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VALUE ADDED TAX compulsory registration whether trader selling goods as principal or agent second hand cars imported from Japan to Ireland and then transported to UK for sale to customers appellant found to be dealing as principal registration correct appeal dismissed
MANCHESTER TRIBUNAL CENTRE
BRIAN MORRIS Appellant
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THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Colin Bishopp
Brian Strangward
Sitting in public in Birmingham on 9 August 2004
Michael Lloyd, chartered accountant, for the appellant
Joanne Vicary, of counsel, instructed by the Solicitor's Office of HM Customs and Excise, for the Respondents
© CROWN COPYRIGHT 2004
DECISION
- The appellant, Brian Morris, is a general dealer, particularly in second hand machinery. The goods with which we are concerned in this appeal are second hand cars. The cars were first used, from new, in Japan and then exported, as second hand vehicles, from Japan to Ireland. Thereafter they arrived in the United Kingdom where Mr Morris sold them to members of the public. The question for our determination in this appeal is whether he did so as principal or as agent for an Irish dealer.
- The Commissioners maintain the former and have registered Mr Morris compulsorily for VAT for the period 1 September 1998 to 5 April 1999; they have also assessed him to tax of £2,372.11, which they say was his liability during that period, and to a late registration penalty of £355.81. Mr Morris does not challenge the detail of those determinations but, rather, the underlying belief held by the Commissioners that he was trading as a principal. If, as he maintains, he traded only as an agent his turnover was well below the registration threshold and he should not have been registered. The respondents accept that, if we determine that Mr Morris was indeed an agent, his turnover was below the threshold and his appeal against his compulsory registration, the assessment and the penalty must all be allowed.
- Mr Morris was represented by his accountant, Michael Lloyd. Mr Morris gave evidence; Mr Lloyd did not although he did offer us some explanation of Mr Morris's income tax returns of which we will make some mention in due course. The Commissioners were represented by Joanne Vicary of counsel who called the assessing officer, Henry Fitzsimmons; we also had some formal evidence from a review officer, Helen Cox, but nothing turns on her review. Miss Vicary provided us with a bundle of relevant documents.
- Mr Morris told us that he had established contact (it did not emerge quite how) with an Irish dealer, Navan Motors Limited, in County Meath; that company had an associated company called Tara Cars Limited trading from the same address. Mr Lloyd told us in his opening that Mr Morris's practice was to collect the cars (which had been sent from Ireland to the United Kingdom by Navan Motors) from Liverpool or Bristol docks, but that information did not coincide with what was entered on the VAT 414 forms which Mr Morris had completed, when the cars arrived in the UK, indicating that he had himself brought the vehicles in UK. Mr Morris's evidence was that in fact he travelled to Ireland to collect the cars, transported them to the UK, carried out any necessary work of conversion to European standards and of repair, and then sold the car to members of the public. Sometimes he brought a car into the United Kingdom speculatively, and sometimes in order to fulfil an order which a customer had placed with him. He regarded himself as an agent, effecting a sale on behalf of Navan Motors to the United Kingdom customer. He did not pay Navan Motors until the vehicle had been sold and then transferred to Ireland the amount which Navan Motors required. The difference between the sale proceeds and the amount he transferred to Navan Motors was accounted for not only by his commission but also by the expenses which he had incurred, in travelling to Ireland, transporting the vehicle to the United Kingdom, and in adapting or repairing it. Sometimes he was unable to effect an advantageous sale and, because Navan Motors would not reduce the amount they required, he earned no commission, but he was able to make up for that by earning a greater amount of commission than normal on another sale.
- Within the documentation provided to us there were two letters, one from Navan Motors stating that:
"Mr Brian Morris
sold vehicles on our behalf for the last couple of years on a small commission basis";
and another from Tara Cars Limited addressed to Mr Morris confirming that:
"In the period from 1997 to 1998 you acted solely as an agent and were paid on a commission basis for car sales. Commission fees varied from £150 to £250 per vehicle."
We also had a document which, as Mr Lloyd accepted, he had prepared, which stated that a customer in the UK had bought a vehicle from Navan Motors through the agency of Mr Morris. The document is unsigned and we have no live evidence from the customer, and it is accordingly of little or no evidential value.
