Kotecha v Revenue & Customs [2007] UKVAT V19987 (22 January 2007)

19987

INPUT TAX — Motor Car — purchased by the Appellant for use in her business — whether intention to make available for private use — no restrictions on private use — appeal dismissed. 

MANCHESTER TRIBUNAL CENTRE

SHILPA KOTECHA Appellant

- and -

THE COMMISSIONERS FOR HER
MAJESTY’S REVENUE AND CUSTOMSRespondents

Tribunal:Lady Mitting   (Chairman)
Mr Robert Grice

Sitting in public in Birmingham  on Tuesday 9 January 2007 

Mr Jay Kotecha for the Appellant 

Mr Bernard Haley of the Solicitor’s office of HM Customs and Excise for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.Mrs Shilpa Kotecha, the Appellant, appeals against the decision of the Respondents to refuse her Input Tax credit of £7,175 on her purchase of a Mercedes CLK 320 sports car in the tax quarter 06/05.

2.Mrs Kotecha did not attend the tribunal but she was represented by her husband Mr Jay Kotecha who also gave oral evidence on her behalf.   The Respondents were represented by Mr Bernard Haley who called no oral evidence. 

3.Mrs Kotecha’s case was as follows.  Mrs Kotecha has been trading since March 2005, as a sole proprietor, as a retailer of quality furniture.  She operates from her home address from where she has an office and which is also large enough to display certain items of furniture.  This is not Mrs Kotecha’s main job and she works full time for a local company as a travel consultant.  Possibly because of this, Mrs Kotecha has yet to make any sales of her furniture.   She aims to sell direct to the public and she travels to their homes where she will display brochures, measure up, work out prices and agree terms of an order.  She also occasionally has to visit furniture exhibitions.  For these purposes she needed a car.  Although she already owned a car for her own private purposes, she had been advised, on setting up the business, that she needed to portray a certain image to match the quality of the furniture that she was seeking to sell and she therefore wished to purchase a rather high quality car.  The Mercedes sports car was purchased solely for use in the business.  It is housed at Mrs Kotecha’s home address because that is where the business operates from but it has never been driven by any one other than Mrs Kotecha and we were told has never been used for any purpose other than in connection with the business. 

4.When the vehicle was purchased, as Mrs Kotecha already had a car of her own, we were told that she would have had to have taken out a second insurance policy for this second vehicle which would have had zero no claims bonus and consequently a very large premium.  Mr Kotecha had a 70% no claims bonus but no car and consequently no current insurance policy.  It was therefore decided that the vehicle would be insured in Mr Kotecha’s name thus claiming the benefit of his no claims bonus.  Mr Kotecha told us that he phoned around for competitive quotes and in so doing he told each company that the vehicle was being purchased by his wife for use in her business.  The lowest quote that he obtained was from Sainsbury’s Bank with whom the Mercedes was therefore insured.  We were shown a certificate of Motor Insurance which dated from 11 August 2005 but we were told that this was on identical terms to a previous cover note which covered the vehicle from the time of purchase. Mr Jay Kotecha is the named policyholder with himself and his wife being the persons entitled to drive.  The cover on the policy is social, domestic and pleasure, including commuting to and from a permanent place of work and specifically for ”use by the policy holder’s spouse in person in connection with their business or profession”.  We understand from Mr Kotecha that he did not at the very outset seek a policy limited to business use only but after the Respondents’ first visit, he approached Sainsbury’s and indeed a number of other companies and none of them would offer business only cover. 

5. Since the purchase of the Mercedes, Mrs Kotecha has also purchased a Ford Escort which is used by both Mr and Mrs Kotecha as a personal run around. 

Legislation 

6.The Value Added Tax (Input Tax) Order 1992 (Statutory Instrument 1992/3222) Article 7 refers to such tax: 

“7(1) Subject to paragraphs (2) to (2H) below, tax charged on-
(a)	the supply (including a letting on hire) to a taxable persons:- of a motor car shall be excluded from any credit under section 25 of the Act. 

7(2) paragraph 1 does not apply where-
(a)	the motor car is: (i) a qualifying motor car (ii) supplied (including a letting on hire) to, or acquired from another member state or imported by a taxable person; and (iii) the relevant condition is satisfied. 

7(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 purpose of a business carried on by him, but this is subject to paragraph (2G) below, or-

7(2G) A taxable person shall not be taken to intend to use a motor car exclusively for the purpose of 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 a consideration”

7.We were referred by Mr Haley to the following cases: Customs & Excise Commissioners v Skellett (trading as Vidcom Computer Services) STC [2004] 201 and Customs & Excise Commissioners v Upton CH/2000/APP/384.

8.We also referred ourselves and the parties to the case of Upton in the Court of Appeal under reference 2002 EWCA Civ 520.

Submissions 

9.Mr Haley contended that the test to be applied is whether the vehicle was in practice available for private use and without any effective legal or practical restraints this car could be readily used privately.

10.Mr Kotecha submitted that this interpretation of the legislation would in effect put his wife in a no win situation.  She had been unable to insure for business purposes only and was now being penalised because that had proved impossible.   Additionally, she already had, and had acquired a further, car for her own personal use and the Mercedes had never been used for any purpose other than for business. 

Conclusions 

11.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 form ‘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 she should serve or be asked to serve”. 

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.”

12.   In Skellett, Lord Osborne at paragraph 13 said:

“[13] It appears to us that, where a motor vehicle is acquired by a sole trader ‘who intends to use the motor car … (a) exclusively for the purposes of a business carried on by him …’, neveththeless that vehicle will indeed have been made available to that person for private use, unless effective steps are taken to render the vehicle incapable of such use by that person.  In other words, upon the view that a person must be taken to intend the natural consequences of their own actions, that person may properly be taken to intend to make the vehicle available for private use, unless such steps are taken by him”.

13. There in no evidence before us that the vehicle was used for anything other than business purposes. But this is not sufficient and is not the test.  The effect of Articles 7(2E) and 7(2G) is that the test of intention to use the Mercedes for business purposes only cannot be met if at the time of purchase it was intended to make it available for private use and it is upon this latter requirement that the case revolves.  In practical terms, for Mrs Kotecha to succeed, she has to show on a balance of probability that there was an effective prohibition or restraint on the use of the vehicle for private purposes.  In this case there was no such restraint.  We accept that, albeit after the event, Mr Kotecha did enquire about ‘business only’ insurance cover, but the fact remains that at the time of purchase, and indeed it has so remained, the Mercedes is insured for social, domestic and pleasure purposes.  There was therefore no contractual or legal restraint on the use of the vehicle for private purposes.  Equally there was no physical restraint.  The vehicle was in Mrs Kotecha’s control at all times.  It was parked in her drive and she held the keys.  She had full access to it at all times for any use to which she wished to put it.  In the absence of any such restraint on use, we have to hold that the Mercedes was in fact available for private use. 

14.We therefore dismiss Mrs Kotecha’s appeal.  The Respondents made no application for costs and no order is made. 

LADY MITTING
CHAIRMAN
Release Date: 22 January 2007

MAN/06/0501