19798

MOTOR CAR – whether Appellant intended to make available for private use – no restrictions on private use – was intention to make available – appeal dismissed

LONDON TRIBUNAL CENTRE

	SPEEDWAY AUTOCARE LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S 
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	DR JOHN F AVERY JONES CBE (Chairman)
					HELEN FOLORUNSO

Sitting in public in London on 2 October 2006

Nicholas Wells, counsel, instructed by OJS Law, for the Appellant

Richard Smith, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	Speedway Autocare Limited appeals against the disallowance of input tax on two motor vehicles.  The Appellant was represented by Mr Nicholas Wells and Customs by Mr Richard Smith.
2.	We heard evidence from the two directors of the Appellant, who are brother and sister, Mr Adel Meghrabi and Miss Joumana Meghrabi, and from the officer Mr Gavin Fletcher.  We find the following facts:
(1)	The Appellant’s business is that of an up-market garage specialising in work such as customising cars particularly for younger customers.
(2)	The Appellant purchased the two vehicles a BMW 5 series car KJ55 UOS on about 23 September 2005, and a Range Rover Sport LT55 EWK (subsequently changed to Joumana Meghrabi’s personal numberplate J11 JUK) on about 6 October 2005. 
(3)	The vehicles were customised in order to show the type of work carried out by the Appellant.  This included a new suspension, wheels, exhaust, tinted windows and colour scheme.  They had the Appellant’s logo on the boot, front wings and number plate.  They were kept at the Appellant’s premises with the keys locked in a safe.  They would be driven to places where they can be exhibited, including motor shows and the Ace café.  They intend to feature them in car magazines.
(4)	The directors estimate that they have received over £55,000 worth of business by using the vehicles as show cars.
(5)	The vehicles are insured under a block traders’ policy covering all vehicles owned by the Appellant or in its custody or control in the course of its business.  We saw the insurance certificate, the terms of which name the drivers entitled to drive (including Mr Adel Meghrabi; Miss Joumana Meghrabi is covered by a similar policy in the name of a related bodywork company) and also include any person driving on the Appellant’s order or with its permission a vehicle in its custody for servicing or repair (which extension would therefore not include these vehicles).  The policy covers social, domestic or pleasure purposes by the named drivers (or those driving customers’ vehicles with their permission).  
(6)	A letter was produced dated 27 November 2005 that the two vehicles in question were insured for business use only.  We find that there is no evidence that this changed the cover contractually, and even if it did so, it did not change the cover shown on the certificate from the dates of purchase of the vehicles.  We infer from these facts that the vehicles were insured for the directors’ private use.
(7)	Both directors had other smart cars which they used for personal use.
3.	In order to be entitled to claim input tax the Appellant must satisfy the following two tests in paragraph 7 of the VAT (Input Tax) Order 1992:
(2E) For the purposes of paragraph (2)(a) above the relevant condition is that the letting on hire, supply, acquisition or importation (as the case may be) 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 
(b)  primarily for a relevant purpose.
…
(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— 
(a)  let it on hire to any person either for no consideration or for a consideration which is less than that which would be payable in money if it were a commercial transaction conducted at arms length; or
(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.
4.	Mr Wells, for the Appellant, contends that the evidence as a whole was compelling evidence that the vehicles were at the time of purchase intended for business use only and there was no intention to make them available for private use.  The absence of a board resolution, as in Customs and Excise Commissioners v Elm Milk [2006] STC 792 was not very meaningful in the context of a private company.
5.	Mr Smith, for Customs, contends that the test is extremely strict and the Appellant has failed to cross the high threshold to bring itself within the exception.  It has done nothing to demonstrate its intention to be anything other than the intention that naturally flows from the facts, that the Appellant intended to make the vehicles available for private use.
6.	Mr Wells put his case persuasively and we are impressed by the unusual nature of these vehicles, which makes this a stronger case for the Appellant than normal.  There is much objective evidence of the vehicles being intended solely for business use, such as being kept at the business premises with the keys in a safe there, and having advertising logos on them.  We also accept the directors’ evidence of their business reasons for purchasing them.  But the problem is the very strict terms of paragraph 7(2G) as interpreted by the Court of Appeal in Customs and Excise Commissioners v Upton [2002] SC 640 and quoted with approval in Customs and Excise Commissioners v Elm Milk, particularly the following passage:
