20600
 ASSESSMENT – Appellants being vehicle leasing companies – inadequacy of accounting records – whether entitled to recovery of input tax – in the main no – appeals dismissed

	
MANCHESTER TRIBUNAL CENTRE

 
 	
	JB LEASING UK LTD	Appellant
	
&

JB LEASING LTD

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	LADY MITTING (Chairman)
						RAYNA DEAN

Sitting in public in Manchester on 21 & 22 January 2008

John McEvoy for the Appellants 

David Mohyuddin, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2006

DECISION

1.	JB Leasing UK Ltd (hereinafter referred to as “UK”) and JB Leasing Ltd (“JB”) are vehicle leasing companies operated by Mr. John McEvoy.  The two companies appeal against assessments to tax raised against each of them by the Respondents for periods 04/05; 07/05 and 10/05.  The assessments were raised to recover input tax which the Respondents believed to have been over-claimed and, in certain periods, output tax thought to have been under-declared.

2.	Mr. John McEvoy appeared on behalf of the two companies but did not give oral evidence and called no evidence.  On behalf of the Respondents, we heard oral evidence from the Assessing Officer, Antony Steggles and the Reviewing Officer, David Webb.

3.	At the outset of the hearing, Mr. McEvoy made an application for an adjournment on the basic ground that he had been let down by his accountant in that his accountant had failed to provide the information and records in support of the appeal which had been promised to the Respondents in a meeting in October 2007.  Mr. McEvoy had tried to reach the accountant immediately prior to the hearing but had been unable to do so.  The application was resisted by Mr. Mohyuddin.  We refused the application to adjourn.  It had been made abundantly clear to Mr. McEvoy, his accountant and his VAT Consultant, all of whom had been present at the October meeting, what information was required and in fact it was little more than had been sought by the Respondents for the previous two years.  It was, in our view, incumbent upon Mr. McEvoy to keep tabs on his advisors and to ensure that everything was in position for the hearing, the date of which had been notified in September 2007.

4.	Mr. Steggles made a routine assurance visit to JB in November 2005 and to UK in January 2006.  The purpose of both visits was to inspect the books and records, to establish the accuracy and credibility of the returns and in relation to UK, in particular, to verify a repayment return rendered for period 10/05.  Mr. Steggles was told that UK was involved in the daily hire of vehicles whilst JB dealt in contract hire.  For both companies, the accounting records available to Mr. Steggles on his visits were incomplete and totally inadequate for his purposes.  Throughout the next twelve months or so, Mr. Steggles was in regular communication with Mr. McEvoy and his advisors.  In these discussions, Mr. McEvoy was represented by his Accountant and by his VAT Consultant, Mr. Trotman (who, we must make clear, was not the subject of any criticism during the course of the hearing).  Produced to Mr. Steggles at various stages were the VAT summaries, various car purchase invoices, sales listings and, in respect of UK, summary statements from a company called Rival Insurance which insured the vehicles hired out by the company.  In addition, Mr. Trotman prepared and submitted to Mr. Steggles an attempted reconciliation, period by period, between the records and the VAT returns.

5.	Mr. Steggles analysed with great care all the documentation and records produced to him.  He remained however unable to establish a full audit trail in respect of either company.  He was unable to check the output tax declared or to establish from the records produced that the vehicles for which input tax had been claimed were used in respect of the business.  Some records contained car numbers, others didn’t.  Some records contained customer names, others didn’t.  In respect of the vast majority of vehicles for which input tax had been claimed there was no continuous link through from purchase to business use and subsequent sale.  On 28 March 2007, in respect of each company, Mr. Steggles raised the original assessments.

6.	Mr. Trotman, on behalf of the companies, then applied for a review of the assessments.  The review was carried out by Mr. Webb.  Mr. Webb spoke to Mr. Steggles, corresponded with Mr. Trotman and with the accountant and he himself, carried out a fresh analysis of all the information.  In respect of UK, he could find nothing which would enable him to amend the assessments already raised.  In respect of JB however he did make certain adjustments to the assessments in the circumstances which we describe below.  The accountant did produce to Mr. Webb a set of lease agreements.  Mr. Webb tried to match each of the agreements with the output tax schedules already provided to him but none matched.  There was therefore, even in respect of these vehicles, no proof of business use.

THE JB ASSESSMENTS

7.	In period 04/05, the Appellant had claimed input tax of £24,073.68.  The claim was made up of various sundry items but in the main was a reclaim for input tax on the acquisition of six vehicles.  Mr. Steggles disallowed the input tax on all the sundries and all the vehicles bar one, in which he had been able to find a documentary link.  The input tax on that vehicle was £1,323.28.  Mr. Steggles therefore raised an assessment for over-declared input tax of £22,750.  In addition he assessed for under-declared output tax of £170.  On review Mr. Webb allowed the input tax on various sundry items (excluding all vehicles) of £478.52.

