MANCHESTER TRIBUNAL CENTRE

INPUT TAX – Peugeot Hatchback bought and used for business purposes –Whether on acquisition of Peugeot Hatchback, Appellant intended to make it available to herself  for private use –Yes- Appeal dismissed- Value Added Tax (Input Tax) Order 1992, SI 1992/3222 article 7

 
 	
	MRS SABIHA ROY DAVIS 	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	Michael Tildesley	 (Chairman)
					     	John Lapthorne       (Member)

Sitting in public in  Birmingham on 26 August 2003

The Appellant did not appear and was not represented

James Puzey of counsel instructed by the Solicitor for the Customs and Excise for the Respondents

	© CROWN COPYRIGHT 2003

DECISION

 The Appeal

1	The Appellant gave Notice of Appeal dated 13 January 2003 against an assessment for VAT in the sum of  £1028.62 (£949 plus interest of £79.62) issued by the Respondents on 2 August 2002. The assessment arose because the Respondents had disallowed input tax on the purchase of a motor car by the Appellant. 

2	The Appellant’s grounds of  Appeal  in summary were as follows:	

~	The Respondents were informed that the Appellant was claiming VAT on the motor car in question when the Appellant enclosed a letter with her VAT return for the period 11/00 to the processing unit in Southend some 20 months before the input tax was disallowed and that necessitated the buying of a second car for private use.
~	The reconsideration letter sent to the Appellant on the 18 October 2002 accepted by implication that the car was used for business purposes only.
~	The car was not used  and not available for private purposes.

3.	The Respondents requested the Tribunal to hear the application in the absence of the Appellant pursuant to Rule 26(2) of The Value Added Tax Tribunals Rules 1986. We agreed to the application because the Appellant was fully aware of the Appeal hearing and the nature of the appeal. Further the Tribunal had received a letter from L R Davis on 22 August 2003 setting out the Appellant’s response to the Respondents’ Statement of Case and indicating that the Appellant would not be attending the hearing.

The Issue

4.	The issue was whether the Appellant was entitled to reclaim claim input tax in respect of the purchase of a Peugeot 106 Independence 1.1 3dr Hatchback for use in connection with her business. To substantiate her claim the Appellant would need to satisfy the Tribunal on the balance of the probabilities that the requirements of Article 7 of the VAT (Input Tax) Order 1992 had been met, in particular that

~	the car was supplied to a taxable person;
~	she intended to use the motor car exclusively for the purposes of her business and that she had no intention to make the car available to any person including herself for private use.

The Legislation

5.	Section 25(2) of the VAT Act 1994 provides that a taxable person is entitled at the end of each prescribed accounting period to credit for so much of her input tax as is allowed under section 26 and then to deduct the amount from any output tax that is due from her. If no output tax is due from her, or if the amount of the credit exceeds that of the output tax due, then pursuant to section 25(3) the amount of the excess should be paid to the  taxable person by the Respondents.

6.	Article 7(1) of the VAT (Input Tax) Order 1992 provides that tax charged on the supply of a motor car to a taxable person shall be excluded from any credit under section 25 of the 1994 Act. However, article 7(2) sets out that the exclusion in section 7(1) does not apply where (i) the car is a qualifying motor car, (ii) the car is supplied to a taxable person and (iii) the relevant condition is satisfied.

7. 	The “relevant condition” so far as is material is that the supply is to “a taxable person who intends to use the motor car….. (a) exclusively for the purposes of a business carried on by her” (article 7(2E)).

8. 	Article 7(2G) qualifies this further by setting out that 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 she intends to (b) “make it available to any person (including himself) for private use”.

The Evidence

9.	The Tribunal heard evidence from Mr Callum Lee, an Officer of the Respondents. A bundle of documents was presented to the Tribunal. The Appellant did not appear, however, the Tribunal was in receipt of correspondence from Dr Leslie R Davis  which sets out the case for the Appellant.

