[2009] UKFTT 215 (TC)                                              
  
   TC00165

VAT  - private use of cars by employees of motor dealer – market value direction Schedule 6 paragraph 1A VAT Act – effect of pre-payment occurring before enactment of power to direct – direction limited to periods after enactment – time of supply - appeal dismissed. 

FIRST-TIER TRIBUNAL

TAX 

	LOOKERS MOTOR GROUP LIMITED	Appellants
(T/A ELLESMERE PORT DIVISION – AND OTHER DIVISIONS)

AND 

CHARLES HURST LIMITED
(T/A LOOKERS MOTOR GROUP)

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS 	Respondents

TRIBUNAL:		Judge Richard Barlow
			Member Alban Holden

Sitting in public in Manchester on 16 June 2009

Mr. Nigel Gibbon of Omnis VAT Consultancy Ltd for the Appellants

Mr. Jonathan Cannan of counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	The Appellants in this consolidated appeal are all motor dealers within the meaning of paragraph 1A(4) of Schedule 6 to the VAT Act 1994 (the Act).  They appeal against notices of direction under paragraph 1A and assessments pursuant thereto.  A single notice of direction was issued on 12 May 2008 which the Appellants accepted was a notice to each of them and individual assessments were addressed to each of them in various amounts as calculated from 1 April 2005.
2.	Paragraph 1A of Schedule 6 of the Act was inserted by section 22 of the Finance Act 2004 and had effect from 1 January 2005 by virtue of a Treasury Order appointing that date (S1 2004/3104).
3.	The assessments under appeal, relating as they do to the prescribed accounting period ending 30 June 2005 and subsequent periods, were calculated on 13 May 2008 and so they were issued for the whole of the period then still in time for assessment.
4.	The Respondents’ direction under paragraph 1A of Schedule 6 of the Act was that supplies by which the Appellants had allowed their employees to use motor cars owned by the Appellants for those employees’ private use should be supplies the value of which was to be taken to be their open market value.
5.	The parties have agreed what that open market value should be and the Appellants agree that the assessments are correct so far as a quantum is concerned, assuming that the value of the supplies is to be taken to be that open market value.
6.	However, the Appellants had entered into agreements with the relevant employees which provided that, in consideration of the employees each paying £1 per annum for the following ten years (to be paid in advance at the time of entering into the agreements), the Appellants would allow the employees to use their stock in trade cars for those ten years.  The agreed statement of facts had said they were entered into “from January 2004” but it was agreed at the hearing that that should be amended to “between January and October 2004”.
7.	Paragraph 1A(1) and (2) of Schedule 6 of the Act read:
“1A – (1) Where – 
(a) the value of a supply made by a taxable person for a consideration is (apart from this sub-paragraph) less than its open market value,
(b) the taxable person is a motor manufacturer or motor dealer,
(c) the person to whom the supply is made is – 
	(i) an employee of the taxable person,
(ii) a person who, under the terms of his employment, provides services to the taxable person, or
(iii) a relative of a person falling within sub-paragraph (i) or (ii) above,
(d) the supply is a supply of services by virtue of sub-paragraph (4) or paragraph 5 of Schedule 4 (business goods put to private use etc),
(e) the goods mentioned in that sub-paragraph consist of a motor car (whether or not any particular motor car) that forms part of the stock in trade of the taxable person, and
(f) the supply is not one to which paragraph 1 above applies,
the Commissioners may direct that the value of the supply shall be taken to be its open market value.
(2) A direction under this paragraph shall be given by notice in writing to the person making the supply, but no direction may be given more than 3 years after the time of the supply.”
8.	Sub-paragraph (2) clearly empowers the Commissioners to give a notice in respect of supplies that have already been made but Mr. Cannan accepted that does not allow the Commissioners to make a direction which has effect from any date before 1 January 2005 and the direction in this case did not purport to do so.  It states it had effect “from 1st April 2005”.  Mr. Gibbon took no point about any issue of the retrospective effect of a direction under paragraph 1A(2) which applies to supplies already made before it is issued.  The direction in this case applies to supplies made before its issue.  It is a direction under paragraph 1A(2) for dates before it was issued and under paragraph 1A(3) for supplies after it was issued as well.
9.	Mr. Gibbon’s case is that paragraph 1A(1) does not apply at all in the circumstances of this case because the time of supply of the service provided by the Appellant to its employees was before 1 January 2005 (the date when the enactment of paragraph 1A took effect).
10.	Mr. Gibbon’s argument is that, although section 6(3) of the Act makes the time of performance of a supply of services the time of supply for value added tax purposes, that primary rule is subject, amongst other exceptions, to the exception in section 6(4) which provides that, where the maker of a supply receives a payment in respect of it before it is performed, the supply is to be treated as made when the payment is received – to the extent that the supply is covered by that payment.  Here, as the full amount of £10 was paid at the time the agreements were entered into by the Appellants and their employees, the payment covered the whole supply of services for the full ten year period and the time of supply was therefore before 1 January 2005.  Mr. Gibbon pointed out that the agreements did provide for a supply of services, despite the very small consideration that was paid, because any consideration is sufficient to make a transaction a supply for VAT purposes and the inadequacy of the consideration in economic terms does not affect that conclusion.
