United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2005] UKVAT V19132

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19132

INPUT TAX—Purchase of motor vehicle—Vehicle intended and in fact used for business purposes only—Insured for business and private use—Business only policy not available—Sole proprietor of business—Keys of vehicle kept locked in desk in locked office—Whether vehicle "available for private use"—Yes—VAT (Input Tax) Order 1992, art 7(1)(a), 7(2E)(a), 7(2G)(b)

LONDON TRIBUNAL CENTRE

STUART MALCOLM COLEMAN Appellant

and –

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: ANGUS NICOL (Chairman)

SUNIL K DAS LLM, ACIS

Sitting in public in London on 4 May 2005

Philip Hackett QC, instructed by Scrutton Bland, accountants, for the Appellant

Valentina Sloane, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

This appeal is against assessments to VAT for the periods 9/98, in the sum of £9,907, and 9/99 in the sum of £11,197, arising from the refusal of the Commissioners to allow the deduction of input tax incurred by the Appellant on the purchases of two motor vehicles for use in his business. The deductions were disallowed on the ground that although intended to be used, and in fact used, only for the purposes of the Appellant's business, the cars were nonetheless available for private use within article 7(2G)(b) of the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222) ("the 1992 Order").

The legislation

So far as is relevant to this appeal, article 7 of the 1992 Order provides as follows:

"(1) Subject to paragraphs (2) to (2H) below, tax charged on—

(a) the supply (including a letting on hire) to a taxable person;

(b) the acquisition by a taxable person from another Member State; or

(c) the importation by a taxable person

of a motor car shall be excluded from any credit under section 25 of the Act.

(2) Paragraph (1) above does not apply where—

(a) the motor car is—

(i) a qualifying motor-car;

(ii) supplied (including on a letting on hire) to, or acquired from another Member State or imported by, a taxable person; and

(iii) the relevant condition is satisfied.

. . .

(2E) For the purposes of paragraph (2)(a) above the relevant condition is that the letting on hire, supply, acquisition or importation (as the case may be) is to a taxable person who intends to use the motor-car either—

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

(b) primarily for a relevant purpose.

. . .

(2G) 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—

(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 is a partnership, a partner) for private use, whether or not for a consideration."

The facts

There is no significant dispute as to the facts in this appeal, and we find them to be as set out in the following paragraphs.

The Appellant carries on business as a manufacturers' sales agent, for manufacturers of leather upholstery and general furniture. At the time in question most of the manufacturers were in Italy; now the Appellant imports largely from China. It is a large business, involving importing between ten and fifteen lorry loads of furniture a week. His customers are retail chains and independent retailers throughout the whole of the United Kingdom: there are 237 outlets. The business involves a considerable amount of travel to sell the furniture to those retailers. The equipment that the Appellant needs to take with him is no more than a catalogue and a swatch of leather. He visits each retailer about once a year.

The Appellant travels on business by car. He said in evidence that he was probably the best known and most successful sales agent for Italian manufacturers. His customers included a number of well known public companies and some large second- or third-generation family businesses. He was frequently entertained, in lavish and expensive style, by the directors or proprietors of these retailers, and therefore entertained them, in return, in similar style. The directors and proprietors of these retailers owned expensive cars, and the Appellant said that it gave him a certain standing to drive similar cars. At one time, he said, two of his customers were driving Continental Bentleys, and he did likewise. The vehicles the subjects of this appeal were both Porsches, which, he said, were practical and economical, had 4-wheel drive, and blended in with his customers' life-styles.

The Appellant learnt from a VAT booklet that it was possible to deduct input tax in respect of the purchase of a motor-vehicle if it was the intention from the beginning to use it purely for commercial purposes. He sought advice on this from his accountant, upon which he acted. He took the following steps with the intention of ensuring that the car was used only for business purposes.

First, the Appellant consulted an insurance broker with a view to obtaining cover for business use only. He was advised that this could not be done, an d that he could only be insured for business, domestic and pleasure purposes. He was also advised that because the Porsche was acquired by means of a lease-purchase agreement his insurance would have to be fully comprehensive. Secondly, the car was kept locked in a garage attached to his business premises. These premises were within the curtilage of his residence. The keys of the car were lodged in his desk, and the keys of the desk were hidden in his office in a place known only to himself. The keys to his office never left him. Thirdly, the Appellant kept a log of all mileage travelled in the cars, which included a list of all customers visited. This was partly for accounting purposes, but it also demonstrated that the car was used only for business purposes. He had kept such a log for previously owned cars even though he had not claimed input tax in respect of them.

