUE & CUSTOMS

TRIBUNAL:	JUDGE TIMOTHY HERRINGTON
	MICHAEL SHARP

Sitting in public at 45 Bedford Square, London WC1 on 14 September 2012

The Appellant in person

Mark Fell, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

DECISION

Introduction

1. This is an appeal by Mr William Cadbury (“Mr Cadbury”) against the review decision of the Respondents (“HMRC”) dated 19 April 2011 upholding a decision to issue an import VAT assessment dated 19 April 2011 (“the Assessment”) for £20,260 in relation to the import of a 40 foot Swordsman motor cruiser (“the Boat”). Mr Cadbury maintains that the import of the Boat is zero rated under relief provisions relating to the use by persons with disabilities which is denied by HMRC.

2. We heard oral evidence from Mr Cadbury and a bundle of documents and relevant correspondence was submitted. We should say at the outset that Mr Cadbury was an impressive and honest witness who was prepared to assist the Tribunal in giving a full account of the relevant events even where the matters concerned did not always assist his case. He also presented his case and made his submissions ably. We have no hesitation in accepting his evidence without reservation. Mr Fell was also of considerable assistance in ensuring that all the relevant arguments were considered in the light of the fact that Mr Cadbury was not legally represented.

The Facts

3. Based on the evidence that we heard and the documents before us we set out our findings of fact.

4. Mr Cadbury has a severely disabled son, Richard, who has cerebral palsy, as a result of which he cannot walk, stand or talk or even sit up. He is confined to a wheelchair most of the time. The Cadbury family, to their credit, are keen to ensure that Richard is able to indulge his passion for boats and in that regard Mr Cadbury decided during 2009 to purchase a boat of a particular design, known as a “Swordsman 40” which has side racks which make it easier to get Richard on board than is the case with the boat he then owned. In addition the Swordsman 40 is easier to adapt for Richard than the boat that Mr Cadbury then owned. The Swordsman 40 was also big enough to sleep the whole of the Cadbury family (comprising six members), and to give enough room for Richard’s wheelchair. Mr Cadbury confirmed in cross examination that the Boat was used by the whole of his family and other friends and when Richard was on board it would always be in the company of family or friends.

5. By June 2009 Mr Cadbury had identified the Boat, a Swordsman 40. The Boat was registered and kept in Jersey. Consequently, on 18 June 2009, before Mr Cadbury purchased the Boat he contacted HMRC’s Contact Enquiry Centre to ascertain the correct tax treatment for importing a boat from Jersey into the UK and was advised that he will have need to pay VAT at the standard rate of 15% of the value of the Boat. Mr Cadbury was told that he will need to complete a form C384V on the basis of which HMRC would issue an assessment for the correct amount of VAT.

6. On 27^th July 2009 Mr Cadbury completed the purchase of the Boat and paid the agreed purchase price of £135,000. He registered it in his own name at the Registrar of British Ships in Jersey the next day.

7. On 30^th July 2009, Mr Cadbury departed from Jersey on the Boat to bring it back to the UK. Unfortunately, it suffered a breakdown and he had to put into port at Cherbourg on 31^st July in order that it could be repaired. As this process would take some time Mr Cadbury returned to the UK by ferry.

8. On 6 August 2009, whilst Mr Cadbury was still in the UK waiting for the repair to be completed, he looked at HMRC’s website to check on how to pay the VAT due on importation of the Boat. He came across information relating to the importation of vehicles and vessels by disabled persons and contacted HMRC’s Contact Enquiry Centre by telephone to see if relief from VAT would therefore be available, bearing in mind that the Boat was intended to be used by Richard. Mr Cadbury says, and we accept his evidence, that having described the fact that the Boat would be used by his family, including Richard, he was told that relief from VAT would be available in respect of the purchase. Under cover of its letter of 7 August 2009 HMRC sent Mr Cadbury Public Notice 371 (“PN 371”), an explanatory notice covering the ability to import goods for disabled people free of duty and VAT, and Public Notice 710/7 (“PN701/7”) a more general notice explaining which goods and services for disabled people are zero rated for VAT purposes. The letter also enclosed two copies of Form C384V, which Mr Cadbury was advised to complete and attach to it a certificate claiming relief from VAT.

