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Cite as: [2007] UKVAT V20269

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Martin Peter Jamieson (t/a Martin Jamieson Motor Repair v Revenue & Customs [2007] UKVAT V20269 (30 July 2007)

20269

'Value Added Tax - Nature of services provided by a motor repairer in arranging for customers' cars to have MOT tests undertaken by an Approved Testing Station - Appeal Allowed

LONDON TRIBUNAL CENTRE

MARTIN PETER JAMIESON Appellant

T/A MARTIN JAMIESON MOTOR REPAIRS

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: HOWARD M NOWLAN (Chairman)

RUTH A WATTS DAVIES, MHCIMA, FCIPD

Sitting in public in London on 25 June and 11 July 2007

Martin Jamieson in person

Jess Connors, counsel, instructed by the Solicitor of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appeal

This was an appeal by a motor trader, related to the correct way in which he should have accounted for Value Added Tax ("VAT") in respect of his service to his customers, when arranging to have their cars tested by an Approved MOT Testing Station.

The facts

Where an Approved Testing Station conducts an MOT test directly for a car owner, the service is accepted to be outside the scope of VAT. There is a maximum fee that Testing Stations may charge for this service, which is periodically raised, but for the purposes of this decision we will assume that the maximum fee is set at £45.

Mr. Jamieson is one of the many motor dealers and motor repairers that were not authorised to conduct MOT tests. As is commonly the case with such motor repairers, Mr. Jamieson made it known to his customers that, whilst he could not himself conduct an MOT test, he could nevertheless arrange for customers' cars to be tested. Ignoring at this stage the legal and the VAT intricacies, his basic representation to customers was that if they requested him to arrange for an MOT test to be undertaken, then whilst he might personally attend to any servicing or repair work simultaneously needed, he would book an MOT test slot with one of two fairly local garages, that were Authorised Testing Stations. He or his workmen would then take the customer's car to the Testing Station, either wait while the car was tested or return to Mr. Jamieson's garage in another car, and following the test, bring back the customer's car to Mr. Jamieson's garage. When the car had passed the test, the Testing Station would produce the MOT certificate, which would bear the name and stamp of the particular Testing Station, and this would be given to the customer when the customer came to collect the car.

The financial arrangements are naturally what are in dispute in this case, but again looking at matters in a non-technical sense at this stage, the basic arrangement was as follows. Approved Testing Stations are sometimes prepared to undertake MOT tests directly for customers at a lower charge than the £45 statutory maximum, but that is not relevant in the present case. More commonly they are prepared to quote a lower rate for tests arranged through garages such as Mr. Jamieson's. Taking the examples in the present case the two local Testing Stations were prepared to charge, say, £32 and £36 for performing an MOT test when tests were arranged by Mr. Jamieson. This discount, or trade discount, then enabled Mr. Jamieson to charge £13 or £9 for his service of arranging the test, and ferrying the customer's car to and from the Testing Station, with the result that the customer always ended up paying the familiar MOT figure of £45 for an MOT test.

Mr. Jamieson made it clear, in his evidence, that this function of arranging for MOT tests to be undertaken was rather tiresome, in that the costs of having either him or one of his mechanics driving a customer's car to the Testing Station, either waiting for the test to be completed, or having a second mechanic take another car to bring back the driver of the customer's car, obviously removed mechanics from their real function of repairing and servicing cars. As a result the costs of rendering the service exceeded the £9 or £13 that Mr. Jamieson felt able to charge. No specific evidence was given as to why the facility was offered to customers, but it seemed fairly obvious that either Mr. Jamieson would simultaneously be servicing the relevant car, or else he would simply wish to protect his customer base by not having his customers go direct to the Testing Station, and then perhaps use that garage in future for their general repair work. Whatever the explanation the function performed was tiresome and loss-making, but a necessary evil.