The Appellant produced a schedule of other vehicles owned in 1998 and 1999. These included a Mercedes, a BMW, and a Range Rover as well as the Porsches. The Mercedes, his wife's car, was always available for private use by his wife and himself. The Range Rover was also used in the business. There were adequate vehicles for private use. Input tax was claimed on none of the vehicles except the Porsches. One of these had been bought a year before the other: it was the Appellant's practice to change cars every year. He said that his secretary had her own car and never had any need to use one of his, nor was she permitted to do so.

The Appellant conceded that if he had wished to do so he could at any time have decided to use the Porsche for private purposes. He said that he had had no intention of so doing, and would have had no need to do so because there were other vehicles available to which access was easier. Moreover, the loss of the claim for input tax was a deterrent. No-one else could use the Porsche, because only he had access to the keys. He said that the Porsche was not available to him for private use because of his intention not to use it for such purposes. There was a legal restraint also, he said, in that he would have been in breach of his claim for input tax. The Appellant agreed that he chose to trade as a sole proprietor, and said that there were financial disadvantages in becoming a limited company.

It was accepted by the Commissioners that the VAT return contains a declaration that the information contained in it is true and complete.

The Appellant's contentions

Mr Philip Hackett, QC, for the Appellant, contended that the Appellant had taken every possible step to place a physical or a legal restraint upon the use of either of the Porsches for private purposes. He compared the facts of the present appeal with those of recent authorities on this sphere of VAT law.

In Customs and Excise Commissioners v Upton (trading as Fagomatic) [2002] STC 640 CA, there had been no physical or legal restraint at all on the use of the appellant's Lamborghini. It was held that if a person does not ensure that there is a physical or legal restraint, then he is taken to have intended to make the vehicle available for such use. In Elm Milk Ltd v Customs and Excise Commissioners [2005] STC 776, Ch D, the appellant succeeded, because the appellant company, which had only one director and shareholder, had passed a board resolution that the vehicle in question was not to be used for private purposes. [Miss Sloane mentioned that that case was at present the subject of an application for leave to appeal.] The Appellant, being a sole trader, was incapable of passing a board resolution. The only possible legal restraint would be by means of insurance cover for business use only; however, he had been unable to obtain such cover. A sole trader cannot impose any physical restraint upon himself. Apparently, therefore, a sole trader is incapable of imposing any restraint, legal or physical, upon the use of the vehicle. But, it was contended, the authorities do not lead to that conclusion: the proper inference from the facts was that the Appellant's actions had satisfied the conditions laid down by the legislation.

Mr Hackett summarised the steps which the Appellant had taken to restrict the use of the car (see paragraphs 6 to 9 above). He acknowledged that the actual use to which the car was put was not the correct test to apply. However, he contended, an inference can be drawn from that fact of how the car was intended to be used. All the facts together and cumulatively shewed that there was sufficient physical restraint because those steps were all that a sole trader was capable of taking. If the test of the "officious bystander" were applied, he would consider that the vehicles had not been made available for private use. The facts in this appeal could be materially distinguished from those in the cases cited: on those authorities it was possible for a sloe trader to satisfy the conditions of the legislation.

The Commissioners' case, Mr Hackett said, contained errors. They failed to distinguish between issues of physical or legal restraint, which had let to further errors. It was wrong to contend that the steps taken to restrict use must be such as to make it physically impossible to use the vehicle for private purposes. It was also wrong to maintain that if it was possible for the taxpayer to change his mind about the arrangements that he had made as to the use of the vehicle, that prevented the exclusion of personal use.

The Tribunal should ask itself, Mr Hackett contended, what the Appellant intended at the time of purchase of each of the two Porsches. Inferences may be drawn from what happened before and after purchase, but the Tribunal should reach a finding as to whether the Appellant intended, at the time of purchase, to make a claim for input tax in respect of that purchase. That is the subjective approach. The objective is to ask, looking objectively at his intention, was the Appellant intending to make the car available for personal use? Looking at the Appellant's actions at the time of purchase of each car, if he was already of the intention of restricting the use of the car, and of claiming input tax, he was placing himself under a legal impediment against using the vehicle for non-business purposes or making it available for such use. If that was his settled intention, the Tribunal would be bound to find that, objectively, that was a legal impediment, because to intend otherwise would be to intend to make a fraudulent claim. The Commissioners may argue that he could change his mind, but that is no answer: it is the intention at the time of purchase that matters. In Elm Milk it would equally have been possible for the taxpayer company to change its mind: the capability of a subsequent mind-change does not override the test of the intention at the time of purchase. There were several deficiencies in the board resolution in Elm Milk, but both the Tribunal and Park J looked through those to the substance of the arrangements and to the intention that was to be inferred, finding that the board resolution was a legal impediment.