- Mr Morris accepted that he had retained no other documentary evidence to support his case. He explained that his wife had, somewhat tragically, died in the period between his ceasing to act as Navan Motors' agent and his realisation that the records might be of any interest to the respondents, and he had disposed of them. It was his wife who looked after such records as he kept. Mr Lloyd told us (and from Mr Morris's evidence it was quite clear) that Mr Morris kept very little by way of documentary record of his trading activities.
- We learnt from Mr Fitzsimmons that he visited Mr Morris in March 2001, to discuss with him an entirely separate matter which was, in due course, resolved to Mr Fitzsimmons' satisfaction. It was during the course of the visit, however, that Mr Fitzsimmons examined Mr Morris's bank statements, which revealed quite large receipts and payments. It emerged that they were the receipts from the sales of the cars and the payments to Navan Motors. Later, Mr Fitzsimmons obtained from the Inland Revenue a copy of Mr Morris's income tax return for the relevant period which revealed, for the fiscal year ending 5 April 1999, a declared turnover of £160,164, well above the VAT registration threshold. Mr Fitzsimmons, influenced largely by the income tax return, concluded that Mr Morris had been dealing in the cars as principal and that the figure entered in the income tax return was one on which he could rely. He assumed that the turnover was confined to that one tax year and, by using the standard method for doing so, determined that Mr Morris should have registered for VAT on 1 September 1998. Since Mr Lloyd did not challenge this part of Mr Fitzsimmons' approach, we do not dwell on it. Mr Fitzsimmons then went on to calculate the correct amount of tax, assuming for the purpose of his calculation that Mr Morris was entitled to, and did, use the margin scheme for second hand goods. In fact, as Mr Fitzsimmons agreed in his evidence, it was highly unlikely that Mr Morris could legitimately have used the margin scheme (certainly he could produce no documentation to support any such entitlement) and, if Mr Fitzsimmons is right in his conclusion that Mr Morris was dealing as principal, the assessment almost certainly understates his true liability, and by a substantial amount. However, the applicability of the margin scheme was not a live issue between us and we leave it out of account.
- Mr Lloyd's explanation of the figure entered into Mr Morris's income tax return was that he thought he ought to disclose as income all Mr Morris's receipts from sales of the cars, and not merely the amount which represented commission. He had claimed, as the cost of sales, the amount Mr Morris had to pay to Navan Motors and, as further deductions, the expenses he had incurred. His net profit, on which his income tax liability was based, was therefore exactly the same as it would have been had he declared only the commission and it did not seem to Mr Lloyd at the time that it was a matter of great significance that he had prepared the return in one way rather than the other. Though we find that rather surprising, we accept that the explanation is plausible.
- It is now trite law that the burden of proof before this tribunal, in cases of this kind, lies on the appellant. It is for Mr Morris, therefore, to persuade us that he was acting as agent rather than principal. The difficulty he faces is that the evidence does not, in our view, support that conclusion. It is certainly true that both Navan Motors and Tara Cars have written letters to that effect, and he has told us that he thought that was what he was doing. However, we do not think that was the reality. Commission is normally paid, on the conclusion of a sale, either as a flat rate fee or as a percentage of the price. Mr Morris's evidence which in any event was not entirely consistent with the two letters he produced was that he sold the cars at the best price he could reasonably obtain from a purchaser, and paid to Navan Motors (or Tara Cars in some cases) the price which they demanded, so that in some cases there would be nothing left for him, whereas in others he would make more. His bank statements were consistent with that evidence. That arrangement is not indicative of the relationship of agent and principal but is in our view consistent with arrangements between two principals. The evidence leads us to conclude that Mr Morris's earnings from each sale were entirely dependent upon the difference between what he was required to pay and what he could obtain. That is a characteristic of the manner in which a person deals on his own account, but is not a characteristic of the manner in which an agent trades. It is conspicuous that Mr Morris (as he conceded in his evidence) had not given any thought to the VAT implications of the transfer of the cars from Ireland to the United Kingdom; we think he has given as little thought to the true nature of the relationship between himself and the Irish dealers. Even taking Mr Lloyd's explanation of the income tax return into account, we think Mr Fitzsimmons quite reasonably came to the conclusion that Mr Morris was trading on his own account and we are not persuaded that we should ourselves come to any different conclusion.
- The appeal must, therefore, be dismissed. We make no direction in respect of costs.
COLIN BISHOPP
CHAIRMAN
Release Date: 26 August 2004
MAN/03/0682
