United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2009] UKVAT V20927

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Richard John Walker v Revenue & Customs [2009] UKVAT V20927 (16 January 2009)

20927

VAT – INPUT TAX – MOTOR CAR – Appellant recovered VAT on purchases of a Land Rover and a replacement Range Rover on the grounds that they were used exclusively for business purposes – the motor cars were insured for private use – the Appellant was a sole trader who at the time of the purchases assumed ownership and control of the motor cars – satisfied that the Appellant intended to make the cars available for private use – Appeal dismissed

LONDON TRIBUNAL CENTRE

RICHARD JOHN WALKER Appellant

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

ANGELA WEST FCA (Member)

Sitting in public in Bristol on 28 October 2008

The Appellant appeared in person

David Manknell counsel instructed by the Solicitor of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The Appeal

The Appellant was appealing against an assessment in the sum of £10,473 in respect of input tax claimed on the purchases of two motor cars, a Land Rover Discovery and Range Rover.

The Dispute

The issue to be decided in this Appeal was whether the Appellant could show on the balance of probabilities that he intended to use the cars exclusively for business purposes with no intention of making them available for private use.

The Appellant contended that he purchased the cars for use in his business to tow excavators to building site. The cars were also hired to Cherry Wood Stables Limited, of which the Appellant and his wife were directors, for transporting horses. The cars were insured on his business insurance policy. In addition he owned another motor car, a Peugeot 207, for his private use. In all the circumstances the Appellant considered that he was entitled to recover the VAT paid on the cars.

The Respondents submitted that the law blocked the recovery of VAT incurred on purchase of motor cars subject to specific exceptions which were construed strictly by case law particularly in relation to sole traders. The Appellant had not put in place measures to prevent private use of the cars. The insurance for them permitted private use. Thus in the Respondents' view the Appellant had failed to meet the legal requirements for a VAT reclaim on the cars.

The Evidence

We heard evidence from the Appellant and Sarah Annette Lapes, the Officer who made the assessment. We received a bundle of documents in evidence.

The Facts

The Appellant was a sole trader under the name of Nailsea Landscape and Construction. The Appellant's business concerned the construction of new houses. The Appellant commenced business in the late 1980's and registered for VAT from 1 October 1990. The Appellant employed one member of staff, and generally used sub-contractors to do the construction work. The annual turnover for the business was in the region of £600,000 to £700,000.

In July 2006 the Appellant purchased a Land Rover Discovery and claimed input tax in the sum of £5,141.79 in his return for period 07/06. In March 2007 he replaced the Land Rover Discovery with a Range Rover, and claimed input tax in the sum of £5,332.15 for period 04/07 on the purchase. The Range Rover was the Sport model with ebony black leather upholstery and privacy glass.

The Appellant purchased the vehicles to tow heavy equipment, particularly an excavator. The vehicles were equipped for this purpose because of their engine power, all terrain capabilities and weight towing abilities. The Appellant considered that the Land and Range Rovers were better suited for towing purposes than commercial vehicles on the market. Further the Land and Range Rovers presented the right image for his businesses.

The Appellant supplied photographs showing the Range Rover towing an excavator. The Appellant provided 12 signed statements from a range of persons including an employee, architect, surveyor, customer and sub-contractors to establish that he used the cars for business purposes and for towing an excavator. The Appellant also stated that the two year mileage for the Range Rover was 13,340 which was relatively low and indicated that the car was exclusively used for business purposes.

The Appellant hired out the cars to Cherrywood Stables Limited for towing a horsebox. The Appellant purportedly charged £150 a day for the hire. Cherrywood Stables was a limited company incorporated on 22 May 2006 and not registered for VAT. The company's business was the breeding of German Hanoverian horses. The Appellant and his wife were directors of the company. The Appellant supplied a written statement of employment with Cherrywood Stables dated 22 May 2006 which said that the use of vehicles hired by the company was for business use only. The bundle contained no invoices to support the hire charge. The Respondents also pointed out that the insurance for the cars provided no cover when they were hired out.

The Appellant stated that he owned a Peugeot 207 which he and his wife used for private purposes. The insurance for this vehicle was limited to social, domestic and pleasure purposes and for travelling directly between home and permanent place of work

The Land and Range Rovers were insured by Zurich Insurance Company and included on the Appellant's commercial policy. The policy named the Appellant as the sole driver of the cars. The policy permitted the Appellant to use the cars for social, domestic and pleasure purposes, for towing a trailer, and for his business or trade purposes. The Appellant stated that the premium for including the cars on his commercial policy was higher than the premium payable for insuring them under separate policies.

