United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20179

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Club Taxis v Revenue & Customs [2007] UKVAT V20179 (30 May 2007)

20179

OUTPUT TAX — taxi hire business — provision of vehicles, maintenance and insurance to drivers — who made the supplies — the partnership — supply of all elements standard rated — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

CLUB TAXIS Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting

Mohammed Farooq

Sitting in public in Birmingham on 1 May 2007

The Appellant did not appear and was not represented

Jonathan Cannan, General Counsel and Solicitor to Her Majesty's Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appellant partnership appeals against an assessment to tax in the sum of £17,431 plus interest, notified on 18 January 2006. The assessment was raised to recover output tax which the Commissioners believed was underdeclared due to the Appellant treating certain supplies as zero-rated or exempt, which in the view of the Commissioners should have been standard rated.

Club Taxis is a partnership of Colin Brown and Nicholas Elton. They trade as a private hire and taxi service. When the appeal was lodged the Appellant was represented by Peter Clare, a tax consultant, but he had since ceased to act and neither Mr Brown nor Mr Elton attended the tribunal. The court clerk telephoned the business premises and spoke to Mr Brown who told her that it would have been his intention to attend. He confirmed that he had been made aware of the hearing date but had mistakenly thought it was later in the month and he had forgotten about it. He asked if the case could be adjourned. We took the view that he had knowledge of the date and to have forgotten about it was not sufficient reason not to go ahead. We therefore heard the case in the absence of the Appellant under Rule 26(2) of the Value Added Tax Tribunal Rules 1986. We do however specifically draw to the attention of the partners their right to apply to have this decision set aside pursuant to Rule 26(3). A witness statement from Mr Tim Vassie, the assessing officer, had been served and not challenged and was put in evidence before us. Mr Vassie did not give sworn evidence although he did clarify a couple of matters for us.

The Evidence

Mr Vassie met with Mr Colin Brown at the business premises on 5 December 2005. He discussed the trading activities of the business and examined the business records. The business used a number of self-employed drivers who kept their fares but made weekly payments to the partnership. At the time of the visit there were 28 such drivers on the books. A Sage computerised accounting system was used and the information entered onto the system was obtained from a weekly sales sheet. The weekly sales sheet had a breakdown of monies due for each driver. The headings on the sales sheet were: Driver Number; Rent; Credit (Account Sales); Car plus VAT; Car; Insurance; To Pay. "Rent" represented the fixed sum of £93 paid by each driver for the use of a radio. The partnership correctly treated this as standard rated. "Credit" concerned the use by the partners themselves of luxury vehicles and is not in issue here. "Car plus VAT" referred to the recharging to the driver of cars purchased on hire purchase. This was correctly standard rated and again is not in issue. The remaining items of "Car" and "Insurance" were in issue.

Mr Brown had explained to Mr Vassie that it was difficult to employ new taxi drivers. The problem was not a shortage of willing drivers but that few of them had suitable vehicles. To overcome this obstacle, Mr Brown explained that they bought cars at auction for approximately £1,000 and sold them on to the drivers over a 12 month period for a weekly payment of £50 to include maintenance and repairs. The £50 was apportioned as to £20 purchase instalments and £30 maintenance and repairs. The £50 weekly payment had not been treated as subject to VAT. Mr Brown told Mr Vassie that in a number of cases the cars had to be scrapped before in fact the drivers had completed paying for them. Mr Vassie had noted that regular amounts of input tax were being claimed by the partnership in relation to the maintenance costs on the vehicles. The partnership also had an insurance policy covering all vehicles and each driver was recharged a variable element appropriate to his vehicle. Again, this item had been treated as not liable to VAT.

The "To Pay" column was the sum total of each of the above items and represented the amount which each driver had to pay to the partnership per week out of the driver's fares. Mr Brown informed Mr Vassie that there were no contracts in place between the drivers and the partnership and no schedules of payments were kept and there was no system of invoicing the drivers.

Mr Vassie believed that the Appellant had incorrectly treated as not liable to VAT the weekly payments made by the drivers in respect of their instalment purchase of the vehicles (£20 per week), the maintenance and repairs of the vehicles (£30 per week) and the insurance cover on the vehicles (variable). Mr Vassie therefore drew up a schedule of assessment and sent a copy to the Appellant by letter dated 15 December 2005. Mr Vassie believed that it was possible that the partnership was attempting to use the Margin Scheme on its purchase and sale of the vehicles and in his letter he therefore set out the regulations relating to the use of the Scheme and that the Appellant would not be entitled to use it as the accounting and record keeping did not comply with the legal requirements. Mr Vassie confirmed to us that at no time during his discussions with Mr Brown was he ever given any indication or reason to believe that the vehicles were purchased other than by the partnership or that the maintenance was carried out other than by the partnership.

