[2010] UKFTT 359 (TC)

TC00641

Appeal number TC/2009/16570

VALUE ADDED TAX — input tax — Bentley car purchased by credit hire business — VAT (Input Tax) Order 1992 art 7 — whether sufficient evidence of use for making taxable supplies to the exclusion of other uses — no — appeal dismissed

FIRST-TIER TRIBUNAL
TAX 

				RAVENFIELD LIMITED	Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
				REVENUE AND CUSTOMS	Respondents

			Tribunal: 	Judge Colin Bishopp

	Sitting in public in Manchester on 29 July 2010

The Appellant was not represented
Richard Chapman, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION
1.	This is an appeal by Ravenfield Limited, which trades as Matrix Hire, against the respondents’ refusal to allow it credit for the input tax of £21,214.91 it incurred, or claimed to have incurred, in the purchase of a Bentley GT Continental motor car in the autumn of 2007. The reason for the refusal was that the evidence Ravenfield produced to support its contention that the car was used for the purpose of making taxable supplies was inadequate. It also became clear that, even if the claim was justified in principle, Ravenfield was not entitled to credit for the input tax incurred in the acquisition, but instead for the input tax charged to it on the monthly payments it made to the finance company by which the car was acquired from the dealer, as those payments fell due. I shall, however, deal only with the issue of principle.
2.	Ravenfield was not represented when the appeal was called on for hearing, although notice of the hearing was sent to its representatives in good time. I concluded that it was in the interests of justice to proceed, in accordance with r 33 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, and heard the Commissioners’ case, as it was advanced on their behalf by Richard Chapman of counsel. If Ravenfield wishes to make an application in accordance with r 38 for the decision to be set aside it must do so in writing, with reasons, within 28 days after the release to it of this decision notice.
3.	Ravenfield is in the business of providing cars to the owners of vehicles which have been damaged in accidents, while their cars are being repaired. Its method of doing business is known as “credit hire”, because it supplies the cars to its customers without payment, expecting and requiring its charges to be met by the insurers of the vehicle whose driver was responsible for the damage. It has, as one might expect, links with repairing garages and solicitors making claims on its customers’ behalf. The respondents accept that it is genuinely involved in that business, and they take no issue with the manner in which it normally accounts for VAT. They contend that Ravenfield has not overcome the “block” on the recovery of input tax in respect of this car because they cannot be satisfied that it was acquired for the purposes of the business.
4.	The “block” is imposed by art 7 of the Value Added Tax (Input Tax) Order 1992 which, so far as relevant to this appeal, is 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, or acquired from another member State or imported by, a taxable person; and
(iii)	the relevant condition is satisfied; …
(2A)	… for the purposes of paragraph (2)(a) … above a motor car is a qualifying motor car if—
(a)	it has never been supplied, acquired from another member State, or imported in circumstances in which the VAT on that supply, acquisition or importation was wholly excluded from credit as input tax by virtue of paragraph (1) above; …
(2E)	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; or
(b)	primarily for a relevant purpose.
(2F)	For the purposes of paragraph (2E) above a relevant purpose, in relation to a motor car which is let on hire or supplied to, or acquired or imported by, a taxable person (as the case may be), is any of the following purposes—
…
(b)	to provide it for self-drive hire; …
(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)	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.
(2H)	Where paragraph (1) above applies to a supply of a motor car on a letting on hire it shall apply to the tax charged on that supply as if for the word “tax” there were substituted “one half of the tax”.
(3)	In this article—
…
(b)	“self-drive hire” means hire where the hirer is the person normally expected to drive the motor car and the period of hire to each hirer, together with the period of hire of any other motor car expected to be hired to him by the taxable person—
(i)	will normally be less than 30 consecutive days; and
(ii)	will normally be less than 90 days in any period of 12 months.”
5.	The respondents accept that the Bentley is a qualifying motor car, that it has been supplied to Ravenfield, and that Ravenfield’s business consists, essentially, in providing cars for self-drive hire within the meaning of para (3) of the article. They do not accept that this car has been used (or that it was Ravenfield’s intention to use it) exclusively for the purpose of its business; and they do not accept that it has been used primarily for the relevant purpose of self-drive hire.
6.	Ravenfield’s case, as it has been put in the correspondence, is that it wanted to break into the “prestige” market, and the Bentley was acquired with that purpose in mind. It was asked to produce evidence of the hire contracts into which it had entered, and provided copies of some invoices and a list of other customers to whom, it said, the car had been hired. That evidence showed only 20 contracts over about 16 months, and that the income generated from the hire of the car fell a long way short of the cost of acquisition over the same period. Maintenance costs would have made the venture even less profitable. Ravenfield’s explanation is that it had found entering the prestige market harder than it had expected, but that is perhaps unsurprising since, it said, it relied on word of mouth rather than active promotion, particularly through its website. I saw several example pages, none of which made any mention of the availability of a Bentley. 
7.	It is conspicuous too that the invoices are all addressed to the customers, rather than the insurance companies supposedly paying the charges. Ravenfield told a visiting HMRC officer that when it realised that use of the car for its credit hire business would be difficult, it began hiring it out for weddings and similar occasions, and this assertion may go some way to explain the addressing of the invoices, though it would have been simplicity itself to produce some evidence of payment on one or two occasions by an insurance company, if such evidence existed. What, in my view, is even more important is that Ravenfield produced no copies of hire contracts, customers’ identification checks, verification of insurance cover (Ravenfield’s own case is that the customers were required to arrange their own insurance), the taking of deposits or the verification of the mileage of the vehicle at the beginning and end of each hire. Other evidence garnered by the respondents showed that hirers of cars of this calibre took great care to ensure that they were protected by their contractual conditions and by the other precautionary measures I have mentioned, steps which Ravenfield itself took in relation to the remaining cars in its fleet. Its explanation of its not doing so in respect of this car was that it was unnecessary at the prestige end of the market, an assertion which seems to me to be quite implausible. The respondents also point out that other companies hiring out cars of this quality charged a good deal more per day than Ravenfield claimed to charge. 
8.	The burden is on Ravenfield to satisfy me that the respondents’ view is wrong, and that it is entitled to the input tax credit it has claimed. It has not helped itself by failing to secure representation at the hearing, but I have nevertheless considered all the material which it made available to the respondents and which in turn was included in the documentary evidence produced to me. All that I have is a number of invoices, unsupported by the underlying contracts or any other evidence, even of payment, showing occasional hire of the car, interspersed with long intervals during which the use, if any, to which the car was put is unknown. I cannot be satisfied from that evidence that the car was used either “exclusively for the purposes of [Ravenfield’s] business” or “primarily for a relevant purpose”, as art 7 of the 1992 Order requires, and that the conditions on which input tax credit may properly be claimed are met.
9.	The appeal is, therefore, dismissed. 
10.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

COLIN BISHOPP
Tribunal Judge
Release Date: 30 July 2010