[2009] UKFTT 113 (TC)
TC00081
Appeal number MAN/08/0598
S73 VATA 1994 – attempted recovery of input tax for a motor car – question of business purpose and availability for private use – appeal dismissed.
FIRST-TIER TRIBUNAL
TAX
JOHN ANDREW THOMAS FAITH Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY'S
REVENUE AND CUSTOMS (VAT) Respondents
TRIBUNAL: IAN HUDDLESTON, CHAIRMAN
JOHN ADRAIN, FCA
Sitting in public in Belfast on 19th February 2009
Mr. Andrew McCartney, Accountant, for the Appellant
Mr. B Haley instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2009
DECISION
The Appeal
- The disputed decision under appeal is the Respondents' decision to assess the Appellant pursuant to Section 73 of the Value Added Tax Act 1994 ("the Act") for disallowed input tax in respect of the period 03/06 arising on the purchase of a motor vehicle. The amount of tax in dispute is £1,610.
The Facts
- John Andrew Thomas Faith ("the Appellant") is the sole proprietor of a mixed farming enterprise based at 102 Donnybrewer Road, Eglinton, Londonderry, BT47 3PE. He has been registered for VAT (registration number 331 9821 58) since the 1st August 1980.
- Through a routine inspection carried out by an officer of the Respondents on the 1st February 2008, the Respondents established that the Appellant had claimed input tax on the purchase of a Nissan patrol jeep ("the Vehicle") in the sum of £1,610. Following the visit the Respondents wrote to the Appellant disallowing his claim on the basis that the Vehicle was a motor car and was not available exclusively for business purposes. Enclosed with that letter was a questionnaire requesting further information in the event that the Appellant wished to challenge the decision.
- By a letter dated the 2nd April 2008, the Appellant's accountant requested a reconsideration of the decision, and in response to the questionnaire suggested the following position:
(a) that the Vehicle was only available for use by the Appellant and that he owned four other vehicles which were used for private purposes;
(b) that the Vehicle was used only for a business purpose;
(c) that the lack of cleanliness and the smell of the Vehicle prevented it being used for private journeys;
(d) that although the Vehicle was originally purchased as a motor car, subsequent alterations had given it the appearance and functionality of a van;
(e) the alterations in question were that the rear seats had been reduced to folding seats, and that the rear side windows had been removed and replaced with opaque panels;
(f) that in the registration certificate for the Vehicle it was identified as a van and classed as a light goods vehicle.
5. In support of those contentions, the following documentation was also provided:
(a) a copy of the registration certificate of the Vehicle illustrating that for the purposes of its registration, the Vehicle had been registered as a van;
(b) a copy of the certificate of insurance, confirming that the Vehicle was insured for the Appellant and his spouse for social, domestic and pleasure purposes and for use by the Appellant (as the policy holder) for business purposes;
(c) two photographs of the Vehicle illustrating the alterations to the rear windows and the fold away seats.
- By a letter dated the 8th April 2008, following a reconsideration of the decision, the Respondents wrote to the Appellant upholding the original decision in full. The reasons given in that letter were:
(a) firstly that the Vehicle had not been fully converted into a commercial vehicle as suggested by Public Notice 700/64 (paragraph 2.6) and that consequently it could not therefore be classed as a commercial vehicle;
(b) that, as the Vehicle was classed as a car for VAT purposes, it had failed the availability test – in short, it was "available" for a use wider than a purely business purpose.
- By a letter dated the 10th July 2008, the Respondents requested a copy of the invoice relating to the purchase of the Vehicle, and further clarity as to the alterations which had been made.
- By a facsimile letter dated the 11th July 2008 the Appellant provided a copy of the purchase invoice and advised that no alterations had been made by him to the Vehicle during his period of ownership.
- In the Appellant's appeal notice against the reconsideration decision the grounds for appeal asserted were:
"We do not consider the Vehicle a "car"."
- That assertion fits neatly into the consideration of the law which applies in this case.
Legislation
- Section 24 of the Act provides that a taxable person can reclaim input tax in respect of goods or services used or to be used by him for the purpose of any business which he carries on.
- Section 25 of the Act provides that a tax payer is entitled, at the end of each prescribed accounting period, to deduct input tax from output tax before rendering payment of the net amount of VAT to HMRC.
- What is more germane to this case is how those basic principles apply in relation to a motor car.
