INPUT TAX – company purchase of motor home – whether for diversification of the business – no – purchase of Smart car – whether intended to make available for private use – yes 

LONDON TRIBUNAL CENTRE

	PINNACLE TOOLING LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

			Tribunal:	DR JOHN F AVERY JONES CBE (Chairman)
					PRAFUL DAVDA FCA

Sitting in public in London on 12 August 2003

Arif Amin, chartered accountant, for the Appellant

Andrew O’Connor, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1.	Pinnacle Tooling Limited appeals against an assessment dated 13 June 2002 for £18,265 denying credit for input tax on the import of a motor home and on the purchase of a Smart car.  The Appellant was represented by Mr Arif Amin, and the Commissioners by Mr Andrew O’Connor.
2.	We heard evidence from Mr Philip Scagell, director of the Appellant.  We find the following facts:
(1)	The Appellant company makes moulding for the plastics industry.  Its turnover for the year to 30 April 2000 was £869,853 and its pre-tax profit was £196,433.
(2)	The motor home was purchased from Lazydays in Florida on 11 August 1999.  It is a type that is not sold in the United Kingdom.  A deposit of $41,085 was paid.  We saw a dollar bank statement showing payment of the balance of $41,085 on 11 January 2000 which converts to £24,836.78.  The total price was therefore about £50,000.  VAT of £10,187.61 was paid on import on 11 April 2000.
(3)	The motor home was insured in the name of Mr P Scagell as insured with driving restricted to him and his spouse for “social, domestic and pleasure purposes.”  The type of policy is stated to be “Commercial vehicles.”  The insurance document states: “Premium billed to and paid by Pinnacle Tooling Limited.”
(4)	The motor home was displayed for sale at shows in Stratford-upon-Avon, Malvern, Newark, Shepton Mallet and York.  It was sold at a loss on 25 April 2001.
(5)	The Appellant purchased an MCC Smart Cabrio car on 14 June 2000.  It was insured on 15 June 2000 by the Appellant company under a commercial vehicles policy restricted to “any licensed driver employed by the policyholder.”  It is not stated that use is restricted to business use.  There was no restriction on the employees’ use of the car for private use by in their contracts of service, and Mr and Mrs Scagell as directors did not have any contracts of service.  No log of the use of the car was kept.  It was kept at the factory.  The keys were kept at the factory with a spare in Mr Scagell’s safe at his home.
(6)	The Smart car was sold to Mr P Scagell on 30 April 2001 (Mr Scagell’s letter of 15 May 2003 says 2000, but we assume it was 2001 since an invoice for insurance addressed to the Appellant dated 5 June 2001 shows the only drivers to be Mr and Mrs P Scagell and the policy to be for a fully comprehensive private vehicle, which suggests that this is after the sale, in spite of the invoice being addressed to the company).  
The Motor home
3.	Mr Scagell claimed that the purpose of the purchase of the motor home for resale was to diversify into another business because of the poor state of the engineering industry.  He had to purchase the first one at the retail price although the invoice shows a discount of $18,601 on the price of $100,721.  He was unable to start a dealership unless he could show sales and so he purchased the first one to test the market.  He claimed to have fitted it out as a show home; the invoice is marked special order carpet throughout and Euro Spec.  He said that there was a form showing the extras but this was not produced.  There were no documents showing any business investigations; all contact with Lazydays was by telephone.  His letter of 15 May 2002 to the Commissioners states that “adverts were placed,” which he said meant that adverts were placed in the windows when it was for sale at shows.  His letter of 7 August 2002 says that “no advertisements were placed in magazines as the company could not use the Lazydays logo.”  
4.	Mr O’Connor referred us to the following test in Ian Flockton Developments Ltd v customs and Excise Comrs [1987] STC 394 at page 400b:
“The test is were the goods or services which were supplied to the taxpayer used or to be used for the purpose of any business carried on by him?  The test is a subjective one: that is to say, the fact-finding tribunal must look into the taxpayer’s mind as it was at the relevant time to discover his object.  Where the taxpayer is a company, the relevant mind or minds are those of the person or persons who control the company or are entitled to and do act for the company.
In a case such as this, where there is no obvious and clear association between the taxpayer company’s business and the expenditure concerned [in that case the purchase of a racehorse by a manufacturer of plastic mouldings], the tribunal should approach any assertion that it is for the taxpayer company’s business with circumspection and care, and must bear in mind that it is for the taxpayer company to establish its case and the tribunal should not simply accept the word of the witness, however respectable.  It is both permissible and essential to test such evidence against the standards and thinking of the ordinary business man in the position of the applicant.  If they consider that no ordinary business man would have incurred such an expenditure for business purposes that may be grounds for rejecting the taxpayer company’s evidence, but they must not substitute that as the test.  It is only a guide or factor to take into account when considering the credibility of the witness, and no doubt there will be many other factors which bear on that question which the tribunal should well understand.
