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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Caledonia Motor Group Ltd v Revenue & Customs [2007] UKVAT V20021 (06 February 2007) URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20021.html Cite as: [2007] UKVAT V20021

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20021

VALUE ADDED TAX — motor car retailer — claim for repayment of output tax — previous use of simplified method agreed with RMIF to calculate output tax due on private use of demonstrator vehicles by employees — whether calculations made by Appellant on random sample of 50 vehicles and relating to profit and loss of those vehicles amounted to a proper calculation of the full cost of such use instead of the use of the simplified method — para 5(4) Schedule 4 and para 7(b) Schedule 6 VATA 1994 — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

CALEDONIA MOTOR GROUP LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Ian Vellins (Chairman)

Susan Stott

Sitting in public in Manchester on 10 January 2007

Mr Adam Rycroft of KPMG Accountants for the Appellant

Mr James Puzey, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

The Appeal

1. In this appeal the Appellant is Caledonia Motor Group Limited. The Appellant appeals against a decision by the Respondents to refuse a claim made by the Appellant by letter dated 28 April 2005 from the Appellant's representatives KPMG, pursuant to section 80 of the Value Added Tax Act 1994 ("the Act") for repayment of output tax in the sum of £80,002.42 claimed to have been overpaid by the Appellant in the periods 04/02 to 01/05 inclusive. The Respondents refused the claim by letter dated 10 June 2005. The money claimed was said to be output tax that the Appellant had accounted for in respect of the supply of demonstrator vehicles to its employees for their private use, the Appellant maintaining that there had been no cost in making this supply and therefore output tax had been accounted for and paid in error.
2. At the hearing of this appeal at Manchester on 10 January 2007, the Appellant was represented by Mr A Rycroft of KPMG accountants and the Respondents were represented by Mr J Puzey, counsel.
3. The short issue in this appeal is as follows. By the VAT legislation demonstration vehicles used by directors and employees for private use amounts to a supply of services and the cost of providing such services requires output tax to be due. During the relevant periods, the Appellant paid the output tax using a simplified method of calculating the amount of input tax due on the private use of the demonstrator vehicles based on agreed tables agreed between the Respondents and the Retail Motor Industry Federation ("RMIF"). During the relevant periods, the Appellant purchased from manufacturers and resold almost one thousand vehicles which had been used as demonstrator vehicles, and had been put to private use by directors or employees. Because the Appellant had been using the simplified method of calculation of output tax, the Appellant had not kept records of the times during which their employees had used those vehicle for private use, nor the number of miles driven by such vehicles in respect of such use. Having paid such output tax the Appellant then claimed that the simplified method had resulted in the Appellant paying output tax in the sum of £80,002.42 whereas if the Appellant calculated on a different basis to the simplified method such output tax would not have been so payable, and the Appellant claimed the return of the over payment. The method of calculation proposed by the Appellant was based on a schedule prepared by the Appellant based upon a random selection of 50 of those vehicles and in the main was based upon a calculation of profit or loss on those 50 vehicles. That method of calculation was not acceptable to the Respondents who claimed that the Appellant had not provided a proper and reasonable calculation of the cost of such services.

Background to the Decision

4. The background to the decision is as follows. The Appellant is in the business of operating motor dealerships selling new and second hand cars. Its main place of business is in Warrington. At the material times it operated motor dealerships throughout the North West of England, with dealerships in Blackburn, Blackpool, Chester, Crewe, Liverpool, Manchester, Newport, Oldham, Preston and Warrington, and held franchises for Fiat, Citroen, Honda, Peugeot and Alfa Romeo cars.
5. The Appellant, during the period between 04/02 and 01/05, accounted to the Respondents for a sum by way of output tax due, relating to the tax of putting demonstrator vehicles to use by employees outside of business hours. The cost was calculated by reference to the agreement between the Respondents and the motor industry body known as the RMIF. The RMIF agreement allowed a taxpayer to account for a fixed sum per year by reference to the list price of the relevant vehicle.
6. The Respondents had provided details as to how the fixed sum was arrived at in relation to the RMIF agreement in the Respondents' internal guidance. Accordingly, under the RMIF agreement, the annual VAT is calculated by:

(a) Taking 85 per cent of the average VAT exclusive list price as being the "cost price" of the car;

(b) Applying 25 per cent annual depreciation to the cost price of the car;

(c) Adding a standard £250 for repairs and maintenance to the depreciation;

(d) Applying a 25 per cent private use proportion to depreciation plus repairs and maintenance to arrive at the full cost of providing the car for private use;

(e) Applying the current VAT rate to the value of the private use; and

(f) The resulting figure (rounded down to the nearest pound) is the annual VAT due.

7. The Appellant is registered for VAT under registration number 194033470 with effect from 1 February 1977.
8. By letter dated 28 April 2005 the Appellant, by its representative KPMG, submitted a claim in respect of VAT overpaid in relation to demonstrator use. The terms of the letter provided that there was no additional cost in providing demonstrator vehicles for the use of employees and directors out of hours. A short schedule was included with the letter which showed the amount of VAT per quarter during the periods from 04/02 to 01/05 totalling £80,002.42. No other information was provided in support of the Appellant's claim. In the letter, the Appellant's representatives claimed that if there was any cost to the Appellant it was limited to £153 per annum.
9. The Respondents wrote to the Appellant on 10 May 2005 to request further information in relation to the claim, requesting details and documents relating to how the Appellant had arrived at the conclusion that there was in fact no cost in making demonstrator vehicles available out of hours, or if there was any cost it was no more than £153 per annum.
10. KPMG responded by letter dated 25 May 2005 enclosing a schedule detailing how the "cost" was calculated. The calculation had been carried out by reference to a sample of 50 vehicles which were used out of hours by employees and directors of the Appellant.
11. That schedule was amended by the Appellant under cover of a letter dated 15 December 2005 to exclude the costs of providing a road fund licence and insurance.
12. On the schedule (as amended) in relation to this sample of 50 vehicles, the Appellant had calculated the costs of providing demonstrator vehicles by reference to the formula D + B – A – C where:

A = purchase price of the vehicle

B = manufacturer's demonstrator bonus payment

C = maintenance costs

D = sale price of vehicle.

13. By letter dated 10 June 2005, the Respondents rejected the Appellant's claim. By letter dated 5 August 2005, the Appellant requested that the decision be reconsidered. By letter dated 10 August 2005, the Respondents confirmed their decision. By Notice of Appeal dated 22 December 2005, the Appellant appealed against the decision on the following grounds:

"The claim for repayment of tax under Section 80 VATA 1994 was wrongly refused in so far as there was no cost to Caledonia in making its demonstrator vehicles available for private use and therefore the output tax previously paid by Caledonia should be repaid to them".

