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	First-tier Tribunal (Tax)
You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Alex Paton & Son v Revenue & Customs [2009] UKFTT 79 (TC) (29 April 2009) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00047.html Cite as: [2009] UKFTT 79 (TC)

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TC00047

Appeal number: EDN/08/138

Value Added Tax; input tax; exclusion of credit for input tax; motor car; Value Added Tax (Input Tax) Order 1992 SI 1992 No 3222, Article 7.

FIRST-TIER TRIBUNAL

TAX

ALEX PATON & SON Appellant

- and - THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS (VAT) Respondents

TRIBUNAL: Tribunal Judge: J Gordon Reid, QC., F.C.I.Arb.,

(Member): Mrs Helen M Dunn, LL.B.

Sitting in public in Edinburgh on Monday 23 February 2009

Mr James Paton - for the Appellant

Mr Andrew Scott, Shepherd + Wedderburn LLP - instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009


 


DECISION

Introduction

1. This is an appeal against the refusal to allow input tax on the purchase of a Land Rover Discovery. The appeal was heard at Edinburgh on 23^rd February 2009. James Paton, one of the partners, appeared on behalf of the Appellants. He gave evidence on oath. Andrew Scott, solicitor, Shepherd & Wedderburn, solicitors, Edinburgh appeared on behalf of the Respondents (HMRC). He led no evidence. Witness statements from two HMRC officers had previously been lodged to which no objection was taken. A bundle of documents was produced. There was no dispute as to the authenticity of these documents or, where appropriate, their transmission and receipt.

Legislation

2. The critical parts of the well known provisions of the VAT (Input Tax) Order are Articles 7(2E)(a) and 7(2G)(b). They provide respectively as follows:-

Article 7(2E)(a)

"For the purposes of paragraph 2(a) above the relevant condition is that the letting on hire, supply, acquisition or importation as the use 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 (2G) below; or

(b) primarily for a relevant purpose."

[Article 7(2G)(b)]

"A taxable person shall not be taken to intend to use a motor car exclusively for the purposes of a business carried on by him if he intends to-

(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"

Grounds of Appeal

3. The Notice of Appeal states:-

"I feel discriminated as the only other type of vehicle which would do my job is a 4 wheeled crew cab pickup which is outwith VAT but due to my disability it is unsuitable for me. My private vehicle also has a lowering suspension which I require."

4. For the avoidance of any doubt, no question of zero rating arises in this appeal. This might have arisen where the vehicle had been supplied for a disabled person within Schedule 8 Group 12 of the Value Added Tax Act 1994. Mr Paton does not fall into that category. The Appellants are a partnership and not Mr Paton as an individual.

Facts

5. The Appellants are a farming partnership. The partners are James Paton, his wife, and their son Alex. They carry on business principally from Cairnhill Farm, Girvan, Ayrshire. Mr James Paton is 62 years old and the senior partner of the Appellants. Mr James Paton is also a director and the vice-chairman of Girvan Early Growers, a farming co-operative. Mr Paton is partially disabled. A letter from his General Practitioner, dated 28/08/08 discloses that Mr Paton has suffered from osteoarthritis for many years, which particularly affects his hips. He had a right hip replacement several years ago. Both knees are also affected. He has undergone physiotherapy treatment. The discomfort in his joints prevents him from walking great distances, no more than about a quarter of a mile. The GP encouraged him to buy a 4x4 vehicle. According to the GP's letter the high take off from (the) seat also benefits (Mr Paton's) back, hip joints and knee joints.
6. In about May 2005, the Appellants sold one of the partnership vehicles, namely a Land Rover Discovery (LRD2). They bought, in its place, a new generation Land Rover Discovery (LRD3). As an optional extra, which they took up - costing an additional £1,200-£1,500, the LRD3 came with air suspension which allows the body of the vehicle to be raised and lowered. It is lowered to allow access to the vehicle and raised to allow the vehicle to be driven in fields. It was fitted with a towbar to which a trailer could be attached. It also had off road tyres. LRD3 is a motor car for VAT purposes. Twin Cab Pick-Ups, an alternative which the Appellants considered, do not have such suspension and were therefore not suitable for Mr Paton.
7. The suspension lowering facility and the general seat height made it easier for Mr Paton to get in and out of LRD3, than other vehicles. The Appellants' intention was to use LRD3 exclusively for the purposes of their business. The keys were kept locked away by James Paton, when the vehicle was not in use. They were and are not available to anyone else except his son. The LRD3 was kept in a locked shed at Cairnhill Farm, Girvan, Ayrshire, the principal place of business of the Appellants. Mr James Paton was the principal user of LRD3. He did not use LRD3 for personal use. He had another vehicle for personal use, namely a Range Rover Sport. This vehicle also has the suspension raising and lowering facility. His son, Alex, used the LRD3 very occasionally. The purpose of buying it was to enable Mr Paton senior to drive it into farm fields, to transport a fuel bowser, and to transport farm workers from time to time. As a consequence of such use the vehicle is generally always in a muddy state and dirty condition both inside and out.
8. At about the time of purchase of LRD3, Mr James Paton attempted to obtain business use only insurance for it. However, the NFU Mutual Insurance Society Ltd, with whom he insured other farm machinery and vehicles, declined to provide such insurance. In a letter dated 19/5/08, NFU Mutual stated inter alia that

"At the time the vehicle was added, the policyholder stated that they only required Business use cover for this vehicle as it was to be used for business purposes only. No other use was required.