The tribunal must look at all the circumstances of the case and draw such inferences as they think fit.  In the end it is a question of fact for them whether they were satisfied on the balance of probability that the object in the taxpayer company’s mind at the time the expenditure was incurred was that the goods and services in question were to be used for the purposes of the business.” 
5.	Mr O’Connor pointed to the lack of any documents showing any investigations into the business potential of selling motor homes which one would expect for a business venture for which the Appellant company paid £50,000; the lack of any detail about the specification that showed that the specification was likely to appeal to purchasers; the insurance in the name of Mr Scagell personally, the drivers being limited to him and his wife, and the fact that it was not insured for business use so that it would have been uninsured while driving to and from the shows if the purpose of the trip was the business purpose of selling it; the lack of any advertising for sale, the reason given about not being able to use the logo not being a satisfactory explanation.  All these point away from any business venture and point to a purchase for private use.
6.	Approaching the Appellant’s assertion about business purpose with circumspection and care as directed by the Ian Flockton case, the point that stands out is the lack of any investigation of the business potential of motor homes as an alternative to the Appellant’s successful engineering business.  We must discover what was in Mr Scagell’s mind when he purchased and imported the motor home.  Testing his evidence against what we consider that an ordinary businessman would have done, we do not find it credible that a successful businessman like Mr Scagell would pay £50,000 for trading stock for a totally different business without making some investigations for which records could be produced about such matters as the potential for discounts on purchase and the price at which the motor home, which was of a type not otherwise sold in the United Kingdom, could be sold.  The insurance arrangements are damaging but might possibly be explained away by the Appellant thinking that this was a cheaper way of obtaining insurance, particularly as the company paid the premium.  The overall impression is that of a private purchase paid for by the Appellant company.  Taking into account both the lack of any businesslike approach and the insurance arrangements and all the other circumstances, we do not consider that the Appellant has satisfied the test of showing on the balance of probabilities that the motor home was in the words of section 24 of the VAT Act 1994 used or to be used for the purpose of any business carried on by the Appellant.
Smart car
7.	Mr Scagell claimed that the car was used by employees for the business of the Appellant company carrying small tools, making trips to the bank, post office and local suppliers because it was easy to park and economical.  Mr Amin described its use as that of a minivan.  The company car available for use by Mr Scagell was a Mercedes S320CDI and by Mrs Scagell was a Saab 900.  In addition he owned a Ferrari.
8.	Article 7(1) of the VAT (Input Tax) Order 1992 provides that tax charged on the supply of a motor car to a taxable person shall be excluded from any credit under section 25 of the VAT Act 1992.  However, article 7(2) provides that the exclusion does ont apply where (i) the car is a qualifying motor car, (ii) the car is supplied to a taxable person and (iii) the relevant condition is satisfied.  There is no dispute about items (i) and (ii).  The definition of relevant condition in article 7(2E) is that the supply is “to a taxable person who intends to use the motor car…(a) exclusively for the purposes of a business carried on by him.”  In addition, article 7(2G) provides that 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 “make it available (otherwise than by letting it on hire) to any person…for private use.”
9.	Customs and Excise Comrs v Upton [2002] STC 640 emphasises the separate nature of these tests.  In subsequent cases the Tribunal has in Squibb & Davies (Demolition) Ltd v Customs and Excise Comrs (2002) VAT Decision No.17,829 found that vehicles, a Range Rover equipped as a mobile office and carrying equipment, and a Jaguar used for picking up clients, were not available for private use when they had to be logged in and out, the keys were kept with security in a box and also logged in and out, they were kept at the business premises, and the employees’ contracts of service prohibited them from using the vehicle for private use, although the insurance was not restricted to business use.  The contrary decision was reached in Courtesy Property Services Ltd v Customs and Excise Comrs (2003) VAT Decision No.18,027 where the car was insured for private as well as business use, it was kept at the home address of a director and any employee over the age of 25 was insured to use it without there being any restriction on private use in their contracts.
10.	These decisions are in accordance with the guidance of the Court of Appeal in Upton.  In the former, the company had taken steps to prevent private use by restricting access to the car and the keys and restricting the employees’ use by contract preventing private use.  In the latter, none of these restrictions applied.  Here there are also no restrictions on the car, its keys of the type of use by employees.  Accordingly we find that while the Appellant intended to use the car exclusively for the purposes of the business, since it did nothing to demonstrate that it did not intend to make it available to any person for private use, we find that it did intend to make it available for private use.
11.	We dismiss the appeal in respect of both vehicles.

J F AVERY JONES

CHAIRMAN

LON/02/913