19048
	VAT — ZERO RATING — Exports — rally car prepared for East African Safari Rally — whether exported to Kenya — no — whether supplied to purchaser in UK — yes — supply held to be standard-rated — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	HISTORIC MOTORSPORT LTD	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	Michael Johnson (Chairman)
						J T Brian Strangward 	

Sitting in public in Birmingham on 11 April 2005

David Holmes, accounts manager, for the Appellant 

James Puzey, counsel, instructed by the Solicitor’s office of HM Customs and Excise for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	This appeal concerns the correct treatment for value added tax of the supply of a Ford Escort RS1600 rally car.  The Appellant contends that the car was exported to Kenya so that the supply should be zero-rated for VAT.   The Commissioners of Customs and Excise (“Customs”) contend that VAT should have been paid at the standard rate in respect of the supply of the car.  That is the issue for the tribunal to determine. 

2.	The evidence received by the tribunal consisted firstly of what we were told by Mr Holmes, who represented the Appellant and gave oral evidence in support of the appeal; secondly copies of the relevant documents, which were conveniently assembled into a joint bundle by the parties for the use of the tribunal; and lastly the witness statement of Mrs May Forbes Cadman, an officer of Customs who attended tribunal but was not required to give oral evidence.  Mrs Cadman’s statement was admitted in evidence under rule 21(5) of the Value Added Tax Tribunals Rules 1986 (as amended).

3.	The following are the facts.

4.	The Appellant is in the business of preparing rally cars for rallies.  It also provides personnel for servicing and maintaining rally cars.  Its premises are in Daventry, Northamptonshire.  It is registered for VAT. 

5.	Mr Alexander Hack is or was resident in Portugal.  He had an interest in rallying.  In April or May 2002, Mr Hack contacted the Appellant.  He visited the Appellant’s premises.  He gave instructions for the Appellant to build him a rally car.

6.	The Appellant obtained a Ford Escort vehicle, Registration No PPP 657M, which could be used as a base for building the rally car Mr Hack desired.  Mr Hack and the Appellant agreed that the Appellant would build the rally car for a charge of £75,000 plus £4,000 for parts, a total of £79,000.  The agreement was oral but a hand-written specification was prepared, referring to the agreed charge and indicating that the car would be ready in September 2002.

7.	Mr Hack arranged for money to be transferred to the Appellant.  The sum of £50,000 was transferred to the Appellant’s bank account on 7 May 2002.  A further £29,000 was transferred to the Appellant’s bank account on 17 September 2002.

8.	The Appellant did not know what Mr Hack was going to do with the rally car when it was finished and ready for rallying.  All that was understood by the Appellant was that the vehicle would be going abroad.  Mr Hack had not said where it would be going.

9.	The car was finished and ready for use in good time before the end of 2002.  The Appellant issued Mr Hack with an invoice, marked “Paid”, dated 17 December 2002.  The invoice was sent to Mr Hack at his Portuguese address.  It stated that the invoice was for supplying one Ford Escort RS1600 rally car @ £79,000.  The invoice recorded the two bank payments of £50,000 and £29,000 respectively, made in May and September 2002.

10.	The invoice was silent as to VAT.

11.	On 9 January 2003, the Appellant received a visit from Mrs Cadman.  She interviewed Mr Holmes, who provided her with details of the rally car sold to Mr Hack.  On 14 January 2003, Mrs Cadman wrote to the Appellant about the VAT position in respect of Mr Hack’s car and a number of other cars.  With regard to cars delivered to other member States of the EC, she asked for evidence that VAT had been accounted for in those member States.  Whilst the letter does not expressly refer to any provision of the VAT legislation, it is clear that Mrs Cadman must have had in mind regulation 134 of the Value Added Tax Regulations 1995 SI 1995/2518 (“the 1995 Regulations”). 

12.	At about this time – January 2003 – Mr Hack decided what he wanted to do with the rally car.  He decided that he wanted to enter it in the 2003 East African Safari Rally at the end of that year.  This meant that the car needed to undergo a major rebuilding in 2003.  He left the car with the Appellant for that purpose.