Mr. Jamieson explained that the way in which he or his assistant decided whether to send a customer's car to one or the other Testing Station was governed first by whether one had a more convenient time slot in which to test a particular car; and thereafter by the feature that he favoured the garage that offered the lesser discount simply because it was much closer to his own garage. The customer would generally not know or care which Testing Station would be used, since at the time the customer left his car with Mr. Jamieson, the booking might not even have been made. Were the car to pass the test, the name of the Testing Station would naturally be on the Pass Certificate, so that the customer would then know which garage had been used.

The VAT treatment at various times of his "MOT services" by Mr. Jamieson

When Mr. Jamieson commenced trading in September 2000 there was a short, roughly three-month, period when Mr. Jamieson charged and accounted for no VAT in respect of the £45 total charges rendered against his customers because he thought that MOT tests were exempt or outside the scope of VAT, and that this status applied equally when he charged his customer £45. It was accepted that this was a perfectly innocent mistake, and nothing now turns on this earlier treatment.

No specific evidence was given in relation to how Customs officers drew Mr. Jamieson's attention to his error, when dealing with his first return, and what precisely they suggested that he should then be doing, but what actually happened was that Mr. Jamieson drafted a Notice to Customers, with the aid of his then book-keeping assistant, and this notice, in the terms indicated below, was displayed in his small reception area in a laminated plastic cover on the wall, alongside all the certificates obtained by the various mechanics. The notice read as follows:

YOUR MOT FEE

MOTS ARE EXEMPT FROM VAT

HOWEVER, A SMALL ARRANGEMENT/HANDLING

CHARGE (INC VAT) IS ADDED TO THE TRADE

DISCOUNTED MOT FEE

THEREFORE THE STANDARD MOT FEE IS PAYABLE

Please ask for Details.

Once this Notice was displayed, Mr. Jamieson then changed the way in which he accounted for VAT. He then paid VAT on the element of the £45 that he regarded as his arranging or handling charge, so that the £13 or the £9 on the figures that were given above became VAT inclusive charges, and he accounted for no VAT on the remainder of the charge. When he invoiced customers however he failed to reflect this treatment in his invoices, and simply referred to a fee of £45 that was not chargeable to VAT. This was perhaps because Mr. Jamieson was trying to represent to customers (the vast majority of whom as non traders would not care about VAT invoices) that when MOT tests were undertaken "through him", the cost and results were exactly as if the customer had paid the Testing Station directly for the VAT free fee of £45, but whatever the explanation, this is what Mr. Jamieson did, and he certainly accounted for the VAT included in the £13 and £9 elements, and certainly thought that this was what he was required to do.

The present dispute

The present dispute stems from the proposition by HM Revenue and Customs ("HMRC") that the correct treatment for VAT purposes of the services rendered by a trader in the position of Mr. Jamieson depends first on the legal basis on which the trader is rendering the "MOT procurement or arrangement" service, and secondly on the trader issuing the correct VAT invoices. So far as the "legal basis" for the provision of the services is concerned, we entirely accept the argument advanced on behalf of HMRC to the effect that:

• where an Approved Testing Station charges a customer off the street with the maximum MOT charge of £45, that service is outside the scope of VAT;

• similarly where an Approved Testing Station charges £32 or £39 for an MOT test when dealing "through" (to try to use a neutral term) Mr. Jamieson, the £32 or £39 charges are again outside the scope of VAT;

• if Mr. Jamieson contracts with his customer to procure an MOT test for the customer, and Mr. Jamieson then has a sub-contract relationship with the Testing Station, to which he (and not the car owner) is alone the contracting party with the Testing Station, then his resultant service is to "procure an MOT test for a customer" and the whole of the £45 would be treated as the VAT inclusive fee, and VAT must be accounted for in respect of the entire £45, but finally

