20056

Input tax – exclusion of credit for input tax – motor car – taxable person in partnership – taxable person purchasing car for purposes of business – car used for purposes of business – whether intended to be made available for private use – VAT (Input Tax) Order 1992 SI 1992/3222 Article 7(2e), (2g).

EDINBURGH TRIBUNAL CENTRE

	GEORGE & KATHLEEN PARKINSON	Appellant(s)

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

			Tribunal:	 (Chairman):  T Gordon Coutts, QC

Sitting in Aberdeen on Thursday 1 March 2007

for the Appellant(s)		G & K Parkinson

for the Respondents		Julie Strachan, Shepherd & Wedderburn, WS

© CROWN COPYRIGHT 2007.

DECISION

The taxpayer carried on business at the Gordon Arms Hotel, Kincardine O’Neil and also, some distance away, as a Horticultural Contractor.  The vehicle in question a Landrover Freelander was purchased in September 2004.

The vehicle was purchased as a works vehicle and, so far as the evidence went, has been used solely for that purpose since.  The partners, husband and wife, have a BMW motor car which, it was said was used to go to wholesalers for food, alcohol and sundries for the hotel business.

There was produced a certificate of motor insurance, dated August 2006, which specified the persons entitled to drive as being the policyholder and the policyholders spouse only.  These were the partners.  It specified that the policyholder, ie Mrs Parkinson, could drive another motor vehicle not belonging to her and the limitations as to use were for “social, domestic and pleasure purposes and in person by the policyholder in connection with his/her business”.  Arguably, it is noted, Mr Parkinson is not insured for the use of the vehicle for business purposes.  There was also produced a schedule attached to the insurance which was dated 2 August 2006 and bore the message “reason for issue car use solely for business”.  No insurance details as at the date of purchase were provided.

From that document it is clear that there is no legal impediment to the Freelander vehicle being used for private purposes.  No other steps appear to have been taken to isolate the vehicle from private use and accordingly the situation is governed, so far as the law of Scotland is concerned, by the authority of the Inner House of the Court of Session in C&E Commissioners v Skellett [2004] STC 201.

The Statutory Regulation, Value Added Tax (Input Tax) Order 1992 provides by article 7(1) that:

‘Subject to paragraph (2) to (2H) below tax charged on –

(a)	the supply (including a letting on hire) to a taxable person; …
of a motor car shall be excluded from any credit under section 25 of the Act’.

Article 7(2) of the order provides as follows:

‘Paragraph (1) above does not apply where – 

(a)	the motor car is –

(i)	a qualifying motor car; … and
(iii)	the relevant condition is satisfied; …’

Paragraph (2A) contains a definition of a ‘qualifying motor car’ for the purposes of art 7(2)(a).  The ‘relevant condition’ mentioned in art 7(2)(a)(iii) is to be found in paras (2E) and (2G) of the article.  Paragraph (2E) provides as follows:

‘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; …’

Paragraph (2G) of the article is in the following terms:

‘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 (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’.

These provisions have been considered both in the Court of Appeal in English in the case of Upton [2002] STC 640 but in particular, and with binding authority upon this Tribunal by the Court of Session in Skellett.  There the Court said:

“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 …’, nevertheless 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.

The approach which we have just outlined, is, we consider, in accord with that taken by the Court of Appeal in Upton.  In this connection we refer to the Observations of Peter Gibson LJ ([2002] STC 640 at [22]-[23]) where he said:

’22 … The very fact of his deliberate acquisition of the car whereby he makes himself the owner of the car and controller of it means that at least ordinarily he must intend to make it available to himself for private use, even if he never intends to use it privately …
23 … But what is plain is that the Tribunal did not recognise that Mr Upton’s deliberate action in acquiring the car and obtaining insurance permitting private use was to make the car available to himself for private use and that he must be taken to have intended that result in the absence of evidence to the contrary, even if he did not intend to use the car privately’.

Further, the interpretation of art 7(2G) was considered by Buxton LJ ([2002]) STC 640 at [28]-[31]).  There he said:

’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.  …
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’.

In Upton, members of the Court of Appeal were concerned as to the difficulties which this interpretation of art 7(2G) created for a sole trader who acquired a motor vehicle for business purposes.  However, those difficulties were not seen as a sufficient reason for departing from an interpretation of the order, which was otherwise appropriate.  With that view we respectfully agree.  However, without expressing any concluded view on the matter, it would appear to us that, if the acquisition of the vehicle in question were to be associated with, for example, the obtaining of insurance limited to business use only, a strong case might be made to the effect that the taxpayer would not fall foul of art 7(2G).

Here the Tribunal find that there is no restriction or effective step taken to render the vehicle incapable of private use.  It follows that the situation is governed by Skellett and that the appeal must fail.

T GORDON COUTTS, QC

CHAIRMAN

RELEASE:  8 MARCH 2007

EDN/06/73