[2009] UKFTT 106 (TC)

TC00074

INPUT TAX – deductibility – purchase of vehicle registration plate – was it for the purposes of the Appellant’s business – yes – appeal allowed 

MANCHESTER TRIBUNAL CENTRE

DAVID JACOBS UK LTD	Appellant
(IN LIQUIDATION)

- and -

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Lady Mitting (Chairman)
		Peter Whitehead (Member)		

Sitting in public in Manchester on 6 January 2009

Tim Brown of counsel for the Appellant

Richard Chapman of counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2009
DECISION

1.	The Appellant appeals against the decision of the Commissioners to refuse a claim for input tax in the sum of £52,500, representing VAT paid by the Appellant on its purchase of a vehicle registration plate, the decision letter being dated 11 June 2007. s
2.	No oral evidence was called but before the tribunal was an agreed statement of facts and witness statements from Mr. Naveed Aslam and Mr. Kirankumar Mistry for the Appellant and Mr. Richard Davies for the Commissioners.  In circumstances described below additional evidence was submitted after the oral hearing, accompanied by further written submissions.  
The agreed facts
3.	The Appellant at all material times carried on business as a wholesaler of electrical equipment including mobile telephones and computer components.  Mr. Naveed Aslam was the sole director.  The company registered for VAT with effect from 1 February 2005 but went into liquidation pursuant to a creditors’ voluntary winding up on 7 November 2007.  Mr. Kirankumar Mistry was appointed the liquidator.
4.	By invoice dated 24 April 2006, the Appellant company had purchased a personalised number plate bearing the mark “1 00” from Claiments Holdings Ltd for the sum of £300,000 plus VAT of £52,500.  Payment for the plate was made out of the company’s current account with Barclay’s Bank.  Claiments had itself purchased the number plate from the DVLA auction site.  The DVLA certificate of entitlement for the number plate is dated 10 May 2006 and shows the purchaser to be Claiments Holdings and nominees Mr. Naveed Aslam and David Jacobs Ltd.  The Appellant company then marketed the number plate for sale through Regtransfers.co.uk as sole advertising agent for an asking price of £340,000 plus VAT.
5.	The Appellant submitted a payment return for the period to 30 June 2006 which included the sum of £52,500 in respect of the input tax paid on the number plate.  The inclusion of this sum was documented by a schedule of expenses for quarter ending 30 June 2006 in support of the figures on the VAT return.  The repayment claim was refused by the Commissioners in a letter dated 13 March 2007.  The Appellant sought a review of that decision, maintaining that the number plate had not been assigned to any vehicle and that it had been purchased by the company as an investment asset.  By letter dated 11 June 2007 the Commissioners persisted in their refusal to meet the repayment claim on the basis that the supply was not considered to meet the “business test”.
6.	When the Appellant company went into liquidation, its statement of affairs did not include the number plate as an asset.  However, the liquidator maintained that as the Appellant’s accounting records evidenced the payment for the number plate by the Appellant company it should be treated as an asset of the Appellant for the benefit of its creditors.  Relevant to this agreed fact is a statement by Mr. Mistry in his witness statements, namely that the reason why Mr. Aslam did not include the number plate as an asset of the company was that the certificate of entitlement showed Claiments Holdings as the purchaser rather than the Appellant itself.
The additional evidence
7.	It had always been central to the Commissioners’ case that the purchase of the number plate by the Appellant was a one-off transaction and not part of any pattern of trading.  At the very conclusion of the oral hearing, and after closing submissions by each counsel, Mr. Aslam, through Mr. Brown, advised the tribunal that in fact the transaction in question was not the first time the company had traded in number plates and it had done so on three or four previous occasions.  On each occasion, the tribunal was told, input tax had been reclaimed and output tax accounted for.  The case was adjourned to enable the Appellant to submit such documentary evidence as it had in support of this assertion.  On 30 January 2009, Mr. Brown submitted a document entitled “Appellant’s further evidence” in which he contended that the company had purchased three number plates, paid for by the company and subsequently sold by the company.  Input tax was reclaimed on the purchases and output tax accounted for on the sales and the monies were received into the company’s bank account.  In support of these assertions, three invoices were attached, all from Premier Motor Auctions, one dated 23 February 2006 and two dated 9 March 2006.  All were made out to “David Jacobs”.  Payment for these number plates was evidenced by production of copy bank statements which showed a cheque for £7,279.81 issued on 1 March, this matching the VAT invoice of 23 February and a further cheque in the sum of £21,127.88 issued on 13 March, this amount matching the two invoices dated 9 March.  Mr. Brown went on to say that the liquidator had been unable to locate any further documentation in respect of the transactions and had not produced any of the company’s VAT returns as he could not be certain in which period the onward supplies had occurred.