• if Mr. Jamieson acts as agent for the customer, booking an MOT test for the customer on behalf of the customer so that there is implicitly a contract between the customer and the Approved Testing Station for the performance of the test, then Mr. Jamieson's service to the customer is confined to the agency service alone. Accordingly on this legal structure, VAT is only due in respect of the £13 or the £9, precisely as Mr. Jamieson has actually been accounting for VAT. HMRC then contend naturally, and entirely properly, that before this second possible VAT analysis can be adopted, the various tests for demonstrating that an agent has met disbursements on behalf of his principal must also be demonstrated, and the ultimate customer must be invoiced correctly. In this case, correct invoicing would involve splitting out the £45 and indicating that Mr. Jamieson's charge was say £9, inclusive of VAT (identifying the basic charge and the VAT payable within the £9), then showing the £39 as an "agency disbursement".

The position faced by Mr. Jamieson in this appeal is that it is contended by HMRC that the legal structure that he has put in place is that summarised in the third and not the fourth bullet point above. The result of this contention is that notwithstanding that he actually makes a loss when charging customers £9 or £13 for his service of arranging MOT tests, and properly accounting for VAT on that element, he is now said to be accountable for the remainder of the VAT on the entire £45 charges that have been rendered against 1300 customers in the period from 1 February 2003 to 31 October 2005, being a sum of £6,002 plus interest. We entirely accept that this case cannot be decided by reference to criteria of overall fairness or general common sense, but we would just point out that when Mr. Jamieson was anyway making a loss when performing his particular activities on the basis on which he honestly thought that VAT was chargeable, the present contention would mean firstly that the VAT charge would roughly match Mr. Jamieson's personal gross takings measured on the agency basis, and secondly the VAT now assessed will represent a significant percentage of Mr. Jamieson's net profits from all activities.

We will refer to certain further facts in the course of summarising the contentions advanced on behalf of HMRC and in giving our decision. It is worth stating now, however, that we both found Mr. Jamieson to be a transparently honest man, and for what this is worth, to be someone who had been trying to deal correctly with his VAT affairs. We should mention, as will become evident below, that we both concluded that Mr. Jamieson had never fully understood the distinction that counsel for the Respondents made between the "procurement of an MOT test/sub-contract" analysis mentioned in the third bullet point of paragraph 10 above, and the agency analysis mentioned at the fourth bullet point. His honesty was indeed rather emphasised by the fact that some of the responses that he gave to counsel for the Respondents, in answering questions that sought to clarify the true legal position in this case, appeared to support the Respondents' case rather than his own case. We both agree, however, that it was clear that Mr. Jamieson never understood the distinctions and he was answering questions on a quite different level from the approach taken by the Respondents' counsel. We will explain these points below.

The contentions on behalf of the Respondents

The contentions on behalf of the Respondents fell into two different categories. The first and the fundamental contention was that the legal basis on which Mr. Jamieson rendered his services was of the sort summarised in the third bullet point in paragraph 10 above, such that he was not acting as agent at all. He was instead contracting to procure an MOT test for his customers; he alone contracted with the Testing Station; and thus even if the invoices had been cast in agency terms and had split out the two parts of the single composite charge of £45 on this approach, the invoices would have been wrong, and the full VAT would still be chargeable.

The second contention was more geared to the wrong invoicing, and almost pre-supposed that had Mr. Jamieson produced invoices in the correct manner of showing his fee subject to VAT, and then "agency disbursements" of £36 etc, this treatment would have been accepted.

As a strict legal matter, we confirm that counsel for HMRC fundamentally advanced her argument along the lines of the legal point made in paragraph 13. Indeed this was very important in that when questions arose as to whether Mr. Jamieson could retrieve the situation by issuing credit notes to all his past customers, and then re-invoicing them in the correct terms, this request was refused. The reason for this refusal was the coherent and consistent one that correcting the invoices could not change the VAT result, if, as was contended, the underlying legal relationships were not along agency lines, and manifestly the legal relationship could not be changed retrospectively.