Mr Hackett sought to distinguish the case of Upton. He pointed out that in that case there were no facts or material on which the Tribunal could properly have reached its decision. In the present appeal there were facts which went beyond Upton. In paragraph [15] on page 644, Peter Gibson LJ referred to a passage in the Vice-Chancellor's judgment ([2001] STC 912, 918) in which he said that "if the car is available for private use, paragraph (2G)(b) applies unless the taxpayer intends to make arrangements sufficient to exclude his or others' private use...." The taxpayer in that case did nothing by way of making arrangements, except to consult his insurance broker. In the present case, the Appellant did intend to make, and did make, arrangements. The question was, were those arrangements sufficient? In paragraph [23] on page 646, Peter Gibson LJ said that the Tribunal had not recognised

"...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."

That, Mr Hackett contended, was not an absolute rule. It was contemplated that the Tribunal could find that the inference to be drawn from the purchase of the car can be displaced by evidence to the contrary. Buxton LJ pointed out (paragraph [29], page 657) that Mr Upton had not restricted the general nature of the availability of the car by deciding that he would only use it for one of the two purposes for which, at the time of the purchase, it became available. The Appellant, on the other hand, had decided to use his car for one only of the two purposes. Buxton LJ was suggesting that it was possible to restrict the use by such a decision.

It could be inferred, Mr Hackett said, from what the Appellant actually did what he intended to do. That intention should then be looked at objectively. In Upton, at page 648, paragraph [33], Buxton LJ referred again to the Vice-Chancellor's judgment where he had applied the test of whether the taxpayer had intentionally done acts which made the car available for private use, recognising that the implications of the act of acquiring the car would be different according to whether it was made available to a third party of to the taxpayer himself, pointing out that

"...the consequence of his acquisition of the car will be to make it available for his private use unless he takes positive steps to remove it."

The Vice-Chancellor went on, Mr Hackett said, to make it clear how difficult that might be for a sole trader, but he did not exclude the possibility, nor did Neuberger J in his judgment, unlike the Commissioners who sought to say that it was not possible. Neuberger J, at page 651, in paragraph [47], anticipated that a sole trader could impose sufficient restrictions.

In Cherry trading as Country Taverns of Oxford v Customs and Excise Commissioners (2003) (Decision No 17995), the facts were distinct, in particular in that the taxpayer's staff were permitted to use the vehicle for personal purposes. There were no barriers, either, to prevent his own private use of it. In the present case the Appellant had raised barriers. Elm Milk was also distinguishable, since the taxpayer was a company. But the test applied was the correct one: what was the taxpayer's intention? In the present case there were more vehicles available for private use than in Elm Milk.

The Commissioners' contentions

By way of introduction, Miss Valentina Sloane said that all the points taken by the Appellant had been considered and rejected by the Court of Appeal in Upton. In that case, in paragraph [10], the Vice-Chancellor dealt with the same arguments as were advanced in the present case. The question of intention was objective. The Court of Appeal confirmed that the test must be applied to a sole trader in the same way as to a limited company. Buxton LJ held that the decision not to use a car for private purposes did not restrict the use (paragraphs [28] and [29]). The existence of the state of affairs demonstrated that Mr Upton intended it. Being an objective test, the physical or legal restriction had to be effective; ineffective measures did not satisfy the statutory condition (paragraph [48]). The Commissioners accepted that there had been a genuine intention on the part of the Appellant not to use the Porsches for anything other than business purposes. That, however, was not the issue. Several ineffective steps taken with a view to restricting use make no difference, even cumulatively. The fact was, that the cars were insured for private as well as business use. The locked desk and office were no effective barrier to private use.

If the declaration in the VAT return amounted to a legal restraint on use, then all the appeals referred to would have been allowed. The declaration is not an effective legal bar to private use. That the Appellant had done all that he could was a point addressed by the Court of Appeal in Upton, and had been applied expressly to different categories of trader. The reality was, that in the case of a sole trader the car was in fact available for private use. If the present appeal were allowed, it would cause a distortion, and would have the effect that any sole trader cold claim input tax on vehicles which were in fact available for private use when a limited company could not. It was a matter of choice whether to trade as a sole trader or a company. The benefit in this area was derived from being a company. No rule compels any strange statutory interpretation that all types of business structure can benefit from a tax advantage in the same way. This appeal was no different from Upton, Skellett or Cherry. The measures taken were not effective: see Skellett v Customs and Excise Commissioners. The signatures on the VAT returns were inadequate to provide a legal barrier.