14. It would appear that the Appellant's claims, and its schedule has been submitted on the basis that the Appellant claims that the cost is the actual cost of depreciation suffered on the vehicle between purchase and resale, taking into account the costs of maintenance of the vehicle. The claim has also been submitted on the basis that the cost is the net cost to the Appellant, taking into account both those demonstrator vehicles in relation to which there has been a profit, and those vehicles in relation to which there has been a loss. The Appellant claims that the maintenance costs include both internal costs to the Appellant in the form of the costs of labour, and the costs of any parts or lubricants. The Appellant would have incurred VAT in relation to the purchase of parts and lubricants. The Appellant claims that the price of cars sold after one year of use is not elastic by reference to mileage. The Appellant claims that the price of the vehicle would not be more therefore, but for the private use of the vehicle by employees and directors of the Appellant.
15. The Respondents appear to have objected to the method used by the Appellant on a number of grounds. Firstly, the Respondents consider that insufficient records have been kept to enable an attribution of costs between business and non-business use. Secondly, the Respondents do not accept the use of the profit and loss figures as being an appropriate measure of the cost of wear and tear on the vehicle during its period of use as a demonstration car. Thirdly, the Respondents have objected to the basis of the calculation by the Appellant, in that the Respondents believe that the use of annual figures for each vehicle, and the netting off of profits against losses provides a distorted calculation.

The Legal Framework

16. The liability to account for output tax on the private use of goods by the staff or directors of a taxable person where those goods are assets of the business arises both in Articles 5(6) and 6(2) of the Sixth Directive (77/388/EEEC).
17. Article 6(2) deals with the supply of services, and provides that:

"2. The following shall be treated as supplies of services for consideration:

(a) The use of goods forming parts of the assets of a business for the private use of the taxable person or his staff or more generally for purposes other than those of his business where the Value Added Tax on such goods is wholly or partly deductable;

(b) Supplies of services carried out free of charge by the taxable person for his own private use or that of his staff or more generally for purposes other than those of his business".

18. The value of those supplies is defined in Article 11A(1)(c) as being:

"(c) In respect of supplies referred to in Article 6(2) the full cost to the taxable person of providing the services".

19. These provisions are enacted in UK legislation under paragraph 5(4) of Schedule 4 of the Value Added Tax Act 1994 and paragraph 7(b) of Schedule 6 of that Act.

"5(4) Whereby or under the directions of a person carrying on a business goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any person other than a purpose of the business, whether or not for a consideration, that is a supply of services".

"7 Where there is a supply of services by virtue of –

(b) [paragraph 5(4)] of Schedule 4 (but otherwise than for a consideration) the value of the supply should be taken to be before costs to the taxable person of providing the services except where paragraph 10 below applies".

Paragraph 10 is not relevant to this appeal.

20. The ECJ decision of Renata Enkler v Finanzamt Hamburg (C-230/94) considered the meaning of Articles 6(2) and 11A(1)(c) of the Sixth Directive. At paragraphs 35 – 38 the Court set out the following points which are relevant in the present case:

"35. As already pointed out in paragraph 33 above, the purpose of Article 6(2) of the Sixth Directive is to ensure equal treatment as between taxable persons and final consumers. Final consumers can use goods whenever they wish: such so, in determining, in accordance with Article 11A(1)(c), the taxable amount for a transaction treated as a supply of services pursuant to Article 6(2), the periods in which goods are at the taxable person's disposable in a way that he can actually use them at any time for private purposes must be taken into account.

First, the extent to which those periods are to be taken into account when the taxable amounts for VAT purposes is determined is limited by the requirement that only expenses which relate to the goods themselves, such as the writing-off of deprecation, or expenses incurred by the taxable person which entitle him to deduct VAT, may be taken into account.

Next, not all expenses of any kind are to be included in the taxable amount. It is characteristic of the periods in question that the goods in question are at the taxable person's disposal not only for her private purposes but also, and at the same time, for her business purposes. Therefore, a portion of the expenses, proportionate to the ratio between the total duration of actual use of the goods and the duration of non-business use must be taken into account.

Consequently, the answer to the fourth question must be that Article 11A(1)(c) of the Sixth Directive is to be interpreted as the meaning that the taxable amount for turnover tax on transactions treated as supplies of services under Article 6(2)(a) of the Directive must include expenses which are incurred during a period in which the goods are at the taxable person's disposal in a way in which he can actually use them for non-business purposes and which relate to the goods themselves or which the taxable person is entitled to deduct for VAT purposes. The portion of the expenses to be included must be proportionate to the ratio between the total duration of actual use of the goods and the duration of actual use for non-business purposes".