.... We could not provide Business use in isolation without the policy holder taking SDP and Commuting use as well .........."

Accordingly, the insurance for the LRD3 was essentially for social, domestic and pleasure purposes and for the purposes of the Appellants' business. The Appellants have a block policy for other farm vehicles and machinery such as their four tractors.

9. In spite of the Appellants' intentions, we must find as fact that the LRD3 was actually available for private use. The Appellants did not at any stage take steps which would remove the vehicle from such availability. No agreement between the partners restricting the use of the LRD3 was produced or established.
10. Following a visit to the Appellants' farm on 12/11/07 to conduct a routine VAT inspection, HMRC noted that the Appellants had reclaimed input tax on the purchase of the LRD3. HMRC took the view that Article 2(1) of the VAT (Input Tax) Order 1992 applied and disallowed the input tax claimed for the purchase in the Appellants return for the period 5/05. An assessment was made and issued in December 2007 which reflected that view. The sum in dispute, within the assessment, is £4,575 plus interest.
11. Thereafter, correspondence ensued between HMRC and the Appellants' representatives in which various competing arguments were ventilated. Local reconsideration by HMRC in June 2008 confirmed the decision to disallow the input tax claim.

Decision

12. We have made our findings from Mr Paton's oral evidence and the documents produced. The witness statements added little relevant material to what was contained in the documents. We found Mr Paton to be generally reliable and credible.
13. The right to deduct or take credit for input tax is derived from section 25 of the 1994 Act. However, section 25(7) qualifies that right by enabling the Treasury to exclude it. The Value Added Tax (Input Tax) Order 1992 SI 1992/3222 was made under section 25(7)'s predecessor.
14. The Inner House of the Court of Session, in C&EC v Skellet 2004 SC 351, followed the interpretation of the 1992 Order given by the Court of Appeal in C&EC v Upton (t/a Fagomatic 2002 STC 640. We are bound by the ratio of Skellet, whatever we may think of the Court's reasoning, and even although there was no contradictor in the appeal before the Inner House.
15. The ratio of Skellet appears to be found in paragraph 13 where it is stated that

"......where a motor vehicle is acquired by a sole trader "who intends to use the motor car" (a) exclusively for the purposes of a business carried on by him ..." nevertheless that vehicle will indeed have been made available to that person for private use, unless effective steps are taken to render the vehicle incapable of such by that person. In other words, upon the view that a person must be taken to intend the natural consequences of their own actions, that person may properly be taken to intend to make the vehicle available for private use, unless such steps are taken by him."

16. Their Lordships, no doubt, chose their words carefully and fully understood their meaning and effect. Unless and until the legislation is changed or Skellet is reviewed by a higher court (cf. R&CC v Shaw 2007 STC 1525 at paragraphs 45-47), we are bound by that ratio and must apply it (as the Tribunal did in Parkinson EDN.06/73 1/3/07 Chairman TG Coutts QC) whether or not we agree with it. We respectfully question, for example, whether a person must be taken to intend the natural consequences of his own actions. In our opinion, such intention is no more than a presumption, which like every legal presumption, may be rebutted.
17. Accordingly, on the facts as we have found them, it cannot be said that effective steps were taken to render the LRD3 incapable of private use. Although private use was very unlikely the vehicle was not rendered incapable of such use. The Inner House suggested that if the acquisition of the vehicle in question were to be associated with the obtaining of insurance limited to business use only, a strong case might be made to the effect that the taxpayer would not fall foul of Art 7(2G). However, this case demonstrates that that is not a practical solution. Moreover, it would probably be unlawful for an individual or a partnership to obtain motor insurance restricted to liability for business use only (see Elmwood Ltd referred to below at paragraph 10, and Shaw at paragraph 33).
18. There are no contractual restrictions as there were in C&CC v Elm Milk Ltd 2006 STC 792. Accordingly, even if we construe incapable as not being restricted to physical unavailability but as including cases of unavailability due to the imposition of effective legal restraints, such as an agreement between the partners (see Elm Milk Ltd at 804 f-g, paragraph 37, and paragraph 39; Shaw at paragraph 30; cf Bhailok Fielding MAN/05/0570, 6/8/07 Chairman D Demack-paragraph 39; in Scotland a partnership is a separate legal persona), this does not assist the Appellants.

Disposal

19. While we have considerable sympathy for the Appellants, the appeal must nevertheless be dismissed.
J GORDON REID, QC., F.C.I.ARB., TRIBUNAL JUDGE RELEASE DATE: 29 APRIL 2009