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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Frankincense International Ltd v Revenue & Customs [2007] UKVAT V19996 (25 January 2007) URL: http://www.bailii.org/uk/cases/UKVAT/2007/V19996.html Cite as: [2007] UKVAT V19996

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19996

VAT – INPUT TAX ASSESSMENT – company purchasing motor car – private use excluded? – no – intended to be available for private use? – yes – input tax not recoverable – appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

FRANKINCENSE INTERNATIONAL LIMITED

Appellant

and –

HER MAJESTY'S REVENUE AND CUSTOMS

Respondents

Tribunal: Richard Barlow (Chairman)

Mrs Gilian Pratt JP

Sitting in public in Manchester on 9 November 2006

Mr Tunde Modupe-Ojo, director, for the Appellant.

Mr Stefan Lewinsky of counsel instructed by the acting general counsel and solicitor to the Commissioners of HM Revenue and Customs for the Respondents.

© CROWN COPYRIGHT 2007


 


DECISION
1. The appellant company appeals in respect of £1,873 being part of an assessment of VAT issued for the prescribed accounting period ending May 2004. That assessment and other assessments for smaller sums in respect of other periods were made on 8 September 2004 and the amount in dispute relates to input tax claimed when the appellant company bought a Mercedes Benz Vaneo vehicle in May 2004.
2. The appellant company has been registered for VAT since February 1997 and had traded in goods until 2 July 2004 when it took over a Post Office. The vehicle in question was purchased on 22 May 2004 and Mr Modupe-Ojo told us that by that date negotiations were already under way for the purchase of the Post Office which we accept was the case.
3. The dispute between the parties arises because the respondents contend that the input tax on the purchase of the Vaneo vehicle was excluded from credit under section 25 of the VAT Act 1994 by reason of article 7 of the Value Added Tax (Input Tax) Order 1992. It is not in dispute that a Vaneo is a motor car for the purposes of that Order.
4. The relevant paragraphs of article 7 are as follows:

"7 (1) subject to paragraphs (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 … to … a taxable person; and

(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 either –

(a) exclusively for the purposes of a business carried on by him, but this is subject to paragraph (2G) below, or

…

(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 –

…

(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 consideration."

5. Those rather convoluted provisions mean that, generally speaking, in circumstances where a taxable person buys a motor car, input tax can only be claimed where it is intended to be used exclusively for purposes of the business and that intention is excluded if he intends to make it available for private use by any person.
6. In this case the taxable person is the company so that the input tax will only be recoverable if Frankincense International Limited intended to use the motor car exclusively for business purposes and did not intend to make it available for private use by anyone.
7. These provisions were considered by the Court of Appeal in Commissioners of Customs and Excise –v- Elm Milk Limited [2006] STC 792. In that case the Court decided that the meaning of article (2G)(b) is that it is not enough that the taxpayer should intend to use the motor car exclusively for business use he must also have excluded the possibility of private use. The logic of that decision is that article (2G)(b) must have added something to the restriction already placed on input tax recovery by article (2E) and that what it has added is that the taxpayer must have prevented the vehicle even being available for private use in effect therefore the taxpayer must also have prevented himself or itself from changing his or its mind. Clearly an individual who is a taxpayer could claim to have intended to use the motor car for business use when the motor car was purchased but could change his mind at any point unless there is some effective impediment to his doing so. The case of a small company controlled by a single director is not very different. In the case of an individual it may be particularly difficult for him ever to be able to satisfy article (2G)(b) because he can always change his mind about his intentions.
8. In the case of a company that might not be quite so difficult and indeed the Elm Milk case is a case in point. In that case the Tribunal had held, in a Decision released on 16 April 2004, that a resolution passed by the board of Elm Milk Ltd was effective to preclude the company from having an intention of making the vehicle available for private use. It held that the resolution had been passed bona fide and correctly represented the company's intention. It also held that the vehicle had not been used for private use.
9. The Court of Appeal upheld that decision and Arden LJ said the following (paragraph 39 of the judgement):

"… 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 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 the 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 to make the car available for private use by whatever means. There is thus no reason why a car cannot be made unavailable for private use by suitable contractual restraints, that is effective restraints."