Evidence of witnesses at hearing of appeal

21. The evidence of Mr Mark I'Anson, the finance director of the Appellant, was given by written statement. Mr I'Anson provided the information which formed the basis of the schedule sent to the Respondents with the letter dated 25 May 2005. He stated that the schedule was prepared on the basis of a sample of 50 demonstrator vehicles and that the sample was taken randomly from vehicles sold by the Appellant in September, October and November 2004. The schedule relates to vehicles sold from each of the dealership sites that the Appellant operated during that period.
22. He stated that the Appellant retains records, which indicate any repairs or servicing undertaken on individual vehicles. The cost of maintenance was calculated on the basis of the costs of parts and labour to the Appellant. He stated that the rate charged for labour was an internal rate (i.e. an internal charge) and was lower than the rate charged to customers. Taken overall, he estimated that more than 50 per cent of the costs would be attributable to internal labour. He stated that if it were necessary, the Appellant could identify the exact cost of parts and labour in relation to the sample vehicles provided. He stated that occasionally specialist work would be carried out by outside suppliers to vehicles which would also be included in the maintenance costs, for example dents or scratches.
23. Mr I'Anson stated that if repairs were necessary to a vehicle by reason of manufacturing defects, then the Appellant would claim for the costs of those repairs from the manufacturer. None of the costs that the Appellant had identified on the schedule were costs which had been recovered under the manufacturer's warranty.
24. He stated that the price of nearly new cars such as the demonstrators is set by the individual motor dealerships. Typically, those dealers would have reference in setting the price to industry standard prices which are set out in publications such as Glass' Guide. He stated that the price of the vehicles may vary by reference to the mileage.
25. We would describe the schedule of the 50 vehicles by the Appellant as follows. It is headed "Demonstrator disposals in November 2004". In respect of each of the 50 vehicles there are columns in which is stated the make of the vehicle (Citroen, Fiat, Honda or Peugeot), the dealership town, the date that the vehicle was delivered to the Appellant by the manufacturers, the date when the vehicle had been received by the Appellant's manufacturers, the model number and registration number and registration date, the number of months that the vehicle had been used as a demonstrator vehicle, the price purchased from the manufacturer, the bonus paid by the manufacturer to the Appellant for having a demonstration vehicle at its premises, the sale price when the vehicle was sold by the Appellant, the profit or loss on the sale, the maintenance costs, the total cost per month and per annum (namely the profit or loss on sale taking into account maintenance), and there was a further column which provided a figure for depreciation at two per cent, which was not in fact utilised by the Appellant in its calculations. The Appellant totalled on the schedule the monthly and annual figures for the difference between the purchase price and the sale price taking into account maintenance. On many of the vehicles in the schedule, the Appellant had actually made a profit, because they had achieved on the sale of the vehicle a higher sum than the Appellant had paid for the vehicle less the sum that the Appellant had received by way of bonus from the manufacturer. On other vehicles the Appellant had made a loss. The Appellant had averaged among the 50 vehicles a profit of £26 per month or £315 per annum (which the Appellant had referred to in the column marked total cost). The note to the schedule stated that the estimated average private mileage of employees was not logged as the Appellant was unable to supply this, and that mileage would only effect the sale price if it was above the average mileage (i.e. only more than 12,000 miles per annum) and if that was the case then the sale price would be reduced by approximately £25 per 1,000 miles.
26. An officer of the Respondents, Mr Alwyn Gratton, gave evidence by way of witness statement. He is a senior tax specialist within the large business service of the Respondents and had had overall responsibility for the Respondents' dealings with the Appellant, at the Respondents' Derby office. He had visited the Appellant and had discussed the Respondents' replies to the correspondence with the Respondents' other witness, Mr Michael Doyles. Mr Gratton agreed with Mr Doyles' arguments, replies and decisions.
27. Mr Doyles gave evidence by way of witness statement and oral evidence at the hearing. He is an officer of the Respondents employed in the large business service in Derby and dealt with the Appellant. He had visited the Appellant's premises and had dealt with the correspondence. He had made the decisions relevant to this appeal.
28. The Respondents had considered that output tax due in respect of the private use of demonstrator vehicles owned by the Appellant, where there was no consideration from the employees, would ordinarily be accounted for, in each period, on the full costs of providing the car for private use and would be calculated by reference to:

(i) the depreciation of the capital cost of the car

(ii) the value (excluding VAT) of repairs, maintenance and other running costs (excluding road fuel) on which VAT had been recovered; and

(iii) the actual proportion of business and private use.

Where the employee pays consideration for the private use of the vehicle, output tax is due on the sum paid in the normal way.

