[2010] UKFTT 12 (TC)

TC00331
VAT – treatment of payments for fuel used by the Appellant to transport vehicles for his customers – are such payments disbursements for tax purposes - no

FIRST-TIER TRIBUNAL
TAX

 	
					WILLIAM EDWARD LAFFERTY T/A	Appellant
BELL TRANSPORT

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Lady Mitting (Judge)
		J D Kippest (Member)
			
Sitting in public in Birmingham on 21 November 2009

Mr. P Horner for the Appellant

Mr. V Mandalia, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2009
DECISION

1.	On 17 March 2008, Mrs. Kirsty Williams, assessing officer, notified Mr. Lafferty of an assessment to VAT in the sum of £4,742 plus interest.  Mr. Lafferty is sole proprietor of a vehicle transportation service and he accounts for his VAT liability under the Flat Rate Scheme at 9%.  On an assurance visit, Mrs. Williams discovered that Mr. Lafferty had under-declared output tax because he had, in error, calculated his liability under the scheme based on his income net of VAT as opposed to the VAT inclusive total of his supplies.  Mr. Lafferty readily accepts the error and that the Commissioners are correct in their method of calculation.  To that extent, the assessment would not otherwise be challenged.  However, Mr. Lafferty maintains that in fact he made further errors resulting in an over-declaration of output tax.  Some of these errors only came to light the day before the tribunal hearing and will be the subject of further consultation between Mr. Lafferty and the Commissioners.  However, one error which Mr. Lafferty maintains he made was to treat payment which he made for fuels as part of his taxable turnover whereas he now maintains that he should have treated such payments as disbursements, thus excluding them from turnover.  It is that single discrete issue with which we are concerned and it is the wish of both parties that once we have adjudicated on that issue, the appeal will be left open for any remaining matters to be brought up.
2.	We heard oral evidence from Mr. Lafferty himself and on behalf of the Commissioners from Mrs. Williams.  The core facts were not in dispute but rather how they should be treated for tax purposes.  We find the facts to be as follows.
3.	Mr. Lafferty had a number of customers but by far his main customer was the Peugeot Motor Company and although the principle applies across the board, the arrangement which we studied was that with Peugeot.  It was Peugeot’s practice to provide their managers, based throughout the country, periodically with new cars.  Peugeot were in contract with Mr. Lafferty to carry out the necessary transportation.  The new vehicle had to be collected from Coventry, driven to the recipient manager and the manager’s old vehicle driven back.  On occasion, there were too many vehicles to be moved for Mr. Lafferty to deal with himself and he employed subcontractors to carry out the work for him.  The evidence as to how often this happened was inconsistent, various percentages having been mentioned but in his oral evidence Mr. Lafferty thought it would be “getting on for 75%”.  If the vehicles being moved, both outward and return, had insufficient fuel in the tank for the journey, Mr. Lafferty or his subcontracted driver would top up the tank with sufficient fuel to make the journey.  Peugeot apparently were very keen that it should not be the very first task of their manager to have to go and fill up with petrol and they would ask Mr. Lafferty to leave enough in the tank for the manager to at least make the journey home.  The fuel purchased would therefore be sufficient to complete the journey with a very small amount left in the tank at the end to tide the manager over.  Mr. Lafferty had agreed with Peugeot a series of rates for individual journeys, the agreed rates being exclusive of VAT and fuel payments.
4.	Where Mr. Lafferty instructed a subcontractor to make the journeys, he would agree with the driver a rate for the job, somewhat less than Peugeot were paying him, and the driver had implied authority to purchase sufficient fuel to make the journey.  At the end of each week, the subcontractors would hand Mr. Lafferty two documents.  One was termed a “weekly sheet” and listed the journeys done and the amount for each spent on fuel.  The invoices for the fuel purchases were attached to the weekly sheet.  The second document merely listed the agreed rate of pay for each of the journeys.  At the end of the week Mr. Lafferty paid the subcontractor the agreed rate for the deliveries made and reimbursed him for the fuel purchased as per the receipts attached to the weekly sheet.  When Mr. Lafferty was driving he would purchase the fuel, obtain the receipt and keep it.  Mr. Lafferty always kept all fuel receipts.  They were never supplied to Peugeot.
5.	On a monthly basis, Mr. Lafferty invoiced his customers.  We studied a specimen invoice to Peugeot dated 30 April 2007.  The invoice listed the deliveries by reference to date, destination, registration number and reference.  Alongside each entry was the agreed delivery rate (“labour charge”) and, net of tax, the fuel payments, if any, purchased for that individual delivery.  At the foot of the invoice, Mr. Lafferty had totalled the labour charges, totalled the fuel charges, added them together, applied output tax to the total and that was the amount invoiced to Peugeot and which Peugeot paid.  In accounting for VAT under the Flat Rate Scheme, Mr. Lafferty applied the total invoiced figure.  In effect therefore, what Mr. Lafferty did was to total labour and fuel charges, charge VAT on both, get paid the total amount inclusive of VAT and accounted for such under the Scheme.
