[2011] UKFTT 146 (TC)

TC01020

Appeal number TC/2009/0912

VALUE ADDED TAX – VAT on the supply to the Appellant of a motor car – whether creditable as input tax – article 7 of the VAT (Input Tax) Order 1992 (SI 1992/3222) considered – requirement that the taxable person receiving the supply must not intend to make the motor car available for private use (article 7(2G)) not satisfied on the facts – no legal or physical restraint to private use of the vehicle – whether the Appellant had been misdirected by HMRC in circumstances giving rise to a legitimate expectation that VAT would be creditable provided only that the Appellant intended to use the motor car exclusively for business use – jurisdiction of the Tribunal following Sales J’s judgment in Oxfam considered – no view expressed on the jurisdictional issue, but finding made that no legitimate expectation had been established on the facts – appeal dismissed

FIRST-TIER TRIBUNAL
TAX CHAMBER
	VAN-LAUREN G. WELDS LIMITED	Appellant
	
	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Value Added Tax)	Respondents

				TRIBUNAL: 	JOHN WALTERS QC
						JOHN ROBINSON
												
Sitting in public in London on 24 January 2011

Mr. V-L Welds for the Appellant 
Mr. David Yates, Counsel, instructed by the Solicitor for HMRC, for the Respondents

© CROWN COPYRIGHT 2011
DECISION

1.	The Appellant, Van-Lauren G. Welds Limited, appeals against a decision by the Respondent Commissioners (“HMRC”) to deny input tax credit in relation to VAT of £7,567.07 incurred on the purchase of a new Range Rover motor vehicle (“the Vehicle”) on 27 May 2008.
2.	The Vehicle is a ‘motor car’ within the meaning of the VAT (Input Tax) Order 1992 (SI 1992/3222) (“the Order”) and HMRC’s case is that the VAT charged on a supply of the Vehicle to the Appellant is not eligible for credit as input tax under section 25 VAT Act 1994 by reason of the provisions of article 7 of the Order which, so far as relevant, are as follows:
“7(1) Subject to paragraph (2) to (2H) below tax charged on-
(a)	the supply … to a taxable person;
(b)…
(c)…
of a motor car shall be excluded from any credit under section 25 of the Act.
(2) Paragraph (1) does not apply where-
(a) …
(i) …
(ii) …
(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 …
(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 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.
…”
3.	As will be seen, article 7 of the Order (by paragraph (1)) imposes a blanket exclusion from eligibility for input tax credit for VAT on the supply of a motor car.  However, this blanket exclusion is subject to exceptions (cases where input tax credit will be allowed).  The relevant exception – the exception which, according to the Appellant, applies in this case – is where the purchaser who is a taxable person intends to use the motor car exclusively for the purposes of a business carried on by him.  This exception is, however, subject to a further exception – which, when it applies, again excludes the VAT from eligibility for input tax credit.  This further exception is where the purchaser intends to make the motor car available for private use, whether or not for consideration but otherwise than by letting on hire.
4.	HMRC’s case is that even if the Appellant (through Mr. Welds, the director and 100% shareholder of the Appellant) intended to use the Vehicle exclusively for the purposes of its business, it nonetheless intended to make it available for private use (by Mr. Welds).  Mr. Yates, for HMRC, referred the Tribunal to two decisions of the Court of Appeal: Customs and Excise Commissioners v Upton (trading as Fagomatic) [2002] STC 640 and Customs and Excise Commissioners v Elm Milk Ltd. [2006] STC 792.
5.	In Upton, Peter Gibson LJ made the point that the intention to use a car (cf. article 7(2E)(a) of the Order) is not synonymous with the intention to make it available for use (cf. article 7(2G)(b)) – see: ibid.  at [20].  Thus the legislation imposes two requirements which must both be satisfied if input tax credit is to be allowed.  That is, the taxable person being supplied with the motor car must intend to use it exclusively for business purposes and also must not intend to make it available for private use.
6.	Further, Peter Gibson LJ criticised the tribunal which had originally heard (and allowed) Mr. Upton’s appeal for not recognising that Mr. Upton’s deliberate action in acquiring the car in question 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 (ibid.  [23]).
7.	In the same way, Buxton LJ emphasised that the question was not whether Mr. Upton intended to use the car privately (as opposed to for business) but whether he intended to make it available for private use (ibid.  [31]).
8.	Buxton LJ answered that question by ascertaining whether as a matter of fact Mr. Upton had intentionally done acts or made arrangements that constituted the making available of the car for private purposes (ibid. [33]).
9.	Neuberger LJ, agreeing with both Peter Gibson  and Buxton LJJ, said that if an article is supplied by one person to another with no physical or legal restraint as to a particular use, then as a matter of ordinary language, the article has been ‘made available’ for that use.  The fact that neither the supplier nor the recipient expects, or even intends, the article to be put to the particular use does not prevent the article being ‘available’ for that use, if there is no physical or legal restraint on such use by the recipient (ibid.  [41]).