- The definition of a motor car is contained in the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222) ("the 1992 Order"), in which it is defined as follows:
" "Motor Car" means any motor vehicle of a kind normally used on public roads which has three or more wheels and either:
((a) is constructed or adapted solely or mainly for the carriage of passengers; or
(b) has to the rear of the driver's seat roofed accommodation which is fitted with side windows, or which is constructed or adapted for the fitting of side windows ……"
- That section then provides certain specific exclusions which are not relevant to this appeal.
- Under paragraph 7(1), there is a general exclusion from the recovery of input tax in relation to purchases of motor cars unless the motor car is a "qualifying" motor car. Paragraph 7(2)(A) et seq detail what is required for a motor car to so qualify. Not all of those paragraphs or sub-paragraphs are relevant here. I set out below the significant ones:
"(2)(E) For the purposes of paragraph (2)(A) [(ie. the definition of a qualifying motor car)] the relevant condition is the letting on hire, supply, acquisition of importation (as the case may be) 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 2(G) below; or
(b) ………"
- I shall call this "the Purpose Test" in the sense that one has to look at the purpose for which a vehicle is acquired.
- Paragraph 2(G) (as referred to in paragraph 2(E)) qualifies that "Purpose Test" in the following way and provides as follows:
"(2)(G) A taxable person shall not be taken to intend to use a motor vehicle 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."
- I shall call this "the Availability Test".
- The relationship of paragraphs 2(E) and 2 (G) (or the Purpose Test and the Availability Test as I have called them) were specifically considered by the Court of Appeal in the case of Customs and Excise Commissioners –v- Upton (trading as Fagomatic) [2002] STC640. The facts of that case concerned a trader who carried on business as a cigarette vending machine operator. For the purposes of impressing his customers and staying ahead of competitors, he bought a Lamborghini motor car. He subsequently argued that the VAT incurred should be recoverable as input tax. The grounds were that he proposed to use the car exclusively for the purposes of his business. The VAT and Duties Tribunal who heard the case allowed the trader's appeal finding that, on the facts of the case, the trader had no intention of making the car available for his private use, and that therefore the tax should be deductable. That decision was appealed and Sir Andrew Morrett V-C allowed the appeal on the grounds that a car might be "made available" if it was available in fact, and the owner did nothing to prevent its private use. The trader appealed and, upon appeal, the Court of Appeal upheld the Vice Chancellor's decision and, more importantly, challenged the basis on which the first instance Tribunal treated the Availability Test (as per paragraph 2(G)(b)) as being, in effect, the same as the Purpose Test contained in paragraph 2(E).
- In the Upton Case the primary judgment was given by Peter Gibson LJ. I quote his comments at paragraph 22 of the judgement:
"The very fact of his [ie. the trader's] deliberate acquisition of the car whereby he makes himself the owner of the car and the 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" [Emphasis added]
and at paragraph 23:
" … what is plain is that the Tribunal did not recognise 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."
- In short, the thrust of the Upton case is that on the acquisition of a car a tax payer, if he is to successfully reclaim VAT, must not only establish the Purpose Test (ie exclusivity of business use) but, in addition, he must also have done something specific which makes clear that the vehicle has been put beyond or is not available for private use. That requires a very high onus of proof, but nonetheless it is the position of the current law.
- Although it is not strictly in point and I digress slightly but I refer to dicta in the case of CEC –v- Elm Milk Limited [2006] EWCA 164. There (at paragraph 36) Lady Justice Arden states as follows:
"The convoluted nature of the provisions demonstrate that Parliament regards the deduction of VAT on the purchase of cars as the exception rather than the rule, and something that is to be subject to rigorous scrutiny and the satisfaction of tough conditions."
- As I say, that is the state of the law as it presently exists and as a direct consequence, anyone seeking to reclaim input tax on the purchase of a motor car has a very high burden of proof to satisfy.
The Respondents' Case
- The Respondents' case for the dismissal of this appeal can be summarised thus:
(a) they initially asserted that the Vehicle fell to be defined as a motor car;
(b) being a motor car, then suggested that input tax could only be reclaimed if:
(i) the vehicle is used exclusively for a business purpose; and
(ii) is not available for private use;
(c) on the facts of this case, the Respondents asserted that the Appellant had not sufficiently demonstrated that he prevented private use of the Vehicle, and that on the basis that there was no obstacle, physical, contractual or otherwise, preventing it from being available for private use, that input tax had been erroneously claimed.
