19210                                                            

INPUT TAX – Motor vehicle – Deduction of input tax in respect of lease charges – Appellant sole proprietor of business and owner (subject to lease) of vehicle – Vehicle insured for business and private use : no other cover available – Used by Appellant only for business purposes – Whether “made available for private use” – Yes – VAT (Input Tax) Order 1992, art 7(1), (2), (2E), (2G)

MOTOR VEHICLE – Scale charges – Vehicle used by Appellant for business purposes only – Whether liable to scale charges – No – VATA 1994, s.56

LONDON TRIBUNAL CENTRE

N L LEWIS T/A CARE DESIGN	Appellant

-	and –

HER MAJESTY’S  REVENUE AND CUSTOMS 	Respondents

			Tribunal:	ANGUS NICOL (Chairman)
					R D CORKE FCA 

Sitting in public in Cardiff on 13 May 2005

The Appellant in person

Richard Smith, counsel, instructed by the Solicitor for the Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	The Appellant, Mr Nigel Leighton Lewis, appeals against an assessment to VAT in the sum of £710 (including interest), arising out of a disallowed claim for input tax in respect of lease charges on a car and for motoring scale charges which were unpaid.  He also appeals against an assessment in connexion with the application of scale charges relating to fuel for that car.

The law

2.	By section 26(1) of the Value Added Tax Act 1994, a person is entitled to credit for such input tax as is allowed by regulations. The legislative provisions relating to input tax on lease charges for a motor car are contained in article 7 of the Value Added Tax (Input Tax) Order 1992 (“the 1992 Order”) which provides, so far as is relevant to this appeal, as follows:

“(1)	Subject to paragraph (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) does not apply where—
(a)	the motor car is—
	(i)	a qualifying motor car;
	(ii)	. . .
	(iii)	the relevant condition is satisfied;
. . .

(2E)	For the purposes of paragraph 2(a) above the relevant condition is that the letting on hire, supply, acquisition or importation (as the case may be) 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; 
. . .

(2G)	A taxable person shall not be taken to intend to use a motor car exclusively for the purpose of a business carried on by him if he intends to—
	(a)	. . .
(b)	make it available (otherwise than by letting it on hire) to any person (including, where the taxable person is an individual, himself, or where the taxable person is a partnership, a partner) for private use, whether or not for a consideration.

(2H)	Where paragraph (1) applies to a supply of a motor car on a letting on hire it shall apply to the tax charged on that supply as if for the word ‘tax’ there were substituted ‘one half of the tax’.”

3.	The provisions relating to scale charges are contained in section 56 of the 1994 Act.  So far as is relevant to this appeal that section provides:

“(1)	The provisions of this section apply where, in any prescribed accounting period, fuel which is or has previously been supplied to ... A taxable person in the course of his business—
(a)	is provided or to be provided or to be provided by the taxable person for private use in his own vehicle...; or
(b)	where the taxable person is an individual, is appropriated or to be appropriated by him for private use in his own vehicle; or
(c)	where the taxable person is a partnership, is provided or to be provided to any of the individual partners for private use in his own vehicle.
. . .
(3)	For the purposes of this section and section 57—
(a)	‘fuel for private use’ means fuel which, having been supplied to ... a taxable person in the course of his business, is or is to be provided or appropriated for private use as mentioned in subsection (1) above;
. . .
(5)	In relation to the taxable person, tax on the supply, acquisition or importation of fuel for private use shall be treated for the purposes of this Act as input tax, notwithstanding that the fuel is not used or to be used for the purposes of a business carried on by the taxable person....

(6)	At the time at which fuel for private use is put into the fuel tank of an individual’s own vehicle ... the fuel shall be treated for the purposes of this Act as supplied to him by the taxable person ... (and, accordingly, where the fuel is appropriated by the taxable person to his own private use, he shall be treated as supplying it to himself in his private capacity).”

The facts

4.	There was, with one exception, no significant dispute as to the facts, and we find them to be as set out in the following paragraphs.  The exception was as to the availability of the car for private use: that issue is the kernel of this appeal.

