19769

VAT INPUT TAX – MOTOR CARS – Appellant purchased a motor car for use by one of its company directors – the director chose to use the motor car exclusively for the Appellant’s business – the Appellant, however, consigned control of the motor car to the director – the Appellant placed no physical or legal impediment on the use of the car – the Appellant intended the car to be made available for the private use of the director – Appeal dismissed. 

MANCHESTER TRIBUNAL CENTRE

	REGENT BUILDING SERVICES N/C LTD   	Appellant

	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal:	MICHAEL TILDESLEY  OBE (Chairman)
					JOHN DAVISON                         (Member)

Sitting in public in North Shields on 3 August 2006

Seth Okai, Senior Accountant of Okai & Co for the Appellant

Andrew Noble, counsel instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION
The Appeal
1.	The Appellant was appealing against an assessment for VAT in the sum of £3,848 plus interest of £453.74 making a total of £4,301 issued on 7 October 2005.
The Disputed Issue
2.	The disputed issue concerned the Appellant’s claim for input tax in the sum of £3,848 in respect of a purchase of BMW motor car, registration number ND53UZN. 
3.	Essentially Article 7 of the Value Added Tax (Input Tax) Order 1992 blocks input tax claims on motor car purchases unless the taxpayer intends to use the car  exclusively  for his business and does not make it available for private use.
4.	The Appellant contended that the BMW motor car was provided to Mr Gilbert, company director, to be used solely in connection with the Appellant’s business. Mr Gilbert did not use the motor car for private purposes.
5.	The Respondents submitted that in order for the Appellant to succeed with its claim for input tax, the Appellant had to show on the balance of probabilities that it intended to use the car exclusively for business purposes and had no intention of making it available for private use.  In the Respondents’ view the BMW motor car purchased by the Appellant was available for private use unless it took positive steps to insulate the car from the possibility of such use. The Appellant adduced no evidence of taking the necessary steps. Therefore, its claim for input tax must fail.
The Facts
6.	The Appellant company was in the business of building conversions and repairs with an annual turnover of about £450,000. The company had two directors, Mr and Mrs Gilbert, and employed between seven to nine members of staff. The Appellant’s principal place of business was at 19 Regents Park, Parklands, Wallsend, which was also the address of Mr and Mrs Gilbert’s home. In addition the Appellant occupied premises at Unit 13 Denmark Street, Heaton which was mainly used for storing tools, although it had an office upstairs with computers.
7.	On 17 October 2003 the Appellant purchased new a BMW saloon from Priory Cars for £26,025 which included VAT in the sum of £3,848.52. The actual invoice was made out to BMW Financial Services GB Ltd but it specified the Appellant as the delivery address for the car. The Appellant reclaimed the VAT paid on the purchase.
8.	The car was insured in the name of Mr Gilbert with Mrs Gilbert as the named driver. The insurance allowed Mr and Mrs Gilbert to use the car for social, domestic and pleasure purposes. According to the Appellant’s insurers no motor car was insured solely for commercial purposes, by law the insurance policy would include a private use clause.
9.	The Appellant had been advised by its accountant to purchase the car so that it could be used exclusively for business purposes. The Appellant did not advertise its business. One of the reasons for purchasing a top range motor car was to present the right image to its clients who were often sophisticated and wealthy. 
10.	Mr Gilbert worked long hours leaving home at 8am and returning mostly after 8pm. He was the sole user of the BMW motor car, using it exclusively for business purposes, namely, to visit clients, obtaining new business and travelling to the various sites to supervise the Appellant’s staff and inspect the work done. The car was parked at 19 Regents Park at the end of the working day.
11.	Mr and Mrs Gilbert did not use the BMW motorcar for private purposes. They each owned expensive cars with personalised number plates, which were used for private and social use. 
12.	On 6 September 2005 Miss Lund, an Officer of HM Revenue and Customs, carried out an inspection of the Appellant’s records and accounts at its premises in 13 Denmark Street. On 7 October 2005 she raised an assessment to recover the input tax claimed on the BMW motor car, which in her view had been wrongly claimed. On 6 December 2005 Miss Lund’s decision was confirmed on review.
Reasons for Our Decision
13.	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 1994 Act. However, article 7(2) sets out that the exclusion to section 7(1) does not 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.
14.	The “relevant condition” so far as is material to this Appeal 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” (article 7(2E)).
15.	Article 7(2G) qualifies article 7(2E) by setting out 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 (b) “make it available to any person (including himself) for private use.
16.	The combined effect of Articles 7(2E) and 7(2G) is that the test of intention to use the motor car for exclusive business purpose will not be met if the taxable person at the time of acquisition of the motor car intended to make it available for private use.
17.	The dispute in this Appeal centred upon whether the Appellant at the time of acquisition of the BMW motor car intended to make it available for the private use of Mr and Mrs Gilbert.
18.	The Court of Appeal in Customs and Excise Commissioners v Upton (trading as Fagomatic) [2002] STC 640 considered the application of Articles 7(2E) and 7(2G) to the situation where a company purchases a motor vehicle for use by one of its directors. Neuberger J at paragraphs 41, 42 and 44 stated that
“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 clearly a powerful argument for saying that it has not been 'made available' for such use”.

