United Kingdom VAT & Duties Tribunals Decisions

P C Construction Ltd v Revenue & Customs [2006] UKVAT V19899 (20 November 2006)

19899

INPUT TAX – purchase by company of motor car – whether intended for use exclusively for the purposes of the business – whether intention on acquisition to make available for private use – VAT (Input Tax) Order 1992 Art 7(2E) and (2G) – appeal dismissed

MANCHESTER TRIBUNAL CENTRE

P C CONSTRUCTION LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Chairman)

Marjorie Kostick BA FCA CTA (Member)

Sitting in public in Manchester on 26 October 2006

Geoffrey Graham, Account for the Appellant

Lisa Linklater, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1. The Appellant company appeals against an assessment to VAT in the sum of £8,557 and dated 7 February 2006. The major part of the assessment (£7,772) arises out of the decision by the Respondents to disallow the claim by P C Construction Limited ("P C Construction") for input tax incurred in the purchase of a Lexus Sports Car in tax period 11/04. There is also included in the assessment fuel scale charges in respect both the Lexus Sports Car and a Toyota Landcruiser. Both elements of the assessment were under appeal.
2. We heard all evidence from Mr Geoffrey Graham, the Company's Accountant, on behalf of the Appellant and on behalf of the Respondents from Ms Helen Renton, the Assessing Officer.
3. P C Construction is a family owned company. The sole Director is Mr Philip Cross who is also Managing Director and effectively he controls the operational side of the business. His wife, Mrs Alison Cross, controls the administration of the business and his sister, Miss Valerie Cross, is financial controller. Mr and Mrs Cross are the joint shareholders. The company provides a highly skilled and specialist service in Gabion Construction. It has crews working simultaneously over a number of site and as Mr Cross is in effect in charge of all contracts, he is involved in travelling from site to site across the country.
4. The company owns a number of vehicles. The schedule to the fleet insurance policy for period October 05 to October 06 lists, in addition to the sports car the subject of the appeal, a Lexus People Carrier used by Mrs Cross for mixed business and private purposes: a Toyota Landcruiser which we were told by Mr Graham is used solely to tow construction equipment between sites and finally two Iveko Goods Vehicles used, we understand, for transporting crew and heavy equipment. Additionally, by the time of Ms Renton's control visit on 6 January 2006, a Lexus IS2000 had been purchased for Miss Cross, used primarily for her own private purposes.
5. In or about November 2004, Mr Cross purchased a two seater Lexus Sports Car ("the sports car"). We were told by Mr Graham that this vehicle was driven only by Mr Cross and is and always has been used solely for business purposes. Mr Graham told us that he recalls Mr Cross telephoning him at around the time of the purchase and asking whether he could reclaim the input tax on the purchase. Mr Graham advised him, yes, but only if he had a clear intention to use it 100% for the business.
6. The sports car was added to the company's fleet insurance policy, all vehicles being insured for use for social, domestic and pleasure purposes and use for the policy holder's business. P C Construction Limited is the named policy holder and the people entitled to drive, under the terms of the policy, are the policy holder and any person driving with the policy holder's permission.
7. P C Construction carries on business from Mr and Mrs Cross's home, Poplar Hall, Poplar Hall Lane, Chorlton, Chester, Cheshire. The residence is a large farmhouse, to the right of which an outbuilding has been converted into an office from which direct access is gained to the house down a short path. To the right of the office is a secure yard, surrounded by 12 ft high fencing. Access to the yard from the road can only be gained through electronically operated gates. There is a coded keypad on the outside for people who know the code, otherwise one presses a button and the gate can be operated from within the office. Mr Graham told us the sports car was parked at all times within this secure compound when not in use. He had no knowledge of where the car keys were kept although he assumed it would be within the office and neither did he know who held keys to the vehicle
8. On 6 January 2006, Ms Renton carried out a routine visit to the business premises and whilst there looked into the use of both the sports car and the landcruiser. She was told by Miss Cross that the landcruiser was a pool vehicle and that both vehicles were used exclusively for business purposes. No documents were able to be produced to support this and in particular no mileage records were kept in relation to either vehicle. Ms Renton advised Miss Cross that in order to support a claim for fuel expenses, business mileage records should in future be kept. Ms Renton was not satisfied that the statutory requirements for recovery of input tax on the purchase of the sports car had been complied with and she raised her assessment to recover the input tax previously allowed. She included within the assessment the fuel scale charges for both the sports car and the landcruiser in the absence of any documentary evidence to demonstrate exclusive business use
9. Following this meeting and the assessments, Mr Cross sought advice from Mr Graham who, on the advice of a VAT specialist, recommended a Board resolution should be passed together with a policy statement to record and regularlise the status of both sports car and landcruiser. The resolution, dated 31 March 2006 was in the following terms:

