19474
	INPUT TAX — exclusion of credit for input tax — motor cars — purchase of motor car for purposes of the business — VAT (Input Tax) Order 1992 Article 7(2G)(b) — appeal allowed

MANCHESTER TRIBUNAL CENTRE

 
 	
	PETER JACKSON (JEWELLERS) LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Lady Mitting (Chairman)
						Marjorie Kostick BA FCA CTA 

Sitting in public in Manchester on 30 January 2006

Peter Jackson, managing director, for the Appellant 

Jonathan Cannan, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2006

DECISION

1.	The Appellant company appeals against an assessment to VAT in the sum of £789 plus interest for the period 05/04.  The assessment arose out of the refusal by the Respondents to allow the Appellant credit to input tax on its purchase of a motor car in March 2004.
2.	We heard oral evidence from Mr Jackson on behalf of the Appellant.  The Respondents called no oral evidence but had served a witness statement of the assessing officer, Andrea Rose, which was not objected to.
The Facts
3.	The Appellant carries on business as a retail jeweller.  Its main store and administrative headquarters is in Blackburn and there are branches in Preston, Southport and Carlisle.  There are six office staff in Blackburn, including Mr Jackson and each of the four stores has between five and eight sales staff.
4.	In March 2004, the company purchased a Ford Ka (“the vehicle”) as a pool car.  Mr Jackson described it as a work horse and it was intended for the use of any member of staff who needed it for business purposes.  The vehicle was added to the company’s fleet insurance policy on which there were already seven cars – these belonging to the directors and Mr Jackson’s parents.  These cars were all used for business and private purposes and the fleet policy covered both.  Mr Jackson told us that it never occurred to him to set up a separate business only policy for this vehicle.  
5.	Mr Jackson had instructed the staff that the vehicle could only be used for business purposes and not for private purposes.  It was not a term of their contracts and had never been committed in any form to writing.  It was, Mr Jackson told us, unnecessary because he trusted his staff. 
6.	The vehicle was used for a multitude of purposes by any member of staff who needed it.  The main use was to transport stock between the branches and also to and from a storage facility in St Anne’s.  Accounting staff visited the branches twice yearly for stock taking.  If a branch was short staffed, staff would travel to that store to cover.  Branch personnel used the vehicle to travel to trade fairs.  The visual image manager, Jennifer, travelled regularly between all branches to oversee displays and stock and the stock manager used it to visit suppliers.  The vehicle was kept overnight in a leased parking space in the basement of a shopping centre in Blackburn and during the day, when not in use, outside the office.  If the vehicle was there, anyone who needed it could use it.  A log was kept for staff to record their use of the vehicle.  A member of staff taking out the vehicle would complete the record although there was no necessity to record mileage and the entries were not signed.  The keys were kept in the office and would be picked up as and when needed.
7.	One particular use of the vehicle was highlighted by the Respondents, that of the visual image manager, Jennifer.  When going to Carlisle, she would have to leave her home in Darwen between 6 and 6.30 am.  On these occasions, she would load the vehicle with stock the previous evening, drive home in the car, leave it in her drive overnight and travel from home to Carlisle the following morning, returning to the store in the evening.  Were she to travel from the Blackburn store rather than from home to Carlisle and load up on the morning, she would have to leave home approximately one hour earlier.  Whilst in Darwen, Jennifer’s husband would clean the vehicle and fill it up with petrol.  
8.	This was Mr Jackson’s evidence which we have no reason to disbelieve and we find as fact.  
The Law
9.	The relevant law is contained in Article 7 VAT (Input Tax) Order 1999 (SI/1992/3222) and reads as follows:
“(1)	Subject to paragraph (2) to (2H) below tax charged on—
(a)	The supply … to a taxable person … of a motor car shall be excluded from any credit under Section 25 of the Act.
(2)	Paragraph (1) above does not apply where —
(a)	the motor car is —
(i)	a qualifying motor car;
(ii)	supplied … to … a taxable person; and 
(iii)	the relevant condition is satisfied …
(2E)	For the purposes of paragraph (2)(a) above the relevant condition is that the … supply … is to a taxable person who intends to use the motor car either —
(a)	exclusively for the purposes of a business carried on by him, but this is subject to paragraph 2G below; or …
(2G)	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 …
(b)	make it available (otherwise than by letting it on hire) to any person (including, where the taxable person is an individual, himself, or where the taxable person is a partnership, a partner) for private use, whether or not for a consideration.”
