18831
	DISBURSEMENTS — MOT tests subcontracted by Appellant (an unapproved garage) — test fee paid by unapproved garage not shown as a separate disbursement on invoice to customer — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	KESWICK MOTOR COMPANY LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Mrs E Gilliland (Chairman)

Sitting in public in Manchester on 13 October 2004

Mr Philip Vickers, Managing Director, for the Appellant 

Miss L Linklater of counsel instructed by the solicitor for Customs and Excise for the Respondents. 

	© CROWN COPYRIGHT 2004

DECISION

1.	The appeal before the tribunal is that of Keswick Motor Company Ltd. (the Appellant) against an assessment of the Commissioners raised in respect of the 12 accounting periods 04/00 to 01/03 inclusive in the sum of £2885 tax plus interest. The current Managing Director, Philip Vickers, presented the Appellant’s case and has given evidence under cross-examination. Counsel for the Commissioners called two witnesses, namely Graham Wilfred Ireland, who attended at the Appellant’s premises and carried out a routine inspection on 29 and 30 April 1999, and William Foster, also an officer who reconsidered the assessment and wrote to the Appellant upholding it on 5 September 2003.  The assessing officer has died.

2.	The Appellant carries on business as a motor dealer with various subsidiary activities. It is not an approved test centre for MOT tests but does arrange for tests to be done for customers at an approved centre. The evidence of Mr. Vickers as to the financial arrangements is that the Appellant’s customer pays to the Appellant the then current maximum MOT test fee. For the period in question this remained at £39.25. The testing garage however allows a trade discount to the Appellant deducted in the monthly account they present to the Appellant for the number of tests done at the permitted MOT maximum test rate. Although he has not produced in his bundle of documents for the tribunal a copy of the same, Mr. Vickers has said that the Appellant raises an invoice against the customer for the full amount of the MOT test fee. The Appellant retains for its own benefit the trade discount on each which in the periods in question was £8.25 and takes it as a VAT inclusive figure calculates the VAT and it would appear deals with it as a deduction from its inputs. 

3.	In his evidence Mr. Vickers has explained that so far as the customers are concerned they are not disadvantaged in that had they merely taken their vehicles direct to an approved testing centre they would have paid the full retail fee with no VAT implications. Similarly in the arrangements with the Appellant the customers still pay the full fee; there is no VAT effect so far as they are concerned; and the Appellant meets the VAT bill.  He has said also that as the approved garage invoices only monthly it is not until then that the Appellant can properly know what the trade discount will be and by then the Appellant’s customers will have paid.                                                                     

4.	There are two relevant matters.  First Mr. Vickers has sought to establish that in fact the Commissioners had given the Appellant incorrect advice and it had been misled at an earlier VAT inspection. Secondly Mr. Vickers has submitted that the VAT position in connection with MOT tests of this nature is not clear and is one of considerable confusion and complexity. In his bundle Mr. Vickers has included two pages from trade papers one in particular in the Motortrader dated 11 October 2004 referring to an apology from MVRA for wrong advice given on the VAT treatment of outsourced MOT testing allegedly based on Customs & Excise information.                                                           

5.	The procedure to be followed when an unapproved garage outsource MOT testing is as set out in VAT Public Notice 700 at paragraph 25.4: 

“If you are an unapproved garage and … provided you show the exact amount charged by the test centre separately on the invoice to your customer, and meet the other conditions of paragraph 25.1.1.  Then … you may treat this element as a disbursement and outside the scope of VAT. Any amount you charge your customer over and above the amount charged to you by the test centre, is consideration for your own service of arranging the test on behalf of your customer and is taxable at the standard rate”. 