9. We observe at this point that PN371 does not specifically deal with the position of boats imported for the use of disabled persons. Paragraph 2-2 of PN371 describes in broad terms the categories of goods that can get relief from VAT on importation and in particular refers to “any goods specially designed to give educational, employment or social help to people with physical or mental disabilities”. This paragraph also makes it clear that relief is not allowed on “any non-specialised goods imported for subsequent adaption to make them suitable for use by disabled people”. PN 701/7 is more detailed but it is focused exclusively on supplies of goods rather than imports. PN 371 specifically refers readers to PN701/7 for further information about VAT reliefs for disabled people. Paragraph 4.4 of PN 701/7 sets out in detail the conditions for relief relating to the supply of boats to disabled persons. It provides:

“You can zero rate the supply to an eligible customer as detailed in paragraph 3.1 of a boat which is designed, or prior to supply is substantially and permanently adapted, for use by disabled persons or to carry disabled persons. To qualify for relief, a boat should include all or most of the following features:

· a ramp for wheelchairs;

· lifts and level non cambered surfaces to accommodate wheelchair movements;

· specialised washing and lavatory facilities accessible to disabled people;

· specially equipped galley and sleeping areas and steering facilities for use by disabled people;

· handrails; and

· wheelchair clamps.”

An “eligible customer as detailed in paragraph 3.1” includes, as explained in paragraph 3.2.1 of PN701/7, a person “with a physical or mental impairment which has a long-term and substantial adverse effect upon his/her ability to carry out everyday activities”. This paragraph also explain that if a parent, spouse or guardian acts on behalf of such a disabled person the supply is treated as being made to that disabled person and that the goods must be acquired for their personal use, which is further explained in paragraph 3.5 of the Notice as being made available specifically for the use of an eligible individual.

10. By the time these documents arrived at Mr Cadbury’s home he had already left for France to pick up the Boat. He saw HMRC’s letter of 7 August on his return to the UK with the Boat on 11^th August 2009.

11. On 20^th August 2009 Mr Cadbury completed Form C384V and attached to it a claim for relief incorporating a declaration, signed by him on Richard’s behalf, declaring that Richard was disabled by reason of his cerebral palsy and was importing the Boat for domestic or his personal use.

12. On 27 August 2009 Mr Pitcher of HMRC wrote to Mr Cadbury asking him to supply further information with regard to the claim for VAT relief, namely a final purchase invoice identifying the vessel and photo evidence showing any and all adaptations made to the Boat “before purchase”.

13. Mr Cadbury received Mr Pitcher’s letter on 29 August 2009. On or about 10 September 2009 he telephoned Mr Pitcher. Mr Cadbury’s evidence of this conversation, which we accept, is that he asked Mr Pitcher what else he needed to send with the sales invoice. In reply Mr Pitcher asked whether Mr Cadbury had purchased the vessel to which Mr Cadbury answered yes. Mr Pitcher then asked whether Mr Cadbury had carried out all the adaptations listed in his letter of 27^th August, which had quoted the guidance in paragraph 4.4 of PN 701/7 set out in paragraph 9 above. Mr Cadbury stated that he had not because all but the wheelchair clamps were not necessary in Richard’s case. Mr Cadbury explained to the Tribunal that Richard was so severely disabled that he had to be assisted with all of his movements so the other adaptations would have been superfluous. Mr Pitcher completed the conversation by stating that as Mr Cadbury had purchased the Boat without having the modifications effected in advance the vessel was not eligible for relief and put the phone down.

14. It would appear that the fitting of the wheelchair clamps was effected some time in September 2009; we were shown photographs of the Boat dated 15 October 2009 clearly showing the clamps in place. It was accepted by Mr Cadbury that the fittings took place after the Boat had been imported into the United Kingdom.

15. Mr Cadbury then pursued the matter down a different course having tried unsuccessfully to follow up with Mr Pitcher. In October 2009 he took informal advice from a local customs officer who patrols the river near Mr Cadbury’s home who advised him to appoint a shipping agent to pursue the matter. Accordingly Mr Cadbury instructed Peters & May who declared the Boat to HMRC using a form C88, entering the Boat as an article specifically designed for use by persons with disabilities and declaring that VAT relief had been applied for under the terms of PN701/7. On 21 October 2009 HMRC issued an Import Entry Acceptance Advice stating that the entry had been accepted and cleared and that the VAT due was zero.

16. It would appear that this parallel process was unknown to the HMRC unit that had dealt with Mr Cadbury’s claim for relief that had been submitted on 20 August 2009, as described in paragraph 11 above. Accordingly on 26 October 2009 that unit wrote to Mr Cadbury chasing the information requested in Mr Pitcher’s letter of 27 August 2009. The letter enclosed the Assessment and requested that either the information previously requested be supplied, or the Assessment paid within 21 days. Mr Cadbury ignored this letter as he believed it to have been superseded by the clearance he received on 21 October 2009 as referred to in paragraph 15 above. Peters & May did however send a fax to Mr Pitcher of HMRC on 6 November 2009 attaching a copy of the clearance they had obtained.