8.	The Respondents produced summaries of the Appellant’s VAT returns for periods 03/06 (when input tax on these three number plates should have been reclaimed) and 06/06 and 09/06.  The return for 03/06 shows an additional input tax claim under “other – expenses” of £17,037.50.  The return for 06/06 showed additional output tax of £3,166.27 and for 09/06 of £12,496.34.
Our findings on the additional evidence
9.	The Appellant asserts that it had purchased three earlier number plates, making the one in question the fourth.  In support of the assertion the only documents which have been produced are the three invoices and the copy bank statements.  We accept from these documents that the company did purchase the number plates.  What however is missing is any supporting evidence of what happened next.  There are no sales invoices, no bank statements showing the receipt of any funds which could be attributed to the sale of the number plates and no supporting schedules in respect of the VAT returns.  The most that can be said is that the entries in the VAT returns for the appropriate periods are not inconsistent with input tax having been reclaimed and output tax having been accounted for on such sums as it might have been expected the number plates could have attained.  This in our view is not enough to demonstrate the sale of the number plates by the company and the admission into company funds of the sale proceeds.  In support of the reclaim of input tax on the number plate which is the subject of the appeal, the Appellant put in its supporting schedule which quite clearly evidenced the inclusion of the number plate.  No such evidence has been produced in respect of the three earlier plates.  Although the purchase by the company of the three earlier plates is indicative of the possibility of having traded in them, the absence of any subsequent evidence to show their sale prevents us from concluding that they were sold and we cannot make any finding that that was the case.  There is quite simply too little supporting evidence to support the Appellant’s assertion of an earlier trade in the plates and our approach to the issue before us is therefore that the current transaction is a one-off transaction by the Appellant company and not part of a pattern of trade.
Submissions
10.	Mr. Chapman, for the Commissioners, submitted that the test which the tribunal should apply was that derived from Rosner v. Commissioners of Customs and Excise 1994 STC228.  At p.230, Latham J stated:
“…Benefit, therefore, cannot be the test.  There must be a real connection, a nexus, between the expenditure and the business.  It seems to me that the nexus, if it is not to be benefit, must be directly referable to the purpose of the business.  By the purpose of the business in this context, I mean by reference to an analysis of what the business is in fact doing.  It is only by identifying what the nature of the business is in that way that one can determine the extend to which any given expenditure can be said to be for the purposes of that business.”
Mr. Chapman contended that not every asset purchased by a business could give rise to a repayment claim, otherwise the only test that need be applied was who had made the purchase.  There had to be the connection or nexus between the asset purchased and the business.  The test, involved a subjective test of the purpose of the purchase and the evidence should be tested against the standards and thinking of the ordinary businessman in the position of the taxpayer company.  Mr. Chapman submitted that this purchase did not satisfy the Rosner test as there was no sufficient nexus between the number plate and the Appellant’s business.  He highlighted the fact that the Appellant carried on business as a wholesaler of electrical equipment; this was a one-off transaction; there was no evidence of other investment purchases; the number plate does not advertise or market the Appellant company and does not assist the company in the carrying on of its business and the statement of affairs of the Appellant did not include the number plate as an asset.  The relevant intention was to be tested at the time of purchase and in this case as the plate was not included in the statement of affairs on liquidation, there was no evidence to show that it was treated as an asset of the company at the time of purchase.
