DECISION
Introduction
1. This
appeal concerns whether or not Mr Collins, who carried on a self-drive car hire
business and a chauffeuring business, was entitled to credit for input tax on
six motor cars. If he was not so entitled then the question of whether or not
he is liable to a misdeclaration penalty under section 63 VAT Act 1994
("VATA94") also arises.
2. Mr Collins
was a sole trader trading under the name Unique Vehicles and registered for
VAT. The appeal concerns input tax claimed by Mr Collins as follows:
(1) £8,025 in relation to a
Mercedes with registration number LF55 YNC ("the Mercedes") in the
return for the period 11/05;
(2) £25,200 in relation to a
Lamborghini with registration number RX56 AXK ("the Lamborghini") in
the return for the period 02/07; and
(3) £23,306 in relation to four
cars with registration numbers K6 MLM, KY05 XHO, KW54 YST and KROJ GYY
("the Finance Agreement Cars") in the return for the period 11/05.
3. HMRC took
the view that Mr Collins was not entitled to credit for the input tax for the
cars. In relation to the Mercedes, HMRC considered that the car was not used
by Mr Collins exclusively for the purposes of his business. In the case of the
Lamborghini and the Finance Agreement Cars, HMRC questioned whether Mr Collins
had the evidence to show that he had paid for the cars and that they were
qualifying cars as defined in Article 7 of the VAT (Input Tax) Order 1992 SI
1992/3222 ("the Input Tax Order") so as to permit recovery of input
tax on the cars. HMRC issued assessments notified by letters dated 20 March
2008 and 2 June 2008 to recover the amounts claimed by Mr Collins. HMRC also
assessed Mr Collins for misdeclaration penalties of £3,780 in relation to the
input tax on the Lamborghini and £4,699 in relation to the input tax on the
Finance Agreement Cars.
4. In a
Notice of Appeal dated 20 January 2010, Mr Collins claimed that the disputed
input VAT was correctly claimed for the following reasons:
(1) the Mercedes LF55 YNC was
purchased solely for business;
(2) the Lamborghini had been
purchased from Euromicro Limited ("Euromicro") and he had paid VAT;
and
(3) the purchase invoices in
relation to the Finance Agreement Cars had been made out in the name of Mr
Collins and he had paid the instalments to the finance companies and,
accordingly, the cars were supplied to him.
The Tribunal granted Mr Collins leave to appeal out of
time on 19 April 2010.
Legislation
5. Special
rules apply to the treatment of input tax on supplies of cars. The rules are
contained in Article 7 VAT (Input Tax) Order 1992 SI 1992/3222 ("the Input
Tax Order"). The general rule is that VAT charged on a supply (including
a letting on hire) of a car to a taxable person is excluded from credit under
section 25 VATA94. There are, however, a number of exceptions to the general
rule in Article 7. Paragraph 2(a) of Article 7 provides that the VAT is not
excluded from credit where the car is
(i) a qualifying motor
car;
(ii) supplied to a taxable
person; and
(iii) the relevant
condition is satisfied.
6. For the
purposes of this appeal, it is sufficient to say that a qualifying motor car is
one on which VAT is properly chargeable when the car is supplied. Mr Collins
was registered for VAT at all relevant times and so was a taxable person.
7. The
relevant condition is defined in Article 7(2E) of the Input Tax Order as
follows:
"(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; or
(b) primarily for a
relevant purpose."
8. Article
7(2F) states that relevant purpose in paragraph (2E)(b) includes providing the
car for self-drive hire. Self-drive hire is defined in Article 7(3)(b) as
"… 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."
9. Article
7(2G) provides 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
he intends to -
…
(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."
10. The effect of Article 7
of the Input Tax Order is that a taxable person who acquires a car with the
intention of using it exclusively for the purposes of a business carried on by
him is entitled to credit for input tax incurred on the car. If a person
intends to make the car available for private use then, whether or not it is so
used or intended to be so used, the mere fact of its availability for private
use means that it cannot be regarded as intended for use exclusively for the
purposes of a business. This provision has been considered in a number of
cases but it is only necessary to refer to two.
11. The case of Customs
and Excise Comrs v Upton (t/a Fagomatic) [2002] EWCA (Civ) 520, [2002] STC 640 concerned a taxable person who was a sole trader and who acquired a car
purely for business use. Mr Upton carried on business as a cigarette vending
machine operator. His vending machines were installed in nightclubs in London. In 1998 for the purpose of impressing his customers and staying ahead of his
competitors, he bought a Lamborghini motor car. When the car was insured, Mr
Upton made enquiries as to whether it could be insured for business use only
but was told by his agent that all insurance policies covered private use
without charge. He conducted his business seven days a week from 8am until
midnight or later. When the car was not in use it was parked in a car park. Mr
Upton owned no other car for private use but did not need one. He did not use
the car for shopping or for social occasions. He claimed the VAT paid on the
purchase of the car. Customs & Excise disallowed the claim. Mr Upton
appealed to the tribunal which allowed his appeal. HMRC appealed to the High
Court which allowed their appeal. Mr Upton appealed to the Court of Appeal
which dismissed his appeal.
12. Peter Gibson LJ gave the
first judgment and held as follows:-
"21. It is plain that
the test for the disqualifying condition of para (2G)(b) is of intention at the
time of acquisition. The fact that a car is available or is made available to
a person for private use subsequent to the acquisition is not determinative.
However, that fact may be highly relevant to an inference that the taxable
person has the intention to make the car available to himself for private use.
I do not think that the Vice-Chancellor can fairly be criticised as having
addressed the fact of the car's availability to Mr Upton for private use rather
than his intention to make it so available. On the contrary he makes it clear
that the issue is as to the nature of what is intended and that he had to
consider whether, given that the car was available for private use, the taxable
person intended to make it so.
