19882

VAT – INPUT TAX  -  cars  -  BMW X5 Diesel Sport purchased by proprietor of post offices and newsagents  -  no valid VAT invoice produced  -  input tax sought to be recovered on basis that vehicle acquired exclusively for business use  - vehicle found to have been made available for private use  -  appeal against refusal to allow input tax claim dismissed  

MANCHESTER TRIBUNAL CENTRE

KASHIF MAHBOOB

									Appellant

-and-

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS

									Respondents

Tribunal:

Michael Johnson (Chairman)
Roland Presho FCMA

Sitting in North Shields, Tyne and Wear on 21 September 2006

Zahid Din, adviser for the Appellant

Andrew Noble, counsel instructed by the Solicitor for H M Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This appeal concerns a BMW X5 3 litre Diesel Sport vehicle, purchased by the Appellant new on hire purchase in 2005.  The issue is as to whether the Appellant, who is registered for VAT, should be able to claim as input tax the value added tax paid in respect of the purchase.

2.	The Appellant’s case is that he acquired the BMW with the intention of using it exclusively for business purposes.  It is common ground that the Appellant is the proprietor of two post office and newsagent outlets in Newcastle upon Tyne.  The Appellant has the requirement to transport staff between these premises, and also to carry stock.  He informs the tribunal that the BMW was bought, and has been used, solely for those purposes.

3.	H M Revenue and Customs (“HMRC”) say that the vehicle does not qualify for an input tax claim because it has been made available for private use.  In other words, it is said, there is nothing to prevent the vehicle being used privately.  In that regard, it has been held that it is not conclusive if the purchaser proves that he has never needed to use and has not used the vehicle privately.  Rather the test is whether the vehicle is in practice available for private use:  see Upton (trading as Fagomatic) v the Commissioners of Customs and Excise [2002] Simon’s Tax Cases 640.

4.	We heard the oral evidence of 3 witnesses, namely the Appellant in support of his own case, and Mr A L Gibbs-Barton and Mrs Linda Tiffin, both Customs officers, for HMRC.  We find the following facts.

5.	The vehicle was purchased by the Appellant with the aid of a hire-purchase agreement entered into with Black Horse Ltd.  We have not seen a full copy of the agreement, but it appears that the agreement was in the common form whereby the lender acquires title to the vehicle from the dealer, hires it to the borrower during the currency of the agreement, and may repossess it in case of default in payment of instalments of the purchase price.  This agreement has been honoured by the Appellant, who has paid the instalments as they have fallen due, and will acquire title to the vehicle when the last instalment has been paid.

6.	It follows that, at the moment of purchase, there will have been more than one transaction relevant to the purchase.  There will firstly have been a sale of the vehicle by the dealer to the lender, ie the hire purchase company, and secondly a sale of the vehicle on hire purchase terms by the lender to the Appellant.  

7.	We have not seen a copy of any VAT invoice in this case.  We are rather surprised at that.  It seems to us to be impossible for the Appellant to justify the input tax claim that is the subject of this appeal without proving the VAT paid.

8.	The only documentation that we have seen relevant to the acquisition of the BMW is the order for the car dated 27 June 2005, plus (and this was only produced at the hearing when we queried the details of the purchase) a partial copy of the hire-purchase agreement.  

9.	In consequence we have been left to speculate as to the VAT position attending the purchase of the BMW.  In that regard, we acknowledge the assistance of the witnesses called for HMRC.

10.	The supply on the sale of the vehicle to the Appellant’s lender, Black Horse Ltd, was such as to attract VAT, which the lender must be assumed to have paid.  The supply by the lender to the Appellant will also have attracted VAT, which the Appellant will have paid as part of his agreement with that company.  

11.	We are told that it is the practice of hire purchase companies to make the benefit of any input tax claim in respect of the purchase available to the borrower, in cases where it can be seen that the tax paid on the purchase would be claimable by the borrower as input tax had the purchase been outright, ie not made on hire purchase.  That did not happen here.  

12.	The Appellant has not put before the tribunal an invoice to show that he has paid any tax. That, in our view, suffices for us to decide this appeal against the Appellant.  However an additional reason for our so deciding is that the BMW has not, as we find, been acquired exclusively for business use.

13.	The vehicle was initially commonly parked and kept close to one of the Appellant’s trading outlets.  However it is an attractive vehicle, prone to damage and attack by vandals.  The Appellant decided not to continue to keep the vehicle there overnight.   

