United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2003] UKVAT V18317

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Farrent v Customs & Excise [2003] UKVAT V18317 (25 September 2003)

INPUT TAX – Ford Focus Estate bought and used for business purposes –Whether on acquisition of the Ford Focus Estate, Appellant intended to make it available to himself and others for private use –Yes- Appeal dismissed- Value Added Tax (Input Tax) Order 1992, SI 1992/3222 article 7

LONDON TRIBUNAL CENTRE

Mr ERIC CHARLES FARRENT Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Michael Tildesley (Chairman)

Elizabeth Macleod JP, CIPM

Sitting in public in London on 30 July 2003

Appellant appeared in person

Nicola Shaw Counsel for the Respondents

© CROWN COPYRIGHT 2003

DECISION

The Appeal

The Appellant gave Notice of Appeal dated 6 February 2002 against an assessment for VAT in the sum of £1946.63 (£1775 plus interest of £171.63) issued by the Respondents on 17 July 2001. The assessment arose because the Respondents had disallowed input tax on the purchase of a motor car by the Appellant.

The Appellant grounds of appeal were based on the following statement:

"Following my phone call to Customs and Excise Commercial Vehicle Department during the period, August-September-October 1999 explaining that doing three functions in my line of work ie selling, service and deliveries. For service and deliveries a van is ideal, but when selling having to get out of a van gives a lack of confidence, therefore if I was to purchase an estate vehicle with the seats folded down, this allows me to function as a van on the inside with the appearance of a car on the outside, even though it would be tastefully sign written. Would still be able to claim back VAT on the vehicle. Also explaining that the vehicle is used 100% for work purposes and not for private use. I was told by the gentleman at the other end of the phone that he could not see a problem with this, it was also pointed out to me, that when the vehicle was sold, it has to be sold plus VAT. On this information, I therefore went ahead an purchased a Ford Focus Estate, in February 2000"

The Issue

The issue was whether the Appellant was entitled to reclaim claim input tax in respect of his purchase of a Ford Focus Estate for use in connection with his business. To substantiate his claim the Appellant would have to satisfy the Tribunal on the balance of the probabilities that he intended to use the motor car exclusively for the purposes of his business and that he had no intention to make the car available to any person including himself for private use.

The Legislation

Section 25(2) of the VAT Act 1994 provides that a taxable person is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowed under section 26 and then to deduct the amount from any output tax that is due from him. If no output tax is due from him, or if the amount of the credit exceeds that of the output tax due, then pursuant to section 25(3) the amount of the excess should be paid to the taxable person by the Respondents.

Article 7(1) of the VAT (Input Tax) Order 1992 provides that tax charged on the supply of a motor car to a taxable person shall be excluded from any credit under section 25 of the 1994 Act. However, article 7(2) sets out that the exclusion to section 7(1) does not apply where (i) the car is a qualifying motor car, (ii) the car is supplied to a taxable person and (iii) the relevant condition is satisfied.

The "relevant condition" so far as is material is that the supply is to "a taxable person who intends to use the motor car….. (a) exclusively for the purposes of a business carried on by him" (article 7(2E)).

Article 7(2G) qualifies this further by setting out that a taxable person shall not be taken to intend to use a motor car exclusively for the purposes of a business carried on by him if he intends to (b) "make it available to any person (including himself) for private use".

The Evidence

The Tribunal heard evidence from the Appellant and Ms Jan Pond an Assurance Officer of the Respondents. A bundle of documents was also presented to the Tribunal.

The Facts Found

The Appellant was a sole proprietor trading as Stayclean Chemicals and Equipment and carrying on business in the sale and repair of glass/dish washers and the supply of detergents to licensed and leisure premises. He had been registered for VAT since 1995 under the registration number 646133546.

The Appellant worked long hours. During the week he would start at 9am and finish at about 10pm. On Saturdays his hours of work were generally from 9am to 5pm. He never worked on a Sunday. The Appellant required a vehicle for his business, for delivering glass/dishwashers and ancillary products to his customers and for carrying out repairs on their premises. Prior to the purchase of the Ford Focus Estate he had used Vauxhall Astra vans in his business. He had been credited with the input tax on the purchase of these vans by Customs and Excise.

About August 1999 the Appellant was advised by one of his customers that the use of a van did not project the right image for a salesperson. This prompted the Appellant to consider an alternative type of vehicle for use in his business. He considered that an estate motor vehicle would give the appearance of a car from the outside but still enable him to transport easily heavy equipment, such as the dishwashers.