22. I own to having been
troubled at one time that the Vice-Chancellor was construing the language of
para (2G)(b) by rewriting the words 'if he intends to ... make it available...
to any person... for private use' so as, to mean 'unless he intends to ... take
positive steps to make it unavailable... to any person... for private use', and
that either such a construction was limited to the case of the individual
taxable person intending to make the car available to himself for personal use,
in which case the same words had a different meaning in their application to
other taxable persons and other circumstances, or the rewriting applied to all
taxable persons, in which case it was hard to justify the rewriting in
circumstances other than where the individual taxable person was intending to
make the car available to himself for personal use. However, I am persuaded by
Mr Paines that the Vice-Chancellor was not attempting any such rewriting nor
was he giving a different meaning to the words of para (2G) in differing
circumstances. Rather 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."
13. Buxton LJ dealt with the
issue as follows:
"28. The first issue is,
therefore what the draftsman meant by 'make available for use'. That is an
ordinary English expression, deliberately different from 'use' itself. An
object can be available for use without there being any present intention of
actually using it just as, for instance, a person can be available for, say,
military service without there being any intention that he should serve or be
asked to serve.
29. The question has to be
decided as at the moment of acquisition of the car. On the facts of the
present case, I see no escape from the conclusion that the car was at that
moment, as a matter of fact, available for Mr Upton's private use, however
little he then had an intention of actually so using it. He had sole control
over the car. It was not to be disabled or in any other way put beyond use:
quite the reverse, since the whole purpose of buying it was so that it could be
use, albeit in the business and not privately. A further way of testing this
point, if it needs further exposition would be to ask whether the car was
available for Mr Upton's use, generally stated. That question answers itself.
And Mr Upton did not restrict the general nature of that that availability by
deciding that he would only use the car for one of the two purposes for which
at the time of purchase, it became available."
14. Neuberger J (as he then
was) held as follows:
"40. Ignoring, for the
moment, the unusual concept of a person making his own property available to
himself, what does the provision mean when it refers to an intention to make
motor car available to a person other than the taxpayer for private use? In
this connection, it is important to bear in mind, as Mr Paines QC, for the
commissioners, says, that art 7(2G)(b) does not refer to an intention that the
motor car be put to the use in question: the intention must be to make it
available for that use. The difference between the two concepts appears to me
to be emphasised by the contrast with art 7(2E) which requires the taxpayer to
show that he 'intends to use' the motor car exclusively for business purposes.
41. If an article is supplied
by one person to another with no physical or legal restraint as to a particular
use, then it appears to me that, 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. Further, it cannot
be said, at any rate as a matter of ordinary language that the supplier does
not 'make' the article available for that use, simply because he does not
expect or intend it to be put to that use. If he supplies the article so that
it is, as a matter of fact, available for a particular use, then he has, in
normal practice, made it available for that use."
15. Neuberger J was aware of
the particular difficulties that the provision, as interpreted by him, would
cause sole traders. He observed at [48] that:
"A point that gives
pause for further thought is that the consequence of this conclusion may be to
render it very difficult for a sole trader, who acquires a motor car
exclusively for his business, thereby satisfying art 7(2E)(b), to avoid falling
foul of art 7(2G)(b)"
but concluded that the difficulties for sole traders
could not justify a different conclusion.
16. The case of Customs
and Excise Commissioners v Elm Milk Limited [2006] EWCA (Civ) 164, [2006]
STC 792 concerned whether input tax incurred on a car purchased by a company
for business use by its director was recoverable. The minutes of the board
meeting to ratify the purchase of the car stated that it was to be bought with
the intention that it should be used for business purposes only by the
director, the company did not intend to make the car available for private use,
and any private use would be a breach of an employee's terms of employment.
The issue was the meaning of available. Arden LJ held at [39] that:
"In my judgment,
Parliament has not in art 7(2G) said that to show that there is no intention to
make a car available for private use the taxpayer has to show that it is not
physically so available. Parliament has neither said that any particular
circumstance constitutes making a car "available", nor has it
excluded any evidence from the determination of whether a car is or is not made
available. It is therefore, a question of fact for the tribunal as to whether
in all the circumstances the taxpayer intended not to make the car available
for private use by whatever means. There is no thus reason why a car cannot be
made unavailable for private use by suitable contractual restraints, that is
effective restraints."
17. No doubt it was in
anticipation of the difficulties that the restrictive meaning of
"exclusively for the purposes of a business carried on by him" would
cause a sole trader carrying on a self-drive hire business that led the
draftsman to relax the rule in such cases. In the case of a car acquired by a
taxable person who intends to use it primarily for self-drive hire, input tax
is deductible even where there is some private use, although there would be an
output tax charge on the private use element.
18. Even if the input tax is
not excluded from credit by the Input Tax Order, a taxable person can only
claim the credit if the general conditions for claiming input tax are met. In
order to claim credit for input tax, the following conditions (derived from
sections 24-26 VATA94 and Regulation 29 Value Added Tax Regulations 1995 SI
1995/2518 (“the VAT Regulations”)) must be met, namely:
(1) there must have been a
supply of goods or services on which VAT was chargeable;
(2) the supply must have been
made to the person claiming the credit;
(3) the supplies to which the
input tax relates must be attributable to supplies made by the claimant in the
course of business which carry a right to deduction eg taxable supplies; and
(4) the claimant must hold
satisfactory documentary evidence of his entitlement to input tax credit.
19. Section 24(6)(a) VATA94
states that regulations may provide
“for VAT on a supply of goods
or services to a taxable person … to be treated as his input tax only if and to
the extent that the charge to VAT is evidenced and quantified by reference to
such documents or other information as may be specified in the regulations or
the Commissioners may direct either generally or in particular cases or classes
of cases”.