We do however make the point that prior to the case being handled by counsel, we are convinced that it was defective invoices that attracted the attention of HMRC officers, and we will mention below further manifest confusion on the part of HMRC officers in relation to the two different points, mentioned in paragraphs 13 and 14 above.

We will now list the grounds on which counsel for HMRC contended that this case was governed by the feature that Mr. Jamieson was contracting to procure MOT tests for his customers, achieving this by entering into a personal sub-contract with the Testing Station, and that he was not an agent at all. The findings of fact that it was suggested that we should make, which would undermine an agency analysis, were as follows:

It was suggested that car owners understood (and were given to understand) that Mr. Jamieson would provide them with a "complete service";

It was suggested that car owners were told that Mr. Jamieson would "subcontract" the actual performance of the MOT test to an approved garage;

At the time of contracting with Mr. Jamieson, car owners did not generally know which approved garage Mr. Jamieson proposed to subcontract the performance of the MOT test to;

Mr. Jamieson thought that if an MOT test had not been undertaken, then car owners would have thought that they were entitled to have recourse directly against him, not against the subcontracted approved garage;

Car owners expected to receive a "total bill", in the exact amount of the statutory maximum MOT fee (neither more nor less, whatever payment Mr. Jamieson made to the approved garage);

Car owners did not know what part of the "total bill" Mr. Jamieson paid on to the approved garage and what part he kept to himself;

Car owners did not know that the Testing Stations' charges varied by as much as £4;

Mr. Jamieson understood and gave car owners to understand that he was the one who was liable to pay the approved garages, and that he was the person to whom the approved garages would turn if the approved garages did not receive payment;

Mr. Jamieson understood and gave car owners to understand that the undertaking of the MOT test was a service which the approved garage provided to him;

When Mr. Jamieson rendered invoices to car owners, he did not disclose the amount of the payment he made to the approved garage or the amount which he kept for himself; and finally

Although Mr. Jamieson received payment from car owners during the month and was only billed by the approved garages at the end of the month, he kept all sums received from car owners in a single account, without differentiating between the "arrangement/handling charge" element and the "standard MOT fee" element, i.e. he treated it all as money which belonged to him.

Those alleged findings of fact, which we were asked to reach, allegedly supported the case that Mr. Jamieson's service was the all-encompassing one of procuring MOT tests for customers. The agency analysis was undermined because Mr. Jamieson did not keep separate agency accounts; he did not disclose that underlying charges might vary such that he would be making "secret profits" in breach of best agency practice; and other features summarised above were consistent with the contract/sub-contract analysis, and not consistent with the agency analysis. Beyond this, Mr. Jamieson prepared his VAT invoices in a manner that suggested one single service, and did not separately itemise the disbursements in the manner required for dealing with disbursements by an agent on behalf of his principal.

It was also contended by HMRC that the decision of Kenneth Mure QC and RLH Crawford in the Edinburgh Tribunal Centre in the case of Duncan v. HMRC (2007) Decision 20100 was wrong. This was a very similar case, save that no equivalent of the Notice quoted in paragraph 8 above was on display. The basis of the decision was as follows:

"Crucial to our decision is the fact that the MOT test is not a supply or service which could actually or lawfully be provided by the Appellant. An MOT test can be carried out only at an approved testing station. The Appellant does not have such authorisation. Hence he referred his customers' cars to the two other garages which held the necessary approval. The Appellant did not and in law could not become involved in the MOT testing process. It follows surely that the supply of the MOT test is made by the approved testing station and by it alone.

We consider that the extent of the service provided by the Appellant in relation to the testing was that of delivering and uplifting the vehicle. It cannot extend to the test itself as that was a supply by another independent party. The Appellant cannot duplicate or participate in making the supply of the MOT test itself. He acted as the agent of the vehicle owner in relation to the arrangement with the test station. This practice was known by and obvious to his customers and the test stations. The exact share of the MOT fee retained by the Appellant might not have been known to the customers, or certain of them, but in principle, given their awareness of the general arrangement between the Appellant and the testing station, it might be reasonable to impute to their understanding some sharing of the charge."