Sometime between August 1999 and October 1999 the Appellant contacted the Respondents by phone and was advised that he could claim input tax on the purchase of an estate motor vehicle provided he used it exclusively for business purposes. He was also told that if he sold the estate it would be necessary to add VAT at the appropriate rate to the sales price. The Respondents had no record of the Appellant's phone conversation on his file. All telephone calls to the National Advice Line at Southend were automatically saved and recorded on a taxpayer's file. However, Ms Pond acknowledged that there would be no record kept of phone calls to other Customs and Excise Offices. In those circumstances we accepted the Appellant's recollection of the telephone conversation with the Respondents.

In February 2000, the Appellant bought a Ford Focus Estate motor vehicle (registration number V822 SEV) from Perrys, a Ford dealership. This was a general dealership not restricted to the sale of business vehicles. He used a dealership because his wife was entitled to a discount because she had been previously employed with Fords. Within a few days of purchasing the vehicle he removed the rear seats to enable him to transport the glass/dish washers. This operation was relatively straightforward involving the taking out of the bolts, which secured the seats to the chassis. The seats were stored in his garage.

About July 2000 the Appellant affixed details of his business to the rear side window of the Ford Focus Estate. The signage consisted of vinyl strips which could be peeled off.

The Appellant bought the Ford Focus Estate with the intention of using it exclusively for his business. The Tribunal accepted his evidence that he did not use the Estate for private use. The Appellant did explain, however, that he would occasionally call into a shop on his way home from work or call on his daughter for a cup of tea between jobs. The Respondents accepted that these instances did not amount to private use of the vehicle. The Appellant also owned a BMW motor car which was used by him and his wife for private purposes. The Appellant's wife did not drive the Ford Focus Estate because it had a manual gearbox and was rather smelly because of the discharges from the dishwashers. There were no other persons living with the Appellant and his wife.

There were two sets of keys for the Ford Focus Estate. The spare set was kept in the draw of his desk in his office. The other set would be hung in the key cupboard in the kitchen after the Appellant had finished driving for the day. The Appellant's wife would have had access to the sets of keys, although she would not have known about the location of the spare set.

The Appellant and his wife were insured to drive the Ford Focus Estate and the BMW. The insurance for both cars allowed use for social, domestic and pleasure purposes in addition to use in connection with the Appellant's business. The Appellant had not contemplated insuring the Ford Focus Estate for business use only. He understood that it was cheaper to have an insurance policy that covered social and domestic use as well as business use.

The Appellant operated his business from his home, using one of its rooms as his office and the garage as his workshop and store. The Ford Focus Estate and the BMW were parked on the driveway of the house when not in use.

On the 3 July 2001, an Officer of the Respondents made a routine visit of the Appellant's business to carry out a check of his trading activities and records. The Officer queried the claim for input tax in respect of the Ford Focus Estate. After making enquires with the Respondent's Advice Centre which contained no records of the Appellant's telephone call, the Officer decided to raise an assessment to disallow the VAT reclaimed by the Appellant in respect of the purchase of the Ford Focus Estate. A local reconsideration of the Officer's decision was carried out on the 7 January 2002 which confirmed the soundness of that decision.

Following the visit of the 3 July 2001 the Appellant sold the Ford Focus Estate and replaced it with a van under a lease hire agreement, against which the Appellant reclaims VAT.

Authorities

We were referred to the case of Commissioners for the Customs and Excise v Upton (t/a Fagomatic) [2001] STC 912.

We were also referred to the following decisions of the VAT and Duties Tribunal:

Squibb & Davies (Demolition) Ltd v Commissioners for the Customs and Excise (Decision 17829).

Christopher Leonard Cherry t/a Country Taverns of Oxford v Commissioners for the Customs and Excise (Decision 17995)

Submissions

The Appellant contended that he had used the Ford Focus Estate in exactly the same way as the Vauxhall Astra Vans for which he had reclaimed the input tax on the purchase price. He had been advised by the Respondents that if he used the Estate exclusively for business purposes he would be credited with the input tax on its purchase price. He owned another car, a BMW, which was for private use. The Appellant in the "Upton Case" did not own a second motor car.

Miss Shaw for the Respondents submitted that the Appellant did not intend to use the Ford Focus Estate exclusively for the purposes of his business by virtue of the fact that when the vehicle was acquired, it was intended to be made available for private use. Miss Shaw referred in support to the judgement of Buxton LJ in Commissioners for the Customs and Excise v Upton (t/a Fagomatic) [2001] STC 912 at page 648 where he said:

"Did Mr Upton at the moment of purchase intend to make the car available to himself for private use. The question is not whether he intended to use it, but whether he intended to make it available for use".