Regulation 29(2) VAT Regulations 1995 provides that, at
the time of claiming deduction of input tax on a supply from another taxable
person, the claimant must hold a VAT invoice or such other evidence as HMRC may
direct generally or in particular cases.
20. HMRC have not issued any
direction in relation to alternative evidence of entitlement to input tax
credit but they issued a statement of practice in March 2007 on input tax
deduction without a valid VAT invoice. The statement of practice states that
where a supply has taken place, but the invoice to support it is invalid, HMRC
may exercise their discretion and allow a claim for input tax credit.
Paragraph 19 of the statement of practice states that as long as the claimant
can provide satisfactory answers to the questions in Appendix 2 to the
statement and to any additional questions that may be asked, input tax
deduction will be permitted. Appendix 2 contains the following questions:
1. Do you have alternative
documentary evidence other than an invoice (e.g. supplier statement)?
2. Do you have evidence of
receipt of a taxable supply on which VAT has been charged?
3. Do you have evidence of
payment?
4. Do you have evidence of
how the goods/services have been consumed within your business or their onward
supply?
5. How did you know that the
supplier existed?
6. How was your relationship
with the supplier established? For example:
• How was contact made?
• Do you know where the
supplier operates from (have you been there)?
• How do you contact them?
• How do you know they can
supply the goods or services?
• If goods, how do you know
the goods are not stolen?
• How do you return faulty
supplies?
The statement of practice states that the list of questions
is not exhaustive and others may be asked in individual circumstances.
21. The issue of the
jurisdiction of the First-tier Tribunal in relation to the exercise by HMRC of
the discretion under regulation 29 to accept alternative evidence of
entitlement to input tax credit has been considered recently by the Upper
Tribunal in Best Buy Supplies Limited v HMRC [2011] UKUT 497 (TCC). The
Upper Tribunal set out the position as follows:
"48. In Kohanzad v
Customs and Excise Commissioners [1994] STC 967, Schiemann J said at page
969 that the effect of regulations 12(1) and 62(1) and (1A) of the Value Added
Tax (General) Regulations 1985 was that prima facie a taxable person is not
entitled to input tax credit unless he holds a tax invoice but that,
“the Commissioners have a
discretion to allow credit for input tax notwithstanding that the registered
person does not hold such a tax invoice.”
The wording of those
provisions was similar to that of regulation 13(1) and regulation 29(2) of the
1995 Regulations. Schiemann J went on to say that when considering a case
where the Commissioners have a discretion the Tribunal exercises a supervisory
jurisdiction.
49. Although the
jurisdiction of the FTT was appellate since the appeal was against a decision
as to the amount of input tax to be credited within section 83(c) and an
assessment within section 83(p), it was common ground that the jurisdiction in
respect of the decision of the Commissioners under regulation 29(2) not to
allow the input tax which was not covered by valid invoices was supervisory in
that the FTT could not substitute its own decision but could only decide
whether the discretion had been exercised reasonably. The burden of proof was
on the Appellant to satisfy the FTT that the decision was incorrect, see Kohanzad
[1994] STC 967 at 969. The FTT had no power to substitute its own decision as
to the exercise of the discretion, nor did it have power, as in section
16(4)(b) of the Finance Act 1994, to direct the Commissioners to review the
original decision.
50. If the appeal had
involved issues which did not depend on the exercise of the Commissioners’
discretion, the FTT would have had a full appellate jurisdiction. Since the
appeal was solely in relation to the exercise of the discretion the FTT could
only allow or dismiss the appeal.
51. In John Dee
[1995] STC 967, which concerned an appeal against a requirement for security,
the tribunal concluded that the Commissioners had acted unreasonably in failing
to have regard to the possibility of seeking relevant financial information
before imposing the requirement but found that it was “most likely” that the
decision would have been the same. The Court of Appeal decided that the
correct test was whether “the decision would inevitably have been the same” and
dismissed the appeal by the Commissioners against the decision of Turner J in
favour of the company.
52. We are unable to
accept the submission by Mr Brown [for the appellant] that the jurisdiction in
the present case is supervisory whereas that in John Dee was appellate
so that in the present case the Appellant must succeed since the decision to
disallow the invoices was not taken reasonably.
53. In the present case
the jurisdiction of the FTT arose under section 83 which provided that an appeal
shall lie to the Tribunal. The reference in Kohanzad to exercising “a
supervisory jurisdiction” is shorthand for the fact that the Tribunal cannot
substitute its own discretion for that of the Commissioners but can only
consider whether the discretion was exercised reasonably; the opening words of
the judgment in Kohanzad were “This is an appeal.”
54. Apart from the
labelling used in John Dee and Kohanzad Mr Brown did not advance
any reason why the principle in John Dee should not apply in the present
case.
55. In John Dee
Neill LJ said at page 952h,
“the function and powers of a
tribunal in each case will depend in large measure on the nature of the
decision appealed against and of course on any special statutory provisions.”
Mr Brown did not make any
submissions as to why on an appeal involving regulation 29(2) the FTT should
not have power to dismiss an appeal where the decision would inevitably have
been the same if there had been no unreasonableness. In our judgment there is
no logical reason for distinguishing the Tribunal’s powers in this appeal from
those considered in John Dee."
Background
22. Mr Collins produced a
witness statement and gave evidence on oath at the hearing. Mr Andy Pavaday of
HMRC did likewise. Both parties also produced bundles of documents. From the
evidence presented to us, we find the relevant facts to be as follows.