It was also contended by HMRC that the Appellant's so-called handling charge was not "added to the discounted MOT fee, but that the discounted fee was deduced from the single £45 figure, leaving a balance for Mr. Jamieson, again indicating that the overall £45 charge was the 'driver'."

Our decision

Although an officer of HMRC was asked to take the witness stand with a view to explaining that she had not seen the "MOT Notice to Customers" displayed in Mr. Jamieson's small reception area when spending over 3 hours in the room, and had indeed not asked for it to be pointed out to her, she did accept, following further information from Mr. Jamieson, that she had not particularly looked at the wall on which it was displayed, along with other certificates. She also confirmed that in view of the lay-out of the reception area there was no other place in which the Notice could have more sensibly been displayed. We conclude, without the slightest doubt, that the Notice was displayed adequately.

We doubt whether Mr. Jamieson understood the legal inferences that we drew from his relatively well worded "Notice". Whether he would have drawn the inferences that we did from the Notice or not, it was consistently displayed, and we do not doubt that it was the only firm evidence of the legal structure as regards MOT tests. It would have bound him, in any disputes with customers, from asserting that the legal position was at variance from that summarised in the Notice. Counsel for HMRC contended that the Notice was "weak evidence" in favour of an agency analysis. We disagree. In our view it was the only written evidence of any sort, and it was very strong evidence that there was an "agency relationship". The phrase "Small Arrangement/Handling Charge (Inc VAT)" suggests that the MOT tests are being simply "arranged" by Mr. Jamieson, and that there is a separate fee for that service, and that that fee is added to something else. If the legal structure was to render one service of procuring the MOT tests, there would be no notion of handling or arranging something for the customer for a small fee. There would be one service for a £45 fee, and the service would be to ensure the completion of an MOT test, and not just to arrange and handle something for a small fee. The Notice clearly contemplated that one fee is added to something else, namely the Discounted MOT Fee. It made it reasonably clear that just one of the two charges was subject to VAT, and the other implicitly was not. It then told the customer the only thing that the private customer was interested in, which was that, whatever the element of the small arrangement fee, the total of the two charges, "added together" would be the same as the MOT fee of £45 that was ordinarily outside the scope of VAT.

We found a great many of the findings of fact that it was asserted by HMRC that we should reach to be quite unreal. We find it quite unreal to suppose that Mr. Jamieson ever led his customers to believe any of the points referred to at items 1, 2 and 9 of paragraph 17 above. We accept that many customers will have seen the Notice, but understandably would not have been terribly interested in it, and we also accept that on telephone bookings, the content of the Notice was, at least, on occasions drawn to the attention of customers. Mr. Jamieson's responses to the questions geared to items 1, 2 and 9 above were never addressing the legal distinction which, even by the end of the hearing and without the slightest disrespect to him, Mr. Jamieson simply did not understand. He would have said things along the lines that he would do all the dealings with a customer's MOT, and that the customer could forget about the detail and collect the car later in the day. To suggest that he entered into representations geared to the legal structure of the relationships with his customers was fanciful.

We consider that the grounds on which it was suggested that Mr. Jamieson's conduct was not consistent with best agency practice, underlying the facts mentioned at items 6,7,10 and 11 of paragraph 17 were totally unrealistic. The Notice made it clear that the charge added to the Discounted MOT Fee was "small", and in fact Mr. Jamieson preferred to take cars to the Testing Station that afforded the less generous discount in order to save time. So the suggestion that he was making secret profits that any one of his customers would have cared about struck us as being unreal. Even more so, the suggestion that his agency structure was undermined by virtue of the failure to segregate his cash from his principal's cash was quite extraordinary. We will deal shortly with the wording of a Business Brief issued by HMRC in relation to this precise method of dealing with MOT tests, which generally supposes that most garages will operate on an agency basis. Anything else of course would be financial lunacy. On the assumption, thus, that countless garages around the country are operating, to HMRC's satisfaction, on an agency basis, we would be astonished if even one such garage held customer's monies on a separate agency account.