The Appellant's reply

Mr Hackett argued that on the authorities it was possible for a sole trader to satisfy the legislation. The facts were such that this appeal could be materially distinguished from the other cases. The Commissioners had made certain errors: first, they failed to distinguish between issues of physical and of legal restraint, which has led to further errors. Secondly, it was incorrect to submit that the steps had to be taken by a taxpayer such that any possibility of private use was prevented. Thirdly, it was wrong to say that if it was possible for a taxpayer to change his mind about the restrictive arrangements, then that prevented the exclusion of personal use. Looking at the Appellant's actions at the time of the purchases, if he already had the intention of restricting the use of the car, and claiming input tax, he was placing himself under a legal impediment in using the vehicle for non-business purposes or for making it available for such use. If that was his settled intention, the Tribunal would be bound to find that objectively there was a legal impediment, because to intend otherwise would be to intend to commit a fraudulent act. It is no answer to say that he could change his mind, it is the intention at the time of purchase that matters. This could be tested against the decision in Elm Milk, in which case it would have been equally possible for the single director and shareholder to change his mind. The capability of a subsequent change of mind does not override the test of the intention at the time of purchase. The Tribunal and Park J found that the resolution was a legal impediment.

Upton was distinguished by the fact that the appellant in that case took no steps at all to restrict the use of the vehicle; all he did was to consult his insurance broker, and nothing from which the requisite intention could be inferred. There were no facts at all upon which the Tribunal could have reached its decision. The Appellant took all the steps that he could. Although the Vice-Chancellor made it clear that it was very difficult for a sole trader to meet the statutory conditions, he did not rule it out, nor did Neuberger J. Cherry, too, was distinct in that the Appellant in the present case had at least two other cars available for private use

Conclusions

The issue which we have to determine is whether, having regard to all the steps taken by the Appellant after each of the two purchases of the Porsches, the conditions in paragraph 7(2E)(a) and (2G)(b) were satisfied, and that the Appellant intended to use the cars exclusively for the purpose of his business, and did not intend to made the vehicles available to any person including himself for private use. We accept the evidence given by the Appellant to be a true account of what he did and of his actual intention at the time of each purchase. We have therefore to ask ourselves whether his actions and his subjective intention were enough to satisfy the statutory conditions laid down in the 1992 Order. We have to say at once that in our judgment they were not, for the reasons set out below.

As to the facts, these establish that, with a view to claiming input tax in respect of the purchases of the two Porsches, the Appellant intended to use them only for the purposes of his business. He explored, in vain, the possibility of insuring for business use only, and was obliged to effect insurance that covered the cars for private and pleasure use as well. He allowed no-one but himself to use them. For accounting purposes, but also in order to demonstrate that their use was for business purposes only, he kept a log. He kept the keys locked in his desk, the keys to the desk hidden in his office where only he knew their whereabouts, and his office locked and the keys with him at all times. He considered that he had done all that was possible. He made, in good faith, claims for input tax, considering that he had done what was necessary to entitle him to make such claims. The cars were in his sole ownership (subject only to any agreement for financing their purchases), and were at all times in his sole control. He carried on his business as a sole trader. On the face of those facts, it would appear that he had, indeed, no intention but to use the cars exclusively for the purposes of his business.

It is also the fact, and follows necessarily from those set out above, that there was nothing to prevent him at any time from using the cars for any purpose that he might choose, or from permitting the use for any purpose by any other person. The Appellant made the point that there was a legal barrier preventing him from any use other than a business use, in that he would be making a fraudulent claim for repayment of input tax if he had not the requisite intention, both in the subjective and the objective sense. However, there is a fallacy in that point. It is impossible to commit a fraudulent act without intending to do so. We accept that the Appellant supposed that his subjective intention and the actions that he had taken were enough to entitle him to make the claim, and that each claim was made in good faith. There was clearly no fraudulent intent, and therefore no fraudulent claim was made. But unfortunately for him, the Appellant's genuine supposition, that he was entitled to make the claims, was mistaken. So no fraud was involved, and since he genuinely believed that what he was doing was right, and that he was entitled to claim input tax, he could complete his return with a clear conscience; there was no apparent legal barrier to doing what he considered right.