23. Mr Collins began trading
as Unique Vehicles Car Hire in 2002. The business provided chauffeur driven
luxury cars and, later, high performance cars for self-drive hire. Mr Collins
was registered for VAT as a sole trader from 1 October 2002. At that time Mr
Collins was operating from his home address but by the end of 2005 he had
acquired premises in Kings Road, London SW1 from which the business operated.
At that time Mr Collins was advised to establish two companies to carry on the
business and he set up Unique Vehicles Chauffeuring Services Limited and Unique
Vehicles Performance Car Hire Limited.
24. Ms Kelly D’Silva of HMRC
visited Mr Collins at his business premises on 7 February 2008. Following the
visit, Ms D’Silva stated, in a letter dated 19 February 2008, that Mr Collins
had advised her during the visit that the Mercedes was his personal car and was
not used for business purposes. The letter drew Mr Collins’ attention to the
block on recovery of input tax on cars unless they are intended to be used
exclusively for business purposes or primarily for self-drive hire. Ms D’Silva
said that, unless Mr Collins could produce evidence to the contrary, she would
raise an assessment for the £8,025 input tax claimed in relation to the
Mercedes in the VAT return for the quarter 11/05. The letter also raised
questions about £25,200 input tax in relation to the Lamborghini claimed in the
VAT return for the quarter 02/07. The letter pointed out that the lease
document in relation to the Lamborghini from Liberty Leasing Plc did not show
any VAT but only a net amount of £162,000. Ms D’Silva said that Mr Collins had
not declared any output tax in relation to the Lamborghini and the input tax
claimed would be disallowed. The letter also asked for purchase documents to
support £4,468 input tax claimed in the VAT return for the quarter 11/05 in
relation to car K6 MLM (one of the Finance Agreement Cars). By letter dated 20
March 2008, Ms D’Silva assessed Mr Collins for £33,225 (ie £8,025 plus
£25,200).
25. On 22 May 2008, Ms
D’Silva and Mr Pavaday visited Mr Collins at his business premises. Both
officers made notes. In evidence, Mr Pavaday said that he made the notes of his
conversation with Mr Collins not at the time of the meeting but sometime later
that day. He confirmed that Mr Collins did not see the notes and was not
offered the chance to comment on the notes or sign them.
The Mercedes
26. The documents produced in
the appeal in relation to the Mercedes include a receipt from Mercedes Benz
Tooting dated 12 July 2005 for a deposit of £2,000 in relation to a Mercedes
SLK 55. The receipt was in the name of Mr Collins and a payment slip shows
that Mr Collins paid the deposit with his Mastercard. An invoice from Mercedes
Benz Tooting to Black Horse Finance Limited shows that the Mercedes was
supplied to the finance company and was to be delivered to Mr Collins on 1
September 2005. A hire purchase agreement with Black Horse Limited dated 30
August 2005 shows that Mr Collins acquired the Mercedes and paid VAT of
£8,025.13.
27. The officers' notes show
that, during the visit of 22 May 2008, Mr Collins told the officers that the
Mercedes was personal but had been hired out on two occasions. Mr Collins also
said that a previous HMRC officer had allowed the input tax on the car. Mr
Collins denied telling the officers that the car was for his personal use. He
said that one of the officers asked him which car did he use to come into the
office on that day and he had said the Mercedes. Mr Collins said that the
Mercedes was the cheapest car in the business and, consequently, was the one
most frequently rented by customers. It was also, therefore, the cheapest to
take home. In evidence, Mr Collins acknowledged that he took the Mercedes home
if it was available. He said that every time he drove the car home it would
have magnetic panels advertising the business on it and so he was always using
the car for business. The magnetic panels can be taken off when a customer
wishes to hire the car. Mr Collins acknowledged that there was no physical or
legal restraint on private use by him of the Mercedes. He said that the same
could be said about all the other cars that he took home. Mr Collins said that
such a restraint would be impossible in his kind of business as he would often
have to take cars home in order to ensure they could be delivered to customers
or a garage for repair the following day.
28. Mr Collins did not
remember the actual conversation on 22nd May 2008 but, according to the notes,
the officers asked him when the car was hired out and Mr Collins said that the
car had been hired out perhaps twice that week or that month. When asked where
the evidence was that the Mercedes had been rented more often than any other
car in the business, Mr Collins said that he did not have it. Mr Collins said
that the documents had been seized in 2007 as part of a criminal investigation
into an offence of which he was subsequently cleared. He thought that some of
the files had probably been lost. Mr Collins said that he had all the
documents when other HMRC officers had visited him in June 2006 and the
officers had seen all the documents then.
29. Mr Collins produced four
documents relating to the hiring out of the Mercedes in 2006, namely:
(1) An agreement, with an
indistinct date, showing that the car had been hired by Mr Roman Kouznetsov
from 26 February 2006 to 3 March 2006 at £300 per day;
(2) An agreement dated 1 March
2006 showing that the car had been hired by Mr Mehdi Al Hassani from 1 March to
6 March 2006 at £300 per day;
(3) A further agreement with Mr
Mehdi Al Hassani dated 7 March 2006 showing that he had hired the car from 7
March to 11 March 2006; and
(4) An invoice dated 11 March
2006 showing that car had been hired by Mr Mehdi Al Hassani for 10 days from 1
March at £300 per day plus VAT.
When asked why the agreement dated 1 March appeared to
show the car had been hired to Mr Al Hassani when it was still on hire to Mr
Kouznetsov, Mr Collins said that the first hirer could have returned the car
early.
30. In evidence, Mr Pavaday
pointed out that the invoice was in the name of Unique Vehicle Performance Car
Hire Limited and showed that company's VAT number although the company was not
incorporated until 14 August 2006 and not VAT registered until later that
year. When this was put to him in cross examination, Mr Collins agreed that
the VAT number and company did not exist at the time of the original invoice.