8.	In period 07/05, the company had claimed input tax of £24,107.60.  This claim was made up of various sundry items which Mr. Steggles disallowed and the input tax on five acquired vehicles, only two of which could Mr. Steggles trace to business use.  The input tax on these two vehicles totalled £4,305.60 and Mr. Steggles therefore raised an assessment for over-declared input tax of £19,802.  On review, Mr. Webb was satisfied that a link existed in respect of two further vehicles and he therefore raised an amended assessment reducing the claim to £14,138.  On a further review, he allowed sundry items of £309.04.

9.	For period 10/05, JB had put in a claim for input tax of £21,587.  Of the ten cars upon which input tax had been claimed in this period, Mr. Steggles identified five where he was satisfied of a link from purchase to business use and he therefore intended to verify £10,382.96 as allowable.  Unfortunately however, in error, he applied the figure which he had allowed in 07/05.  This was later spotted by Mr. Webb who also allowed the input tax on one further vehicle (£1,477).  Mr. Webb also allowed sundries of £294.49.  He therefore raised a credit assessment showing an adjustment of £6,372.  For this period, Mr. Steggles had also recalculated output tax by £315.

THE UK ASSESSMENTS

10.	In respect of period 04/05, the Appellant company had claimed input tax of £8,934.  Mr. Steggles disallowed it in respect of all vehicles but allowed £895.62 for sundries.  His assessment was therefore £8,038.  As we have already said this remained in place on review.

11.	In 07/05, the company had claimed £3,488.78.  Mr. Steggles allowed sundries of £228.74, nothing on vehicles, and raised an assessment for £3,260.

12.	For period 10/05, the company had claimed £9,744.30.  Mr. Steggles allowed nothing on the vehicles but £794.56 on sundries.

THE LEGAL PROVISIONS

13.	The recovery of input tax in respect of motor cars is generally not allowed save in some exceptional circumstances set out in The Value Added Tax (Input Tax) Order 1992 (SI1992/3222).  This allows for the recovery of input tax on the acquisition of a car where it can be shown that the purchaser intended to use the car exclusively for the purposes of his business or primarily for a relevant purpose which includes the provision of a motor car for self-drive hire.  It was accepted by the Respondents that the companies were entitled to recovery of input tax where the Respondents were satisfied – from the documentary evidence before them – that there had been a business use of the vehicles.

SUBMISSIONS

14.	It was Mr. Mohyuddin’s contention that such input tax as could be allowed by the Respondents had been allowed.  In respect of the remainder of the claim, the Appellants had not provided sufficient evidence to show that they fell within the scheme set out in the Order.

15.	Mr McEvoy challenged none of the evidence given by Mr. Steggles or Mr. Webb.  His only submission to us was that he had expected a professional service from his professional representatives and had been let down.  All the vehicles on which input tax had been claimed were used within the business and the documentary evidence in support of this was available, if only it had been produced.  Although Mr. McEvoy did not refer to the Notices of Appeal, for the sake of completeness, we should say that it was claimed therein that the Officer had failed to understand the nature of the business, had disregarded the evidence presented and had failed to use best judgement.

CONCLUSIONS

16.	None of the evidence put before us by the Respondents was challenged.  The law and the legal provisions which we have to apply were not challenged by Mr. McEvoy and it therefore comes down to a question of fact as to whether the companies can bring themselves within the scheme in respect of the vehicles upon which they have claimed input tax but it has been refused.  We heard no oral evidence from Mr. McEvoy or on behalf of the Appellants at all and no further documents or information was put before us that had not been before the Officers.  Mr. Steggles and Mr. Webb had both carried out a very careful analysis of what they had been shown.  They were in constant contact with the representatives for the companies and made abundantly clear throughout what further information they needed to allow the input tax claims.  There has however got to be an evidential or documentary link between the acquisition of the vehicle upon which the input tax is claimed and its use.  Where the Respondents were satisfied that that link existed, they allowed the claim.  Where that link cannot be shown, the recovery of input tax cannot be allowed.  The Appellants have not satisfied the burden of proof which is upon them to show their entitlement to input tax.  The assessments to undeclared output tax were at no time challenged by Mr McEvoy.  The appeals of both companies therefore have to be dismissed and we make no alteration to the quantum of the assessments.

COSTS

17.	Mr. Mohyuddin made a claim for costs on the basis that the appeals had been pursued without evidence and were, in his view, vexatious or frivolous.  Mr. McEvoy did not challenge the claim for costs but we are not going to allow it.  The circumstances in which the appeal has been pursued by the companies and their representatives and the circumstances of the hearing do not, in our view, amount to being vexatious or frivolous and we believe an order for costs would not be appropriate.

18.	In summary therefore the appeals are both dismissed but no order for costs is made.

Lady Mitting
CHAIRMAN
Release Date: 4 March 2008