11.	Mr. Gibbon pointed out that subsection (13) of section 6, which provides for the time of supply for supplies which fall within paragraph 5(1) of Schedule 4, is not applicable because that provision applies to supplies which are supplies “by virtue only of paragraph 5(1) of Schedule 4” and the supplies in this case are supplies under the normal rules without reference to paragraph 5(1), even if they are supplies which do in principle also fall within that provision.
12.	Although the supplies subject to a direction under paragraph 1A of Schedule 5 must, by reason of paragraph 1A(1)(d), be supplies “by virtue of paragraph (5) of Schedule 4” that sub-paragraph (1A(1)(d)) does not refer to supplies being supplies “only” by reason of paragraph 5.  Nonetheless Mr. Gibbon argued that the time of supply rule in section 6(13) does not apply, because the supplies in question in this case are not “only” supplies by reason of paragraph 5.  The application of the time of supply rule in section 6(13) depends upon the supplies being a supply “only” because of paragraph 5 whereas the liability for a supply to be made subject to a direction and therefore the special rules about value is not restricted to supplies that are only supplies by reason of paragraph 5.  But in this case it is the time of supply that is crucial because, on the Appellant’s case, the supplies occurred before the enactment of paragraph 1A.
13.	Up to that point in the argument we agree with Mr. Gibbon.
14.	However, Mr. Cannan argued that the basic rule in section 6(3) concerning the time of supply is also subject to section 6(14) which empowers the Commissioners to make regulations “notwithstanding subsections (2) to (8) and (11) to (13)” for treating a supply as taking place at different times in specified circumstances.  Those regulations would in effect overrule otherwise applicable rules, including the rule in section 6(13) on which Mr. Gibbon relies – by reason of the fact that regulations under section 6(14) apply notwithstanding section 6(13).
15.	Clearly an appropriately worded intra vires regulation under section 6(14) can override, amongst others, both subsections 6(3) (the basic rule) and the early payment exception in section 6(4).
16.	The vires for the regulations include the following:
“(14) The Commissioners may by regulations make provision with respect to the time at which (notwithstanding subsections (2) to (8) and (11) to (13) above or section 55(4)) a supply is to be treated as taking place in cases where – 
(a) it is a supply of goods or services for a consideration the whole or part of which is determined or payable periodically, or from time to time, or at the end of any period, or
(b) it is a supply of goods for a consideration the whole or part of which is determined at the time when the goods are appropriated for any purpose, or
(c) there is a supply to which section 55 applies, or
(d) there is a supply of services by virtue of paragraph 5(4) of Schedule 4 or an order under section 5(4)
17.	Regulation 81(1) of the VAT Regulations 1995 (S.I. 1995/2518) reads:
“81 – (1) Where the services referred to in paragraph 5(4) of Schedule 4 to the Act are supplied for any period, they shall be treated as being supplied on the last day of the supplier’s prescribed accounting period, or of each such accounting period, in which the goods are made available or used.”
18.	Mr. Cannan relies upon that provision for the contention that the supplies in this case occurred after I January 2005, notionally at the end of each prescribed accounting period, with the consequence that the direction as to market value takes effect.
19.	Section 6(14)(d) refers to a supply of services “by virtue of” paragraph 5(4) of Schedule 4.  The question arises whether the supplies in this case are “by virtue of” that provision even though, as Mr. Gibbon has point out, they would be supplies in any case because they are supplies of services under the normal rules without any necessity to refer to paragraph 5(4).
20.	We hold that the supplies are supplies by virtue of that provision for the purposes of Paragraph 1A of Schedule 6.  Several reasons support that conclusion.
21.	Firstly, paragraph 1A(1)(a) of Schedule 6 refers to supplies “for a consideration”.  Supplies for a consideration will usually be supplies without reference to Schedule 4 as Mr. Gibbon pointed out.  However, paragraph 1A(1)(d) refers to supplies “by virtue of” paragraph 5(4) of Schedule 4.  Paragraph 1A(1)(a) would make the whole paragraph virtually meaningless, if not entirely otiose, if the reference to a supply of a service in paragraph (d) had the effect contended for by Mr. Gibbon.
22.	Secondly, the reference to paragraph 5(4) in sub-paragraph 1A(1)(d) is to a supply which is “a supply of services” by reason of paragraph 5(4).  The relevant concept is that the supply is to be categorised as a supply of services as opposed to a supply of goods – not that it is to be a supply as opposed to a transaction that is not a supply at all.
23.	Thirdly, the fact that paragraph 1A is intended to apply an open market value itself suggests that the value of the supply should be based on the value at the time of performance because, particularly over the period of nine years or so for which the Appellants contend the value is fixed, the market value may well fluctuate.  Directions under paragraph 1A(3) can be of indefinite duration and so they may apply for longer than the nine years or so for which the Appellants contend, with the consequence that the open market value must be intended to be established at different times and not once for all time at some particular point.  The Respondents’ interpretation, which we hold to be the correct one for the other reasons we have given, achieves that sensible result which we regard as an additional reason to agree with their interpretation.
24.	For those reasons the appeals are dismissed.  The Respondents did not seek an award of costs and we make no order.

MAN/2008/0879

RICHARD BARLOW

TRIBUNAL JUDGE
RELEASE DATE: 19 August 2009