6.	When Mr. Lafferty came to look at the position again, following Mrs. Williams’ insurance visit, whilst accepting his error in basic calculation, he took the view that he should not have included in his taxable turnover the fuel payments received from his customers.  His reconsidered view was that these payments were in fact reimbursement of expenses which he had incurred on their behalf and therefore they should not have been treated as his taxable income but disbursements.  The effect of this assertion was that he had brought into account some £3,700 as output tax that was not in fact output tax due.  When this was put to Mrs. Williams, she drew Mr. Lafferty’s attention to the conditions set out in Notice 700 for payments to be treated as disbursements:
		      “•  You acted as the agent of your client when you paid the third party.
•	Your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent’s own travelling and subsistence expenses, telephone bills, and other costs being treated as disbursements for VAT purposes).
•	Your client authorised you to make the payment on their behalf.
•	Your client knew that the goods or services you paid for would be provided by a third party.
•	Your outlay will be separately itemised when you invoice your client.
•	You recover only the exact amount which you paid to the third party.
•	The goods or service, which you paid for, are clearly additional to the supplies which you make to your client on your own account.”
Mrs. Williams rejected Mr. Lafferty’s claim, taking the view that the second bullet point (“your client actually received and used the goods…”) had not been met.  Mr. Lafferty put in to Mrs. Williams a letter from Peugeot in which they confirmed that they believed all bullet points had been complied with and the matter went to review where the reviewing officer also turned Mr. Lafferty down but this time on the basis that the first bullet point had not been met – namely that either he was purchasing it as principal or, if as agent, the arrangement was undisclosed, in either case leaving Mr. Lafferty bound to charge output tax and account for the same.
7.	Before the tribunal it was Mr. Mandalia’s contention that the fuel purchased by Mr. Lafferty was an expense incurred by him without which he could not have provided the service which he did to his customers.  There was, argued Mr. Mandalia, one single supply of a service of which the fuel was an integral part.  He referred us to the case of Commissioners of Customs and Excise v Plantiflor Ltd [2002] UKHL 33.
8.	On behalf of Mr. Lafferty, Mr. Horner argued first that the Appellant had met all the conditions required for the fuel payments to be treated as disbursements but in the alternative if they were not disbursements then he should only be liable for the payments made by him and not those made by his self-employed subcontractors.  
9.	We accept Mr. Mandalia’s submission that there was here one single supply from Mr. Lafferty to Peugeot.  The service supplied was that of transporting their vehicles between sites.  It sometimes happened that no additional fuel was needed for this service to be provided but where there was not sufficient fuel already in the tank, Mr. Lafferty or the driver would fill up but only to a sufficient level to enable the journey to be completed, subject to a small amount left over for the recipient at the end.  The fuel was purchased by the driver or Mr. Lafferty in their own names and Mr. Lafferty kept all the receipts for it.  Where a subcontractor is used, we take the view that he is acting as Mr. Lafferty’s agent.  All he does is hand back to Mr. Lafferty the receipt for the petrol purchased and Mr. Lafferty reimburses him the gross amount.  In invoicing Peugeot and claiming reimbursement of fuel charges, Mr. Lafferty makes no distinction between journeys which he has made and journeys which his subcontractors have made.  Peugeot would not necessarily even know which journeys had been carried out by whom.  We therefore hold that Mr. Lafferty was acting as principal throughout and the fuel purchased was rightly treated as part of his taxable turnover on which he charged output tax and accounted for to the Commissioners.  We would add that if our interpretation is incorrect and in fact Mr. Lafferty was acting as agent rather than principal, the agency arrangement was undisclosed and as such Section 47 (2) (A) VAT Act 1994 applies to the effect that “where… goods are supplied through an agent who acts in his own name, the supply shall be treated both as a supply to the agent and as a supply by the agent”.  This is precisely how Mr. Lafferty treated the payments.  We therefore hold that Mr. Lafferty is not entitled to treat as a disbursement either the fuel payments made by him or by his subcontractors.  In each case they fall to be included as part of his taxable turnover on which output tax is charged and accounted for, which as we have said is precisely what he did.
10.	This judgment therefore deals with the single issue of the treatment of the fuel payments.  It does not dispose of the appeal, which remains open and Mr. Lafferty is given 21 days from the release of this decision to schedule his remaining contentions to the Commissioners.
MAN/2009/0108

LADY MITTING
JUDGE
Release Date:  8 January 2010