VALUE ADDED TAX Input Tax Range Rover Purchased for Use by Produce Merchant to Tow Trailer

18337

VALUE ADDED TAX — input tax — Range Rover purchased for use by produce merchant to tow trailer and transport customers — VAT (Input Tax) Order 1992 art 7(2G)(b) — vehicle used only for business purposes — appellant and wife owning other cars for domestic use — whether vehicle “available” for private use — yes — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

THOMAS CROPPER

Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE

Respondents

Tribunal:Colin Bishopp (Chairman)

Sitting in public in Manchester on 11 September 2003

George Phillips, VAT Consultant, for the appellant

David Gilchrist of counsel, instructed by their solicitor’s office, for the respondents

DECISION

1 The appellant, Thomas Cropper, trades as a produce merchant from premises in Jacksmere Lane, Scarisbrick, Lancashire. His home is also in Jacksmere Lane, on the opposite side of the road from the business premises, and about 300 metres distant.

2 In March 2000 Mr Cropper bought a Range Rover car for use in his business. He told me in his evidence that he had chosen the car because it is capable of towing a heavily-laden trailer, is suitable for collecting customers from Manchester airport and can be driven along unmade lanes and across fields, necessary both for the collection from growers of the goods in which he deals and also to convey his customers, as they require, to the fields in which the produce they are contemplating purchasing is grown. Had he not bought the Range Rover, he would have needed two vehicles in order to accomplish all those tasks. For about 90 per cent of its working time, it was coupled to a trailer. It was garaged overnight at Mr Cropper’s business premises, and the keys to it were kept in a safe at the business premises when it was not in use.

3 It had been his intention when he bought it, and had remained his intention ever since, that it would be used only for the purposes of his business. He had never used it for domestic reasons; he and his wife each had a private car, which they always used for their non-business purposes. He did not even use the Range Rover to travel from his business premises to his home; the distance between the two was quite short and he walked. He had only casual employees, none of whom had ever been allowed to use the Range Rover for his own purposes. When he bought the vehicle Mr Cropper had attempted to insure it for business use only, but had found it impossible to do so; it was for that reason alone that the car was also insured for domestic use. I observe in passing that the insurance certificate, of which a copy was in the bundle of documents produced for the hearing, covers also use by Mrs Cropper, but I am willing to accept that the cover was granted by the insurers even though Mr Cropper did not ask for it, and did not want it.

4 I accept the truth of Mr Cropper’s evidence.

5 Mr Cropper claimed relief for the input tax of £5037 he incurred in the purchase of the Range Rover. In September 2001 a Customs officer, Philip Maclean, made a control visit. I heard brief and very limited evidence from Mr Maclean. He discovered that Mr Cropper had claimed input tax relief on the purchase of the car, but took the view that the relief was not available, and disallowed it by raising an assessment in October 2001, to claw back the relief, the benefit of which Mr Cropper had already received. It is against that assessment that Mr Cropper now appeals.

6 The relevant legislation is to be found, first, in section 25 of the Value Added Tax Act 1994, which, so far as material to this case, provides:

“(2) Subject to the provisions of this section, [a taxable person] is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him …

(7) The Treasury may by order provide, in relation to such supplies, acquisitions and importations as the order may specify, that VAT charged on them is to be excluded from any credit under this section …”.

7 In principle, therefore, the input tax which Mr Cropper incurred (and which is, in principle, allowable under section 26) may be deducted unless any order made under subsection (7) otherwise provides. The order on which the respondents rely, and which led to Mr Maclean’s assessment, is the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222). Although it pre-dates the passing of the 1994 Act, it remains in force: see section 100 of the 1994 Act and paragraph 1(1) of Schedule 13. Parts of article 7 of the 1992 Order are material to this case. They read as follows:

“(1) 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.

(2) Paragraph (1) above does not apply where—

(a)the motor car is—

(i) a qualifying motor car;

(ii) supplied (including on a letting on hire) to … a taxable person; and

(iii) the relevant condition is satisfied; …

(2E)For the purposes of paragraph 2(a) above the relevant condition is that the … supply …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; …

(2G)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—

(a)…

(b)make it available (otherwise than by letting it on hire) to any person (including, where the taxable person is an individual, himself …) for private use, whether or not for a consideration.”

8 It was common ground that the Range Rover is a qualifying motor car, and that Mr Cropper is a taxable person. I find, in case there should be any residual doubt about it, that Mr Cropper’s intention was, and has remained, that the car should be used exclusively for the purposes of his business, and that it has not been used for any other purpose. The sole remaining issue therefore is whether article 7(2G)(b) applies in this case.

9 George Phillips, the VAT consultant who represented Mr Cropper, relied upon the decision of the tribunal in Squibb & Davies (Demolition) Ltd v Commissioners of Customs and Excise (2002, Decision 17829), while David Gilchrist, counsel for Customs, relied on the decision of the Court of Appeal in Customs and Excise Commissioners v Upton (t/a Fagomatic) [2002] STC 640. Since the judgments in that case were delivered before Squibb & Davies was heard, and are referred to by the tribunal in the latter case, I think it convenient to begin with an analysis of Upton.