In response to Mr Vassie's letter, Mr Peter Clare, tax consultant, responded on behalf of the Appellant. By letter dated 22 December 2005, Mr Clare advised that there were no VAT implications in the purchase and sale of the vehicles because they were bought for say £1,000 and resold for the same price, with no profit having been made. He also stated that the vehicles were registered to and insured in the name of Mr Colin Brown and not in the name of the partnership which did not supply the vehicles. He also pointed out that the maintenance was carried out by Mr Brown himself acting as agent to ensure that the vehicle was kept on the road in a road worthy condition. By letter dated 10 January 2006, Mr Clare refuted the suggestion that the partnership was providing insurance cover. Mr Vassie remained of the opinion that the payment for the cars, the maintenance of the vehicles and the insurance cover had all been incorrectly treated and he raised the assessment under appeal.

Mr Clare requested a reconsideration and by letter dated 17 February 2006, he forwarded six sheets, each of which was headed "Car sales over 52 weeks". Each sheet referred to one vehicle and recorded the driver, the registration number, the date of purchase and the purchase price and the date of completion of purchase by the driver which was in each case precisely 12 months from the date of purchase. The sheets also recorded the amounts spent on the vehicle for taxing, plating, new parts and general repairs and maintenance. The purchase price of the vehicles ranged from £900 to £1,150 and the total for each vehicle, to include all outgoings and the purchase cost ranged from £2,450 to £2,700. Also enclosed with this letter was a copy policy schedule giving Mr Colin Brown as the name of the insured; his occupation as taxi operator and the period of cover, August 2005 to April 2006.

By letter dated 18 March 2006, Mr Clare reiterated that the cars were not provided by Club Taxis but by Mr Brown personally; that the partnership made no supplies to the drivers but merely acted as banker and that Colin Brown acted as "agent aside the partnership". Mr Clare conceded in this letter that the partnership accounts had been incorrectly completed as the bookkeeper had not understood the set up. Mr Clare also, in this letter, provided further information relating to seven further vehicles and maintained that the Margin Scheme could be applied. The sheets supplied in respect of the seven vehicles consisted of, in each case, the "Car Sales over 52 weeks" form, giving similar details to those previously supplied in respect of the earlier vehicles but in respect of these seven vehicles, these sheets also listed that in some cases the vehicles had been scrapped before completion of the contract. In relation to four of the seven vehicles, a copy purchase invoice was also included naming Colin Brown as the purchaser.

In relation to these seven vehicles, Mr Vassie carried out enquiries with the DVLA. Four of the vehicle were registered in the name of Club Taxis and two were registered in the names of the drivers listed on the documentation.

Further correspondence from the Commissioners followed, initially from Mr Vassie and then from a Mrs Semple, who carried out a reconsideration of the assessment and upheld it. Mr Clare responded to Mrs Semple by letter dated 26 July 2006 in which he repeated that the cars were purchased by Mr Brown not for the purpose of furthering the trade of Club Taxis but as a personal favour to the drivers who would not otherwise be able to finance themselves. He repeated that the log books and insurance cover were all in Mr Brown's name. In support of this contention, Mr Clare provided a copy letter from the insurance brokers dated 25 July 2006 confirming that all vehicles were insured under the taxi fleet policy in the name of Mr Colin Brown and that any claims on the policy would be paid out to Mr Brown only. Also enclosed was copy documentation from the DVLA in respect of five further vehicles. One of the documents showed the registered keeper as "Club Taxis Colin William Brown". Two of the documents showed Colin William Brown as registered keeper. The final two showed as the registered keeper "CWB Taxis Colin William Brown".

The Appellant's case

The Appellant's case as stated in the Notice of Appeal is "That their view on the ownership of the vehicles is incorrect". It is however possible from the correspondence to flesh out the Appellant's contentions. In respect of the supply of the vehicles, the Appellant is saying that the vehicles were not supplied by the partnership but by Mr Brown in his sole name. The case appears to be that Mr Brown purchased the vehicles in his own name, retained ownership of them until payment was complete and then transferred them to the drivers. In respect of the maintenance element, this supply was made again by Mr Brown personally, albeit in this case as agent for the partnership. Because he owned the vehicles during the purchase period, the supply of maintenance was not by the partnership but by himself. In neither case, therefore, was there any supply by the partnership. In respect of the insurance cover, again there is no supply by the partnership. Mr Brown owned the car; the insurance cover was in Mr Brown's name; the risk during the 12 month purchase period remained with Mr Brown and he would be responsible for any payments which had to be made in respect of the vehicles were they to be involved in an accident.

The Commissioners' case

We will expand rather more on Mr Cannan's submissions in the context of our conclusions but in summary, the Commissioners' case was that the partnership was supplying to its drivers a maintained, insured and taxed vehicle in consideration for which the drivers paid the partnership. This supply was a standard rated supply.

Conclusions

(a) Was the supply of the Vehicles to the drivers for the weekly sum of £20 a supply made by the partnership or by Mr Brown in his own right?