“[28] 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.
[29] The question has to be decided as at the moment of acquisition of the car. On the facts of the present case, I see no escape from the conclusion that the car was at that moment, as a matter of fact, available for Mr Upton's private use, however little he then had any intention of actually so using it. He had sole control over the car. It was not to be disabled or in any other way put beyond use: quite the reverse, since the whole purpose of buying it was so that it could be used, albeit in the business and not privately. A further way of testing this point, if it needs further exposition, would be to ask whether the car was available for Mr Upton's use, generally stated. That question answers itself. And Mr Upton did not restrict the general nature of that availability by deciding that he would only use the car for one of the two purposes for which at the time of purchase it became available.
[30] Further, I see no escape from the conclusion that Mr Upton had made the car available to himself. He did that, tautologically enough, by providing himself with ownership and control of the car. And, as we have seen, the availability that was created was availability for private as well as for business use.
[31] Did Mr Upton at the moment of purchase intend to make the car available to himself for private use? The question is not whether he intended to use it, but whether he intended to make it available for use. That again seems to me to lead to a short answer. The first question, of whether what was done constituted a making available for private use, is answered, in the terms urged above, by analysis of what Mr Upton did in the context of the true construction of the statutory concept of making available for private use. Mr Upton unquestionably intended to do the acts that, on that true construction, constituted the making available of the car for private use. He therefore necessarily intended to make the car so available, by intending to do the acts that constituted making the car available for use. He cannot escape from that conclusion by saying, as he does, that he did not intend actual use; or that, for that reason, he did not regard the car as available for his use. If he intends to do the acts that are in law the state of affairs referred to in the statute, then he intends that state of affairs as statutorily defined.”
7.	This passage shows that if a car is actually available for private use and there is no restriction on its private use, in that case the sole trader had made it available for private use, and by necessary inference a company would equally make it available for private use.  In these circumstances a person necessarily intends to make the car available for private use by intending to do the acts that constituted making the car available for private use.  Such an inference can be negatived by contractual (as in Elm Milk) or physical restraints.  Whether this has been done is a question of fact, as the Court said in Elm Milk:
“[39] In my judgment, Parliament has not in art 7(2G) said that to show that there is no intention to make a car available for private use the taxpayer has to show that it is not physically so available. Parliament has neither said that any particular circumstance constitutes making a car ‘available’, nor has it excluded any evidence from the determination of whether a car is or is not made available. It is, therefore, a question of fact for the tribunal as to whether in all the circumstances the taxpayer intended not to make the car available for private use by whatever means. There is thus no reason why a car cannot be made unavailable for private use by suitable contractual restraints, that is effective restraints.”
8.	The only physical restraint here is the vehicle keys being in the safe, the keys to which the directors held, but we do not consider that this would be effective to prevent a director from taking the vehicle to go shopping during the day or making some other private trip.  We do not agree with Mr Wells that the absence of a board resolution is not meaningful; we consider that it is meaningful because it would have shown an intention to create a restraint on private use that could potentially have been enforced by one director against the other, unlike the situation in Elm Milk where there was a sole director.  Such a contractual restraint is absent here.  While we do not disbelieve the directors’ intentions generally we consider that the logic shown by Upton must be applied: the vehicles were in fact available for private use, and so the Appellant must have intended to make them available for private use unless it shows sufficient evidence to the contrary.  In our view nothing to the contrary has been shown here.
9.	Accordingly we dismiss the appeals.

JOHN F. AVERY JONES

CHAIRMAN
RELEASE DATE:4 October 2006

LON/06/180