29. The Respondents had reached agreement with the retail motor industry federation for the use of the simplified method for calculating the amount of output tax due on the private use of demonstrator vehicles whereby reference was made to agreed tables of value and output tax was made. The Appellant had opted to use this simplified method as its method of calculating output tax on its supplies of demonstrator vehicles to the private use when it was introduced with effect from 1 July 2000. It was considered by the Respondents that in exercise of the Respondents' discretion, the Respondents may exceptionally grant an application by a taxable person to retrospectively change its method of accounting for VAT in respect of the private use of its demonstrator vehicles. It was considered, however, that any such application must include and be supported by the detailed information relating to depreciation, repairs etc and business and private use proportion to show the cost of the supplies and the proper attribution between business and non-business use.
30. The Respondents considered that the Appellant had failed to provide any or any meaningful evidence in support of the application of the Appellant to retrospectively alter its method of calculating output tax due on its supply of demonstrator vehicles for the private use of its employees during the period April 2002 to 1 September 2004 when this supply was made without charge. Further, the Appellant had failed to provide any or any meaningful evidence in support of the change of method for the period from 1 September 2004 to January 2005 during which a charge was made by the Appellant to its employees for private use of such vehicles.
31. Further, and in the alternative, the Respondents contended that the Appellant had failed to provide any proper evidence in support of its contention that the supply of the vehicles was at no cost to the Appellant and the Respondents did not accept that such a supply was without cost to the taxable person.
32. Mr Doyles confirmed that one of the component parts of the RMIF simplified method was that it allowed for depreciation. However, he did not accept that the Appellant's use of a formula calculated by reference to profit and loss as a method of calculating depreciation was an appropriate and acceptable method. He did not accept that depreciation could be equated to profit and loss and considered that profit and loss was not a proxy for depreciation.
33. Mr Doyles stated that he could find no formal definition in VAT law of the expression "full cost" (as referred to in Schedule 6 paragraph 7(b) of the Act). Accordingly, he turned to the common use of the word "cost" from the Oxford English Dictionary. In the Dictionary, the noun "cost" is defined as "an amount paid or required in payment for a purchase, or a price, and the expenditure necessary for the attainment of a goal". The Dictionary defined the verb "cost" as "to have as a price, to cause to lose, suffer or sacrifice". Mr Doyles stated that he concluded that a profit did not meet any element of the common usage of the word "cost" and that the two things could not be equated. He considered that "profit" seemed the antithesis of cost.
34. He also concluded that depreciation could not be measured as a loss. In looking at depreciation, Mr Doyles was looking at the legal requirement for a cost. It seemed to Mr Doyles that in the Appellant's schedule, the calculation of profit and loss was reliant on the selling price achieved. He considered again that this was not within the "cost" definition as it was something received.
35. Mr Doyles stated that there were factors which would influence the selling price of a vehicle that would not necessarily come within the definition of depreciation. He stated that the selling price of a vehicle would be influenced, for example, by the part exchange allowance (or value) on a sale of a vehicle if a purchaser of a vehicle gave a vehicle in part exchange. Another factor would be the skill of the salesman, or the time of the year that the sale was made or whether any additional items such as mats or mud flaps had been included in the deal. Such factors could affect the selling price of a vehicle. Mr Doyles considered that as opposed to this depreciation would be a cost due to wear and tear and to the ageing of the vehicle. He had noted that the Appellant had included a figure for depreciation on its schedule in the end right hand column of a monthly figure of two per cent per month but he could not adduce that this figure had been used for the purposes of the Appellant's method.
36. Mr Doyles had noted that profits had been netted off against losses in the Appellant's schedule. He did not agree with that. He considered that profit did not relate to cost and the netting off of a negative figure against a positive figure had little relevance in the context of what had been achieved. He considered that such netting off had a distortative affect on the figures. He considered that netting off will produce a very low figure not representative of the reality of the situation.
37. Mr Doyles noted that on the schedule the figures had been grossed up to an annual figure per annum even though all but one of the vehicles had been held by the Appellant for less than a year. Mr Doyles stated that he found this very distorting of the figures, even if a profit and loss was regarded as a measure, for two reasons. Firstly, take the case of two vehicles, one of which had been kept for only one month and the other for five months, both vehicles making a profit of say £1,000. In the Appellant's schedules, the Appellant would annualise that profit as £1,000 for one month x 12 months, equals £12,000 profit (a negative figure). On the other hand the vehicle held for five months on which the total cost or profit had been £1,000, would be annualised by dividing the £1,000 by five for the five months at £200 per month and then multiplying this by 12 months to achieve a total cost per annum of £2,400. Accordingly in the annualised figures, one vehicle with the same negative profit of £1,000 would be shown as an annual figure of £12,000 whereas the other would be shown as £2,400 in the annualised figure in the schedule. Mr Doyles stated that he found this distortive. Secondly, one might expect that a vehicle sold after one month would make a good profit as it was only one month old and there had been a bonus from the manufacturers, and this is borne out by the Appellant's schedule where no loss is shown on any of the vehicles in the 50 vehicle schedule sold within three months. However, in the case of a vehicle aged several months, it might be expected that a lesser profit might be made by the Appellant on such a vehicle, maybe even a loss. Indeed this is found in the Appellant's schedule in general terms, although there are some vehicles which are an exception to this.
38. Mr Doyles contended that in the schedule of the Appellant, if one added up the total of the 50 vehicles' profit and losses, one actually achieved a small loss of approximately £617 which is a positive figure. If one totalled the maintenance costs, a figure of approximately £14,455 would be calculated. Therefore overall, even using the profit and loss basis (with which Mr Doyles would not agree), this would achieve a cost factor as these are positive figures. However, in the annualised figures of the Appellant for the same 50 figures there is a significant negative figure of £315 per vehicle which when multiplied by 50 equals £15,750. Mr Doyles considered that therefore on the one hand there was a positive figure and on the other hand a negative figure, whatever that may mean in reality.
39. Mr Doyles considered that another factor is the fact that a vehicle can only be sold once and if one took profit and loss as a proxy, that should only appear once. There are other implications, so if a vehicle was sold in March it should appear in the figures for that VAT period and a trader could not anticipate the figure in earlier periods as the trader would not know how much he was going to sell the vehicle for or when he was going to sell it. Accordingly the trader could not insert a figure on that quarter's VAT return for that vehicle.
40. Mr Doyles did not accept that there was no cost in making a vehicle available to an employee for private use. He considered that when looking at a cost figure, one would have to look at all the cost for all supplies including maintenance, and costs relating to business use of the vehicle would also relate to the private use of the vehicle. It seemed to Mr Doyles that the only possible way of arriving at a cost figure relating to the private use would be by an apportionment method. Mr Doyles considered that if the RMIF simplified method was not to be used, a trader would have to use the cost basis and also an apportionment of this with full figures being produced and records. Apportionment was provided in section 19(4) of the VAT Act in the phrase "such part of the consideration as is properly attributable to it".
41. According to Mr Doyles' knowledge, all motor groups use the simplified RMIF method. He knew of no motor groups using the methods suggested by the Appellant. Mr Doyles deals with many other large motor groups. He stated that he took the view that the consideration for the supply of services was deemed to be the full cost of supplying those services. Mr Doyles did not accept that the Appellant's schedule gave an accurate figure for the monthly cost of depreciation. He stated that if the Appellant was proposing a method, Mr Doyles would expect the Appellant to give an accurate, easily identifiable, and rigorous method to arrive at a reasonable and fair figure based on accurate figures. He stated that he would expect depreciation to recognise the cost, the age and the wear and tear of the vehicles. With regard to wear and tear, Mr Doyles considered that he would have to look at all the cost factors involved such as the extent of the usage, the mileage of a vehicle, and such things such as scratches on the vehicle. Mr Doyles considered that even if a vehicle had been sold at a profit, there must have been some element of cost as the vehicle would have been used. For example, tyres and exhaust pipes may not need to have been replaced for a longer time if a vehicle had not been used by the salesman for private use. Mr Doyles considered that the concept of profit was not germaine, and what should be looked at was costs.
42. Mr Doyles stated that on the basis of the Appellant's information, he would not accept that there was no monetary cost in making demonstration vehicles available for private use. He considered that the monetary costs to the Appellant were a mixture of tangible and intangible costs and a proportion of the total costs.
43. With regard to the depreciation figure of two per cent (per month) which appeared as an item in the Appellant's schedule, he stated that he would be looking for the figure that the Appellant put in the management accounts for depreciation, although it could be that that figure may vary from the figure used by other traders. He would also have to look at the fiscal reality of any subjective figure used by a motor trader in its management accounts, and as well as the management accounts, the Respondents would look at other methods in relation to depreciation if they produced a result that was accurate, attainable, fair and reasonable.
44. Mr Doyles stated that the rate of depreciation for traders with whom he dealt was broadly similar. He considered that as well as the mileage and condition of the vehicle as relevant to depreciation, he also considered that the age of the vehicle was also relevant. If a vehicle had been used as a demonstrator, it was by definition a used vehicle and if sold at a profit the Appellant had still included that vehicle in its schedule. Mr Doyles stated that he could not say with any certainty what level of profit would have been achieved by the Appellant if the vehicle had not been used as a demonstrator and if the vehicle had had a lower mileage whilst in the possession of the Appellant. Mr Doyles considered that if there had been less use of such vehicles the profit would have been more, but he, on the information provided by the Appellant, would not be able to predict what that profit might have been otherwise.