For Mr Brown to have made the supplies he must have been the beneficial owner of the vehicles. However, Mr Clare has stated that Mr Brown does not trade. The Revenue has no record of Mr Brown operating any business other than Club Taxis. There is no evidence at all of any payments being made or received by Mr Brown personally. It has been assumed by the Commissioners (letter 9 June 2006) that the purchase of the vehicles went through the partnership records and this has, at no time, been refuted by the Appellant. No evidence has been produced to suggest that Mr Brown personally provided the funds for the purchase of the vehicles. Indeed, if he had done, why would the payments from the drivers go into the partnership accounts, rather than to Mr Brown personally. The sale of the vehicles in the form of the weekly £20 payments is included in the partnership records and the payments are treated as partnership income. Evidence from the DVLA was put before us in relation to 12 vehicles. Only two showed Mr Brown as the registered keeper and one of these is thought to refer to one of the luxury vehicles operated by the partners themselves, as it was bought from new and has a personalised number. Had Mr Brown purchased the vehicles in his own right, one would have expected many more than just one to be registered in his own name until at least the repayment period was complete.

As Mr Cannan pointed out, however, even if Mr Brown had purchased the vehicles in his own name, using partnership monies, those vehicles would, almost certainly, still be partnership property. In support of this contention, Mr Cannan cited the following extract from Lindley & Banks on Partnership:-

"The mere fact that the property in question was purchased by one partner in his own name is immaterial, if it was paid for out of the partnership monies; for in such a case he will be deemed to hold the property in trust for the firm, unless he can show that he holds it for himself alone".

All the evidence before us shows that the vehicles were treated as partnership assets and were used for the purposes of the partnership business. It was these vehicles which enabled the drivers to operate and to pay their rentals into the partnership. Such evidence as we have seen gives very little support to the Appellant's case that the vehicles in question were purchased and owned by Mr Brown. We find that they were owned by the partnership and for VAT purposes must fall to be treated as partnership property. As such the supply of the vehicles to the drivers in return for £20 per week must be treated as a supply by the partnership.

There then remains the question as to whether the Appellant is entitled to apply the second hand margin scheme to which the answer is clearly no as very few of the requisite records have been maintained. We saw just four purchase invoices bearing the declaration that input tax deduction had not been and would not be claimed. Apart from these, there were no sales invoices which were apparently not kept and no stock book was kept either. The supplies of the vehicles by the partnership to the drivers are therefore liable to VAT at the standard rate and that element of the Commissioners' assessment is upheld.

(b) Did Mr Brown make the supplies of maintenance for which the drivers paid a weekly sum of £30 as an agent outside the partnership or was the supply by the partnership?

Mr Cannan cited Section 5 of the Partnership Act 1890 which provides that "every partner is an agent of the firm and his other partners for the purpose of the business of the partnership …". No evidence was put before us to support the contention that this was a supply by Mr Brown. The partnership reclaimed input tax on maintenance and repair costs and the £30 payments were treated as partnership income. It is quite clear that the maintenance is carried out by the partnership. It is the partnership which receives the income, incurs the expenditure and reclaims the VAT. There is no justification for treating these payments as the income of Mr Brown and equally no justification for treating the supplies of maintenance as a supply other than by the partnership. As such they are liable to VAT at the standard rate and that element of the Commissioners' assessment is also upheld.

(c) Is the Appellant making an exempt supply of insurance to the drivers?

The Commissioners have repeatedly requested the policy terms and the vehicle schedules but these have never been produced. There is no written contract between the partnership and the drivers and we have no evidence of the nature of the agreement between them. It appears unlikely that the insurance cover is voluntary and that the drivers can opt out and insure the vehicles themselves, especially as the vehicles are in fact, during the purchase period, owned by the partnership. In the absence of any further information or evidence, we cannot find that the Appellant has made a separate exempt supply of insurance to the drivers but that in reality what the Appellant provides to the drivers is a maintained, insured vehicle. As such, the insurance element must also be subject to VAT at the standard rate. This element of the Commissioners' assessment is therefore also upheld.

Summary

Each element of the Commissioners' assessment is therefore upheld and the appeal fails in its entirety. Mr Cannan made an application for costs in the sum of £1,500 given the failure of the Appellant to attend. In the majority of cases of non attendance before the tribunal, the failure to attend is wilful and in such cases an award of costs is appropriate. Such an appellant has abused the system causing unnecessary expense to be incurred and taking up unnecessarily the time of the tribunal. This, however, is not the case here. We have no reason to disbelieve Mr Brown and we accept that he genuinely forgot the hearing date. Whilst we did not consider this to be sufficient cause to adjourn the hearing, his failure to attend was not the deliberate, wilful act which merits the imposition of a costs penalty. We do not therefore make any order for costs in favour of the Commissioners.

LADY MITTING

CHAIRMAN
Release Date: 30 May 2007

MAN/06/0470