10. Mr Modupe-Ojo gave evidence and was cross examined. He explained that although 8 Omar Avenue, which is the home of himself and his family, is the registered office address of the company, at the relevant time it operated from 4 Burnsall Walk and, from 2 July 2004, from the Post Office. The Vaneo vehicle is a seven-seater multi-purpose vehicle intended to be used to transport staff and goods. He has a family consisting of himself, his wife and five sons. By the time the company bought the Vaneo the two eldest sons had gone to Universities in Liverpool and Salford. One of them had previously attended a college in Preston. We find those facts to be the case though we will have to examine whether the intention to use the vehicle for transporting goods and staff was the sole intention when the vehicle was bought.
11. Mr Modupe-Ojo admitted that he owned and operated a Toyota as a family car and that he had used it for family motoring until he sold it at a date in 2005. His ownership of that car therefore overlapped with the company's ownership of the Vaneo. He admitted that the Vaneo was kept, for security reasons, at 8 Omar Avenue over night and when the Post Office was shut but he asserted that he never used the Vaneo for anything other than business motoring either when he owned the Toyota or after he had sold the Toyota.
12. He asserted that his wife always did the shopping without his assistance and that she walked to the shops and took a cab back. He asserted that he had not bought any bulky items that would have needed the use of the Vaneo. Although he had visited his son at college in Preston in the Toyota he asserted that he had never taken either of his sons to their University accommodation in the Vaneo. On occasions when he or members of the family needed to use a car after the sale of the Toyota they always called a minicab. He claimed that he was working for such long hours at the Post Office that he rarely did anything else than working and resting at home. He claimed that he went to bed at 7pm when the Post Office was open i.e. every day except Sunday and that he rarely went out at all. We find that assertion very difficult to believe in that although we accept that running a Post Office from 9.00am to 5.30pm (as he asserted was the case) is hard work it hardly seems to warrant retiring to bed at 7pm. Mr Modupe-Ojo said that things had been different before he took on the Post Office which was why he had used the Toyota for private use before he had the Post Office but he also admitted that he had used the Toyota until he sold it some time after taking over the Post Office but denied that he had used the Vaneo after he sold the Toyota.
13. We find that the Vaneo was used for some private use and that it had always been the appellant's intention to allow it to be used in that way. Our finding in this respect is influenced by our finding concerning Mr Modupe-Ojo's evidence about the board minute (as to which see below) which casts doubt on the reliability of the rest of his evidence and by the impression given by the generality of the evidence of Mr Modupe-Ojo.
14. As far as the requirement to comply with article 7(2G) of the Value added Tax (Input Tax) Order 1992 is concerned the only matter relied upon by the appellant is its assertion that it had passed a resolution in the following terms at a board meeting held on 1 May 2004:

"Purchase of vehicle.

It was decided that a vehicle, costing no more than £15,000 (Fifteen Thousand Pounds Only), that will serve the dual purpose of transporting staff on marketing campaigns and to convey goods from the cash and carry to the Post Office should be purchased.

It was decided that the following conditions should apply to the vehicle when purchased:

a. It should ONLY be used for the company's business.

b. In order to ensure the safety and security of the vehicle, it should be kept at the registered office of the company and brought to the Post Office daily by the Mr Tunde Modupe-Ojo.

c. Any breach of these conditions by any member of staff will be deemed a breach of contract of employment.

d. Any breach by a director will be further deemed as a breach of duty to the Company."

The resolution was presented to us as an extract from the minutes and the actual minute book or other record was not produced. We were told that the minutes were kept on floppy disc and Mr Modupe-Ojo agreed that he had copied out the resolution for presentation to the tribunal rather than printing it out from the floppy disc.