The Appellant's insurance company would not insure cars for business purposes only because there was a risk, however, remote that they could be used for social and domestic purposes. The Appellant made enquiries of other insurance companies which indicated that they did not offer motor car policies restricted to business use. The Appellant pointed out that the insurance for his lorry and tractor included cover for social and domestic use.

The vehicles were parked at the address of the Appellant's home which was also the base for Cherrywood Stables limited and the operating centre for the Appellant's Goods Vehicle Operator's Licence.

Reasons for Our Decision

Article 7(1) of the VAT (Input Tax) Order 1992 provides that tax charged on the supply of a motor car to a taxable person shall be excluded from any credit under section 25 of the 1994 Act.

Article 7(2), however, provides that the block on input tax recovery will not apply where (i) the car is a qualifying motor car, (ii) the car is supplied to a taxable person and (iii) the relevant condition is satisfied.

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

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

The combined effect of Articles 7(2E) and 7(2G) is that the test of intention to use the motor car for exclusive business purpose will not be met if the taxable person at the time of acquisition of the motor car intended to make it available for private use.

The dispute in this Appeal centred upon whether the Appellant at the time of acquisition of the Land and Range Rovers intended to make them available for private use.

The test of intending to make the vehicles available for private use is a very high hurdle, and almost impossible one for sole traders to jump, as was recognised by Buxton LJ in Customs and Excise Commissioners v Upton (trading as Fagomatic) [2002] STC 640 at 649 and 650:

[28] "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.

[29] The question has to be decided as at the moment of acquisition of the car. On the facts of the present case, I see no escape from the conclusion that the car was at that moment, as a matter of fact, available for Mr Upton's private use, however little he then 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 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.

[31] Did Mr Upton at the moment of purchase intend to make the car available to himself for private use? The question is not whether he intended to use it, but whether he intended to make it available for use. That again seems to me to lead to a short answer. 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 do 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.

[32] The tribunal did not properly address this question, because they plainly thought that the question for them was, and was only, whether Mr Upton intended to use the car privately (see [2000] V&DR 334, para 13 of the decision). But as we have seen, the regulation directs itself at something quite different, the making available for use. For that reason, therefore, I cannot accept Mrs Hamilton's submission that the appeal is concluded by the finding of fact made by the tribunal.

[35] I readily recognise that it will be difficult for a man who purchases a car for business use as a sole trader to demonstrate that he did not thereby make the car available to himself for private use also. The cases suggested by the commissioners in which that might be achieved lacked conviction. I do not, however, think that we should seek to alleviate the position of the sole trader by allowing ourselves to be driven to a construction of the regulation that it does not otherwise bear. A sole trader such as Mr Upton does have difficulty in establishing that he has not made available to himself for private use, and therefore did not intend to make available to himself for private use, a vehicle that he intended on purchase to have immediately available to him for business use. That however demonstrates, not the unreasonableness of the regulation, but rather the unusual nature of the arrangements made by Mr Upton: arrangements that the Vice-Chancellor, in my respectful view rightly, held not to have offset the intrinsic nature of his purchase, ownership and sole control of the vehicle".

In Shaw v Revenue and Customs Commissioners [2007] STC 1525 Lindsay J ruled that

[30] "Of course, that does not help Mr Shaw here because he is a sole trader; he cannot make a binding contract with himself and he cannot indicate that he will abide by a resolution made by his employer as the employer is himself. I do not read the Elm Milk case as any form of relaxation of the principles decided by the Court of Appeal in Upton and followed by Lloyd J in Robins. The test remains as the Upton case decided but a company taxpayer, even a one man band company as in Elm Milk, is entitled by contract sufficiently to achieve a situation in which the courts will accept that legally the use of the car has been made unavailable for private purposes.

[31] The result does seem to me an unfortunate consequence that appears to me unfairly to put sole traders at a disadvantage in comparison with their competitors who have organised themselves as companies, even as what one might call one man companies. But the fact that there is an unfortunate consequence does not enable me to escape the reasoning of the Court of Appeal.

[32] A point which greatly troubled the tribunal and impressed them in the case at hand was that if Mr Shaw is to be assessed, then it is hard to see how any sole trader could escape the test that (2)(g) provides. Indeed, it is even more difficult, perhaps, for a sole trader to pass the (2)(g) test than the tribunal had in mind because of the consideration which Lloyd J drew attention to in the Robins' case, that if the sole trader has a separate private car which he insures, its insurance is likely to cover also his use of the business vehicle so long as the business vehicle is used with the owner's permission as, in a sole trader's case, would be bound to be the position.