Submissions of Respondents

45. Mr Puzey made detailed submissions on behalf of the Respondents. He explained the background as to why the Appellant was required to account for VAT in respect of demonstration vehicles. It used to be the case that there was an input tax block on cars and one could not claim input tax on cars. That changed in 1999. Motor dealers were able to claim input tax, but if a vehicle that had been appropriated to business use by way of demonstrations was also put to private use by directors and employees, then those dealers would gain an advantage over the non taxpayer who could not reclaim private use. To balance that fact, there had to be a measure to allow for the fact that the motor dealer was putting the goods to private use despite the dealer getting the input tax back. For the purpose of motor dealers Article 6(2)(a) of the Sixth Directive is relevant as it is the basis for the principle that one cannot reclaim the tax and not account for output tax if one is going to put the vehicle to private use. Accordingly there is a taxable supply and it is a deemed supply in circumstances where the demonstrators are put to private use. The starting point is that tax has to be accounted for on that supply. The next question was how do you value that supply.
46. Article 11(1)(c) states that the value was taken to be the full cost of providing those services, and that is faithfully reproduced in the UK legislation.
47. Mr Puzey submitted that since 2000, the Respondents and the RMIF have had in place an agreement for the simplified calculation of VAT due on the private use of stock in trade vehicles. This is an employee-based method. It is an entirely voluntary method and there is no compulsion on any motor dealer to avail themselves of the same. The Appellant used this method without demur until September 2004 when it began to charge its employees for their private use of demonstrator vehicles.
48. The present claim of the Appellant was intimated in April 2005 when the Appellant's representatives claimed that the RMIF agreement was inappropriate as "the assumptions made in arriving at that agreement do not correspond at all with the facts and circumstances of Caledonia". Mr Puzey submitted that the Appellant had never stated why its position was different to those companies who use the RMIF agreement, not even at the hearing. Subsequently, the Appellant had stated through its representative that it only used the agreement in the interim until it could determine a reasonable apportionment method that did not involve complex calculations. This method turns out to be a claim that the Appellant incurs no cost at all on the private use of its demonstrators.
49. This in turn is founded upon a comparison of the cost and sale price of 50 such vehicles, adjusted for the manufacturers' bonus and an element of maintenance costs. The Appellant has claimed that such comparison represents "actual depreciation" of those vehicles whilst they were owned by the Appellant.
50. The Appellant has not prepared such a calculation for each relevant vehicle but rather a sample of 50 sold in September to November 2004. Cars upon which a profit was made are "netted off" against those where a loss was made and the total costs for each car are grossed up to an annual figure. The resultant final average of all sales produces a minus figure, so that rather than private use being of no cost to the Appellant, it is in fact in credit due to the private use of those vehicles. Mr Puzey submitted that that was of course impossible and showed the flawed nature of the Appellant's calculation. He said that there was either a cost or no cost to the Appellant for the private use of the demonstrator vehicles.
51. Mr Puzey submitted that the RMIF agreement was a simplified method of calculation which the Respondents agreed to. He submitted that the alternative is for the Appellant to calculate the full cost for private use on each vehicle. The Appellant's representative had claimed in the correspondence that it was unfeasible and impractical to keep records of private use. Mr Puzey submitted that that was simply wrong. He submitted that if the Appellant seeks retrospectively to revisit the agreed method of accounting for private use then what is required are records of the private use of each vehicle either on a time or mileage basis. He submitted that the domestic Statute and EC Directive require a calculation of the full cost of such supplies. He submitted that there was no legal basis for a trader seeking to impose its own simplified method of calculation above the Respondents, or of seeking a ruling from the tribunal that it frame a different method.
52. He submitted that the Respondents do not accept that the Appellant's proposed new method is a valid or correct approach. In the alternative, the Appellant had invited the tribunal, in the submissions of the Appellant's representatives, to come to a conclusion as to what the correct method should be for calculating such costs. Mr Puzey submitted that the Respondents do not accept that the tribunal has jurisdiction to provide generally the conditions for the calculation of the cost of private use of a motor dealer's stock-in-trade vehicles. He submitted that that was not an issue of law and neither was it a question of fact.
53. Mr Puzey submitted that the legislation refers to the value as the full cost of providing those services. He submitted that it was relevant that it was not additional costs that had to be valued but the full cost.
54. Mr Puzey submitted that if a vehicle was appropriated for use as a demonstrator vehicle and was used by employees for private use, its value went down. If its value went down, there had been a cost, and it was a question of apportioning that cost between business and private use.
55. Mr Puzey submitted that the factors generally accepted as relevant to the question of cost are depreciation, the cost of maintaining those goods when put to private use, and the relevant proportions of business and private use. Mr Puzey submitted that these factors are included within the RMIF agreement and in relevant European case law.
56. Mr Puzey submitted that one of the problems with the approach of the Appellant in looking to profit and loss to value depreciation, was that one had to wait and see what that profit and loss was going to be, and if one was going to calculate cost, the Respondents say that you cannot wait and see, because this runs counter to the way in which VAT has to be accounted for on business assets. Mr Puzey submitted that the tax point for accounting for VAT on the private use of business assets is deemed to be on the last day of each period in which the goods are made available or used (regulation 81(1) of the VAT Regulations 1995 SI2518). He submitted that consequently it was not open to the Appellant to calculate the cost of private usage on the sale of such vehicles when that sale might take place several months after the purchase of the vehicle. He submitted that the Appellant could not comply with regulation 81(1) if the Appellant waited for five, six or nine months before it sold the demonstrator before calculating the cost. He submitted that that showed that the Appellant's assumptions were wrong and that the cost was not dependent on profit and loss. He submitted that there was a cost for every day that the vehicle was at the premises of the Appellant. He submitted that therefore there was no sense in equating cost with profit and that depreciation is a cost and is the antithesis of profit.
57. Mr Puzey submitted that it was agreed that the depreciation of an asset is a matter which must be taken into account in calculating the "full cost" of private use of business assets. He submitted that the authorities do not assist in defining depreciation. He submitted that further generally "full costs" is to be given its ordinary meaning in the absence of statutory definition or specialised usage.
58. The Appellant had argued that its claim for overpayment was not barred by the absence of contemporaneous records recording business and private usage and that there was no statutory requirement to keep such records. The Respondents contend that in the absence of such records it is effectively impossible to prove the claim for overpayment. This is because there is no record for each vehicle of what private usage was undertaken. The Appellant had sought to overcome this difficulty by stating that because the RMIF agreement provided for an assumption of 25 per cent private usage in its calculations, that percentage can be adopted by the Appellant in this case because it is no different to other motor dealers. Mr Puzey submitted that that was a surprising submission because the Appellant had expressly abandoned the RMIF agreement in order to make the claim and had stated in correspondence that the assumptions that underlie that agreement did not apply in the case of the Appellant. Mr Puzey submitted that it was not open to the Appellant to pick and choose those parts of the agreement it wished to apply. The RMIF agreement is a simplified method of calculation and the figure of 25 per cent is one element of that method which cannot be viewed in isolation. He submitted that in the absence of utilising the RMIF agreement, the Appellant must prove its claim in relation to each vehicle.