5.	The Appellant is the sole proprietor of his business, which is that of architectural design.  His home address is also his registered business address, and he has no separate office.  His wife works as a part-time employee in the business.  The Appellant acquired on lease an Audi motor car.  We were told, and we accept, that his intention was at all times that that car should be used only for the purposes of his business, and that it should not be available for private use.  We were told that the car had in fact never been used for anything other than business purposes.  The car was kept at the business premises, which were also his own home.  The Appellant’s wife also had a car, and that car was used by both of them for all private purposes.  The Audi was insured for business use and also for social, domestic and pleasure purposes.  The Appellant had not been able to obtain insurance cover for business purposes only.  There was produced to the Tribunal a letter from a Mr Ray Dickens, a director of Thomas, Carroll (Brokers) Ltd, who are insurance brokers, which states that in thirty-five years as an insurance broker, the writer had never come across a policy that did not include social, domestic and pleasure cover, including insurance for fleets of lorries. In a letter dated 12 January 2004 to the Appellant, Miss Suzy Campbell, an officer of Customs and Excise who was dealing with this case, stated, “I must first point out that it is possible to obtain fully comprehensive insurance for business use only, which you will find will comply with your leasing agreement.”  However, no evidence was called to establish that.  The fact remains, that the Appellant’s Audi was insured for both business and private use.

6.	It was also the Appellant’s case that he took every step to ensure that the car was used only for business purposes. He said that the car was a two-seater, and was not a practical family car. He chose that car so as to project to clients the desired image. The car was used to visit clients and for quite a lot of short journeys such as going to a local print shop where his designs were normally printed. Usually the Appellant himself did that, but occasionally his wife did, and she would on those occasions use her own car. The trips that he made in the Audi were never combined with other purposes, such as shopping. The Audi was never used for social purposes.  It was inconvenient not to use the car for private purposes. The Appellant acknowledged that there was nothing, nor could there be anything, which could prevent his using the Audi for any purpose.

7.	The Appellant said that there was no objective evidence of private use, because it was impossible to record nothing. However, he recorded all his business journeys except those within Cardiff, since to record all short journeys would be onerous, though he could do it if necessary. He contended that the scale charge should not be applied, since there was absolutely no private use and therefore no fuel was used for private purposes. (We adjourned the appeal, after hearing argument, directing that the Appellant should produce his motoring records from 1 November 2001 to 31 October 2003 within 14 days.)

The Appellant’s contentions

8.	The Appellant relied upon the facts, first, that his intention was to use the Audi only for business purposes, that he had used it only for business purposes, and that he had taken such steps as were open to him to ensure that it was not available for private use. The fact that the car was parked at his private address was nothing to the point, since that was also his business address. He had had no choice in the insurance cover, since purely business cover had not been available. As to the scale charges, since he had done no private mileage in the Audi, they could not apply.  

The Commissioners’ contentions

9.	Mr Richard Smith, who appeared for the Commissioners, submitted a skeleton argument (drafted by Miss Caroline Neenan, who was originally instructed).  It was the Commissioners’ case that the Audi was available for private use, and that there was no objective evidence that the business had not funded private mileage.

10.	Mr Smith referred to the Court of Appeal decision in Upton v Commissioners of Customs and Excise [2002] STC 640 as to the meaning of the words “make it available” in paragraph (2G)(b). He said that the only difference between the essentials of the present case and Upton was that in this case the car was on a lease whilst in Upton it had been purchased outright. He referred to the judgment of Buxton LJ including in particular paragraphs 29 to 31, in which he said:

“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 [his Lordship’s emphasis] for Mr Upton’s private use, however little he then had any 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 used, albeit in the business and not privately.

30.	Further, I see no escape from the conclusion that Mr Upton had made the car available to himself. He did that, tautologically enough, by providing himself with ownership and control of the car. As we have seen, the availability that was created was availability for private as well as for business use.” [His Lordship’s emphasis.]