“The fact that the article is also made available for other purposes, even primarily for other purposes, does not alter this conclusion. If a motor car or other article is supplied to a recipient in circumstances where he can put it to, among other uses, private use, then, as I see it, as a matter of ordinary language the supplier 'make[s] it available ... for private use'. That appears to me to be reinforced in this case by the absence in art 7(2G)(b) of the word 'exclusively', found in art 7(2E)(a). Article 7(2G)(b) requires one to consider the intention of the taxpayer with regard to making the motor car available for a particular use. Accordingly, to my mind, the proper inquiry is, as the commissioners contend, whether the taxpayer intends to supply the motor car to a third party in circumstances where it could be available for private use. The intention in question is concerned with the basis on which the motor car is to be made available to the recipient, not with the use to which the motor car is to be put by the recipient”.
“ In these circumstances, given that one is required to consider the taxpayer's intention at the time of the purchase of the motor car, it seems to me that, where a company acquires a motor car with a view to providing it to, say, a director, with no legal or physical impediment on private use, the company would be intending to make the motor car 'available ... for private use'. The fact that the company may not intend, and may not even want, the motor car to be put to such a use is not in point. By intending to provide it for use by a director, who will be legally and physically free to put it to private use, the company is intending to make the motor car available to him for private use”.
19.	Mr Okai on behalf of the Appellant contended that the decision in Upton had no relevance to the facts of this case. Mr Okai considered that the Appellant complied with the advice given in paragraphs 3.5 and 3.6 of VAT Notice 700/64 “Motoring Expenses”.  The Appellant purchased the BMW motor car so that it could be used exclusively by Mr Gilbert for the purposes of the Appellant’s business. Mr and Mrs Gilbert had bought their own vehicles so they did not need the BMW motor car for private and social purposes. Mr Okai submitted that Miss Lund’s assessment was principally based on her mistaken assumption that 19 Regent Street was solely Mr Gilbert’s private address.    
20.	 We accept that 19 Regent Street was also the Appellant’s principal place of business. We, however, do not consider that our finding of fact on this issue has a material bearing on the Appeal.
21.	We, however, disagree with Mr Okai’s assertion that the Upton case has no relevance to this Appeal. The Court of Appeal decision in Upton established the principles for the interpretation of  articles 7(2E) and 7(2G) of the VAT (Input Tax) Order 1992, which is the applicable law for this Appeal. The advice given by HM Revenue and Customs in VAT Notice 700/64 has no legal force, although we consider the advice in paragraphs 3.5 and 3.6 was consistent with the principles laid down by Upton.
22.	We find that the Appellant purchased the BMW motor car for one of its company directors, Mr Gilbert. The Appellant, however, provided no evidence that it placed at the time of the purchase any physical or legal impediment on the use of the motor car by Mr Gilbert. The Appellant gave control of the BMW motor car to Mr Gilbert. The car was insured in Mr Gilbert’s name with his wife as named driver. The insurance permitted Mr Gilbert and his wife to use the car for social, domestic and pleasure purposes. The Appellant allowed Mr Gilbert freedom to choose how he used the BMW motor car. The fact that Mr Gilbert chose to use it exclusively for the Appellant’s business was not sufficient to displace the natural consequence of the Appellant’s action in consigning complete control of the use of the BMW motor car to Mr Gilbert. We are satisfied that the Appellant by intending to provide the BMW motor car for use by Mr Gilbert, who would be legally and physically free to put it to private use, the Appellant was intending to make the BMW motor car available to him for private use.
Decision
23.	 We, therefore, dismiss the Appeal on the ground that the Appellant intended to make the BMW motor car available to Mr Gilbert for private use. We uphold the assessment for VAT in the sum of £3,848 plus interest of £453.74 making a total of £4,301 issued on 7 October 2005.
24.	In their statement of case the Respondents reserved the right to challenge whether the Appellant was the taxable person entitled to the input tax on the BMW motor car. The invoice for the BMW motor car was made out to BMW Financial Services GB Ltd rather than the Appellant. We have made no decision on this matter because Miss Lund’s assessment was based on private use of the motor car.
25.	Mr Noble, on behalf of the Respondents, applied for their costs in the sum of £1,000 plus VAT on the ground that the Appeal was frivolous and vexatious. The Appellant was advised by its professional advisers to challenge the assessment. The Respondents in their initial reasons appeared to give undue weight to the status of 19 Regent Street, which may have misled the Appellant about the strength of the Respondents’ case. The Appeal involved difficult questions of law.  We find that the Appeal was not frivolous or vexatious. We make no order for costs      

MICHAEL TILDESLEY

CHAIRMAN
RELEASE DATE: 12 September 2006

MAN/