17. Mr Cadbury had assumed the matter had now been concluded. He was therefore surprised to receive a letter almost a year later on 3 November 2010 from Mr Pitcher’s unit at HMRC. This was sent by a Mrs Angove. It appears that HMRC had investigated the circumstances of Peters & May’s application and concluded that it was valid for relief from import duty only and not VAT relief. The letter stated that for VAT relief a clearance based on a declaration of the type Mr Cadbury completed in August 2009 as described in paragraph 11 above was required; in respect of that declaration HMRC had been seeking further information from Mr Cadbury. Mrs Angove apologised for the delay in pursuing the matter.

18. After a review of the position following further representations from Mr Cadbury HMRC made a final decision concerning the application for relief and concluded that as Mr Cadbury had been unable to provide the further information requested, the Assessment would stand and payment of the sum due under it was requested. This was set out in a letter from Mrs Angrove to Mr Cadbury dated 30 November 2010. During the course of conversations that Mr Cadbury had with Mrs Angove before the issue of the final decision, Mrs Angove conceded that Mr Pitcher had originally given Mr Cadbury wrong information concerning the conditions needed for relief from VAT on importation. Mr Pitcher in his letter of 27 August 2009 and his subsequent telephone conversation with Mr Cadbury in September 2009 had told Mr Cadbury that the necessary adaptations had to be completed before the Boat had been purchased, whereas, as is apparent from the legislation as discussed below, the adaptations must be completed before the Boat is imported. Mr Cadbury’s response to this was that he could have coped with such a condition as it would not have been reasonable to have asked the vendor to make the adaptations before the purchase was completed, but in any event it is common ground that the adaptations were not completed until after the Boat had been imported.

19. Mrs Angove’s decision was reviewed at Mr Cadbury’s request by Mr Perry Young of HMRC and the decision in that regard was set out in Mr Young’s letter of 19 April 2011(“the Review Decision”). The relief was declined on the basis that the necessary modifications to the Boat had not been carried out before importation. Mr Young also confirmed that the clearance obtained by Peters & May was not effective for VAT purposes as it was clear that the relief was subject to satisfaction of the conditions set out in PN 701/7 and these had not been complied with.

Legislation

20. Section 1 of the Value Added Tax Act 1994 (“VATA”) imposes a charge to VAT on the importation of goods from outside the Member States, and states that Import Tax is payable as though it is duty of customs:

“1. Value added tax

(1) Value added tax shall be charged, in accordance with the provisions of this Act - …

(4) VAT on the importation of goods from places outside the Member States shall be charged and payable as if it were a duty of customs.”

21. Regulation 136 of the VAT Regulations 1995 (“the VAT Regulations”) states that goods imported from the Channel Islands are to be treated as goods imported from outside Member States:

“136 For the purposes of the Act the following territories shall be treated as excluded from the territory of the Community-

(a) the Channel Islands…”

22. Section 5 of the Customs and Excise Management Act 1979 (“CEMA”) states that the point at which a duty of customs is incurred, and accordingly a liability to import VAT under s.1 VATA, as being the time of arrival at the port of entry:

“5. Time of importation, exportation, etc

(2) Subject to subsections (3) and (6) below, the time of importation of any goods shall be deemed to be-

(a) where the goods were brought by sea, the time when the ship carrying them comes within the limits of a port;

…

(8) A ship shall be deemed to have arrived at or departed from a port at the time when the ship comes within or, as the case may be, leaves the limits of that port.”

23. Section 30(2) VATA provides for the zero rating of certain supplies as set out in Schedule 8:

“30 Zero-rating

(1) Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section-

(a) no VAT shall be charged on the supply; but

(b) it shall in all other respects be treated as a taxable supply;

and accordingly the rate at which VAT is treated as charged on the supply shall be nil.

(2) A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description of the time being specified in Schedule 8 or the supply is of a description for the time being so specified.”

24. According to Schedule 8 VATA, handicapped persons are entitled to relief from VAT on boats designed or adapted for their personal use as follows:

“Schedule 8

Group 12 – Drugs, medicines, aids for the handicapped

2 The supply to a handicapped person for domestic or his personal use, or to a charity for making available to handicapped persons by sale or otherwise, for domestic or their personal use, of-

…..

(i) boats designed or substantially and permanently adapted for use by handicapped persons.

(3) “Handicapped” means chronically sick or disabled.”

25. As explained in paragraphs 8 and 9 above, HMRC have issued guidance on the legislative provisions detailed above regarding the import and supply of goods for disabled persons in PN 371 and PN 701/7.