"The Director has decided that:

As the above vehicles were originally purchased for 100% business use, no employee of the Company or any other person will be allowed to use the above-identified vehicles for private use for whatever reason. The above vehicles will always be parked after operational use within the secured copound rented out to the Company and shall have within the vehicle a mileage record clearly identifying the destination, date and driver of these vehicles. This mileage log will serve as a written confirmation of the 100% business use."

The policy statement, also dated 31 March, reads as follows:

"To Whom It May Concern:

The Company has purchased two vehicles identified as a Lexus SC430 and a Toyota Landcruiser specifically for business use only. Whilst the Company has insured these vehicles under an appropriate group vehicle insurance cover for economic reasons whereby these vehicles can be used for business, domestic and pleasure purposes, it has always been the case that these particular vehicles will and have never be used for any other reason other than in connection with the Company's trade. These vehicles are regarded as wholly owned and expensed by the Company and are afforded the same level of security and control as any other Company owned item whether plant / equipment / vehicles / or any other asset. All employees have been made specifically aware that none of the Company's assets can be used other than in the normal course of trade unless permission is given by Mr P Cross."

10. Mr Graham produced to the tribunal a "vehicle mileage log" in respect of the sports car. It covered the period 24 March 2006 to 27 September 2006. It listed a series of trips made between these dates giving date, destination, reason for trip, odometer start and stop readings and total mileage per trip. The opening mileage on 24 March 2006 was 36,245 and the closing mileage on 27 September 2006 was 44,901, giving a total recorded mileage for the period of 8,656. Mr Graham believed this to have been a contemporaneously kept log but could not be absolutely certain and could not rule out the possibility it had been constituted from, fro example, diary entries. No mileage record was able to be produced for the landcruiser despite Mr Gaham having asked Mr Cross for one. Mr Graham had seen no such log and did not know whether or not one had been kept.
11. "The relevant law in relation to the claim for input tax is contained in Article 7 VAT (Input Tax) Order 1999 (Sl/1992/3222) and reads as follows:

(1) Subject to paragraph (2) to (2H) below tax charged on –

(a) the supply … to a taxable person … of a motor car shall be excluded from any credit under Sectin 25 of the Act.

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

(a) the motor car is –

(i) a qualifying motor car;

(ii) supplied … to … 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 … supply … is to a taxable person who intends to use the motor car either –

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

(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

(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."

12. It was Mr Graham's submission that the sports car had always been used solely for business purposes as had always been the intention and given the tight security in which it was stored and the wording of the Board resolution and policy statement the vehicle was not available for private use. The inclusion of the sports car on a social, domestic and pleasure policy was simply because that was the cheapest option available. It did not signify an intention to so use it. For private use, Mr Cross drove an old Volvo and his wife the Lexus People Carrier.
13. To succeed in its claim for recovery of input tax, P C Construction must demonstrate that at the time of purchase it was intended to use the sports car exclusively within the business and further that there was no intention to make it available to any person for private use. The evidence before us as to the actual use of the vehicle is limited. Mr Graham believes the car is only used within the business but is relying only on what he has been told. The one person who could have given first hand evidence on the use of the vehicle, Mr Cross, did not attend the tribunal. Mr Cross may well have telephoned Mr Graham to query whether he could recover his input tax but again we had no evidence as to whether or not he acted upon Mr Graham's advice or indeed whether he fully understood it. The mileage log raises more questions than it answers. During the six months covered by the log, the vehicle is recorded as having covered 8,656 miles. Over a two year period, ie from date of purchase to closure of the log on an extrapolation basis, the mileage would be expected to be 34,624. Instead the recorded mileage is 44,901. A difference of some 10,000 miles. An alternative way of looking at it would be to say that the vehicle covered 8,656 recorded miles in the six month log period and one would therefore have expected it to have covered, in the previous 18 months, 25,968 miles whereas the odometer start is 36,245 miles, again a gap of some 10,000 miles plus. Clearly one has to be cautious about such extrapolations. Mr Graham could not explain it other than to suggest that the mileage might be seasonal with a greater number of miles being covered over the winter than over the summer but this is only summise on his part and, again without any evidence from Mr Cross to explain the discrepancy, it would appear to us to suggest that either the log is incomplete or that prior to the keeping of the log the vehicle covered rather more miles than could be accounted for in business use only. Given these factors, we are unable to accept that the sports car has been used exclusively for business purposes which can only lead to the conclusion that there was not the necessary intention to so use it at the time of purchase. Indeed without hearing all evidence from Mr Cross it is very difficult to know precisely what his intention was at the time of purchase.
14. Going on to the second limb of the statutory requirement, namely that the company did not intend to make the car available for private use, we were referred by Miss Linklater to the following two cases:

