19594                                                                                                                                                                                                                               
	VALUE ADDED TAX — assessment — two BMW X5s purchased one for personal use the other for business purposes — intention of appellant at time of purchase of BMW X5 for use on his farm for business purposes — limited circumstance when sole trader entitled to claim VAT on purchase of vehicle — farm vehicle not available for private use — appeal allowed

MANCHESTER TRIBUNAL CENTRE

 
 	
	PHILIP JAMES ROBERT SHAW	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	David S Porter (Chairman)
						Arthur E Brown

Sitting in public in York on 5 April 2006

The Appellant in person

Lisa Linklater, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2006

DECISION

1.	Philip James Robert Shaw (“the Appellant”) appeals against an assessment dated 15 March 2004 in the sum of £6,621. The assessment arises because he claimed the VAT on his purchase of a BMW X5 diesel station wagon for the use on his farm. The Commissioners say that the car can be used by him for private use. The Appellant says that he bought another BMW X5 for private use and the diesel BMW X5 the subject of this appeal solely for the purposes of his farming business.

2.	Miss Lisa Linklater of counsel appears on behalf of Her Majesty’s  Revenue and Customs and produced a bundle of documents for the tribunal. The Appellant appeared in person and produced his own bundle.

3.	We were referred to the following cases:-

•	Customs and Excise Commissioner v Upton (trading as Fagomatic) 2001STC 912
•	Customs and Excise Commissioners v Robbins 2004 EWHC 3373 (Ch)
•	Commissioners of Customs and Excise v Elm Milk Limited 2006 EWCA Civ 164

The Facts

4.	We found the following facts.  The Appellant is the sole proprietor of a substantial farm and now lives on his own having been divorced in 1995. Prior to purchasing the BMW X5 3.0 Diesel Sport  registration number FY 51 RHX (“the X5”), he had purchased Diesel Range Rovers and reclaimed the VAT on the purchase price, which had been allowed by the Commissioners. He had found that the Range Rovers were unreliable and incurred substantial depreciation of their value. He required a 4 wheel drive vehicle to tow various trailers that he used for the purposes of his farming and contracting business. He has a low loader for transporting machinery and long building materials; a hydraulic tipping trailer for sand and hard core and a box trailer for transporting chemicals and keeping other loads secure. 

5.	He purchased the X5 with a diesel engine to provide the high torque necessary for towing, and economy when towing loads. He specifically ordered the “Sport” option because this includes stiffened and more rigid suspension which enhances towing as it reduces the amount of “snaking”. The wider tyre option provides low ground pressure when travelling across fields, and is similar to the options available on his tractors. The X5 was also supplied with air conditioning. We were told that most tractors also have air conditioning.  The X5 was further modified by the supply of a retracting load liner to make it easier to lift heavy loads (such as electric motors) in and out. There was also a load liner with compartments for tools to hold objects in place. The keys were kept in his office and it was parked in a recess next to his office door.

6.	The X5 is insured with Norwich Union for him alone to drive.  The Appellant had taken a conscious precaution to put the insurance only in his name with the intention of not using the X5 for personal use but solely for business purposes as a sole trader.  We were shown an insurance certificate for the X5 dated December 2003 to December 2004 which included use for social domestic and pleasure purposes.  The Appellant explained that his broker had recommended that he should insure on this basis as it was a cheaper option.  Although the certificate post dates the assessment we have no reason to suppose that the cover the Appellant took out when he purchased the X5 was any different.  He also told us that his combined harvester was insured on a similar basis and included social domestic and pleasure purposes.

7.	The Appellant told us that he had spoken to a Mr Bumby, a VAT officer who had advised him that he would have to purchase two vehicles one for the business and one for private use, if he was to obtain the benefit of the VAT allowance on the purchase price.  It was not until the Appellant was cross-examined that it became apparent that that advice had been given to him some 8 years earlier.  We are therefore unable to say whether the Appellant had relied on this statement at the time of the purchase of the X5.  In view of the fact that the point was only raised recently we suspect that it played no part in his decision making.  He has, however, received advice from his accountants that he should differentiate between the two vehicles.

8.	Whether or not the Appellant was motivated by Mr Bumby’s comment it is a fact that he bought a similar BMW X5 petrol vehicle at the same time as the purchase of the X5, as a vehicle for his private use.  When asked by the chairman the Appellant stated that because the X5 is used for farming purposes it was in a poor state; the back seat had been torn as a result of loading farm implements in it; the body work has been damaged during farming activities; and as he drove it in all weathers in his farming gear the inside was not suitable for everyday use.  He had bought the other BMW X5 for private use.  He also confirmed that he owned a mini and a VW Polo both insured in his name and for any purpose.  He had ample vehicles to choose from to obviate the need to use the X5.

The Law

9.	The Value Added Tax (Input Tax) (Amendment) (No 3) Order 1995 provides as follows:-

“7(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 Value Added Tax Act 1994.

    (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 purpose 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 purpose of a business carried on by him if he intends to …

 (a)	…
 (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 consideration..”	

The time of assessing the relevant intention is at the time of the supply (see Lady Justice Arden in Commissioners of Customs and Excise v Elm Milk Limited line 3 paragraph 6).