The Facts Found

10.	The Appellant carried on business as the sole proprietor of a Post Office from premises at Wyrley Birch Post Office, 19 Parkland Drive, Wyrley Birch, Erdington Birmingham. The Appellant had been registered for VAT since 30 April 1997 under  registration number 688 1452 02. The Appellant subsequently deregistered for VAT purposes with effect from 1 March 2002 on the sale of her business.

11.	In July 1998 the Respondents issued a Notice of Assessment for unpaid VAT in the sum of £1173.17 which was paid by the Appellant. The Notice related to the recovery of input tax mistakenly claimed by the Appellant for the purchase of a motor car (Peugeot 106 New XN 1.1 3dr Registration Number P111PPP). The Respondents in their letter of the 27 July 1998 advised the Appellant that she could not recover Vat on the purchase of a car unless it was a qualifying car. A copy of VAT Notice 700/64 “ Motoring Expenses” was enclosed with the letter.   

12.	On 28 December 2000 the Appellant submitted her VAT return for the period 01.09.00 – 30.11.00 to the Respondents’ processing unit at Southend. The return was accompanied by a letter signed by L.R. Davies. The letter enclosed papers relating to the VAT reclaim which included VAT amounting to £949 relating to the purchase of a vehicle for business purposes. This vehicle was a Peugeot 106 Independence 1.1 3dr Hatchback, Registration Number X304 NDA. The “Conditional Sale Agreement dated 15 September 2000” for this vehicle showed that the Parties were PSA Finance PLC T/A Peugeot Finance and Dr Leslie R Davis. At the time the Respondents did not challenge the VAT reclaim for the purchase of the vehicle. However, the Appellant’s letter dated 28 December 2000 did not seek the Respondents’ view about whether she could claim VAT on the purchase of vehicle, instead it simply enclosed the papers supporting her claim.  

13.	In early 2002 Mr Lee, an Officer of the Respondents, reviewed the VAT folder for the Appellant’s business in accordance with the Respondents’ assurance regime for VAT. Mr Lee arranged a visit to the Appellant at her then home address of 7 Elmdon Coppice, Solihull for the purpose of verifying the VAT returns. Unfortunately the visit was unproductive because the Appellant was not in when Mr Lee called.  Sometime after the abortive visit but before the 18 June 2002 Mr Lee had a telephone conversation with a male person. At the time Mr Lee believed he was talking to the Appellant. However, Mr Lee now believes the male person to be Dr Leslie R Davis who has acted for the Appellant in her dealings with the Respondents and in connection with this Appeal. Mr Lee could not recall who instigated the telephone call. The male speaker, however, informed Mr Lee in response to his questions that the vehicle in question was insured for private use and that it was not stored at the Appellant’s business. Mr Lee could not remember whether a question was asked about the availability of the vehicle for private use.   

14.	On 18 June 2002 Mr Lee wrote to the Appellant regarding her claim for input tax for the VAT period 11/00 In the letter Mr Lee advised the Appellant that he was disallowing the claim in relation to the purchase of the vehicle (Peugeot 106 Independence 1.1 3dr Hatchback, Registration Number X304 NDA). By way of explanation he enclosed a copy of the Respondents’ letter dated 27 July 1998 regarding the purchase of the previous vehicle (Peugeot 106 New XN 1.1 3dr Registration Number P111PPP). Mr Lee also requested evidence within 14 days to support the remainder of her claim. 
 
15.	On the 2 August 2002 Mr Lee issued a Notice of Assessment in the sum of £1028.62 (£949 plus interest of £79.62) against the Appellant to recover the input tax  claimed by the Appellant in respect of the purchase of the vehicle (Peugeot 106 Independence 1.1 3dr Hatchback, Registration Number X304 NDA).
 