He said that he had printed the invoice for his lawyer at the beginning of the
proceedings and he had printed it out on headed letter paper of Unique Vehicles
Performance Car Hire Limited. The information in the invoice was on the
computer but not the original document as printed on headed paper. He said
that he had probably kept the original of the invoice as he would have sent it
to the client but that he did not have that document now. Mr Pavaday said that
Mr Collins could only demonstrate that the Mercedes had been hired twice and he
did not accept that personal use of the car by Mr Collins was incidental.
The Lamborghini
31. Ms Kelly’s notes recorded
and Mr Pavaday gave evidence that Mr Collins had stated on 22 May 2008 that he
had not paid Euromicro for the Lamborghini but had paid the car owner who was
not registered for VAT. Mr Pavaday acknowledged in cross-examination that the
conversation with Mr Collins about paying the owner of the Lamborghini was not
in his notes.
32. In correspondence
following the assessments and at the hearing, Mr Collins submitted that he had
purchased the Lamborghini from Euromicro and had paid VAT. Mr Collins said
that he would never know the owner of the cars that he bought until the time
when he saw their name in the logbook after the deal had been done. He always
bought these cars through a broker because they were able to locate exotic cars
and often obtained them when they were not generally available. Mr Collins
explained that, in the case of the Lamborghini, he had paid a deposit and
Liberty Finance Plc would have paid the rest of the purchase price. Mr Collins
said that he had only dealt with Euromicro on the one occasion when he
purchased the Lamborghini. He said that Euromicro is a dealer in luxury
items. If someone wanted to buy a diamond or a house then Euromicro would be
able to obtain these items for them. Mr Collins said that he had met Euromicro
at a Lamborghini event and they had given him their card. He said that he
decided to use Euromicro to purchase the Lamborghini because they were the
fastest to respond to a request he sent to a number of brokers for such a car.
33. In his evidence, Mr
Pavaday said that he had made enquiries in relation to Euromicro with other
HMRC officers who had visited the company’s premises. The officers confirmed
that Euromicro existed and was engaged in the clothing trade. It did not have
a history of car dealership. Mr Collins accepted the Euro Micro was not a car
company but said that they were a luxury goods company and he had checked the
company number and that it existed at Companies House when he first dealt with
them.
34. The documents produced in
the appeal relating to the Lamborghini included a Lease Purchase Agreement
between Liberty Leasing Plc and Sean Collins T/A Unique Vehicles dated 6 December
2006. The agreement showed that the Lamborghini had been first registered on 1
October 2006. Under the heading “Cash Price of Goods”, the agreement stated
the Net as £162,000, the VAT as “£0:00” and the Gross as £162,000. The
agreement provided for a payment £45,684 on before 6 December 2006 and monthly
rentals of £2,847 commencing on 6 January 2007. In relation to the
Liberty Finance Plc Lease Purchase Agreement, Mr Collins acknowledged that it
stated there was no VAT. Mr Collins said he always went by the invoice from
the people he had bought cars from. Mr Collins said that his accountant had
never asked him for any invoices addressed to him from the finance companies.
Mr Collins said that his accountant had only ever asked him for invoices from
the manufacturer or seller to be used to claim VAT on his VAT returns. He did
not accept that he would expect to receive an invoice to be from the finance
company.
35. Mr Collins also produced
a purchase order dated 15 January 2007 from Unique Vehicles Performance Car
Hire Limited to St Augustine New Avenham Centre for a 2006 Lamborghini
Gallardo. Mr Collins initially said in evidence that the purchase order did
not relate to the Lamborghini RX56 AXK which was the subject of the appeal as
it was a purchase order to a different broker from whom he used to buy cars and
related to a different Lamborghini. When it was pointed out that the address
of Euromicro on its invoice dated 15 January 2007 for the Lamborghini was St
Augustine New Avenham Centre, Mr Collins acknowledged that the purchase order
was, indeed, the purchase order for the Lamborghini RX56 AXK. The Euromicro
invoice was addressed to Sean Collins, Unique Vehicles Performance Car Hire and
showed that delivery was not due until 15 February 2007. The invoice showed
that the price of the car was £144,000 plus £25,200 VAT. Mr Collins said that
he paid a deposit of £7200 to Euro Micro and this accounted for the difference
between the amount shown on the Liberty Finance Plc Lease Purchase Agreement and
the amount on the Euromicro invoice. No deposit is mentioned on the purchase
order or the invoice. Mr Collins accepted in his witness statement that the
purchase order and invoice were in the name of the company but stated that it
was an error and the company did not claim the VAT. The input tax was claimed
by Mr Collins in his VAT return.
36. Mr Collins produced
evidence of the hiring of the Lamborghini by a Mr Richard Vedelago. The
evidence consisted of a certificate of insurance from AIG providing insurance
cover for Mr Vedelago to drive the Lamborghini from 7 December 2006 to 5
November 2007. In addition, there were four documents, each described as a
Short Term Rental Agreement/Invoice, addressed to Mr Vedelago and providing for
the car to be hired to him for the following periods:
29 November 2006 to 28
February 2007
9 March 2007 to 31 May 2007
1 June 2007 to 31 August 2007
31 August 2007 to 30 November
2007.
37. The Agreement/Invoices
all show that Mr Vedelago paid a rent of £3,500 per month but the first three
show the word "VAT" (and no figure) written where the amount should
go whereas the last shows "INCL" written in the VAT box. The
commencement of hiring is shown as 29 November 2006 which was before the
vehicle had been purchased or delivered.