The law on this topic is a strict law, as has been demonstrated particularly in Upton. We cannot but agree with Miss Sloane's introductory observation, that every point taken by the Appellant was taken in Upton, and was rejected by the Court of Appeal. We look first at the judgment of the Vice-Chancellor ([2001] STC 912). At page 917 he said that the issue was one of what was or must be intended, and gave his view that

"...that depends on the meaning to be attributed to the phrase 'make it available' as used in the context of the regulation as a whole."

He then referred to the situation where the taxpayer is a corporate body, and said that the second part of the test, whether the taxpayer made the car available, was a matter of fact for the Tribunal, adding that, "The mere fact that the first part is satisfied will not be enough." He continued:

"But where the taxable person is an individual or partnership the range of possible personal users includes the taxable person himself. This was recognised by the draftsman. He dealt with it by including in paragraph (2G)(b) the parenthetical clause '(including, where the taxable person is an individual, himself, or where the taxable person is a partnership, a partner)'."

At page 918 the Vice-Chancellor referred to the fact that Mr Upton had made no arrangements to allow or exclude his personal use of the car, and that, therefore, it was submitted on his behalf that he had not made it available. The Vice-Chancellor continued:

"But the concept of a taxpayer taking any positive action to make his own property available for his own private use is unreal. If it is his property and is available for private use by him what more is there to be done? In my view the article is unworkable if in the case of personal use by the taxable person it is necessary to show that he intended to take any positive action to make his own property available for private use by himself.... But in the case of private use by the taxable person the consequence of his acquisition of the car will be to make it available for his private use unless he takes positive steps to remove it. Accordingly in my judgment the requirement of paragraph (2G)(b) that the taxable person intends to make the car available for his own private use will be satisfied if, on the acquisition of the car, he intends not to take any step to exclude the necessary consequence of his ownership. In other words, a car may be 'made available' if it is available in fact and the owner does nothing to prevent its private use by himself."

That passage is one of those upon which the Appellant relied, and it was his case that he did take steps to exclude that particular consequence of ownership. Peter Gibson LJ, in paragraph [22] of Upton, referring to that passage, rejected the argument that the Vice-Chancellor was rewriting paragraph (2G)(b). But he said,

"However, I am persuaded by Mr Paines that the Vice-Chancellor was not attempting any such rewriting nor was he giving a different meaning to the words of paragraph (2G) in differing circumstances. Rather the Vice-Chancellor was recognising that in the case of an individual taxable person who acquires a car there is a particular difficulty in the way of that person if he is to escape from the disqualifying condition that 'he intends to ... make it available ... to ... himself ... for private use'. The very fact of his deliberate acquisition of the car whereby he makes himself the owner of the car and 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."

It was with that passage in mind that it was submitted for the Appellant that the door was not closed for a taxpayer, a sole trader, to fulfil the necessary conditions. We agree with that submission in principle, but we also agree with Peter Gibson LJ in saying that in the case of an individual there is a particular difficulty in his way. It may be possible for an individual to steer clear of paragraph (2G)(b), but we have not had brought to our attention any means by which it could have been managed.

Buxton LJ, in paragraph [29], said,

"I see no escape from the conclusion that the car was at [the moment of acquisition], as a matter of fact, available [his Lordship's emphasis] for Mr Upton's private use, however little he had any intention of actually so using it. He had sole control over the car. It was not to be disabled or in any other way put beyond use: quite the reverse, since the whole purpose of buying it was so that it could be used, albeit in the business and not privately. A further way of testing this point, if it needs further exposition, would be to ask whether the car was available for Mr Upton's use generally stated. That question answers itself. And Mr Upton did not restrict the general nature of that availability by deciding that he would only use the car for one of the two purposes for which at the time of purchase it became available.

[30] Further, I see no escape from the conclusion that Mr Upton had made [his Lordship's emphasis] the car available to himself. He did that, tautologically enough, by providing himself with ownership and control of the car. And as we have seen, the availability that was created was availability for private as well as for business use."

The Appellant relied particularly upon the last sentence of paragraph [29] as shewing a distinction between Upton and the present case.

Distinguishing between intention and making available, Buxton LJ said, in paragraph [31]:

"The first question, of whether what was done constituted a making available for private use, is answered, in the terms urged above, by analysis of what Mr Upton did in the context of the true construction of the statutory concept of making available for private use. Mr Upton unquestionably intended to do the acts that, on that true construction, constituted the making available of the car for private use. He therefore necessarily intended to make the car so available, by intending to do the acts that constituted making the car available for use. He cannot escape from that conclusion by saying, as he does, that he did not intend actual use; or that, for that reason, he did not regard the car as available for his use. If he intends to the acts that are in law the state of affairs referred to in the statute, then he intends that state of affairs as statutorily defined."