59. When the Appellant amended its schedule, it removed the allowance for the cost of maintenance entirely, maintaining that no part of the maintenance costs should be included, because it was a supply of services pure and simple, i.e. the goods element of maintenance is subsumed within a supply of labour. Mr Puzey submitted that the Respondents do not accept that analysis because the goods supplied are a separate identifiable element which the Respondents consider is the principle element in the supply of maintenance; and in any event they cannot be seen as subsumed within a supply of labour.
60. It was also relevant that a manufacturer paid a variable bonus to the dealer for taking a demonstrator and the fact that a dealer was required to purchase a certain number of demonstrators meant that the sale of those vehicles cannot be viewed as typical vehicle sales subject only to the usual commercial factors. The schedule provided by the Appellant revealed that of 41 vehicles out of the 50, a profit or loss of less than £1,000 was made after the bonus was taken into account and in seven out of the remaining nine instances, the profit or loss was less than £2,000. He submitted that the use of simple profit or loss figures as a measure of depreciation for those vehicles was misleading. The Respondents do not know whether this selection is representative or not of demonstrator sales. However, what is clear to the Respondents is that these consistently low margins of profit or loss are achieved regardless of model, purchase price, level of bonus, and importantly the number of months of use as a demonstrator. Mr Puzey submitted that this suggests that these are not typical sales of either new or used vehicles and that viewing depreciation in terms of profit or loss is inappropriate for these vehicles. The Appellant stated that there was no cost in maintaining a demonstrator available for private use because they were typically sold for a small profit. Mr Puzey submitted that this is a non-sequitor. It did not follow that there was no cost of private use because a profit was made. The question was what profit could have been made but for the private usage and one does not know the answer to that unless details of private usage, are recorded.
61. Mr Puzey submitted that the Appellant's method did not calculate actual cost even for the sample of vehicles chosen and certainly not for every demonstrator sold by the Appellant during the period of the claim. The Appellant itself had included a figure for depreciation for each of the sampled vehicles on its own schedule in the far right column but that figure (two per cent per month) had not been used by the Appellant for the purposes of calculating the cost of the private usage. Further in the quarter chosen by the Appellant, the Appellant's employees no longer had the free use of the demonstrator vehicles as from 1 September 2004 and thus this quarter is not representative of all the previous quarters in the claim.
62. The Appellant had claimed that there was no discernable reduction in the resale value by reason of the additional mileage of employees. Mr Puzey submitted that the Respondents do not accept this proposition at all, and this has not been proved by the Appellant. Furthermore, this assertion by the Appellant did not address the affect that the number of months of private use would have on the resale value besides the mileage of the vehicle.
63. The Appellant had claimed that a calculation for each vehicle was not required by the legislation because "goods" are referred to in the plural. Mr Puzey submitted however that the Appellant had not provided a calculation for all of the goods involved either collectively or individually, and he submitted that it was simply wrong to suggest that the legislation does not require the calculation of the full cost of private use in respect of each vehicle.
64. The Appellant claimed that a calculation of costs necessarily involved netting-off the costs of making those goods available against the net benefits. Mr Puzey submitted that that had nothing to do with the calculation of cost. There was either a cost to private use or there was not, and he submitted that negative figures had no meaning in this context and simply distort the calculations. Similar considerations apply to the Appellant's alternative submission concerning employees who use cars which are either sold at a profit or loss. He submitted that the netting-off of profits and losses on different vehicles was wholly irrelevant to the question of cost. Further, he submitted that calculations were distorted due to the method of calculating annualised figures because firstly the profit or losses were incurred only once, whilst other costs were incurred over the period of use of the vehicle, and secondly, a vehicle one month old is likely to achieve a higher level of profit and loss than one several months old, but by grossing up the figures by a simple multiple, the effect of the cost is disproportionate giving a distortion of the figures.
65. Mr Puzey confirmed that it was impossible to say how much more profit could have been obtained if the vehicle had not been put to private use and accordingly it would not be possible to use the Appellant's method. He submitted that where a loss had been made on a vehicle, how much of that loss could be attributed to depreciation and how much to factors such as the time of the year, the second hand car market, the demand for that particular model and the skill of the salesman? He submitted that these were variable subjective factors and the very antithesis of objective and verifiable figures.
66. Mr Puzey submitted that Glass' Guide was an illustration of the fact that a vehicle 'x' years old with a mileage of 'a' was worth 'y' pounds, but that might not be the price that is obtained on a sale, and what would happen if the vehicle was not sold but written off by an employee in an accident? How could the private use be accounted for then? Mr Puzey submitted that the Appellant had claimed that private mileage had no affect on sales values. Mr Puzey submitted that that had not been proved at all and there had been no evidence to that effect. In fact, in Mr I'Anson's witness statement, he had stated that the price of a vehicle may vary according to mileage. He submitted that in any event looking at profit and loss on demonstrators is not an appropriate way of valuing depreciation.
67. Mr Puzey submitted that to add to these difficulties there were the problems with the Appellant's methods which included the netting-off of profit and loss. He submitted that Mr Doyles had explained why these were distortative factors.
68. With regard to maintenance, the Respondents agreed with the Appellant that tax is not to be accountable for on the vatable inputs, so the supply of labour by the Appellant's own tradesmen on those vehicles would not be a cost, but where maintenance is carried out by a third party or where there are the costs of parts such as lubricants, Mr Puzey submitted that it would be necessary for such maintenance costs to be apportioned to show the element of private use.
69. To summarise, Mr Puzey submitted that in this appeal the Appellant had sought to abandon the use of the RMIF simplified method, and seek to construct its own simplified method to calculate the cost of making the demonstrator vehicles available for the private use by its employees, and suggesting that its own calculations based upon profit and loss on its own sample of 50 vehicles would show that there was no cost to the Appellant of making those vehicles so available. The Appellant had failed to keep full and proper records and had failed to produce evidence of the full cost to the Appellant of making all its demonstrator vehicles available for private use during the relevant period. In the circumstances, the Appellant had failed to prove that they had over-declared output tax and Mr Puzey submitted that the Appellant's appeal should be dismissed.