Miss Shaw applied this reasoning to the facts of the Appeal and concluded that the

Appellant by acquiring the Estate as a sole trader, with insurance permitting private use, parking the vehicle at his home and at all times having full access to the use of the Estate had intended to make the Ford Focus Estate available for private use. As a result the Appellant could not recover the input tax paid in respect of the Ford Focus Estate.

Miss Shaw distinguished the facts of this case from the Tribunal's decision in Squibb & Davies (Demolition) Ltd v Commissioners for the Customs and Excise (Decision 17829). The latter involved a limited company which unlike a sole trader could not use a vehicle for its own private use. The issue in this case was whether the company made the car available for use by other persons. The Tribunal decided that the Appellant company had taken all the steps it could to prevent private use. The steps included locking the cars up in a secure compound, keys could only be obtained from security, it was breach of the contract of employment to use the vehicles for private use and all the directors had more expensive private cars for their own private use.

Reasons for Our Decision

Our starting point is Regulation 7(1) of the Value Added Tax (Input Tax) Order 1992 which states in essence that a taxable person is unable to reclaim the input tax on the purchase of a motor car. However Regulation 7(2) provides an exception to the general rule in Regulation 7(1). Thus input tax can be reclaimed where the motor car is a qualifying motor car supplied to a taxable person and the relevant condition is satisfied. In this Appeal, the Ford Escort Estate was a qualifying motor car and the Appellant was a taxable person. The issue in dispute was whether "the relevant condition" was satisfied in respect of the Ford Escort Estate.

Regulation 7(2E) defines "the relevant condition" as "a supply to a taxable person who intends to use the motor car exclusively for the purposes of a business carried on by him". Regulation 7(2G), however, adds a qualification to the definition of "the relevant condition", namely; "a taxable person shall not be taken to intend to use a motor car exclusively for the purposes of a business carried on by him if he intends to make it available to any person (including himself) for private use, whether or not for consideration". The combined effect of Regulations 7(2E) and 7(2G) is that the test of intention to use the motor car for exclusive business purpose will not be met if the taxable person at the time of acquisition of the motor car intended to make it available for private use.

In this Appeal we were satisfied that the Appellant used the Ford Focus Estate for his business and that he had adapted it to meet his business needs (removal of the rear seat and the affixing of his business sign on the rear side window). However, those findings were not sufficient to meet "the relevant condition" test, the Appellant needed to demonstrate on the balance of probabilities that at the time of acquisition he did not intend to make the Ford Focus Estate available for private use.

The act of purchasing the Ford Focus Estate which gave ownership and control of the car to the Appellant meant that the Estate was available to him for private use regardless of his intentions to use it solely it for business. Further the Appellant placed no physical or legal restrictions on his ability to use the Estate for private purposes. The Estate was insured for private use as well as business use. The Estate was parked on the driveway of his home. He placed no restrictions on the availability of the Estate to his wife for her private use. She was insured to drive the vehicle for private purposes. The key to the Estate was hung in the kitchen to which she had access. The fact that his wife would not drive the car because it was smelly and had a manual gearbox was not relevant to the issue of the availability of the Estate for her private use. Likewise, the fact that they also owned a BMW car for private use was not in our view strong enough to displace the conclusion that the Appellant intended by his actions to make the Ford Focus Estate available for private use by himself and his wife. In short the Appellant has failed to satisfy the Tribunal that he meets the requirements of " the relevant condition" test as set out in Regulations 7(2E) and 7(2G) of Value Added Tax (Input Tax) Order 1992.

The evidence regarding the Appellant's phone conversation with the Respondents and his ability to reclaim input tax in respect of the Vauxhall Astra vans were not relevant to the disputed issue in this Appeal.

We, therefore, dismiss the Appeal and confirm the assessment for VAT in the sum of £1946.63 (£1775 plus interest of £171.63). We make no order for costs.

We fully recognise that the Appellant will be disappointed with our decision. However, the law makes it very difficult for sole traders to meet the stringent conditions for reclaiming input tax on the purchase of motor cars used exclusively for business purposes as was recognised by Buxton LJ in Commissioners for the Customs and Excise v Upton (t/a Fagomatic) [2001] STC 912 p 649:

" I readily recognise that it will be difficult for a man who purchases a car for business use as a sole trader to demonstrate that he did not thereby make the car available to himself for private use also ……I do not, however, think that we should seek to alleviate the position of the sole trader by allowing ourselves to be driven to a construction of the regulation that it does not otherwise bear".

MICHAEL TILDESLEY

CHAIRMAN

RELEASED:

LON/02/164