The paragraph goes on to state that the unapproved garage must account for VAT on the full invoice amount should it choose not to treat the amount charged to it by the test centre as a disbursement or does not satisfy all the conditions set out in paragraph 25.1.1.  The case presented by the Commissioners is that VAT must be paid not merely on the discount which a garage takes as a commission or profit but on the whole of the MOT test fee unless the specified criteria as to the treatment of disbursements for VAT purposes are met and this the Appellant has not done.                                                                                                                                                     
6.	Mr. Foster in his evidence to the tribunal confirmed that when properly recorded the MOT fee was seen as a disbursement for VAT purposes and thus was treated as any other invoiced disbursement.   What was being sought by the Commissioners was transparency and that a taxpayer’s customers should know that VAT was being accounted for and indeed that the customer should have the opportunity to use the same as input tax. He accepted that what Mr. Vickers was describing and applying was VAT “on the margin”. What he did not accept was that the Appellant was following the correct invoicing procedure and thus permitted to account for VAT in this way. In his view the Appellant had not met all the criteria in the relevant paragraph of Customs & Excise Notice 700 and in particular had not complied with the requirement in paragraph 25. 4 that the invoice to the customer should set out separately the exact amount charged by the test centre.
                                                                                                     
7.	Taking the second limb of the Appellant’s argument first Mr. Vickers has submitted that the Appellant was “fined” on a technicality and that he had been treated as if he had not even tried to account for VAT. Mr. Foster has however confirmed that the assessment has been raised on the discounted fee element of £31 VAT on the balance of £8.25 having been met. On the issue of general and trade uncertainty as to the correct invoicing practice a revised policy to simplify the law on MOT test charges was implemented, with effect from 1 November 1996. It was notified in Customs & Excise Business Brief and VAT Notes and they essentially mirror what was said in the VAT Notice.  Paragraph 25.4 deals with the treatment of MOT charges and explains the conditions which are to be met if the MOT test fee charged by a test centre to an unapproved garage is to be treated as a disbursement and makes it clear that provided that the exact amount charged by the test centre is shown separately on the invoice the test fee element may be treated as a disbursement and outside the scope of VAT.  Any amount charged over and above that fee for the service of arranging the test is taxable at the standard rate.  I am satisfied that the Customs & Excise literature makes it clear that if this procedure is not followed VAT has to be accounted for on the full amount of what the garage has charged. The unapproved garage is acting as the agent for its customer when paying the test centre the fee but even if the customer is aware of the background of the arrangement and other conditions are met the invoicing has to be done correctly as provided for and it is clear to me that in the instant case that has not been so.  Mr. Vickers has told the tribunal also of another difficulty he can identify in that since the invoices from the testing garage are only received monthly the customer could be paying before the amount of the discount is actually known.  I do not see that this arises in the current appeal as there has been no change in the permitted maximum fee or the discount, which has been received for the period in question.  In any event this leads me more firmly towards the conclusion that the amount charged to the customer was a global figure with the Appellant accepting whatever the VAT obligation should be.                                                                                       

8.	The first limb of the argument presented by Mr. Vickers was that the Appellant had been misled as to the procedure to be followed by the visiting officer Mr. Ireland in April 1999.  Both Mr. Vickers and Mr. Ireland as witnesses sought honestly to remember the events but it was some five and a half years ago and after such a length of time recollections are inevitably imperfect.  Mr. Vickers seemed to remember that there had been some general discussion about the VAT position with the officer over coffee. Mr. Ireland has no personal recollection of this.  His Summary of Trading Activities and Records and his Visit Report are however before me.  There were some errors noted but there is no reference to MOT testing.  Mr. Ireland referred to his notebook and an entry there he says shows that he had written that there were no MOTs. His conclusion is that he must have asked a question and that was the answer given.  He has said also that had he been told that there were sub-contracted MOTs he would have asked to see the invoices and had he concluded that that these were not correct he would have issued a ruling which would have been included in the Report and also issued a letter and assessed.  Mr. Vickers has said that if they had been told how to do the invoices properly the Appellant would have done so.      

9.	I am satisfied on the evidence that the visiting officer’s standard paperwork is such that had there been a reference to MOTs being done or sub-contracted out the next stage that he outlined would have been followed through.  Mr. Vicker’s recollection is too hazy to be reliable even as to how much was first hand evidence. He said also that the point had been mentioned to the Appellant’s accountants who I am given to understand thought the procedure followed satisfactory.  I do not find that incorrect advice or information was given by the Commissioners and the legal position is clear.          

10.	Accordingly I dismiss the appeal.
                                                                           
11.	The Commissioners did not seek costs and I make no direction as to costs.                                                                    

MRS E GILLILAND
CHAIRMAN
Release Date: 3 November 2004

MAN/2003/0700
££Keswick Motor Company Ltd v Customs and Excise [2004] UKVAT V18831 (03 November 2004)