38. Mr Collins said that the
first agreement was actually a form of receipt for the deposit of £40,000 for
the car which was paid by Mr Vedelago. Mr Collins said that he had been
advised that every three months he must renew the rental agreement and that is
why the first agreement showed the date due back as 28 February 2007. The car
was not delivered to Mr Vedelago until 15 February 2007. These were rolling
agreements. In fact, the car never came back to the office and Mr Collins or
one of his employees would go to Mr Vedelago's home to check the car and to
obtain a signature on a new agreement for the following three months. Mr
Collins acknowledged that Mr Vedelago's insurance started on 7 December 2006,
over 2 months before, according to Mr Collins, the car was delivered to him.
Mr Collins did not explain why the deposit was paid on 29 November 2006 if the
car was not to be made available to Mr Vedelago until 15 February 2007.
The Finance Agreement Cars
39. Following the visit on 22
May 2008, HMRC assessed Mr Collins for £23,308 input tax in respect of the
Finance Agreement Cars on the basis the cars had not been supplied to him.
HMRC took this view because the finance agreements for those cars were not
solely in Mr Collins’ name and Mr Collins did not hold any VAT invoices
addressed to him relating to the Finance Agreement Cars. In correspondence
following the assessments and at the hearing, Mr Collins submitted that the
persons (Mr Muradi and Mr Seintham) shown on the finance agreements for the Finance
Agreement Cars were drivers that worked for him who had agreed to take on the
finance when the credit companies would no longer extend credit to Mr Collins.
Mr Collins said that, in 2005, he landed a contract with a private jet company
and he was looking to expand his fleet of cars but could not obtain credit to
finance any more vehicle purchases. Two of his drivers decided that they would
take out finance to enable him to purchase more cars. Mr Collins said that he
paid the amounts including the VAT to the finance companies.
40. The documents relating to
the Finance Agreement Cars before the Tribunal were as follows:
(1) An invoice dated 14 November
2005 from M. B. Direct Kingston on Thames to Black Horse Limited in relation to
a Mercedes Benz registration number K6 MLM. The invoice shows that VAT of
£4,468.08 was chargeable. It also shows that the car was to be delivered to Mr
Khalid Muradi and Mr Collins at different addresses.
(2) An invoice dated 14 November
2005 from M. B. Direct Kingston on Thames to Daimler Chrysler Financial
Services UK Limited in relation to a Mercedes Benz registration number KY05
XHO. The invoice shows that VAT of £4,095.60 was chargeable. It also shows
that the car was to be delivered to Mr R Seintham and Mr Collins at different
addresses.
(3) In relation to a Mercedes
Benz registration number KW54 YST, three invoices from M. B. Direct Kingston on Thames to Capital Bank. The invoices are identical in all respects save that
one is dated 30 November 2005, one is dated 15 December 2005 and the other
is dated 31 December 2005. The invoices show that VAT of £7,893.62 was
chargeable. They also show that the car was to be delivered to Mr R Seintham
and Mr Collins at Mr Collins' address.
(4) An invoice dated 14 November
2005 from M. B. Direct Kingston on Thames to Daimler Chrysler Financial
Services UK Limited in relation to a Mercedes Benz registration number KR05
GYY. The invoice shows that VAT of £6,850.91 was chargeable. It also shows
that the car was to be delivered to Mr R Seintham and Mr Collins at different
addresses.
(5) A Short Term Rental
Agreement/Invoice shows that car registration number KW54 YST was hired by
Sangaran Balasundaram of Worcester Park, Surrey between 31 March 2006 and 31
March 2007.
(6) Another Short Term Rental
Agreement/Invoice shows that Sangaran Balasundaram of a different address hired
car registration number KR05 GYY between 4 April 2006 and 4 April 2007
41. Mr Collins said that he
had made a claim for £60,000 input tax on a previous occasion and HMRC had visited
and wanted to see the cars. These cars included the Finance Agreement Cars.
The HMRC officer said he was very happy about the chauffeur driven cars but
wanted to know how many days the self-drive cars had been rented out. He
looked at all the files and accepted what Mr Collins had said about hiring out
the cars and went away happy. Mr Collins said he received a cheque from HMRC
for the £60,000 refund within the next couple of days. In his evidence, Mr
Pavaday confirmed that Mr Collins had been visited by an HMRC officer in 2006
and that input tax had been disallowed in relation to two vehicles but had been
allowed in relation to a further four vehicles. Mr Pavaday said that he could
not be sure whether any of the four vehicles were the subject of the appeal.
Discussion
42. In relation to the
Mercedes, there was no dispute that Mr Collins had bought the car and had paid
VAT. Mr Collins was only entitled to claim credit for the input tax if, at the
time he acquired the Mercedes, he intended to use the car exclusively for the
purposes of his business or, alternatively, intended to use the car primarily
for self-drive hire. As Peter Gibson LJ observed in Upton at [21]
quoted above, it is the intention at the time of acquisition that matters. The
fact that a car is made available to a person for private use or is so used
after its acquisition is not determinative but that fact may be highly relevant
in deciding what the taxable person's intention was at the time of
acquisition.
43. On behalf of Mr Collins,
it was submitted that Mr Collins used the Mercedes exclusively for business
purposes and any other use was incidental. In his evidence, Mr Collins
acknowledged that there was no physical or legal restraint to prevent him using
the Mercedes for private purposes. The passages from Upton and Elm
Milk quoted above make it clear that if there is no physical or legal
restraint on private use then a car is made available for such use when it is
provided to a person even where there is no intention to use the car for
private purposes.