26. Customs Procedure Code CPC4000C24 is defined in the UK Customs Tariff (Volume 3, Part 3, Appendix E4) as being the appropriate code for articles specially designed for disabled people as follows:

“1. Goods covered

Articles specially designed for use by disabled people (other than blind or partially sighted) and imported by those individuals for their own use, on which relief from customs duty is claimed under a certificate issued by the National Import Reliefs Unit (NIRU) of Revenue and Customs, and on which VAT zero rating may also be claimed.

2. Notices

371, 701/7

3. Specific Fields in the declaration/notes on completion

If the NIRU certificate and/or VAT declaration is available, make a GEN A1 statement.

4. Additional documents required

The NIRU certificate. The declaration from Notice 701/7 if VAT zero rating is claimed.

…

7. VAT

If VAT zero rating is claimed under the terms of Notice 701/7, enter “VAX” in the Rate column of box 47 for the tax line. Otherwise VAT must be paid at importation.”

27. Under Council Regulation (EEC) No 2913/92 (“the Customs Code”), the customs authorities may request information required to verify the particulars contained in the declaration after it has been accepted:

“Article 68

For the verification of declarations which they have accepted, the customs authorities may:

(a) examine the documents covering the declaration and the documents accompanying it. The customs authorities may require the declarant to present other documents for the purpose of verifying the accuracy of the particulars contained in the declaration….”

28. Article 78 of the Customs Code allows HMRC to inspect documents after goods have been released, and requires HMRC to take certain steps where customs procedures have been incorrectly applied due to incorrect or incomplete information having been provided on a declaration as follows:

“Article 78

1. The customs authorities may, on their own initiative or at the request of the declarant, amend the declaration after release of the goods.

2. The customs authorities may, after releasing the good and in order to satisfy themselves as to the accuracy of the particulars contained in the declaration, inspect the commercial documents and data relating to the import or export operations in respect of the goods concerned or to subsequent commercial operations involving those goods. Such inspections may be carried out at the premises of the declarant, or any other person directly or indirectly involved in the said operations in a business capacity or of any other person in possession of the said document and data for business purposes. Those authorities may also examine the goods where it is still possible for them to be produced.

3. Where revision of the declaration or post-clearance examination indicates that the provisions governing the customs procedure concerned have been applied on the basis of incorrect or incomplete information, the customs authorities shall, in accordance with any provisions laid down, take the measures necessary to regularize the situation, taking account of the new information available to them.”

Authorities

29. We were referred by Mr Fell to two authorities which deal with the interpretation of “domestic or…. personal use” as that expression is used in Schedule 8 Group 12 Item 2 (i) as set out in paragraph 24 above (“Item 2(i)”). First, in Aquakraft Limited v The Commissioners of Customs and Excise (1986), Decision Number 2215, in considering the meaning of the same phrase in relation to the supply of equipment or appliances the VAT and Duties Tribunal expressed the view that “personal” in this context means “private” or “exclusive”: see paragraph 1 on page 6 of the decision. Secondly in Portland College v The Commissioners of Customs & Excise (1993), Decision Number 9815 the VAT and Duties Tribunal held that a walkway supplied to assist disabled persons to move more easily around an educational facility for disabled persons did not amount to a supply for “domestic or…. personal use” by handicapped persons on the grounds that to come within this provision:

“the user must be a specific person or persons to have the use of what was supplied but I could not extend that user to all persons who came to use the equipment even if all such users were handicapped”.

Issues for determination

30. It was common ground that Richard Cadbury was a “handicapped person” as defined in Item 2(i). It was also common ground that the Boat was not designed for use by disabled persons and that it was imported before any adaptations were made to enable it to be used by Richard. The issues in dispute in the appeal were therefore as follows:

(1) Was the fact that adaptations that Mr Cadbury made to accommodate use of the Boat by Richard were made after the Boat was imported mean that relief from VAT cannot be available?;

(2) Did the adaptations that Mr Cadbury made after importation mean that the Boat had been “substantially and permanently adapted for use by handicapped persons” as provided in Item 2(i) ?;

(3) Was the Boat supplied to Richard Cadbury bearing in mind that Item 2 (i) refers to the supply to a handicapped person ….. of…. boats…”;

(4) Was the Boat imported for the “personal use” of Richard as required by Item 2(i)?; and

(5) Does the fact that Mr Cadbury received clearance of the importation of the Boat free of VAT following the application made on his behalf by Peters & May affect the position?

We now turn to consider these issues in the light of the submissions of the parties.