Treacy v Revenue & Customs [2007] UKVAT V20143 (15 May 2007) 

20143

S.73 VATA 1994 and Article 7 VAT (Input Tax) Order 1992 – recovery of VAT on motor vehicles – question whether the vehicles were available for private use – appeal dismissed

BELFAST TRIBUNAL CENTRE

ANTHONY TREACY           Appellant

-	and –

THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS  Respondents

Tribunal:IAN W HUDDLESTON (Chairman)
A F HENNESSEY

Sitting in public in Belfast on 1 December 2006

The Appellant in person

Mr James Puzey BL, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appeal

1.The disputed decision of the Respondents is the upholding (on review) of an assessment which they have raised pursuant to section 73 of the Value Added Tax Act 1994 (“VATA 1994”) in the sum of £3,520 (plus default interest) dated 7th September 2004.  The issue arises in respect of input tax which the Respondents consider was wrongly reclaimed by the Appellant on the purchase of two Nissan Terrano Motor Vehicles.  The Appellant maintains that he is entitled to reclaim the input tax, as the vehicles were intended to be used exclusively for business purposes, and were not intended to be made available to any person for private use.  

Background

2.The Appellant carries on business as a dairy farmer from his farm at Tullyholvin Lower, Boho, Enniskillen, BT74 5DB.  He was visited by an officer of the Respondents on the 23rd August 2005.  At that inspection and following a subsequent meeting with the Appellant’s representatives at the offices of Mr. G. Murphy, Accountant, Derrygonnelly, the officer noted that VAT totally £2,747 had been claimed in respect of the purchase of a Nissan Terrano, registration number VIL 6900 in the period of 11/02, and £3,007 had been claimed in respect of a Nissan Terrano, registration number YIL 4790 in period 08/04.  The officer also noted that output tax totalling £2,234 had been declared on the sale of the Nissan Terrano, registration number VIL 6900 in period 08/04. 

3.On the 16th September 2005, the officer wrote to the Appellant and informed him that a net assessment totalling £3,520 (being the amount which is the subject of this Appeal) would be issued for the VAT claimed on the purchase of the two Nissan Terranos, less the output tax declared on one.  

4.By way of response the Appellant wrote a letter on the 2nd September 2005 informing the Commissioners that he considered that the vehicles were used solely for business purposes, and that the VAT had been properly claimed.  An assessment of £3,520, however, was made by the Respondents and notified to the Appellant on the 7th September 2005 for the periods 01.09.02 to 30.11.02 and 01.06.04 to 31.08.04.  In their letter of 10th January 2006, the Respondents requested further information, primarily regarding the use of the vehicles in question, and their condition, to which the Appellant responded on the 16th January 2006 providing the requisite information.  From that information it was clear that whilst the Appellant may have used the vehicles for business purposes, they were nonetheless available for use by other members of the family.  No steps had been taken to either alter the vehicles or to ensure that the keys were withheld from other drivers.  Insurance was maintained on the basis of social domestic and business purposes.  By a review letter dated the 9th February 2006 the Respondents upheld their assessment and set out the grounds upon which they considered the VAT to have been wrongly claimed.   In that letter, Deirdre Doherty, Appeals Officer, stated as follows:

“Our policy is still to follow the ruling in the Court of Appeal case C.M. Upton (t/a Fagomatic) v C&E, where the Court of Appeal dismissed the trader’s appeal finding that the consequences of the acquisition of the car will be to make it available for private use unless the trader takes positive steps to remove its availability”

and continued

“ … it would not seem that sufficient steps had been taken to put this car beyond availability for private use.  Consequently I regret to inform you that in my opinion this vehicle is “available” for private use and accordingly I must uphold the original decision and assessment in line with current policy.”

5.It is the upholding of the original decision that is the subject matter of this appeal, and it is based on the grounds disclosed on the Notice of Appeal dated 4th March 2007 which was served by the Appellant in which he stated as follows:

“VAT reclaimed was on vehicle used solely by my business by myself only.  Type of vehicle – 4/4 Terrano, suitable for farming business.  I have other vehicles for private use.”

The Law

6.The law which applies on this point was set out in the Respondent’s Statement of Case.  Article 7(1) of the VAT (Input Tax) Order 1992 establishes the principle that the VAT costs incurred on the acquisition of a motor car shall be excluded from being reclaimed as input VAT.  There are exceptions to that rule which are set out in Article 7(2), which permits the recovery of VAT where (paraphrasing), the motor car is:

7(2)(a)(i)a qualifying motor car; and …….
(iii)the relevant condition is satisfied; ………..

7.For the purposes of paragraph (2)(a) the “relevant condition” is set out in Article 7(2E) as a supply to a taxable person who intends to use the motor car for (inter alia) “the purposes of the business carried on by him” subject to the proviso contained in paragraph (2G).

8.For the purposes of this appeal, the proviso in Article 7(2G) is the more relevant provision, and I set it out in full:

“A taxable person shall not be taken to intend to use a motor car exclusively for the purposes of a business carried out 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.”

9.The Tribunal was referred to the cases of CEC v Upton [2002] EWCA 520 and CEC v Elm Milk Limited [2006] EWCA 164 – which obviously were the cases referred to in the review letter which the Appellant received. Counsel for the Respondents, basing himself on those cases, argued that it is not enough to intend to use a vehicle for business purposes exclusively, but that the Appellant must be in a position to show that there was no intention to make the vehicle available for private use.  In short, he argued that if a tax payer fails to take steps to prevent availability for private use, then that tax payer is taken to intend that the vehicle is available in the meaning set out in Article 7(2G).

10.In particular, Counsel referred to paragraphs 36 and 37 of the judgment of Lady Justice Arden in Elm Milk Limited in which (at paragraph 36) Lady Justice Arden stated as follows:

“The convoluted nature of the provisions demonstrate that Parliament regards the deduction of the VAT on the purchase of cars as the exception rather than the rule, and something that has to be subject to rigorous scrutiny and the satisfaction of tough conditions.”

Decision

11.From the facts of the case, as presented to the Tribunal, in particular the responses given by the Appellant to the questionnaire which the Respondents asked him to complete and the evidence he gave to the Tribunal, it was clear to the Tribunal that the Appellant had not done anything to the vehicles or adopted any course of action which rendered either of them unavailable for private use.  When put to him in cross examination the Appellant conceded that, if one took a case of extremis, both vehicles were available to him or his wife in the sense that they could be used for errands or in cases of emergency.  On the facts, therefore, and applying the decision of the courts in Upton and Elm Milk Limited, it seemed clear to the Tribunal that the conditions set out in Article 7 of the VAT (Input Tax) Order 1992 had not been met and that the VAT had wrongly been claimed by the Appellant. In those circumstances, the Appeal would be dismissed.

No order as to costs.

IAN HUDDLESTON
CHAIRMAN

RELEASED: 15 May 2007

LON/2006/321