13.	Following Mrs Cadman’s visit, the Appellant appreciated that it had value added tax difficulties.  It consulted Mr Paul Taylor of VATease.  He corresponded with Mrs Cadman on the Appellant’s behalf, beginning with a letter to her dated 4 July 2003.  That letter stated that the Ford Escort Registration No PPP 657M had been purchased by “a private individual based in Portugal”, ie (as we find) Mr Hack, that it had been converted to be a rally car, and that it “remained based in the UK”.

14.	It then appears that the purchase of the car was reinvoiced.  This time the invoice was not directed to Mr Hack personally, but to a limited company, Zorro Lda, at the same address in Portugal.  We find that Zorro Lda was an alter ego for Mr Hack.

15.	Unlike Mr Hack, who does not appear to have been registered for VAT in any member State of the Community, the invoice to Zorro Lda bears a VAT registration number for that company.  That invoice is in exactly the same terms as the invoice to Mr Hack dated 17 December 2002, but it is dated 7 August 2003.

16.	Also on 7 August 2003, Mr David Sutton, the Managing Director of the Appellant, wrote to Mrs Cadman to say that the invoice to Mr Hack dated 17 December 2002 “has now been completely removed from our records”.  His letter stated that the invoice had been replaced with the one dated 7 August 2003 and that the car, when rebuilt, would be shipped to Mombassa, Kenya.      

17.	Further correspondence took place between Mr Taylor and Mrs Cadman, and between Mr Sutton and Mrs Cadman.  In a letter dated 9 September 2003, Mr Taylor wrote to Mrs Cadman to say that it appeared that the car had not been up to specification for the use to which Mr Hack had wanted to put it.  Mr Taylor alleged that Mr Hack had not wanted to take possession of the car, which had been returned to the Appellant for further work.  He further alleged that the car had then been sold to Zorro Lda for use in the Kenyan rally and had been exported to Kenya.

18.	We find that this is inaccurate.  What had really happened was as follows:

•	After receiving the invoice dated 17 December 2002, Mr Hack decided that he wanted to enter the car in the East African Safari Rally;

•	Mr Hack instructed the Appellant to rebuild the car for him to be suitable for that rally;

•	When the car was approaching readiness, Mr Hack asked the Appellant to send it to Finland for testing by a Mr Ǻaltonen at Dinos Garage, Turku;

•	The Appellant despatched the car to Turku from Felixstowe Docks on 13 August 2003, with a view to its returning to Felixstowe from Turku on 31 August 2003;

•	The car was met by Mr Hack in Finland who supervised the testing;

•	Mr Hack was not satisfied with the state of the car, and required further work doing to it on its return to the Appellant’s premises in the UK;

•	From the evidence before us, Zorro Lda never owned the car – not only was the invoice dated 7 August 2003 entirely misleading, as Mr Hack personally was the true purchaser of the car in 2002, but we have seen no evidence that the vehicle was ever transferred to Zorro Lda;

•	It was Mr Hack personally who required further work to the car.  It is significant that Mr Hack personally was invoiced by the Appellant for the transportation from Daventry to Felixstowe and back, and he was personally invoiced by the Appellant for all the work required to rebuild the car for the rally in Kenya.  Both those invoices, dated 25 September 2003 and 4 October 2003, post-dated the alleged sale to Zorro Lda;

•	In October 2003 the car was shipped to Kenya, where it was rallied as intended.  What happened to the car after that is not clear, but there is a suggestion that the car may have returned to Europe and have continued to be used by Mr Hack. 

19.	Mr Puzey, appearing for Customs, submitted that the facts did not bear out that this vehicle was exported to Kenya pursuant to a zero-rated supply.  He submitted that delivery of the vehicle had been taken by Mr Hack in Europe, at a time when the intention to use the vehicle in Kenya was not clear.  That intention only became clear after Mr Hack had accepted the vehicle.  

