V19136
Autolease (UK) Ltd v Revenue and Customs [2005] UKVAT V19136 (28 June 2005)
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19136
VAT — CONSIDERATION — supplies of cars — whether value of road fund licences sold at cost along with cars VATable — yes — whether separate supplies of road fund licences made to purchasers of cars — no — appeal against assessment to underpaid VAT dismissed
MANCHESTER TRIBUNAL CENTRE
AUTOLEASE (UK) LIMITED Appellant
- and -
HER MAJESTY'S REVENUE AND CUSTOMS Respondents
Tribunal: Michael Johnson (Chairman)
Jon P M Denny
Sitting in public in Manchester on 13 June 2005
Bhautik Shukla, accountant, for the Appellant
James Puzey, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2005
DECISION
- This appeal concerns the treatment for value added tax of the value of road fund licences sold together with the vehicles to which the licences have been applied. The issue between the parties is whether the supply of the vehicles bearing the road fund licences was subject to VAT on the sale price of the vehicles including the cost of the licences, or on the sale price of the vehicles treating the cost of the licences as a mere disbursement.
- The difference between the parties has resulted in an alleged underpayment of VAT by the Appellant assessed at £8,145 and notified to the Appellant on 15 September 2004. It is against that liability that the Appellant has appealed. The Appellant's VAT accounting periods affected are 5/03, 8/03, 11/03, 2/04 and 5/04 respectively.
- The tribunal established the relevant facts from the evidence of Mr Darren McDowell, managing director of the Appellant, who was the only witness who gave evidence. He described the business of the Appellant, which despite its name sells rather than leases cars to retail customers. None of the cars that the Appellant provided was the subject of a lease.
- The Appellant operates as a broker to obtain new or all but new cars for sale to customers. The Appellant is not itself a car dealer; its stock in trade is to source cars from dealers to the required specification of customers. Typically a customer from the Appellant will learn about the Appellant from the Internet, and be attracted to the Appellant by the price at which it indicates that it can obtain a car for the customer, of the particular make, model, colour and specification that the customer chooses. Having sourced the required vehicle, the Appellant will itself buy that vehicle so as to be in a position to sell it to its customer. The broker is not, therefore, a commission broker; it has title to the vehicle that it sells onwards to its customer.
- Having first ascertained the customer's preference, the Appellant will proceed to find a dealer able to supply a car of that description. Sometimes the car will be sourced via another broker. In that case the supply chain may consist of a dealer at the top, who supplies the car to a first broker, who supplies it to the Appellant as second broker, who finally supplies it to the Appellant's customer. We will call these final customers "end-users". Alternatively, the Appellant may be able to source the vehicle directly from the dealer, so that there is one less link in the chain.
- Mr McDowell put before the tribunal, by way of an example that he was content to accept as typical, firstly a copy of an invoice rendered to one of the end-users for the supply by the Appellant of a Ford Mondeo Ghia X Estate, and secondly a copy of the invoice rendered to the Appellant in respect of the same car by a broker called Hire Lease Ltd. We were told that Hire Lease Ltd will have sourced the car from a dealer at the instance of the Appellant. The invoices show that Hire Lease Ltd first sold the car to the Appellant, the tax point for the invoice between the two companies being 25 May 2004, and then, by a separate sale, the Appellant sold the car onwards to the end-user on 2 June 2004.
- The Appellant deals entirely in new and all but new vehicles. Typically a car will only have "delivery mileage" when it is sold to the end-user. However many of the cars supplied are so-called "demonstrators". These are cars which are registered by dealers before they are sold. The theory is that they are available to demonstrate the merits of the particular model on the road to prospective customers, although this may never happen. "Demonstrators" may in effect be new cars, but the fact that they are pre-registered provides a convenient means for the dealer to differentiate on its books between these cars on the one hand and unregistered new cars on the other hand.
- The end-user is looking for an "on the road" vehicle in every case. In other words, he or she wishes delivery to be with the benefit of the vehicle having been registered and a road fund licence having already been obtained, so that the vehicle can be driven away immediately. Indeed, the Appellant requires to be able to drive the vehicle, in order to effect delivery. Accordingly the practice is always to have the vehicle registered and "taxed" in the hands of the dealer before supply by the dealer to the first or only broker in the chain.
- When the Appellant takes down the details of the car required by the end-user, the question is always asked whether 6 months' or 12 months' road tax is required for the car. The car is then sourced by the Appellant with the benefit of the road tax, and when sold, is invoiced with the cost of the road tax for it shown as a separate item on the invoice. Thus, in the sample invoices provided to the tribunal, the invoice rendered by Hire Lease Ltd to the Appellant for the Mondeo Ghia specified the cost of the first registration fee and road fund licence, already incurred, as an item separate from the cost of the car, and the later invoice from the Appellant to the end-user did likewise.
- The price of the car is of course "marked up" down the chain, so that the Appellant is left with its profit. The cost of the registration and of the road fund licence however remain the same when invoiced onwards.