10.	Neuberger LJ added (bid. at [44]): 
“it seems to me that, where a company acquires a motor car with a view to providing it to, say, a director, with no legal or physical impediment on private use, the company would be intending to make the motor car ‘available ... for private use’.  The fact that the company may not intend, and may not even want, the motor car to be put to such a use is not in point.  By intending to provide it for use by a director, who will be legally and physically free to put it to private use, the company is intending to make the motor car available to him for private use.”
11.	The facts in Customs and Excise Commissioners v Elm Milk Ltd. were that a company purchased a Mercedes car for business use by its director.  The car was insured for both business and private use by the director and three members of his family because the insurance company was unwilling to insure it for business purposes only.  A board resolution was passed ratifying the purchase of the car in which it was noted that the car was to be used for business purposes only by the director, that the company did not intend to make it available to anyone for private use and that it would be a breach of an employee’s terms of employment to use it for private purposes.  The Tribunal, the High Court (Park J) and the Court of Appeal all held that suitable contractual restraints preventing entitlement to use a car for private purposes negated the proposition that it had been made available for such use.
12.	This being the applicable law, we record our findings of fact derived from the documents in evidence and from the oral evidence of Mr. Van-Lauren Welds.
13.	The Appellant company carries on business as chartered building engineers and project managers.  Mr. Welds is the only director and shareholder of the Appellant company.  The Appellant company’s place of business is in Catford, London, SE6.  Mr. Welds took possession of the Vehicle on its purchase, at the motor dealer’s premises.
14.	The invoice under which the Vehicle was supplied (by De Stefano Ltd. of Bromley, a VAT-registered trader) showed a supply to the Appellant company for a price of £43,240.43 plus VAT of £7,567.07, together with road fund licence and registration fee of £455, making a grand total of £51,2362.50.
15.	Two certificates of motor insurance produced by Mr. Welds (for successive periods of insurance cover) showed himself as the policy holder (not the Appellant), himself as the only person entitled to drive, and cover for use for social domestic and pleasure purposes and use by Mr. Welds in person in connection with ‘his/her business or profession’.
16.	Mr. Welds is the only driver of the Vehicle and no-one else has access to it.
17.	We accept Mr. Weld’s evidence that the Vehicle was purchased exclusively for business purposes only, in that he intended that it should be used only for the Appellant company’s business purposes, in particular to enhance the Appellant’s profile with clients and potential clients.
18.	Mr. Weld also said that if an emergency were to crop up he ‘would have no choice but to use the Vehicle for private purposes’.
19.	However if Mr. Welds does need to use a motor car for private purposes, he is able to use the car of his wife or any one of his 3 children who live nearby.
20.	The Appellant company’s accounts stated as at 31 October 2009 make no mention of the Vehicle.  We accept that this was an oversight which Mr. Welds intends to correct in the 2010 accounts.
21.	The Appellant company has not restricted Mr. Welds’s use of the Vehicle to business use, by any legal or contractual arrangements.
22.	Our conclusion on this evidence is the Appellant company acquired the vehicle intending (through Mr. Welds) that the Vehicle should be used exclusively for the purposes of its (the Appellant’s) business (so satisfying the test in article 7(2E)(a) of the Order) but that nonetheless the Appellant company, by putting the Vehicle at Mr. Welds’s disposal without any physical or legal restriction on its use by him, intended to make it available to Mr. Welds for private use (so failing to satisfy the ‘business use’ test in article 7(2G)(b) of the Order). 
23.	On this basis we would dismiss the appeal.  
24.	However another issue was raised by Mr. Welds, namely that he had been given to understand by HMRC, before the Vehicle was purchased, that the VAT on the supply would be eligible for credit as input tax.  He was vague as to when and with whom he had spoken on this matter, but he said (and we accept) that he would not have made the purchase on behalf of the Appellant if he had not thought that the VAT would be creditable as input tax.  He said that he had been advised by HMRC that the VAT would be creditable as input tax provided the Vehicle was used for business purposes only.  He felt that, by refusing input tax credit after the event, HMRC were not treating him or the Appellant fairly.