20.	Mr Puzey further submitted that the invoice to Zorro Lda was misleading.  Whilst it appeared that Zorro Lda was registered for VAT, it appeared that Mr Hack personally was not.  Mr Puzey submitted that the Zorro Lda invoice represented an unsuccessful attempt to show that the supply was to Zorro Lda, whereas in truth it had been to Mr Hack himself.

21.	Moreover, Mr Puzey said, it was not clear at the time of the invoice to Mr Hack – that dated 17 December 2002 – to which country (inside or outside the Community) the vehicle might be removed.  If removal was to be to an EC member State, such as Portugal or Finland, it had not, therefore, been shown that regulation 134(a) of the 1995 Regulations was satisfied.  Regulation 134(b) was not satisfied, as it had not been shown that Mr Hack was taxable in another member State.  Regulation 134(c) was not satisfied, because the car, having been to Finland just for testing, had ended up going to Kenya.

22.	For all these reasons, Mr Puzey submitted, the supply was properly treated as standard-rated.

23.	For the Appellant, Mr Holmes submitted that it had always been the intention that the vehicle would be sent abroad.  The building of the car in 2002 was with a view to its being rallied abroad.  The rebuilding in 2003 was with a view to its going to Kenya.  Kenya was the only place for which the vehicle was destined, the brief trip to Finland being purely for testing purposes.

24.	Mr Hack was a Portuguese resident, but it was never apparent, Mr Holmes said, that he would be using the vehicle in Portugal or elsewhere in the EC.  So far as the Appellant was concerned, the car was going to Kenya, and that was all.  What had happened to the vehicle after that was not within the Appellant’s knowledge and was not the Appellant’s concern.

25.	Mr Holmes maintained that the Zorro Lda invoice had been prepared with a view to assisting Mr Hack.  He said that it did not affect the reality of the situation, which was that the vehicle was sold to be exported.  The supply was therefore properly zero-rated.

26.	On the facts as we have found them to be, the vehicle in dispute was in our judgment supplied to Mr Hack in the UK.  He accepted delivery of it when he gave instructions for it to be despatched to Finland for testing.  When it arrived there he had the use of it personally.  Although he sent it back to the Appellant for further work, this did not affect the fact that the vehicle had already been supplied to him and that he was the owner of it.

27.	The tax point for the supply was in 2002.  Therefore the supply had already been made when the Appellant received instructions to rebuild the car for Kenya.  It is a key consideration that the car was initially built (in 2002) and then subsequently rebuilt (in 2003).  The supply with which we are concerned relates to the car as it stood before it was rebuilt.

28.	It is true that the vehicle was subsequently sent to Kenya, but not as a zero-rated export.  In our judgment it was sent to Kenya by the Appellant as the agent of Mr Hack, after it had already been supplied to him.  If this had been a true export, one would have expected the vehicle to have left the UK within three months of its having been supplied, as mentioned in paragraph 1.12(a) and (b) of Customs’ Notice 703, dealing with direct and indirect exports respectively.  

29.	Customs impose requirements, as mentioned in that Notice, with a view to their being satisfied that goods qualify for zero-rating as having been genuinely exported.  These requirements have the force of law.  The Court of Appeal has approved different conditions required by Customs in an earlier version of Notice 703, on the ground that strict conditions are desirable to prevent evasion of VAT – see Henry Moss Ltd v Commissioners of Customs and Excise [1981] 2 All ER 86.   

30.	So it is incumbent upon the Appellant to show that this was a true export, and not the shipment to Kenya of a vehicle which had already been supplied to its owner in this country.  The Appellant has not in our view done this.  

31.	We accordingly announced at the conclusion of the hearing that the appeal was dismissed.  We record that, for the above reasons, our decision is that the supply that we are considering was subject to VAT at the standard rate, as Customs have contended. The Appellant is liable to account for that VAT, which on the invoiced price of £79,000, amounts to £11,765.96.

32.	No application was made for costs and none are awarded.

MICHAEL JOHNSON
CHAIRMAN
Release Date: 18 April 2005

MAN/04/0399