44. In this case, however,
there is evidence that Mr Collins actually used the Mercedes for private
purposes in that he said in evidence that he took the Mercedes home if it was
available. This was consistent with Mr Collins telling the officers that the
Mercedes was his personal car and we accept the HMRC evidence that he did so
tell them. Although Mr Collins said that he sometimes had to take the Mercedes
home in order to deliver it to a customer early the following day, the only
examples of the Mercedes being rented out showed that it was taken out between
9:15 am and 11:30 am. There was no evidence to suggest that Mr Collins only
took the car home in order to deliver it to a customer the following day and we
conclude that, if it happened at all, it was the exception rather than the
rule. Mr Collins also stated in evidence that when he drove the car other than
for delivery to a customer, it had removable magnetic panels advertising the
Unique Vehicles business stuck on it. The fact that the car had the magnetic
panels stuck on it does not mean that the use of the car was exclusively for
business purposes. In travelling between the business premises and his home or
elsewhere, Mr Collins was using the car for private purposes. It was not
submitted that Mr Collins had changed his intention in relation to the Mercedes
at some point after he had acquired it and there was no evidence of any such
change. Accordingly, we conclude that Mr Collins intended to make the Mercedes
available to himself for private use when he acquired it.
45. The fact that the
Mercedes was made available for private use does not prevent recovery of the
input tax if, at the time it was purchased, the Mercedes had been intended for
use primarily for self-drive hire. There is no contemporaneous evidence of the
intended use of the Mercedes at the time it was purchased. Mr Collins said in
evidence that the Mercedes was hired more often than any other car in the
business. If the Mercedes had been the most frequently hired car then we would
have expected Mr Collins to be able to produce more examples of it being hired
out than three invoices all relating to a combined period of two weeks in
February and March 2006. Mr Collins bears the burden of proving that, when he
bought it, he intended to use the Mercedes primarily for self-drive hire. On
the basis of the lack of evidence of regular hiring to customers and in view of
the fact that the car (whether with or without magnetic logos) was used by Mr
Collins for personal use when available, we find on the balance of
probabilities that the Mercedes was not intended for use primarily for
self-drive hire when it was acquired by Mr Collins. It follows that the input
tax incurred on the Mercedes is excluded from credit by Article 7 of the Input
Tax Order.
46. In relation to the
Lamborghini, Mr Collins is only entitled to credit for the input tax if VAT was
chargeable on the supply of the car to him. Regulation 29 of the VAT
Regulations provides that Mr Collins should hold a VAT invoice or other
evidence of his entitlement to input tax credit when claiming deduction of such
tax. It is not disputed that the Euromicro invoice was addressed to the
company, Unique Vehicles Performance Car Hire rather than to Mr Collins but HMRC
do not take the point that the Lamborghini was supplied to the company rather
than to Mr Collins. HMRC say that Mr Collins has not established that any VAT
was charged in relation to the Lamborghini.
47. The documents produced by
Mr Collins in relation to the Lamborghini are contradictory. The Lease
Purchase Agreement with Liberty Finance Plc dated 6 December 2006 is
addressed, correctly, to Sean Collins t/a Unique Vehicles and clearly shows VAT
as “£0:00” under the heading Cash Price of Goods. If it had meant to indicate
that the price for the car was inclusive of VAT then we would have expected the
VAT box to show “INCL” or be left blank rather than show “£0:00” VAT.
48. The invoice from
Euromicro shows VAT but has different net and gross amounts to the Lease
Purchase Agreement. Mr Collins sought to explain the differences by reference
to a deposit which he paid to Euromicro. No deposit is mentioned on the
Euromicro purchase order or invoice. We would have expected a deposit to have
been mentioned on the invoice if it had been paid.
49. The insurance certificate
for Mr Vedelago in relation to the Lamborghini provides cover from 7 December
2006 which is one day after the date of the Lease Purchase Agreement but over a
month before the invoice from Euromicro and two months before Euromicro was due
to deliver it. We consider that it is very unlikely that Mr Vedelago would pay
for insurance cover for the Lamborghini two months before he was able to drive
it. The commencement date of the insurance cover is consistent with the
Lamborghini being supplied to Mr Collins before 7 December 2006 which supports
the date of supply being the commencement date of the Lease Purchase Agreement
ie 6 December 2006. In turn, the insurance certificate and the Lease Purchase
Agreement contradict the date of delivery (15 February 2007) shown on the
Euromicro invoice.
50. Having considered the
contradictory nature of the documents, we have reached the conclusion that the
Euromicro invoice is not genuine and the Lease Purchase Agreement is to be
preferred. On the basis of the Lease Purchase Agreement, we find that the
Lamborghini was supplied to Mr Collins and that no VAT was charged.
Accordingly, Mr Collins has no entitlement to credit for the amount shown as
VAT on the Euromicro invoice.
51. Finally, in relation to
the Finance Agreement Cars, Mr Collins did not hold VAT invoices addressed to
him in relation to the cars. He produced invoices issued by the sellers to the
finance companies and it is clear that the finance companies were entitled to
claim credit for the input tax shown on those invoices. Regulation 29(2) VAT
Regulations provides that Mr Collins must hold VAT invoices addressed to him at
the time of claiming input tax unless HMRC accept other evidence of his entitlement
to input tax credit.
52. In Kohanzad,
Scheimann J said at p969 that when considering a case where HMRC have a
discretion it was established that the jurisdiction of the tribunal was a
supervisory one, in which it determines whether HMRC exercised their discretion
in a defensible manner on the basis of materials available to them at the time
they considered the exercise of their discretion. As a result, in relation to
the question of the exercise of the discretion under Regulation 29, we can allow
Mr Collins’s appeal only if we conclude that HMRC took into consideration
irrelevant factors, failed to take into account relevant factors, made a
material error of law, or exercised their discretion in a way in which no
reasonable body of commissioners would have done based on materials available
to them at the time.