10.	It was accepted by Mr Cannan that Article 7(2)(a)(i) and (ii) were satisfied but it was the Respondents’ case that the “relevant condition” (iii) was not satisfied as the car was available to staff for private use.
Case Law
11.	We were referred by the Respondents to the following two cases:
Customs and Excise Commissioners v Upton (Trading as Fagomatic) 2002 EWCA Civ 520
Customs and Excise Commissioners v Elm Milk Limited 2005 EWHC 366(Ch)
Submissions
12.	Mr Jackson contended that the vehicle was purchased solely for use by the staff for the purposes of the business.  The staff knew it could not be used privately because he had told them so and it did not therefore need committing to writing because it was a matter of trust.
13.	It was Mr Cannan’s submission that on the facts the Appellant intended at the time of purchase to make the vehicle available for private use because there were no physical or legal restraints which prevented private use.  The insurance policy and the absence of any contractual restraints both rendered the vehicle available for private use, even if Mr Jackson did not intend that it be so used.  The test was not whether he intended the vehicle to be used privately but whether he intended to make it available for private use and the vehicle would be so available if there was nothing to prevent such use.  Additionally, the use by Jennifer to take the vehicle home on her trips to Carlisle was private use of the vehicle. 
Conclusions
14.	The question before us is whether at the time the vehicle was purchased, the intention was to make it available for private use by any person.  Buxton LJ in Upton at paragraph 28 considered the meaning of “make available for use” in the following terms:
“The first issue is, therefore, what the draftsman meant by ‘make available for use’.  That is an ordinary English expression, deliberately different from ‘use’ itself.  An object can be available for use without there being any present intention of actually using it.  Just as, for instance, a person can be available for, say, military service without there being any intention that he should serve or be asked to serve.”
15.	Neuberger J, also in Upton at paragraph 41 stated:
“[41]  If an article is supplied by one person to another with no physical or legal restraint as to a particular use, then it appears to me that, as a matter of ordinary language, the article has been ‘made available’ for that use.  The fact that neither the supplier nor the recipient expects, or even intends, the article to be put to the particular use does not prevent the article being ‘available’ for that use, if there is no physical or legal restraint on such use by the recipient.  Further, it cannot be said, at any rate as a matter of ordinary language, that the supplier does not ‘make’ the article available for that use, simply because he does not expect or intend it to be put to that use.  If he supplies the article so that it is, as a matter of fact, available for a particular use, then he has, in normal parlance, made it available for that use.  On the other hand, if the supplier provides the article under a contract which bona fide precludes the recipient from putting it to a particular use, or if it is supplied only at such times that it cannot be put to a particular use, then there is a clearly a powerful argument for saying that it has not been ‘made available’ for such use.”
16.	We must therefore consider whether or not there was in this case any physical or legal restraint on the staff’s use of the vehicle.  Certainly there was no physical restraint and there was no restraint provided by the insurance cover either but was there a legal restraint?  This question was addressed by Park J in Elm Milk, specifically at paragraphs 27 and 28:
[27]	What, however, is the position in an employer and employee case where the employer provides the car on terms that the employee may use it for business purposes only and may not use it for private purposes?  In my judgment, provided that those contractual terms are genuine in all respects, ‘the relevant condition’ referred to in art 7(2)(a)(iii) is satisfied and, assuming that all other requirements that input tax recovery are also fulfilled, the employer is entitled to recover the input tax included in the price of the car.  The requirement which the employer must fulfil in order not to fall foul of art 7(2G)(b) is that, at the time when the employer acquires the car, he must not intend to make it available for the employee’s private use.  If he intends to provide it to the employee subject to a contractual stipulation that the employee must not use it privately, and if that contractual stipulation is genuine and not colourable, it seems to me that the requirement is met.  At the very least, it is open to a tribunal to find that it is met.