The Appellant's Case
- The Appellant was represented by his accountant, Mr. Andrew McCartney, who called the Appellant to give sworn evidence. The Appellant gave evidence that he had purchased the Vehicle from a dealer in England and that at the time of purchase he clearly was of the view that it was a trade sale and that the VAT itemised on the invoice was properly reclaimable.
- Since acquisition, the Vehicle had been used for general farm purposes, for example the carrying of fencing, livestock, towing trailers and the like.
- Evidence was also adduced that the Appellant had three other vehicles available for use, namely a BMW, a Seat Ibiza and an Audi A4.
- The Tribunal's attention was drawn to the vehicle registration certificate which confirmed that for vehicle licensing purposes the Vehicle was registered as a "van" and was taxed as a "light goods vehicle".
- As for the nature of insurance cover, it was confirmed that the Appellant's wife, Mrs. Valerie Faith, was a named driver on the policy for social, domestic and pleasure purposes and that the Appellant as the policy holder was covered under the terms of the policy for business purposes.
- The Appellant also gave evidence as to the nature of the alterations which had been carried out to the Vehicle, and the Tribunal's consideration of this was much aided by two photographs which were presented.
- As for the rear seats, the Appellant confirmed that the seats were upholstered in the original fabric which existed from the date of manufacture and, therefore, co-ordinated with the front seats. In reality it appeared that the rear seats had simply been folded forwards to increase the load carrying space in the rear of the Vehicle – a phenomenon which is generally consistent with vehicles of this type. It was confirmed that neither the seats nor seat belts as originally manufactured had actually been removed, nor had anything been done to render the rear seats incapable of future use.
- It was confirmed to the Tribunal that the rear passenger windows had been removed and had been replaced with opaque panels. When questioned as to the nature of these, Mr. Faith confirmed that from the rear of the Vehicle it was impossible to see out, but as to the nature of the panels themselves, he was not entirely sure, but felt that they may have been constructed of a plastic type material.
- When questioned as to the storage of the Vehicle, Mr. Faith confirmed that the Vehicle was kept generally in the farmyard where he lived, and that the keys remained, in the main, in his pockets.
- No other alterations had been carried out by him to the Vehicle during his period of ownership, and the Vehicle was, therefore, essentially the same as at the date he acquired it.
- In terms of the business use to which he put the Vehicle, Mr. Faith confirmed that the Vehicle was used for the farm enterprise, and that that was the purpose for which it had been acquired – essentially as a replacement vehicle for an earlier Daihatsu 4 trak which he had used in connection with the business.
- Mr. Faith's evidence was entirely credible and the Tribunal had no reason to doubt anything which he said.
- Mr. McCartney, representing the Appellant, drew the Tribunal's attention to a number of cases in support of the principle of deductability of input tax where a motor vehicle was purchased exclusively for a business purpose. The first case to which we were referred was the case of Bolinge Hill Farm (VTD 4217), a decision of this Tribunal. In that case a farming partnership had purchased a landrover with two folding seats in the rear which the Commissioners had then construed as an adaptation "solely or mainly for the carriage of passengers" (as per Article 2 of the 1992 Order) so that input tax was not allowable. The trader's appeal was allowed on the basis that the changes were relatively minor and designed to have the least effect possible on the load bearing capacity of the vehicle. In the same vein, we were referred to the case of A L Yeoman Ltd –v- The C & E Commissioners (1990) (VTD 4470) which was an appeal in respect of the recoverability of input tax on the purchase of two Diahatsu 4 trak commercial vehicles. In that case again, folding seats had been bolted to the floor of each side of the rear of the vehicles, but no seat belts, rails or hand holds were provided for passengers. The vehicles themselves had a van type body with no side windows. Again, in that case the Tribunal found that the vehicles had not been adapted "solely or mainly for carrying passengers".
- The final case to which we were referred was the case of S F Lowe (Lon/97/225) (VTD 15124) which involved a trader who carried on a business as a breeder and supplier of game birds. The vehicle in question was, as in the case of the instant appeal, a Nissan Patrol vehicle. In that case the Commissioners rejected the claim for input tax on the basis that the vehicle was available for private use. The Tribunal, in that case, accepted the Trader's evidence and allowed the appeal.