15. Mr Lewinski did not agree that the resolution had been passed on 1 May 2004 or on any date before the purchase of the Vaneo and so he contended that the appellant had not complied with the need to take effective steps to prevent the intention arising to make the vehicle available for private use in the sense explained in Elm Milk.
16. Clearly, if the resolution was passed with the intention that it should be followed, that would go a long way, at least, to satisfying the requirements of article 7(2G). On the other hand, as this is the only matter relied upon by the company in that respect, if the resolution was not passed before the purchase of the Vaneo that provision would not have been satisfied. Neither party suggested that this or any other relevant resolution may have been passed on any date other than 1 May.
17. Paul O'Neill, an officer of HMRC, had visited the appellant on 15 July 2004 and had written to the appellant on the next day raising questions about input tax claimed on several items including the Vaneo. Mr Modupe-Ojo replied on 7 August asserting that deduction of the input tax on the vehicle should be allowed as it was used exclusively for business use and asserting that it was used to carry goods and staff. He also referred to a tribunal case (Masterguard Security Services Limited Decision 18631) in which a taxpayer had recovered input tax on a car used exclusively for business purposes; having excluded private use by direct instructions to its staff. He referred to a case in the High Court, Customs and Excise Commissioners –v- Robbins [2005] STC 1103, in which the taxpayer had failed because there was no legal or physical restriction on private use. It was clear from those references that Mr Modupe-Ojo had done some legal research as he informed us he had. He holds legal qualifications though he is not yet a solicitor or barrister. However, in the letter of 7 August 2004 there is no reference to the board resolution which the appellant asserts had been passed a few weeks earlier. The relevance of the resolution would have been most likely to have been appreciated by anyone of Mr Modupe-Ojo's intelligence who had read the two cases referred to, both of which make it clear that some impediment is required on private use over and above the mere intention not to use the vehicle privately.
18. Mr Modupe-Ojo said that he had not told Mr O'Neill about the resolution because he would have expected him to ask for documents but we find that answer unconvincing at least by the time he came to write the letter on 7 August because the relevance of the resolution would by then have been all too clear.
19. Mr O'Neill replied to that letter on 2 September 2004 stating that input tax on cars that are available for private motoring is not recoverable and enclosing a Public Notice. Mr Modupe-Ojo replied on 6 September referring again to the Masterguard case but not to the board resolution.
20. On 25 September 2004 Mr Modupe-Ojo wrote to Customs to say he wished to appeal and a Notice of Appeal was submitted on 30 April 2005. Customs had written again on 11 November 2004 referring to the case of Customs and Excise Commissioners –v- Upton [2002] STC 640 and enclosing a copy of it. They summarised the effect of that case in part by reference to 'making available' and said "there needs to be some impediment to private use over and above an intention only to use the vehicle for business purposes". Mr Modupe-Ojo replied on 15 November 2004 but still did not refer to the resolution.
21. The Commissioners' Statement of Case of 11 October 2005 also referred to the need, as they saw it, for an impediment. On 21 July 2006 the respondents requested Further and Better Particulars of the Grounds of Appeal including the following:

"Please provide details of any restrictions, both physical and contractual, on the use of the vehicle that were in place in period 05/04. For example a copy of the insurance documents in place for the vehicle at the time and details of who had access to the vehicle at the time."

That elicited a response in a letter dated 2 August 2006 which said in part:

"Please find enclosed an extract from the minutes of our Board Meeting held on 1^st May 2004 dealing with the details that you requested for."

That letter enclosed the document referred to at paragraph 15 above.

22. We find the evidence of Mr Modupe-Ojo about the resolution to be untruthful. It is suspicious that he did not produce the minutes of the meeting as such but only an extract from them. More significantly we find the fact that he only produced the purported extract from the minutes on 2 August 2006 and not in any of the earlier correspondence most damning. He had every opportunity to produce the resolution earlier and to appreciate its significance from at the latest 11 November 2004 when Customs sent him a copy of the Upton case. Had he been uneducated in legal matters it might have been different but clearly he had the ability to understand the significance of the resolution when he produced it and his failure to produce it earlier leads us to conclude that he did not have it, in other words the resolution was not genuine and had not been passed on 1 May 2004.
23. It follows that the requirements of article 7(2G) are not satisfied as there is no evidence on which we can find that there was no intention to make the vehicle available for private use. The appeal is accordingly dismissed. Mr Lewinski did not ask for costs and we make no award.
CHAIRMAN RELEASED: 25 January 2007

MAN/05/0347