16.	Mr Callaghan on behalf of the Respondents carried out a “Local Reconsideration of the Notice of Assessment dated 2 August 2002” in response to the Appellant’s letter of 28 August 2002.  On 18 October 2002 Mr Callaghan notified the Appellant that he was satisfied that the claim for input tax in relation to the vehicle had been correctly disallowed. He pointed out that the vehicle was insured for private use and had not been kept exclusively at the business premises. Mr Callaghan concluded that the stringent test in Article 7 of the VAT (Input Tax) Order 1992 had not been met.

Authorities

17.	We were referred to the case of  Commissioners for the Customs and Excise v Upton (t/a Fagomatic) [2001] STC 912.

18.	We were also referred to the De Voil (ed) Indirect Tax Service (2003), paras V1.287 on Estoppel.

Submissions

19.	Dr L.R. Davies on behalf of the Appellant made written submissions. He contended that the Respondents had accepted that the Appellant was entitled to reclaim the VAT on the purchase of the vehicle by their action of including the disputed amount in their cheque of £1022.20 paid into the Appellant’s bank on 12 January 2001. Further the VAT return submitted on 28 December 2000 by the Appellant to the Respondents’ office made it perfectly clear that it was the intention of the Appellant to use the vehicle purchased for business purposes and that it would not therefore be made available for private use. Dr Davies argued that “availability per se” was not a criterion upon which the legitimacy of the claim can be decided, but whether or not it was made so available. He also pointed out that it was not possible to keep the car at the place of business instead it was parked at one of the cash and carry stores nearby. The Appellant had no choice but to accept the insurance for business and private use because it was part of the package associated with the purchase of the vehicle. The Appellant had been prejudiced by the 20 month delay in disallowing the claim because she had purchased a second motor car for private use.

20.	Mr Puzey on behalf of the Respondents submitted that the Southend Office did not deal with correspondence, it simply processed the claim. The Respondents were not asked by the Appellant for a ruling on her claim in the letter of 28 December 2000. Therefore, the Respondents had not made a representation that the Appellant was entitled to claim for the input tax on the purchase of the vehicle in question. Also the Appellant was fully aware that this was a contentious point in view of the Respondents’ refusal in 1998 to refuse an earlier claim for the previous vehicle. Mr Puzey went on to suggest that the evidence pointed to Dr L R Davies as  the purchaser of  the Peugeot 106 Independence 1.1 3dr Hatchback, Registration Number X304 NDA not the Appellant, in which case there could be no claim for input tax because the person buying was not the taxable person. If he was wrong on this point the Appeal  would still fail because the evidence, particularly about insurance, supported the assertion that the vehicle was not used exclusively for business purposes because the Appellant intended to make it available for private use. Mr Puzey reminded the Tribunal that the onus was on the Appellant to prove its case on the balance of probabilities.

Reasons for Our Decision

21.	Our starting point is Regulation 7(1) of the Value Added Tax (Input Tax) Order 1992 which states in essence that a taxable person is unable to reclaim the input tax on the purchase of a motor car. However Regulation 7(2) provides an exception to the general rule in Regulation 7(1). Thus input tax can be reclaimed where the motor car is a qualifying motor car supplied to a taxable person and the relevant condition is satisfied.  In this Appeal, there was no dispute about whether the Peugeot Hatchback was a qualifying motor car. The dispute centred upon whether it was supplied to a taxable person and whether “the relevant condition” was satisfied.

22.	Regulation 7(2E) defines “the relevant condition” as “a supply to a taxable person who intends to use the motor car exclusively for the purposes of a business carried on by him”. Regulation 7(2G), however, adds a qualification to the definition  of  “the relevant condition”, namely; “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 make it available to any person (including himself) for private use, whether or not for consideration”. The combined effect of Regulations 7(2E) and 7(2G) is that the test of intention to use the motor car for exclusive business purpose will not be met if the taxable person at the time of acquisition of the motor car intended to make it available for private use.  