10 The trader in that case had bought a Lamborghini car which he used, as the tribunal which first heard the case found, exclusively in his business of cigarette distribution. The tribunal found that he did not intend to use the car for private purposes and had not done so, but he had taken no steps which would ensure that it was impossible, legally or practically, to do so, beyond asking his insurers to insure it for business use alone; like Mr Cropper, he discovered that it was not possible to obtain such insurance. The tribunal concluded that he had satisfied the conditions of paragraph 7(2E) of the 1992 Order, and had not made the car “available” within the meaning paragraph 7(2G), and it allowed his appeal against the Commissioners’ refusal of his claim for input tax relief.

11 The Commissioners appealed to the High Court, and their appeal was heard by the Vice-Chancellor (see [2001] STC 912). He said (at p 918):

“Counsel for Mr Upton submits that … the relevant question ‘Did Mr Upton intend to make the Lamborghini available for his private use?’ must be answered in the negative. But the concept of a taxpayer taking any positive action to make his own property available for his own private use is unreal. If it is his property and is available for private use by him what more is there to be done? In my view the article is unworkable if in the case of personal use by the taxable person it is necessary to show that he intended to take any positive action to make his own property available for private use by himself. The interpretation of legislation imposing liability to tax does not require the court to give so literal an interpretation to a regulation as to make it unworkable. Nor in my view does the use of the word ‘make’ require it to do so. In the case of private use by a third party a car which is intrinsically capable of private use will not be available for that use unless the taxable person as its owner takes some steps to make it so. But in the case of private use by the taxable person the consequence of his acquisition of the car will be to make it available for his private use unless he takes positive steps to remove it. Accordingly in my judgment the requirement of para (2G)(b) that the taxable person intends to make the car available for his own private use will be satisfied if, on the acquisition of the car, he intends not to take any step to exclude the necessary consequence of his ownership. In other words a car may be ‘made available’ if it is available in fact and the owner does nothing to prevent its private use by himself.”

12 Mr Upton’s enquiry about insuring the car for business use alone was not sufficient to prevent its private use, and the Commissioners’ appeal was therefore allowed. Mr Upton was aggrieved and pursued the matter to the Court of Appeal. After quoting the passage from the judgment of the Vice-Chancellor which I have set out above, and recording the observations of counsel on it, Peter Gibson LJ went on to say ([2002] STC 640 at 647):

“… the Vice-Chancellor was recognising that in the case of an individual taxable person who acquires a car there is a particular difficulty in the way of that person if he is to escape from the disqualifying condition that ‘he intends to … make it available … to … himself … for private use’. 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. The Vice-Chancellor appeared to contemplate that there might be ways in which that result could be avoided by action taken by the individual taxable person such as would lead to the inference that the relevant intention was absent. But whether or not that possibility is a real one, the Vice-Chancellor thought it plain that in the present case there was no material to enable the tribunal to conclude that Mr Upton did not intend to make the car available to himself for private use. The Vice-Chancellor was therefore giving the same meaning to the language of para (2G)(b) in relation to Mr Upton as he would give to that language in relation to, say, a corporate taxable person, but he was recognising the peculiar problem posed for an individual taxable person acquiring a car.”

13 Buxton LJ, at p 648, put the matter in this way:

“… 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.

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.”

14 The facts of Squibb & Davies were a little different. The appellant was a limited company which had bought a Jaguar saloon and a Range Rover for use in its business. The cars, like all the other vehicles owned by the company (including, apparently, site machinery) were insured for private as well as business use. The company had taken steps to prevent private use of the cars, by directors and employees (such use was prohibited, and the keys were available only from security personnel who, I deduce, were instructed to release them only for legitimate reasons), and it had a practice of recording all the journeys the cars made. The Range Rover, but not the Jaguar, contained a large quantity of valuable equipment which it would be desirable, though not essential, to remove if the vehicle were to be put to private use. The tribunal came to the conclusion that neither car was “available” for private use within the meaning of article 7(2G).

15 I am bound to say that I do not altogether follow the tribunal’s reasoning. It seems to have been impressed by the steps taken to put the cars out of the reach of anyone seeking to use them for private purposes, and to have been influenced by the fact that the appellant there was a limited company, a factor to which Peter Gibson LJ obliquely alluded in the passage from his judgment in Upton which I have quoted. However, there is a good deal of reference to the intention of the directors not to use the cars for private purposes, whereas the test, as Buxton LJ has made clear, is whether the taxable person intended to make the car available for that use, in the sense that he intentionally took steps which had that result, even if he did not actually intend to use the car for private purposes.

16 Despite Mr Phillips’ efforts to persuade me otherwise, I can see no difference of substance between this case and Upton. As I have indicated, I do not doubt that Mr Cropper did not intend to use the Range Rover privately, and that he has not done so. The fact remains, however, that it is available to him for that use since he is its owner, it is within his control and he has done nothing to make its lawful private use impossible. I can find no feature in the case which would allow me to distinguish Upton and come to the same conclusion as the tribunal in Squibb & Davies, a conclusion about which, in any event, I have some misgivings. The appeal must be dismissed.

17 I make no direction in respect of costs.

COLIN BISHOPP

CHAIRMAN

Release Date: 1 October 2003

MAN/01/553