25.	Mr. Welds said that HMRC had sent him a copy of the VAT Notice 700/64 ‘VAT – Motoring Expenses’ before the Vehicle had been purchased.  Mr. Welds told the Tribunal that he had read the Notice.
26.	The relevant passages from the Notice are as follows:
“3.1 When can I recover the VAT charged on buying, importing or acquiring a car?
As a general rule, you cannot recover the VAT on the purchase.
However, if you buy, import or acquire one of these excepted cars, you may recover VAT in full.
These are a car which:
•	...
•	...
•	Will be used exclusively for the purposes of your business and would not be made available for the private use of anyone (see paragraph 3.4).
...
3.5 When is a car used exclusively for a business purpose?
A car is used exclusively for business purposes if you use it only for business journeys and it is not available for private use.  This means that you do not intend to make it available for the private use of employees or anyone else.
3.6 What does ‘making it available for private use’ mean?
A car is available for private use when there is nothing preventing you or your employee from using the car for private use.  The fact that you bought your car for the purpose of your business is not the only requirement.  You need to ensure that the car is not made available to any one else.”
27.	These passages correctly represent the law as we have summarised it earlier in this Decision. In particular they make it clear that recovery of VAT on the purchase of a motor car depends on both the car being intended for exclusive business use and the car being intended not to be available for private use by anyone.
28.	Mr. Welds made it clear that besides seeking advice from HMRC before the Vehicle was purchased, he also ‘spoke to other parties which [he] knew’ and received advice from them.
29.	Mr. Yates, at the Tribunal’s request, presented a written submission on the jurisdictional issues considered by Sales J in Oxfam v HMRC [2010] STC 686 and subsequent First-tier Tribunal Decisions (CGI Group (Europe) Ltd. [2010] SFTD 1001 and Hanover Company Services Ltd. [2010] SFTD 1047).
30.	Sales J in Oxfam concluded that the Tribunal had power to apply public law principles – in the context of this appeal, to recognise and give effect to a legitimate expectation – in determining an issue arising under section 83 VAT Act 1994.  In this case, section 83(1)(c) is engaged, because the Tribunal is entertaining an appeal with respect to the amount of any input tax which may be credited to a person.
31.	Mr. Yates made it clear that HMRC’s position is that Sales J’s comments were (i) obiter and not binding on the Tribunal, (ii) only applicable to the VAT Tribunal (as formerly constituted) and not to the First-tier Tribunal and (iii) were in conflict with other High Court authority binding on the Tribunal – in particular, Customs and Excise Commissioners v National Westminster Bank plc [2003] STC 1072.
32.	He very fairly also referred the Tribunal to the recent decision of the Upper Tribunal in  Reed Employment v HMRC and the recent decision of the First-tier Tribunal in Matthews v HMRC in which both tribunals express some doubt on scope of the First-tier Tribunal’s jurisdiction in the light of Sales J’s judgment in Oxfam.
33.	This jurisdictional issue is clearly one of public importance and Mr. Welds, entirely understandably, was not able to advance any detailed submissions on it.  This Tribunal is reluctant to express a view on what is a controversial issue and it is unnecessary for us to do so.  
34.	This is because Mr. Welds has not established any basis for contending that the Appellant had a legitimate expectation that it would be entitled to credit for input tax in respect of the VAT on the purchase of the Vehicle provided only that it intended to use the Vehicle for business purposes – that is, ignoring the further condition in law that the Appellant must have intended that it would not make the Vehicle available for private use.
35.	He was sent by HMRC – and read through – Notice 700/64 which, as we have found, is clear and correct on the relevant issues.  This was before the Vehicle was purchased.  He also consulted and took advice from other parties, besides HMRC, and the Tribunal would therefore be unwilling to conclude that he had relied on his understanding of what HMRC had told him, rather than on the advice given by other parties.
36.	 The advice given by HMRC was not documented and Mr. Welds has not satisfied us that HMRC in fact advised him that the VAT would be creditable as input tax provided the Vehicle was used for business purposes only.  In saying this we are not suggesting that Mr. Welds intended to mislead the Tribunal, rather that he has not satisfied us that he did not simply misunderstand the advice which HMRC gave him, which was, in any case, backed up by their sending him Notice 700/64.
37.	For these reasons the Appellant’s case based on misdirection by HMRC does not succeed and the appeal is dismissed.
Right to apply for permission to appeal
38. This document contains full findings of fact and reasons for my decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Rules.   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.

                             JOHN WALTERS QC

JUDGE OF THE FIRST-TIER TRIBUNAL
RELEASE DATE: 28 February 2011