53. HMRC did not dispute that
the cars existed and that VAT had been properly charged on them by the seller
(M. B. Direct Kingston on Thames) to the finance companies. HMRC did not
dispute that the cars were used by Mr Collins in his business. The issue for
the Tribunal is have HMRC acted reasonably in not accepting documents provided
by Mr Collins (ie the invoices to the finance companies showing delivery of the
vehicles to Mr Muradi or Mr Seintham together with Mr Collins) as alternative
evidence? The burden of proof lies on Mr Collins to satisfy the tribunal that
HMRC's decision was incorrect. The test to be applied is whether HMRC have
given no weight or insufficient weight to the relevant considerations.
54. There is no evidence
that, at the visit on 22 May 2008 or afterwards, HMRC ever considered the 2007
statement of practice on input tax deduction without a valid invoice.
Certainly, the letter of 2 June 2008 does not refer to it or ask any of the
questions that are set out in Appendix 2 to the statement of practice. It
appears from the evidence in relation to the Finance Agreement Cars, that Mr
Collins can answer all of the questions set out in Appendix 2. He has
alternative documentary evidence in the form of invoices from the sellers to
the finance companies which show that VAT was charged by the sellers and the
cars were to be delivered to Mr Collins and Mr Muradi or Mr Seintham as
recipients of the cars. The finance companies are all well-known companies
that Mr Collins used to finance the purchase of other cars. It is
inconceivable that the Finance Companies would not have charged VAT on the
onward supply of cars. Mr Collins has not produced any evidence of payment by
him in relation to the cars but it is, again, inconceivable that the finance
companies would not have required payment. There is no dispute that the
Finance Agreement Cars were used by Mr Collins in his business. Paragraph 19
of the statement of practice on input tax deduction without a valid VAT invoice
says that as long as the taxable person can provide satisfactory answers to the
questions in Appendix 2, and any other questions that might be asked, then
input tax deduction will be permitted. In our view, the failure to consider
whether there was alternative evidence of entitlement to input tax deduction
was a serious error by HMRC. As is clear from Best Buy Supplies, the
Tribunal has no power to direct HMRC how to exercise their discretion whether
or not to accept alternative evidence of entitlement to input tax deduction or
to make its own its own decision on the evidence. The Tribunal can only allow
or dismiss the appeal. We could dismiss the appeal on this point if,
notwithstanding HMRC's failure to consider whether there was any alternative
evidence, we are satisfied that, had they done so, the decision would
inevitably have been the same. We are not so satisfied. It appears to us that
there is a very real possibility that the evidence available would have satisfied
HMRC that Mr Collins was entitled to deduct input tax on the Finance Agreement
cars. Accordingly, we allow the appeal in relation to the Finance Agreement
Cars.
55. In relation to the
misdeclaration penalties, the liability stands or falls with the question of
input tax deduction as Mr Collins has never put forward any grounds that could
provide a reasonable excuse. We accept that Mr Collins has been through a very
difficult period since 2007, including a criminal investigation in relation to
money laundering of which he was eventually acquitted. Without deciding
whether or not they could constitute a reasonable excuse, these difficulties
post-dated the claims that are the subject of the appeal and cannot operate as
an excuse in this case. In view of our conclusion in relation to the
Lamborghini, the misdeclaration penalty of £3,780 is upheld. The
misdeclaration penalty of £4,699 in relation to the input tax on the Finance
Agreement Cars falls away with the assessment in relation to the input tax on
those cars.
Additional claims
56. In his witness statement
dated 23 February 2012, Mr Collins stated that he wished to appeal to the
Tribunal in relation to two additional claims for input tax which were
disallowed by HMRC in December 2006. Mr Collins had claimed input tax of
£46,170.22 on an Aston Martin and a Ferrari. In a letter dated 6 December
2006, HMRC stated that the two invoices relied on by Mr Collins were issued by
a broker, Lariab, which had not supplied the cars to him. HMRC took the view
that the cars had been supplied by their previous owners to Mr Collins and
there was no way of knowing whether or not they were qualifying cars on which
VAT was properly chargeable. The HMRC letter offered Mr Collins the
opportunity to request a reconsideration or to appeal to the VAT and Duties
Tribunal. The time limit for appealing was 30 days from the date of the letter
ie by 5 January 2007. Mr Collins did not request a reconsideration or make any
appeal. The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009
provide that an appeal made after the time limit for appealing has expired must
not be admitted unless the Tribunal gives permission for the appeal to be made
after that period. Such permission should be requested in the notice of appeal
which should set out the reason why the notice of appeal was not provided in
time. The witness statement made for the purposes of the present appeal is not
a notice of appeal and, further, it contained no explanation why Mr Collins
delayed challenging the denial of his claim in 2006 until 2012. A delay of
more than five years cannot be excused other than in the most exceptional
circumstances and no such circumstances were put forward in this case.
Permission to appeal against the disallowance of input tax of £46,170.22 is
refused.
Decision
57. In summary, our decision
is that the appeal in relation to the input tax on the Mercedes and the
Lamborghini is dismissed. The appeal in relation to the input tax on the
Finance Agreement Cars is allowed. As to the misdeclaration penalties, the
appeal is dismissed in relation to the £3,780 penalty and allowed in relation
to the £4,699 penalty.
Costs
58. As this case had not been
allocated as a Complex case, the Tribunal does not have any power to make an
order in respect of costs under Rule 10 of the Tribunal Procedure (First-tier
Tribunal) (Tax Chamber) Rules 2009 except for wasted costs or where a party has
acted unreasonably. As the exceptions do not apply, we can make no order for
costs.
Right to apply for permission to appeal
59. 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.
Greg Sinfield
TRIBUNAL JUDGE
RELEASE DATE: 27 March 2012