11.	For the Appellant, Mr. Brown argued that the Appellant had the right to deduct under Art. 17 (2), Sixth Directive as the number plate was purchased for the purposes of future taxable transactions.  In his submission the correct test was that set out in Lennartz v. Finanzmt Munchen III (Case C-97/90) [1995] STC 514.  In Lennartz, the ECJ had held that the capacity in which a person was acting at the time of purchase determined the existence of the right to deduct; where a taxable person, acting as such, used the goods for the purpose of his taxable transactions, he is entitled to deduct the tax paid on the goods and conversely, where the goods were not used for the taxable person’s economic activities then no right to deduct could arise.  Mr. Brown stressed the fact that the ECJ consistently holds that definitions of taxable persons and economic activities are wide and that the term is objective in character in the sense that the activity should be considered per se and without regard to its purpose or results.  Mr. Brown contended that viewed objectively, on the basis that the Appellant intended to sell the number plate at a profit at some point then the supply must be an economic activity and recovery should therefore be allowed.
12.	Equally under domestic legislation the onward supply by the Appellant also had to be a taxable supply.
Conclusions
13.	The core facts of this case are agreed.  The only aspect of the agreed facts which perhaps requires some comment from us is that the number plate was not included on the statement of assets on the liquidation.  The reason for this was, as we have explained above, given by Mr. Mistry in his witness statement and we have no reason to doubt the truthfulness of that statement.  We do not see anything suspicious in its omission from the statement of affairs and we do not treat the omission as indicative of the number plate not being an asset of the company. 
14.	We do not see the two tests as being contradictory with each other or mutually exclusive.  We also believe that whichever of the two tests you apply in this case the same answer is arrived at.
Article 4 (1), Sixth Directive defines a “taxable person” as “any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or the results of that activity”.  Article 4 (2) defines “economic activities” as comprising “all activities of producers, traders and persons supplying services etc.”.  The Appellant company was quite clearly a taxable person and in our view the purchase and intended future sale of the number plate falls within the definition of “all activities…”.  That the Appellant company purchased the number plate is agreed.  That it then advertised the plate for sale is also agreed.  We know that no sale took place before the liquidation but the mere fact of advertising it for sale indicates, in our view beyond a doubt, that it was the company’s intention to sell it on.  The company was in the business of buying and selling, albeit not previously in number plates, but there is no reason why a trader should not diversify or seize a trading opportunity which comes its way.  As Mr. Brown pointed out, the Commissioners cannot fetter a taxable person’s discretion to branch out into trading in commodities outside those which it has stated it would do so when it applied for its VAT registration.  In this regard we should point out that it would seem that when the application for registration was made the intended business activity was “IT consultancy work” so the company has clearly moved on from there in any event.  We merely note this in passing as we did not raise it during the course of the hearing and it may be that they had notified the Commissioners in the meantime of some change in trading activity.  We know not.
15.	We do not see that it matters whether or not this was the first time that the company had purchased a number plate with a view to an onward sale.  What does matter is that it purchased it out of company funds intending, as a company, to sell it.  That it was out of line with its normal business again would not seem to matter.  Mr. Chapman stressed the fact that the number plate did not advertise or market the Appellant and did not assist the Appellant in the carrying on of its business.  One would not expect the number plate to advertise or market the Appellant.  There is no reason why it should in this case because it was not purchased with that in mind: it was purchased as a commodity for onward sale.  Applying the Lennartz test, the Appellant company was quite clearly a taxable person.  Equally clearly, the purchase by a company, which trades in buying and selling, of a commodity which it then goes on to advertise for sale with the intention of selling it on is an economic activity.  As such the right to deduct arises.
16.	If one applies the Rosner test and looks for a nexus between the purchase of the asset and the business, again for exactly the same reasons stated above, there could not be a clearer connection.  The company purchased a commodity with the sole intention of selling it on.  It advertised it for sale and, no doubt, had a suitable offer come in would have accepted it and the sale would have been completed.  Addressing the test proposed by Latham J, the nature of the business was one of buying and selling and the number plate was purchased for that very purpose.
17.	For all these reasons, we find that the Appellant was entitled to deduct the input tax on its purchase of the number plate and the appeal succeeds.
18.	The Appellant sought its costs, which was not challenged by the Respondents, and we therefore direct that the Respondents should pay the Appellant its reasonable costs to be fixed by a chairman sitting alone if not capable of agreement.

MAN/2007/0701

LADY MITTING
CHAIRMAN
Release Date: 18 May 2009