[33] So, if the legislation remains as it is, unless one embarks upon really quite fanciful situations, it is difficult to see how a sole trader could ever pass the (2)(g) test - certainly if, as seems to emerge from the cases, one cannot arrange insurance that is limited to business use. It is a real difficulty, as it seems to me, where the test provided is so restrictive but I do not see that I can avoid the restrictions of the test when, as I say, the Upton case quite clearly imposes it and it binds me".

The authorities cited emphasised the difficulties faced by sole traders in attempting to overcome the block on recovering VAT on the purchase of motor cars. The test was not whether the sole trader intended to use the motor vehicle for business purposes but whether he intended to make it available for private use. The test was met by the facts of acquiring ownership and control of the car, and insuring it for private use. The facts that a sole trader never used the motor vehicle for private use, or having other vehicles for social and domestic purposes or the virtual impossibility of obtaining insurance for business purposes alone were of no assistance to a sole trader seeking VAT recovery on the purchase of motor cars.

In this case the Appellant sought to distinguish the facts from those of Upton. The Appellant pointed out that he purchased Land and Range Rovers not Lamborghinis for his business. The Respondents adduced no evidence that he had used the cars for private use. The Appellant owned another car, a Peugeot 207, which he drove for social and pleasure purposes. The commercial vehicles on the market did not have the same engine and braking power of Land and Range Rovers. According to the Appellant insurance companies did not offer car insurance restricted to business use. In support the Appellant gave examples of the insurance for his tractor and motor lorry which included cover for social and domestic purposes. The Appellant had included the Land and Range Rovers on a commercial policy of insurance which charged a higher premium than a separate policy for the cars. The Appellant was the sole person permitted to drive the Land and Range Rovers under the terms of their insurance.

We find that the Appellant's case at its highest was insufficient on the balance of probabilities to tip the scales in his favour. The Appellant was a sole trader who at the time of purchase of the Land and Range Rovers assumed ownership and control of the cars which were available for his private use under the terms of insurance taken out on the cars. The Appellant's evidence about the Peugeot 207, the difficulties of obtaining insurance for exclusive business use, and that he used the cars for business purposes did not disturb our conclusion that he intended to make them available for private use. The evidence regarding the social and domestic cover for a tractor and motor lorry was not relevant because they did not fall within the definition of a motor car and not caught by the input tax block.

We would add, however, that we did not accept the entirety of the Appellant's evidence which we considered problematical in several respects. The Appellant testified that he hired out the Land and Range Rovers to Cherrywood Stables Limited which was a separate business not registered for VAT ran by the Appellant and his wife. The Appellant produced no invoices or account entries to support the hiring. We hold reservations about the existence of a formal hiring arrangement between the two businesses. We consider that a more likely explanation was that the Appellant purchased the motor cars for use in both businesses. In our view a Range Rover towing a horse box fitted the Appellant's assertion that the Range Rover presented the right image for his businesses.

We were sceptical about the Appellant's characterisation of the Land and Range Rovers as commercial vehicles, and that there were no such vehicles on the market that had the same engine and braking power of the Land Rover range. He purchased a Discovery model of the Land Rover, and a Sport model of the Range Rover with invoiced prices of about £32,000 and £54,000 respectively. We consider the models chosen by the Appellant, particularly the Range Rover, were luxury motor cars equally suited for private use.

We conclude from the Appellant's evidence that he did not in all probability understand the legal requirements regarding recovery of VAT at the time he purchased the cars. The Appellant originally claimed VAT on the Peugeot motor car, which he now accepted was a mistake. We find that his case in respect of the Land and Range Rovers was derived from a selected version of the facts, but even that selected version as indicated in paragraph 25 was not sufficient to bring it within the requirements for recovering VAT on the motor cars in question.

Decision

The Appellant has, therefore, failed to demonstrate on the balance of probabilities that at the time when the Land and Range Rovers were purchased he did not have the intention of making them available for private use. We uphold the assessment in the sum of £10,473 plus interest if appropriate. We dismiss the Appeal and make no order for costs.

The Appellant also had a mis-declaration penalty with the assessment, which he did not include in his Notice of Appeal. We granted him leave to Appeal out of time against the mis-declaration penalty, to which the Respondents did not object. If the Appellant wishes to Appeal against the penalty he must do so within 30 days from release of this decision.

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 16 January 2009

LON/2008/0440