Submissions of Appellant

70. Mr Rycroft made a number of submissions on behalf of the Appellant. He submitted that the primary role of the tribunal is to find the correct amount of tax, so far as possible on the material properly available to it, the burden to it in this respect resting on the taxpayer. He submitted that the sole question for determination by the tribunal was whether the Appellant had made out a valid claim in relation to tax overpaid either in full or in part.
71. He submitted that there were a number of possible variables in the calculation of "cost" in relation to the making available of a demonstrator vehicle for private use. He submitted that in the event that the tribunal did not accept the method used by the Appellant for purposes of the claim, then it would be appropriate for the tribunal to give a decision in terms which indicated which factors went to determine the cost of making a demonstrator available for private use and that only in those circumstances would the Appellant receive a meaningful decision as regards the extent to which the claim was valid.
72. With regard to the calculation of "cost", he submitted that if the Appellant could demonstrate that there was no cost in putting demonstrator vehicles to private use, then there was no requirement for attribution as between the business and private mileage.
73. He submitted that if there was a cost in putting a demonstrator to private use, then the absence of contemporaneous records did not act as a bar to a claim. He submitted that it would be reasonable to assume that if there was a cost of demonstrator use that cost for private use might be equivalent to 25 per cent of the total costs, on the basis that this figure of 25 per cent had been used under the RMIF agreement.
74. Mr Rycroft submitted that in the amended schedule, the Appellant had correctly excluded from the calculation the costs of insurance, and the road fund licence. He submitted that the Appellant should not have included the costs of maintenance in arriving at the calculation of costs. He further submitted that there would be no need to apportion any maintenance between business use and private use.
75. Mr Rycroft submitted that in relation to cost and depreciation, the cost to the Appellant of putting the demonstrator to use is the difference between the purchase price of the vehicle and the sale price, having taken into account any demonstrator support payments or bonus payments from the manufacturer. He submitted that the measure of that cost is capable of objective verification and that the Appellant had forwarded evidence to establish the average cost of putting a demonstrator to use. He also submitted that the difference between the purchase price and the sale price was also a measure of depreciation. He submitted that such a measure of depreciation was also consistent with the recognition of depreciation for the purposes of direct taxation: the scheme of capital analysis recognising a notional sum of depreciation up until such time as an asset is sold, where-upon there is either a balancing charge, or a balancing payment depending on whether the asset is sold for more or less than the tax written down value.
76. He submitted that typically there was no cost to the Appellant in making a demonstrator available for use, as such vehicles are typically sold for a small profit. He submitted that the United Kingdom had not laid down rules for the calculation of the cost of depreciation of a vehicle and in the absence of any applicable UK legislation, a taxpayer was entitled to account on the basis of the actual cost of putting an asset to use. He also submitted that in the absence of such specific rules, any other measure of depreciation other than the actual cost was inappropriate. He further submitted that for the vehicles in question, there was no discernable reduction in the resale value by reason of the additional mileage of employees.
77. Mr Rycroft submitted that the legislation did not indicate that a calculation was required to be made in relation to each individual vehicle held by the Appellant, and the word "goods" is referred to in the plural in Schedule 5(5). He submitted that the ordinary meaning of that term would therefore be that it is necessary for a trader to calculate the costs of putting all goods for use to private purposes, which would necessarily involve the netting-off of the cost of making those goods available against net benefits.
78. Mr Rycroft submitted that the RMIF simplified method was not a binding statutory agreement. He submitted that the Appellant was not seeking to introduce a retrospective method. He submitted that the Appellant was entitled to claim that they had overpaid output tax by showing what was the actual cost, rather than what might be a deemed cost using the RMIF calculations.
79. Mr Rycroft submitted that the Appellant was not required to produce records and figures relating to each of the vehicles in which there had been a supply of services during the relevant periods. He further submitted that it was not necessary for the Appellant to produce or keep detailed records of the duration of use for private use or the mileage of such private use, compared to the overall use and mileage. He submitted that it would be disproportionate to require a trader to keep detailed records of the times when employees used the demonstrator vehicles for private use and the miles they had driven during such use. He submitted that it was not clear how an Appellant would calculate use in the case of any particular car. He submitted that the legislation did not require the Appellant to keep such detailed records, and provide such detailed information, and submitted that it would be reasonable to adopt the Appellant's schedule as a proxy for use if that proxy was fair and reasonable.
80. He submitted that the Respondents had objected to the measure of depreciation put forward by the Appellant but had not given any clear guidance as to what depreciation actually was.
81. Mr Rycroft submitted that the profit and loss calculations of the Appellant were a proper method of calculating the cost. He confirmed that the two per cent depreciation figure which appeared in the final column of the Appellant's schedule had not been included in the calculation of the claim but had been inserted in the schedule solely for internal accounting purposes. He submitted that the sample of vehicles in the schedule was a random sample taken from each of the dealerships of the Appellant and was representative.