[28]	Some of the cases refer to physical constraints which prevent an employee putting an employer’s car to his private use: for example having the car kept in a locked compound outside business hours, or requiring the car keys to be surrendered into the employer’s custody.  Arrangements of that sort probably do prevent the car being available to an employee for private use, or at least they indicate that the employer’s intention was that it should not be so available.  However, I do not accept that, in the absence of such physical arrangements, art 7(2G)(b) is always going to prevent the employer from recovering the input tax.  If an employer trusts his employees to observe a contractually binding condition, then surely he (the employer) can say that he does not intend to make the car available to be used in a way which would involve a breach of the condition.  In this connection I refer again to the use of the word ‘or’ rather than ‘and’ in the two passages from Neuberger J’s judgment in Upton to which I refer earlier.”
17.	There is a contractual relationship between an employer and an employee.  This can be a written contract with all terms expressly set out or a verbal contract or a combination of the two.  In this case, there was no express term of prohibition in the staff contracts.  However, an employee is impliedly bound to obey the lawful and reasonable orders of his employer and such an order will be an implied term of his contract of employment.  Mr Jackson’s verbal instruction to his staff prohibiting private use of the vehicle was a genuine, lawful and reasonable order which he expected and trusted his staff to obey.  As such it was, in our view, an implied contractual term and the staff were therefore contractually bound by reason of the implied term not to use the vehicle for private purposes.  There was thus a legal restraint on their so doing.
18.	We now consider Jennifer’s use of the vehicle on her trips to Carlisle via home.  It is well established that travel between home and work is private user.  What we have here is, in effect, a dual private / business use, but the “private” element being necessitated by the business – a technically private use for the purposes of the business.  In considering this, we accept Mr Jackson’s evidence that the journey via home was only made in the company vehicle on the occasions on which Jennifer travelled to Carlisle.  She only made the journey in this way because it would have been totally impractical for her to have travelled into Blackburn, loaded the vehicle up and then travelled to Carlisle on the morning.  Not only would this have involved an immensely early start from home but she would also have had to have loaded up her vehicle with valuable stock at a very early hour on her own.  This would be an unsafe working practice, which no reasonable employer would expect of a member of staff.  As we understand the evidence, Jennifer would, on the pervious day, have driven to work in her own car; left her car at the office, taking the loaded vehicle home, returned from Carlisle to the office the following day and driven home in her own car.  We think it strongly arguable that in this context the trip from office to home constitutes a necessary component of the trip to Carlisle and thus business use.  If however we are wrong in this and the journey is a private use of the vehicle, this should not be a critical factor for the following reason.  It was not suggested to Mr Jackson by Mr Cannan that such use was in contemplation when he bought the vehicle.  It may well be that this was a practice which evolved over time but we can make no finding to that effect given the absence of any evidence.  If it was not in contemplation when he purchased the vehicle then it would not be relevant but even if it had been, on any view, this partial relaxation of the prohibition is utterly trivial.  We were not given an exact mileage per year for the vehicle although we were told that it was very high.  Jennifer travelled regularly to all the branches but only took the vehicle home when going to Carlisle, all other trips being covered from the office.  The office to Darwen is 15 miles.  In the context of Blackburn to Carlisle, this distance is minimal.  In the context of the total distance covered by the vehicle, it is even more minimal.  We believe, therefore, that in the context of the individual journey itself, the private use was very much the subsidiary element in the dual use but in the wider context, the mileage covered was so trivial as to be de minimis and we do not think that this should constitute a bar to the recovery of input tax.
19.	In conclusion, therefore, we find that there was a legal restraint on the staff using the vehicle for private use and it had not been the intention of Mr Jackson at the time of purchase to make the vehicle available for private use.  He is not therefore barred from claiming the input tax on the purchase and his appeal must succeed.
20.	Mr Jackson made no application for costs and we make no order.

LADY MITTING
CHAIRMAN
Release Date: 27 February 2006
MAN/05/0615