Customs & Excise Commissioners v Upton [2002] EWCA CIV 520

Customs & Excise Commissioners v Elm Milk Ltd [2006] EWCA CIV 164

Buxton LJ in Upton at paragraph 28, considered the meaning of "make available for use" in the following terms:

"The first issue is, therefore, what the draftsman meant by 'make available for use'. That is an ordinary English expression, deliberately different from 'use' itself. An object can be available for use without there being any present intention of actually using it. Just as, for instance, a person can be available for, say, military service without there being any intention that he should serve or be asked to serve."

Neuberger J, also in Upton at paragraph 41 stated:

"[41] 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 so that it is, as a matter of face, available for a particular use, then he has, in normal parlance, made it available for that use. On the other hand, if the supplier provides the article under a contract which bona fide precludes the recipient from putting it to a particular use, or if it is supplied only at such times that it cannot be put to a particular use, then there is clearly a powerful argument for saying that it has not been 'made available' for such use."

15. We therefore consider what physical or legal restraint there was on the use of the vehicle for private purposes. The insurance cover clearly provided no restraint whatsoever. Under the terms of the policy, Mr Cross would have been able to authorise both himself or any other person to use the vehicle privately. This is not to say that it would ever have been his intention to do so but there was nothing to prevent him from so doing. The resolution of the Board cannot be stated to have any retrospective effect and cannot possibly constitute a restraint on a period before the resolution was in force. As to the future, the policy statement specifically and expressly authorises Mr Cross to give permission for private use – "all employees have been made specifically aware that none of the company's assets can be used other than in the normal course of trade unless permission is given by Mr P Cross." We were told by Mr Graham that this was merely to cover an emergency situation but the very fact of that user in an emergency would constitute private use. Quite clearly it was within Mr Cross's power both under the terms of the policy statement and the insurance cover to authorise private use of the vehicle. There was no legal restraint on such use.
16. As to physical restraint, certainly the vehicle would have been secure from outsiders in the compound but that is not to say that it was physically unavailable for anyone authorised by Mr Cross to use it or indeed for he himself. We have no idea what the arrangements were for the keys as Mr Graham did not know but they would clearly have been available to Mr Cross and his family and presumably to anyone else who knew where they were.
17. The wording of the legislation is very restrictive, as was recognised by the Court in both Upton and Elm Milk Ltd . For all the reasons given above, we find that on the evidence before us, the Appellant has not been able to demonstrate that it falls within the very narrowly drafted exceptions permitting the reclaim of input tax. The appeal therefore in respect of the input tax on the sports car fails.
18. We have already concluded that we are not able to find that the sports car was used exclusively for business purposes and therefore the appeal must also fail in respect of the fuel scale charge for that vehicle. With regard to the Landcruiser, the appeal in respect of the fuel scale charge must also fail because we have absolutely no evidence before us to demonstrate exclusive business use.
19. The entire appeal therefore fails. The Respondents made no application for costs and we make no order.

LADY MITTING

CHAIRMAN
Release Date: 20 November 2006

MAN/06/0374