- Whilst these cases were helpful in explaining the Appellant's approach to the appeal, the cases cited by the Appellant all pre date the decision of the Court of Appeal in Upton. As the Upton Case is binding upon this Tribunal, therefore, it is to the principles set out in that case to which we must adhere and apply them to the facts of this case.
The Decision
- In conducting that exercise, this Tribunal finds the following facts.
- In the first place we find that the Vehicle falls within the definition of "motor car" set out in paragraph 2 of the 1992 Order on the basis that (and here I paraphrase) either:
(a) it is constructed or adapted solely or mainly for the carriage of passengers; or (to the extent it is not)
(b) its rear roofed accommodation, even if not fitted with side windows, is constructed or adapted for the fitting of side windows.
- To that extent the Vehicle therefore falls within the definition of a motor car for VAT purposes.
- Specifically in relation to that point, and based on the Appellant's evidence, we find that the opaque panels which are inserted in the rear are of a temporary nature and, having inspected the photographs of the Vehicle, conclude that they could be removed and replaced by glass if it was ever appropriate or indeed expedient to do so. Likewise, we find that in terms of the configuring of the rear seating that there has, in fact, been no permanent alteration to the Vehicle from its original specification on manufacture. The folding forward of the rear seats is something that can easily be remedied and indeed is inherent in the design and daily usage of vehicles of this type.
- Having established that the Vehicle is a motor car, it would be excluded from recovery of input tax pursuant to paragraph 7 of the 1992 Order, except to the extent that it is:
(a) a qualifying motor car; and
(b) the relevant condition is satisfied.
- That brings us squarely to the consideration of the Purpose Test and the Availability Test in relation to the facts of this case.
The Purpose Test
- We find, based on the Appellant's evidence, that the Purpose Test is satisfied. There is no doubt in our mind that the Appellant intended to purchase the Vehicle exclusively for a business purpose and his evidence on that was both clear and compelling. The "relevant condition", therefore, set out in paragraph 7(2)(E) has been satisfied. That condition is, however, subject to paragraph 7(2)(G), ie the availability test.
The Availability Test
- On that point, we find that the Vehicle was available for private use. As we have been at pains to explain, the decision in Upton in this regard is quite clear. The fact that the Appellant never intended to use the Vehicle for private use is irrelevant as to the question of whether or not the Vehicle is "available" for private use. On that specific point we have concluded that it is so available. We say this for the following reasons:
(a) in the first place, there have been no substantive adaptations to the Vehicle. We have suggested above that the opaque panels could easily be replaced. Equally, the folding seats are by no means an adaptation to the original vehicle as manufactured. The Appellant himself admitted that the Vehicle had originally been constructed as a motor car and, in this case, all that has been done is to fold those seats (as manufactured) permanently into the forward position. That in all probability suits the Appellant's purpose, but it does not render the Vehicle "unavailable" in any material sense to the carrying of passengers and the "alterations" could easily be undone;
(b) the fact that the Vehicle is described as a "van" or taxed for the carrying of "private light goods" is not determinative of the character of the Vehicle for the purposes of the VAT legislation. This Tribunal has had regard to those facts, as adduced by the Appellant but is not persuaded by them;
(c) the Appellant gave evidence that he secured a wider class of insurance, including social domestic and private use, and included his wife on the policy simply because it was cheaper to do so. We have no doubt that that is in fact the truth but find that, in point of fact, it increases the "availability" of the Vehicle for a private use. In substance, there was nothing to prevent Mrs. Faith at any time from using the Vehicle, whether it be because of winter weather that necessitated the use of a four wheel drive vehicle or, for example, in some emergency when no other vehicle was available to her or, indeed, the Appellant;
(d) we are not convinced that the existence of the use of the Vehicle for a farm purpose or, indeed, the alleged smell arising from such a use, is sufficient to put the Vehicle beyond being "available" in the strict meaning of that word.
- In short, we find that neither the physical state of the Vehicle, nor the manner in which it was insured, prevents it from being used to make private journeys. As we have said, we have no doubt that the Appellant never intended to so use it, but that is not the question before this Tribunal. The question is if the Vehicle was, in fact, available for private use and this Tribunal finds that it was.
- Having established those finding of facts it follows that the VAT was not properly reclaimable and the appeal, therefore, is dismissed.
- No order as to costs.
Ian Huddleston
Tribunal Judge
Release Date : 27 May 2009