- The single situation with which the tribunal is dealing on this occasion is therefore that of "pre-taxed" cars sold as "on the road" at every stage. We are not here concerned with the sale of cars which are "untaxed" – ie do not have the benefit of road fund licences when supplied to the end-user – which the vendor then arranges to have "taxed" as a service for the end-user. In the cases that we are considering, having a road fund licence is already an attribute of these vehicles at the moment that they first come into the possession of the Appellant on purchase, before ever they are sold by the Appellant to end-users.
- The dispute in this case arose because the Appellant, in common with certain other brokers, was not accounting for VAT on such part of the value of its supplies of licensed cars as was represented by the cost of the road fund tax previously obtained. Because VAT was not payable when the road fund tax was obtained, the Appellant argued, such part of the supplies as was represented by the cost of the road fund tax must be exempt from VAT.
- Appearing for Her Majesty's Revenue and Customs ("Customs"), Mr Puzey drew our attention to Article 11A(1) to (3) of the EC Sixth Council Directive. These sub-articles make it clear that the consideration for a supply of this kind includes taxes, duties, levies and charges, excluding the value added tax itself.
- Mr Puzey moreover referred us to Card Protection Plan Ltd v Customs and Excise Commissioners [1999] 1 AC 601, a decision of the European Court concerning the differentiation between single supplies with principal and ancillary elements to them, and separate supplies. He submitted that, on the present facts, what end-users were purchasing were single but composite supplies of cars: the vehicle being the principal element supplied, with the benefit of road fund licences being the ancillary element.
- Finally, Mr Puzey also referred us to the decision of the Chairman in Depot Corner Car Sales v Customs and Excise Commissioners (2000) VAT Decision 16907, a case which concerned whether the cost of MOT examinations was an element in the purchase price for the supply of cars and should therefore be included in the calculation of the consideration for operating the VAT margin scheme in relation to second-hand vehicles. After considering a number of relevant tribunal decisions, the Chairman said this, in paragraph 32 of the decision in the Depot Corner Car Sales case –
"In my judgment it would be wholly artificial to distinguish in this case between the supply of the vehicle and the supply of the MOT. These were sales of cars with MOTs, which were as much integral to the sale as was, for example, the spare tyre in the boot. There is no evidence that customers commissioned the obtaining of MOTs, and I would not expect there to have been any such evidence. Had a customer given evidence, he or she would, I think, have told the tribunal that it followed as night follows day that the car, when paid for and handed over, would have its MOT, without commissioning the dealer to obtain it. So far as the customer was concerned, the MOT was simply included in the sale, and that was an end of it".
- Appearing for the Appellant, Mr Shukla submitted that the cost of the road fund licence was a non-profit making disbursement that was included in the invoices simply for the purpose of indirectly reimbursing the particular person, ie the dealer, who had attended to obtaining it. He submitted that the disbursement had only been incurred because the end-user had required it, so that the dealer was the end-user's agent for that purpose. He invited the tribunal to find that the cost of the road fund licences was no part of the supplies of the "taxed" vehicles as Customs had contended.
- We agree with Mr Shukla to the extent that end-users would not necessarily expect their new car to have been "taxed" before reaching the hands of their immediate supplier, the Appellant. We think that it would be fair to say that end-users did not concern themselves with the stage at which their new car might be "taxed". It was the car that they were interested in purchasing, whether or not it had as yet been "taxed".
- End-users did, however, expect the car to have been "taxed" by the time of delivery. They expected to be invoiced for the cost of the road fund licence, lasting 6 months or 12 months as the case might be, which they had ordered. One way of obtaining such licence might be for end-users to have provided their own insurance certificates to facilitate this. However the other way, which was adopted on the occasions with which we are concerned, was for the vehicles purchased to come with the benefit of road fund licences already obtained.
- There is no evidence that end-users commissioned the Appellant, the dealer or anyone else to obtain road fund licences for them separately from supplies of vehicles. We think that in this case the position was akin to that in the Depot Corner Car Sales case, in the sense that the road fund licence was part of the overall "package" for which end-users were paying.
- This is confirmed by the manner in which the vehicles reached the immediate supplier, the Appellant. The vehicles arrived with the Appellant as pre-registered, pre-taxed vehicles, being received as the property of the Appellant rather than simply as agent for the end-user. As we see it, in the case of a late cancellation of the purchase by the end-user, the Appellant would have been left with the vehicle on its books, and would have needed to dispose of it elsewhere, complete with road fund licence.
- Therefore, in our judgment, the road fund licence formed part of the consideration for the sale by the Appellant to end-users, even though shown separately on the invoices, and even though no profit was built into the road tax element. We conclude that Mr Puzey is right in characterizing the value of that element as an ancillary part of a single supply consisting of the ready-registered, ready-taxed vehicle sold in each case. It is clear to us that VAT was properly chargeable in respect of that element, as envisaged by Article 11A(2) of the EC Sixth Council Directive, to which we were referred.
- We therefore uphold the assessment in this case and we dismiss the appeal. No application for costs was made and none are awarded.
MICHAEL JOHNSON
CHAIRMAN
Release Date: 28 June 2005
MAN/04/0695
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