Summing up

10.	Miss Linklater submitted that the Appellant must establish both that he intended to use the car exclusively for the purposes of a business carried on by him, and that he did not intend to make the motor car available (whether to himself or anyone else) for private use. She helpfully took us through the decision of Customs and Excise Commissioners v Upton (trading as Fagomatic).   The case concerned the purchase of a Lamborghini bought by Mr Upton in substitution for his Aston Martin, because his competitors had all acquired Aston Martins and he wished to keep ahead of them as far as his appearances to the trade were concerned. He lived in central London and appears to have worked seven days a week.  Peter Gibson LJ (at paragraph 28) stated:

“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 their being any intention that he should serve or be asked to serve”.

At paragraph 35:
           
“I readily recognise that it will be difficult for a man who purchases a car for business use as a sole trader to demonstrate that he did not thereby make the car available to himself for private use also.”

At Paragraph 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”.

11.	Miss Linklater suggested that, the “making available” requirement is exacting, particularly for sole traders.  The Appellant has to establish genuine and effective restraints on private use in order to succeed.  The fact that the Appellant bought two cars does not assist him as the circumstances surrounding the purchase of the X5 of the fact of the purchase made it available for private use.  The Appellant has not demonstrated a genuine and effective restraint on private use and the assessment is to best judgment.	

The decision

12.	We have considered the facts and the law.  The law requires not only that the Appellant purchased the X5 exclusively for the purposes of his business, but that he also did not intend the X5 to be made available for private use.  We have decided that the Appellant is entitled to claim the VAT on the purchase of the X5.  We are in no doubt that Mr Shaw has surmounted the first hurdle in that he intended to use the car exclusively for the purposes of a business carried on by him.  He is a farmer and he has used Range Rovers in pursuit of his business in the past.  The VAT on those Range Rovers had been allowed in the past.  The Commissioners must therefore have considered them to be farm vehicles used exclusively for his farming and contracting business.  The X5 is no different.  It has been carefully purchased to provide all the requirements for his farming and contracting business.  It has been purchased on the same basis as his tractors, combined harvester and other farm vehicles.

13.	The second condition as to private use is more complex. In Customs and Excise Commissioners v Robbins a case which concerned the purchase of a MPV Toyota ‘Previa’ by Mr Robbins to run the Hotel’s elderly guests to town, hospital and elsewhere Mr Justice Lloyd stated at paragraph 21;

“As Neuberger J said in Customs and Excise Commissioner v Upton (trading as Fagomatic):-

“unless there is some physical or legal restriction which he intends to put in place on his ability to make private use of the car, he does intend the natural consequence of his actions and the provisions of (2G) will apply with the consequence that, despite his actual intention to use the motorcar exclusively for the purposes of his business, he will not be taken to have the intention as a result of (2G). …It is a difficult situation… it seems to me that there is no doubt in the in the light of what the Vice-Chancellor and the Court of Appeal said in Upton that the test is extremely restrictive.”

14.	Although the law as it currently stands imposes a restrictive situation, parliament must have intended that there should be a right to claim VAT on the purchase of a vehicle for business purposes by a sole trader. It seems to us that there can be no situation (as suggested by Mr Justice Neuberger) in which a sole trader can create ‘a physical or legal restriction’ because if he has imposed it, he could reverse the decision.  The legislation states that the Appellant shall not be taken to have intended to use a motorcar exclusively for the purposes of his business if he intends to make it available for private use. The case law has indicated that obtaining insurance, which allows private use, effectively opens up that availability. The Appellant included private use on the policy as a means of obtaining a discount on the premium- a step that any prudent businessman would take to improve his profit.  His intention was that the X5 would still be used exclusively for business purposes. The insurance cover was the same for his combined harvester insured we assume on the same basis. Whilst the combined harvester is not a motor car within the terms of the legislation no one, we would suggest, would consider that the cover for private use somehow alters Mr Shaw’s intention to use the combined harvester other than for business purposes. 

15.	In addition he arranged for the insurance to be in his name alone. On that basis only he could drive it. He had no intention of driving the vehicle himself for private use as he had purchased a second and almost identical vehicle for himself.  BMWs are relatively expensive vehicles and the VAT of £6,621 that the Appellant is seeking to reclaim has been more than negated by the purchase of two vehicles. Common sense dictates that the Appellant would only buy two cars if it was his intention to use one vehicle for business and one for private use. Of course the X5 could be used for private use, as can hire cars used on occasions by the owners of hire Companies, or other Director’s car in Commissioners of Customs and Excise v Elm Milk Limited but it is very unlikely that they will be and the VAT can be recovered. We are satisfied that the Appellant has done enough to ensure for all practical purposes that the X5 will be used exclusively for business purposes. There must be a point, however restrictive the law might be, when an appellant has sufficiently demonstrated that at the time of the purchase his intention was to use a vehicle exclusively for business purposes, and that the realistic chance of that vehicle being used for private use is minimal. This appeal is such a case.

16.	We therefore allow the appeal and award the Appellant costs. The Appellant is to agree such costs with the Respondents and if the parties fail to agree them then they must bring an application for the costs to be assessed before the tribunal.

DAVID PORTER
CHAIRMAN
Release Date:
MAN/05/0334