23.	The “Conditional Sale Agreement dated 15 September 2000” for the Peugeot Hatchback vehicle showed that the vehicle was supplied to Dr Leslie R Davis not to the Appellant.  The Appellant can only apply for credit of tax under section 25 of the 1994 Act and under Regulation 7(1) of the Value Added Tax (Input Tax) Order 1992 if the motor car was supplied to her. She was the taxable person for the business at Wyrley Birch Post Office because the registration for VAT was in her name. She cannot reclaim VAT in the case of a vehicle supplied to Dr Davis. As the evidence shows that the vehicle was supplied to Dr Davis, the Appeal fails. We are concerned, however, that the Respondents only spotted that the vehicle was supplied to Dr Davis at the Appeal hearing. This ground for opposing the Appeal was not included in their statement of case, which meant that the Appellant had no notice of it. In those circumstances we have decided to base our decision on the substantive point of whether “the relevant condition” referred to in Regulation 7(2) was met. 

24.	The decision of the Court of Appeal in Commissioners for the Customs and Excise v Upton (t/a Fagomatic) [2001] STC 912 is the leading case on the legal interpretation of  “the relevant condition”. The Court of Appeal held that

“….the 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”. 

25.	If we apply the decision in Upton to the facts of this Appeal assuming for the moment that the vehicle in question was supplied to the Appellant we find that

~	The Appellant’s act of purchasing the Peugeot Hatchback which gave her ownership and control of the car meant that the Hatchback was available to her for private use regardless of her intentions to use it solely  for business purposes. 
~	The Appellant placed no physical or legal restrictions on her ability to use the vehicle for private purposes. The Hatchback was insured for private use as well as business use. 

The fact that she never used it for private purposes or had no intention of so using it is not sufficient to meet the strict interpretation of Regulation 7 applied by the Court of Appeal in Upton.  Thus the Appellant has failed to satisfy the Tribunal on the balance of probabilities that she intended to use the Peugeot 106 Independence 1.1 3dr Hatchback, Registration Number X304 NDA exclusively for the purposes of her business. In particular she has failed to satisfy the Tribunal that at the time of acquisition of the vehicle  she did not intend to make it available for private use.  

26.	We are also satisfied that the Respondents’ action in meeting the Appellant’s claim by the issue of the cheque for £1022.20 paid into the Appellant’s bank on 12 January 2001 did not amount to an admission on the part of the Respondents that her claim was justified.  The Appellant was fully aware of the restrictions placed on reclaiming input tax on the purchase of motorcars for business use in view of the previous disallowance in 1998. The Appellant adduced no evidence that the Respondents had been asked to make a ruling on whether the input tax could be claimed on the purchase of the Peugeot Hatchback In any event, even if we had found as fact that there had been a misrepresentation on the part of the Respondents which we did not, we have no power to grant relief. 

27.	We, therefore, dismiss the Appeal on the basis presented in the Statement of Case dated 12 March 2003 and confirm the assessment for VAT in the sum of  £1028.62 (£949 plus interest of £79.62). We make no order for costs. 

28.	We fully recognise that the Appellant will be disappointed with our decision. However, the law makes it very difficult for sole traders to meet the stringent conditions for reclaiming input tax on the purchase of motor cars used exclusively for business purposes as was recognised by Buxton LJ in Commissioners for the Customs and Excise v Upton (t/a Fagomatic) [2001] STC 912 p 649:

“ I readily recognise that it will be difficult for a man who purchases a car for business use as a sole trader to demonstrate that he did not thereby make the car available to himself for private use also ……I do not, however, think that we should seek to alleviate the position of the sole trader by allowing ourselves to be driven to a construction of the regulation that it does not otherwise bear”. 

29.	The Appellant or any other person interested in this matter can apply to the Tribunal to set aside the decision within 14 days after the date of release of this decision in accordance with rule 26 (3) of the 1986 Tribunal Rules.

	

MICHAEL TILDESLEY
CHAIRMAN
RELEASED DATE:
MAN/03/104