The asserted fact at item 3 of paragraph 17 seems to us to be equally consistent with an agency arrangement as with the "back to back contract and sub-contract" analysis. The point at item 4 is obvious. If Mr. Jamieson was meant to arrange an MOT test and failed to do so, of course customers would complain to him. Any other areas of non-performance are unrealistic and never happened. The point, mentioned in paragraph 20, concerning either adding two items together or subtracting one from the other (geared to item 5) is irrelevant. Virtually every garage operating on the agency approach will do the same, since there is a considerable practice of pitching the agency fee so that the two together add up to £45. There still seem to us to be two separate charges. Finally the point at item 8, to the effect that customers expected that Mr. Jamieson would be liable to pay the Testing Stations is self evident because customers would already have reimbursed Mr. Jamieson for the discounted trade MOT fees, and since the Testing Station would essentially be unaware of the identity of Mr. Jamieson's principals, and certainly unaware of contact details to try to obtain payment from them, Mr. Jamieson (in dealing without disclosing the identity of his principals) would clearly be liable to the Testing Stations for their charges.

In short we decide that the critical Notice, whether or not Mr. Jamieson fully understood its implications, was strongly indicative of an agency structure, and we attach virtually no weight to all of the facts or alleged facts that were said to undermine this conclusion. We consider indeed that but for Mr. Jamieson's failure to produce the correct VAT invoices by reference to the legal structure that we consider subsisted, this case would not have been brought at all.

Our decision is accordingly that the appeal is allowed; the assessment should be vacated, without any need for Mr. Jamieson to confuse his customers by re-invoicing them; Mr. Jamieson should receive simple interest at Base Rate plus 2% on the monies to be refunded to him that he has had to pay in advance in order to bring this appeal, and that Mr. Jamieson should be entitled to recover any relevant costs from HMRC. Since Mr. Jamieson was not represented we hope and imagine that those costs only extend to minor train fares.

Other matters to which we should refer

There are a number of matters to which we should refer in case this decision is not the subject of an appeal by HMRC, so that other parties rely on it.

The fact that we have decided this case by relying on the terms of the Notice displayed by Mr. Jamieson should not be taken to mean that the Notice is in an ideal form. We will not suggest an improved version because that is not our function, and an improved version would be likely to appear more legalistic and perhaps curious to many customers. The legal position of agency could however be made clearer, and we would invite other traders to seek to achieve this.

Although we have decided this case in favour of the Appellant, and in favour of the agency analysis, we confirm that we agree with the basic approach of counsel for HMRC to the effect that the theoretical possibilities summarised in paragraph 10 above are all correct. It is not for us to comment on the decision of the Edinburgh Tribunal referred to in paragraph 19 above, and it might very well be right that the garage in that case was acting as an agent. In our view, however, counsel for HMRC was right to say that the undisputed fact that the Testing Stations was the entity that performed the MOT test did not of itself preclude the analysis that the "supplying" garage was procuring the MOT test in the manner suggested as one possible and cogent analysis in the third bullet point in paragraph 10 above.

We would however like to comment on the wording of Business Brief 21/96, issued by HM C&E on 17 October 1996, dealing with precisely the situation that we have had to address in this case.

Having referred to other presently irrelevant issues, this Business Brief contains the following paragraphs:

"Any amount charged by an unapproved garage to its customer over and above the amount charged by the test centre is consideration for its own service of arranging the test as agent of the customer and is taxable at the standard rate. Where the unapproved garage shows the exact amount charged by the test centre separately on the invoice to the customer, and meets the other conditions of para 10.8 of the VAT Guide, it may treat this element as a disbursement and also outside the scope of VAT.