Conclusions

82. We reach the following conclusions in this appeal. The Appellant is registered for VAT and is in the business of operating motor dealerships selling vehicles in the North West of England. It holds franchises for various makes of vehicles. For the purpose of that business some vehicles are used as demonstrators. Demonstrator vehicles are made available to directors and employees for private use outside of business hours.
83. The European legislation by Article 6(2)(a) of the Sixth Directive, and Article 11(1)(c) thereof provides that there should be treated as supplies of services for consideration the use of goods forming part of the assets of the business for private use for purposes other than those of the business where VAT on such goods is wholly or partly deductible, and the taxable amount shall be the full cost to the taxable person providing the services.
84. These European provisions have been incorporated in the UK domestic legislation by virtue of Section 5(1) VATA 1994, Schedule 4 paragraph 5(4), Section 19(1) and Schedule 6 paragraph 7(b).
85. During the period 04/02 and 01/05, the Appellant accounted to the Respondents for a sum by way of output tax due relating to the cost of putting demonstrator vehicles to use by employees outside of business hours. They calculated that cost by reference to the agreement between the Respondents and the RMIF. That simplified RMIF agreement allowed a taxpayer to account for a fixed sum per year, by reference to the list price of the relevant vehicle. That simplified RMIF agreement had taken into account in specifying such fixed sums, the list price of the vehicle, a 25 per cent annual deprecation calculation, a standard fee for repairs and maintenance, and a fixed 25 per cent private use apportionment to depreciation plus repairs and maintenance. This enabled a taxpayer to use such a simplified method to calculate VAT, and this deemed figure based on the simplified method enabled a taxpayer to calculate what was accepted as the full cost of providing the vehicle for private use. The simplified method had the advantage that the taxpayer was not required to make calculations based upon the actual times when employees had been using the vehicles for private use, the number of miles so driven by the employees, the actual depreciation of the vehicle and how much of the depreciation would be attributable to private use, and any other appropriate factors relating to actual costs.
86. The Appellant accounted for output tax in respect of each vehicle using calculations by reference to that RMIF simplified agreement, and therefore did not to keep, maintain and produce full and accurate records in respect of each vehicle to determine the actual full cost to the Appellant of providing those services to its directors and employees.
87. In April 2005, the Appellant submitted a claim to the Respondents that the use of the calculations based on the RMIF agreement had resulted in the Appellant paying output tax between the periods 04/02 and 01/05 of £80,002.42. The Appellant claimed that the actual full cost of providing those services was nil and that it was entitled to be repaid £80,002.42 overpaid output tax in respect of those periods. The Appellant had calculated that there had been no cost to it of providing those services by relation to a schedule of 50 sample demonstration vehicles sold by the Appellant during the period from September 2004 to November 2004. The Respondents did not accept that the Appellant's proposed method of calculating cost was a proper and accurate method of so doing and rejected the Appellant's claim. The Respondents did not accept that the Appellant had overpaid output tax.
88. The Appellant's schedule listed 50 of the approximately 1,000 vehicles purchased and sold during the relevant periods. It listed the price paid by the Appellant to the manufacturer for each vehicle, the bonus paid by the manufacturer to the Appellant for the Appellant using the vehicle as a demonstration model, the sale price of the vehicle when the Appellant sold it, the profit or loss made by the Appellant on the sale, maintenance costs and then the total profit or loss of the vehicle with calculations as to how that sum would be apportioned on a monthly or yearly basis. That schedule resulted in a calculation that in respect of those 50 vehicles over that period, the Appellant had in fact made an average profit. Accordingly, the Appellant argued that there had been no cost at all in providing those demonstrator vehicles to their employees for private use out of hours, and the Appellant argued that that conclusion based upon the 50 sample vehicles should be extended to all the demonstrator vehicles so used throughout the periods of the Appellant's VAT claim.
89. Having examined all the evidence in this appeal, and applying the principles of law involved, we find that the Appellant has not proved that it has overpaid the output tax, on the usual test of a balance of probabilities. We are not satisfied that the Appellant has overpaid the VAT. We find that the Appellant has not provided satisfactory evidence that they have in fact overpaid the output tax.
90. By using the simplified RMIF method the Appellant had not kept detailed and accurate records in relation to each and every one of its demonstrator vehicles, of the periods during which each vehicle was used for private use, or the number of miles driven by its employees for such private use of such vehicle. The Appellant apparently cannot calculate how much of repairs carried out by other garages to such vehicles can be apportioned to such private use, or what proportion of the cost of lubricants, etc. could be apportioned to such private use. The Appellant is not able to calculate accurately and properly what effect on the depreciation of the vehicle can be attributed and apportioned to such private use. Instead, the Appellant has sought to use a schedule based on a sample of the vehicles and has used a calculation of profit and loss on the sale of those vehicles during a three month period in support of a claim that overall and on average there was a small profit made on the sale of those vehicles, arguing therefore that there was therefore no cost to the Appellant in providing the use of demonstrator vehicles to its directors and staff for private use. We reject that argument as did the Respondents. We find that this method proposed by the Appellant and used by them in the making of this claim is not an acceptable method of calculating the cost of the services. We find that this proposed method is not a proper and accurate method of calculation, and is not an acceptable method of calculating the output tax. The Appellant's calculations are based upon an alternative simplified method which, in our view, is not acceptable either to ourselves or to the Respondents, and does not provide a proper basis for the calculation of output tax. We find that the Respondents acted reasonably in rejecting the method of calculation of the Appellant, and in rejecting the principle of the calculation and the conclusions proposed to be adopted by the Appellant from those calculations.
91. We accept Mr Doyles' evidence on behalf of the Respondents that the Appellant's schedule is not a reasonable and proper method of calculation of the cost of the services, and does not provide a proper basis for calculating output tax. We accept Mr Doyles' evidence that the Appellant has not provided satisfactory evidence that they have overpaid output tax.
92. We find that the Appellant's calculations in its schedule, based upon a comparison of the cost and sale price of 50 vehicles adjusted for the manufacturer's bonus, with an element of maintenance costs, does not provide a satisfactory calculation of the cost of the services. We further find that such comparison does not represent the actual depreciation of the demonstrator vehicles whilst owned by the Appellant.
93. We find that the RMIF agreement was a simplified method of calculation to which the Respondents had agreed. We find that the alternative is for the Appellant to calculate the full cost of private use on each vehicle. We find that to do so, the Appellant should keep and calculate from records the private use of each demonstrator vehicle on a time basis and on a mileage basis. The Appellant should keep and produce records of repairs and maintenance where such work has been carried out by third parties for which the Appellant had paid VAT. There must be a satisfactory method of calculating depreciation.
94. We agree with Mr Doyles evidence that the difference between the purchase and sale price of demonstrators, after the allowance for the manufacturer's bonus cannot be equated to the actual depreciation suffered by the vehicles. Mr Doyles, in his evidence, has explained how the Appellant's proposed calculations has a distorting effect and cannot provide the basis for a calculation of the actual cost.
95. We further agree with the Respondents' submission that it is not proper for the Appellant to seek to calculate the cost of private usage on the sale of vehicles where the sale may take place several months after the purchase of the vehicle, by the method proposed by the Appellant, as the tax point for accounting for VAT on the private usage of business assets is deemed to be on the last day of each period in which the goods are made available or used in accordance with Regulation 81(1) of the VAT Regulations 1995.
96. We further agree with the submissions of the Respondents and the evidence of Mr Doyles that the calculations made by the Appellant are distorted due to the method of calculating annualised figures for the reasons described by Mr Doyles in his evidence.
97. We find that output tax due in respect of the private use of demonstrator vehicles owned by the Appellant where there is no consideration from the employee would ordinarily be accounted for in each period, on the full cost of providing the vehicle for private use and would be calculated by reference to the depreciation of the capital cost of the car, the value of repairs on which VAT has been recovered and the actual proportion of business and private use. Where the employee pays consideration for the private use of the vehicle, output tax is due on the sum paid in the normal way. No evidence has been produced by the Appellant as to the charge made by the Appellant to its employees for private use of the vehicle for the period 1 September 2004 to January 2005.
98. We agree with Mr Doyles' evidence, for the reasons given by him that profit could not be equated to cost, and Mr Doyles' evidence that loss on sale was not a proper calculation of either depreciation or cost, for the reasons explained by Mr Doyles. We further agree with Mr Doyles' evidence that it is not acceptable to net profits against losses, and that that would be distortative for the reasons given by Mr Doyles.
99. We accept Mr Puzey's submissions.
100. We find accordingly that the Appellant has not satisfied us that there was no cost in putting demonstrator vehicles to private use. We further find that the Appellant has not satisfied us that it has overpaid its output tax. We find that the Appellant has not provided satisfactory evidence to calculate the output tax properly due from the Appellant and has not provided satisfactory evidence that the actual cost of the services was different to the cost calculated by reference to the RMIF simplified method.
101. The sole question for the tribunal to determine is whether there has been an over-declaration of tax or not. We find on all the evidence in the appeal that the Appellant has not satisfied us that there has been an over-declaration of tax. This tribunal does not propose to provide a ruling which sets out all the factors that determine how the costs of private use of demonstrator vehicles is to be calculated. The function of the tribunal is not to provide tax advice. We have, however, indicated in this decision in what respects the Appellant's calculations and claims do not lead us to the conclusion that the Appellant has over-declared the output tax. If the Appellant wishes to use a different method than the RMIF simplified method, the Appellant should provide a different method than that proposed by the Appellant (which was not satisfactory) which properly calculates the cost of such private use, and the full cost of the services.
102. Accordingly, we dismiss the Appellant's appeal.
103. The Respondents' representative indicated at the hearing that in the event of the Respondents succeeding in this appeal, the Respondents would not request an order for costs against the Appellant. We make no order for costs.

IAN VELLINS

CHAIRMAN
Release Date: 6 February 2007

MAN/05/0900