14.	Consequently the vehicle is now kept overnight outside the Appellant’s home in Fenham.  We were told that the keys for the vehicle are nevertheless left overnight at the Appellant’s trading outlet in Kenton Road, Gosforth.  This involves a process of driving the vehicle each night to the Appellant’s home, locking it there, and taking the keys back to the outlet separately.  In the morning, the process has to be reversed, so that the vehicle can be unlocked and driven off for use.  The spare set of keys for the BMW is kept at the Appellant’s Benwell outlet.

15.	The Appellant and his wife operate another vehicle, a Mercedes-Benz, that is used for private purposes.  That is apparently the vehicle used for transporting the keys as mentioned above.

16.	It seems to us to be very curious that the BMW is deliberately separated from its keys each night.  If the vehicle had to be moved in a hurry, it would be impossible to open it and drive it away.  Again, if (say) its intruder alarm were activated, it would be impossible to deactivate the alarm.  The daily practice with regard to the keys seems to us to make little or no practical sense.

17.	According to the Appellant’s certificate of motor insurance expiring on 7 September 2006, the BMW has been insured for use for social, domestic and pleasure purposes and travel between home and permanent place of business.  Use for business purposes is otherwise not mentioned in the certificate.

18.	This is said to be a mistake.  The Appellant informs the tribunal that the insurers, Admiral Insurance Services Ltd, have been approached with a view to making the certificate of insurance correspond with the policy, which states that the use of the vehicle is “business”.  However we are told that the insurers have not been inclined to oblige.

19.	We think that, at any time, the question of the scope of the insurance could have been put beyond doubt by terminating the existing insurance and taking out fresh insurance, undoubtedly corresponding to the Appellant’s insurance requirements.    The effect of not having done that is apparently that the vehicle could have been freely driven for social, domestic and pleasure purposes, without conflict with the scope of the certificate of insurance.

20.	Andrew Noble, appearing for HMRC, submitted that it was clear that, in these circumstances, an input tax claim was not open.   He said that the lack of a tax invoice sufficed to preclude the claim, but that, in any event, the BMW had been made available for personal use, within the principle in the Upton case.  He also questioned the credibility of the explanations given by the Appellant.

21.	For the Appellant, Zahid Din submitted that the intention of the Appellant was clear.  The confusion over insurance was not his fault.  Business use alone was intended.  The vehicle was well adapted to the business purposes of the Appellant.  He submitted that the claim was a valid one, and that HMRC were wrong not to admit it.  The lack of an invoice was incidental.  A copy of it could be obtained.

22.	In our judgment, the lack of an invoice is not a purely technical matter.  We think that the claim needs to be grounded upon it.  We cannot take its existence “as read”.  A valid VAT invoice must be produced. It needs to be demonstrated that the Appellant has paid a precise amount of tax that he claims to be entitled to have treated as input tax.  That has not been shown to the tribunal.

23.	We feel that the benefit of the input tax claim was not provided to the Appellant under the hire-purchase arrangements most probably for the reason that the BMW was perceived as being acquired by the Appellant for his own private use.  A BMW X5 strikes us as a somewhat expensive vehicle to have purchased purely for business use.  It is not obviously a commercial vehicle.  In that respect it would differ from, say, a Mitsubishi “twin cab”.  We are not satisfied that it was clear to Black Horse Ltd that the purchase was a business one.

24.	We think that the BMW was available for private use, within the Upton principle.  Consider the movements of the vehicle between the Appellant’s business outlets and his home.  On the way home, a stop might have been made (for example) at the supermarket to buy items for domestic use not stocked by the Appellant.  The BMW could be used to go and see friends when the Mercedes was being used by the Appellant’s wife.  Although the Appellant told the tribunal that the Mercedes would always be used when an indirect trip between home and business premises was intended, we find it hard to believe that the BMW would never be used, on any occasion, to make a trip of that kind.

25.	We are not saying that the BMW was actually used for such non-business purposes.  All that we are saying is that, in our view, it could very readily have been used for such purposes.  Whatever the intention of the Appellant with regard to such use, the opportunity – not to mention the temptation – for such use was ever present, facilitated by the scope of the motor insurance certificate.

26.	We therefore accept the submissions of Mr Noble and reject those of Mr Zahid.  In our view this appeal cannot succeed.  We dismiss the appeal.

27.	No order as to costs was sought by HMRC. 

MICHAEL JOHNSON 
CHAIRMAN
Release Date:  13   November 2006

MAN/2005/0824