If the unapproved garage chooses not to treat the amount charged by the test centre as a disbursement, or otherwise does not satisfy all the conditions set out in para 10.8 of the VAT Guide, it must account for VAT on the full invoiced amount".

We have to say that we find the first paragraph quoted above to be extremely confusing at best, or otherwise just wrong. Counsel for HMRC tried to salvage the situation by saying that the second paragraph qualified the first and made it clear that agency treatment was dependent on satisfying all the conditions for agency disbursements in para 10.8 of the VAT Guide, but nevertheless the first sentence of the first paragraph categorically states that the excess charged by the unapproved garage "is consideration for its own service of arranging the test as agent of the customer". In the light of the legal arguments that have been advanced in this case, that proposition is simply wrong. What is meant is that one must first distinguish the "back to back contract and sub-contract" structure from the "agency" structure, and then apply the various conditions to the agency analysis, once the conclusion has been reached that the legal structure supports the agency analysis. The second sentence of the first paragraph is wrong as well because this puts the cart before the horse by suggesting that showing the separate charging on the invoice to the customer is a feature that enables the unapproved garage to treat the discounted MOT fee as a disbursement. The correct wording is to indicate that if the legal structure sustains the agency approach, and the conditions of para 10.8 are satisfied, then it is legitimate for the unapproved garage to treat the MOT fee as a disbursement met on behalf of a customer, to be recovered from the customer, and then the invoice should reflect this treatment.

Several of the letters written in this case referred to the paragraphs quoted above, and the first paragraph was black-lined and emphasised. Having regard to the reality that these paragraphs are hopefully intended to enable garages to put in place a structure that does not force garages to pay more in VAT that the gross receipt that the unapproved garage realistically receives and retains, and that people in garages can be expected to be slightly unfamiliar with the fine legal distinctions dealt with in this case, and altogether ignored in the Business Brief, we consider that this matter should be clarified.

We would like finally to refer to one other matter that puts the burden on a garage owner in understanding the "legal niceties" in this case in perspective.

In this case, Mr. Jamieson had modified the form of his invoices (presumably after 31 October 2005, or perhaps more recently still), in an effort to comply (as he thought) with the criticisms of his procedures made by HMRC. Thus instead of just invoicing customers for £45, without any reference to VAT, he split out the charge into "MOT fee exempt - £36", and "£9 – sub cont". When the HMRC official who gave evidence before us in relation to whether she had seen or not seen the "VAT Notice to Customers" in Mr. Jamieson's reception area, commented on his new and revised invoices she immediately confirmed that the revised invoices were "fine". We found this a stunning remark, since first if the legal structure had not been changed, a mere change to the invoices ought obviously not to change the proper VAT treatment of the supplies, even if the invoices said the correct thing. Since however the invoices contained the worst, and most inappropriate, description of Mr. Jamieson's supplies, having regard to the dispute about the distinction to be drawn between a sub-contract analysis, and an agency analysis, it seemed to us that the remark that "the invoices were now fine" was quite extraordinary. We do not particularly criticise the particular HMRC officer for this error because all the attention by HMRC officials has been focused on the correct invoicing (meaning simply a reference to two charges in the invoice), rather than on the legal distinction rightly made by counsel for HMRC. This was the point that we sought to make in paragraphs 13 to 16 above. How a garage owner, however, is expected to understand these matters when an HMRC officer who had been familiar with the case considered that "the new invoices were fine" struck us as being beyond comprehension.

We also repeat the point that we made at the hearing, namely that although the wording of Mr. Jamieson's Notice about MOT fees could have been improved, we consider that it came closer to revealing that the legal structure in this case was one of agency, than the paragraph which we have criticised in the Business Brief came to giving a clear, full and correct summary to fairly ignorant garage owners of the way in which they must structure their dealings when arranging MOT tests for their customers if the VAT consequences are not to be penal.

HOWARD M NOWLAN

CHAIRMAN

RELEASED: 30 July 2007

LON 2006/1248