In paragraph [41], Neuberger J said,

"If an article is supplied by one person to another with no physical or legal restraint as to a particular use, then it appears to me that, as a matter of ordinary language, the article has been 'made available' for that use. The fact that neither the supplier nor the recipient expects, or even intends, the article to be put to the particular use does not prevent the article being 'available' for that use, if there is no physical or legal restraint on such use by the recipient. Further, it cannot be said, at any rate as a matter of ordinary language, that the supplier does not 'make' the article available for that use, simply because he does not expect or intend it to be put to that use. If he supplies the article to that it is, as a matter of fact, available for a particular use, then he has, in normal parlance, made it available for that use."

Neuberger J was there dealing with the case where the taxable person acquiring a car was a company. He went on to say, in paragraph [45]:

"It seems to me that the meaning and effect of article 7(2G)(b) should be the same, if at all possible, whatever the respective juridical natures, or the coincidence or otherwise of identity, of the taxpayer supplier by whom, and the recipient to whom, the motor car is to be made available. In light of the provisions of article 7(2G)(b) one is required to ask on the facts of the present case, whether at the time that he acquired the Lamborghini, Mr Upton 'intend[ed] to ... make it available ... to ... himself ... for private use'. Both as a matter of ordinary language, and in light of the above analysis where the taxable person acquiring the motor car is different from the user, it appears to me that the answer to that question is that Mr Upton did intend to make the Lamborghini available to himself for private use."

Applying the principles of Upton to the present case, it seems to us that by the act of acquiring each of the two Porsches they became available for the Appellant to use either in his business or privately, in fact as he chose. The fact that he did not use either for private purposes, and never intended to do so, does not assist him. The fact was, that the cars were available, by his own act of acquisition, for his private use. But, says the Appellant, I did all that I could to restrict their use to that of the business exclusively. We accept that. But the facts remain. The cars were his own property, they were at all times within his possession and control. He had the keys to his office, he knew where the key to his desk was hidden, and he only had access to the keys of the cars. It would have been possible for him, had he so chosen, to have allowed anyone else access to the keys of the cars; we accept that he never did so. It seems to us that no amount of action intended to restrict the use of the cars to business use can fulfil the requirements of paragraph (2G)(b) unless they are effective. An attempt is no use; the steps have to prevent such use, in particular where the owner and user are one and the same person.

We are reinforced in that view by the decision of the Inner House of the Court of Session in Skellett [2004] STC 201, in which Lord Osborne, delivering the opinion of the court, said, in paragraph [13]:

"It appears to us that, where a motor vehicle is acquired by a sole trader 'who intends to use the motor car ... (a) exclusively for the purpose of a business carried on by him....', nevertheless that vehicle will indeed have been made available to that person for private use, unless effective steps are taken to render the vehicle incapable of such use by that person. In other words, upon the view that a person must be taken to intend the natural consequences of their own actions, that person may properly be taken to intend to make the vehicle available for private use, unless such steps are taken by him."

The reference is not just to the taking of steps, but to the taking of effective steps. We respectfully adopt that view. Indeed it would be absurd if steps that were not effective could be considered enough to fulfil the legislative conditions. We remind ourselves also of the expression "unless the taxpayer intends to make arrangements sufficient to exclude his or others' private use" in the Vice-Chancellor's judgment in Upton (see paragraph 16 above).

Although there may be some factual distinctions between the present case and Upton, Cherry, and Elm Milk, in our judgment those distinctions are not such that the principles set out in those cases, and in particular in Upton, are in any way displaced. The fact remains, that the Appellant, although he took some steps, took no effective steps to restrict the use of the two Porsches exclusively to that of his business. We should add, that we were not impressed by the statement that if we allowed the appeal it would cause the distortion mentioned by Miss Sloane. If legislation correctly applied (as we hope we have done here) leads to such a distortion,, that is a matter to be dealt with by amending legislation, not by a Tribunal decision. However, in our view such a consideration does not arise in this case.

For the above reasons, this appeal must be dismissed. The Commissioners did not ask for their costs of the appeal, and accordingly we make no order as to costs.

ANGUS NICOL

CHAIRMAN

RELEASED: 20 June 2005

LON/00/1273