31.	Did Mr Upton at the moment of purchase intend to make the car available to himself for private use? [His Lordship’s emphasis.] The question is not whether he intended to use it, but whether he intended to make it available for use. That again seems to me to lead to a short answer. The first question, of whether what was done constituted a making available for private use, is answered, in the terms urged above, by analysis of what Mr Upton did in the context of the true construction of the statutory concept of making available for private use. Mr Upton unquestionably intended to do the acts that, on that true construction, constituted the making available of the car for private use. He therefore necessarily intended to make the car so available, by intending to do the acts that constituted making the car available for use. He cannot escape from that conclusion by saying, as he does, that he did not intend actual use; or that, for that reason, he did not regard the car as available for his use. If he intends to do the acts that are in law the state of affairs referred to in the statute, then he intends that state of affairs as statutorily defined.”

11.	Mr Smith also referred to the judgment of Lord Osborne in the Court of Session in Customs and Excise Commissioners v Skellett [2004] STC 201 in the Court of Session, in which Lord Osborne, giving the opinion of the court, said, in paragraph [13], that where a sole trader acquires a vehicle intending to use it exclusively for business purposes, nevertheless the vehicle will have been made available for private use 

“unless effective steps are taken to render the vehicle incapable of such use by that person.  In other words, upon the view that a person must be taken to intend the natural consequences of their own actions, that person may properly be taken to intend to make the vehicle available for private use, unless such steps are taken by him.”  

Mr Smith referred also to Elm Milk Ltd v Customs and Excise Commissioners (2004) (Decision No 18594), in which the appeal was allowed because the appellant had created a legal bar to use other than private use by passing a board resolution that the vehicle was not to be used for private purposes.

12.	As to the scale charges, Mr Smith said that it was necessary for the Appellant to shew the business use of the car, and that was a matter of evidence for the Tribunal; the burden was on the Appellant to establish that use.

The Appellant’s reply

13.	Mr Lewis contended that there was a difference between the present case and that of Upton.  It was of significance that the Appellant’s car was on a lease and had to be used for the purpose for which it was leased.  The Appellant had acquired the car for business purposes only, and went out of his way to ensure that his intention, to use it only for business purposes, was fulfilled. That was unlike Upton, in which the taxpayer took no such steps.

14.	We adjourned the appeal at this point, in order to enable the Appellant to produce his motoring records. We directed that they should be produced to the Tribunal and the Commissioners within 14 days after the date of hearing.

Conclusions

15.	We deal first with the matter of input tax on the lease payments.  The salient facts are that the Appellant is a sole proprietor who has acquired a car for use in his business. He uses it only for his business, and has intended at the time of acquisition and thereafter not to use it for private purposes. It is kept at his business address, which is also his home address. It is insured for business and private use, and his wife, a part-time employee of the Appellant, is a named driver on the policy. As sole owner of the car (subject to the lease) the Appellant has complete authority as to how it is used.  As he conceded in evidence, as to which he had no choice, there was nothing to stop him using the car for any purpose which he might choose. There was no-one who could prevent him, and any use, business or private, would be lawful. That was the situation from the moment of acquisition. We do not consider that the fact that the car was kept at his home address is determinative; it is a matter to be taken into consideration, but it is not difficult to imagine circumstances in which a vehicle which in all other respects was confined to business use might be kept at an address which was both private and business.

16.	However, in our judgment the facts of this case are in their essentials very much the same as those in Upton, certainly to the extent that the judgment of Buxton LJ as set out in paragraph 10 above, applies as much to that case as to this.  A factual difference is that Mr Upton took no steps to confine the use of his Lamborghini to business use, whereas the Appellant in this case attempted to do so.  But the important thing is that the steps must be effective steps (see Skellett, cited in paragraph 11 above). The taking of ineffective steps cannot be sufficient to meet the condition imposed by paragraph (2G). Unfortunately for the Appellant, the steps taken by him were not effective, and, in the circumstances, were not capable of being effective.

17.	For the above reasons, in our judgment the Audi was made available for private use, and this part of the appeal must therefore fail.

18.	We turn now to the matter of the scale charges.  We have now seen the Appellant’s motoring records. There were five volumes of them covering nearly five years.  Each record of a trip gave the date and the name of the client,  or other purpose of the trip, such as fuelling or for service. The one essential particular was, however, missing. There was no entry for the reading from the milometer for each trip.  That, if included, would have shewn whether the mileage was continuous throughout this log, or whether there were any trips between. That being so, although the log shews that there were many and frequent trips, in fact virtually daily trips, for business purposes, it does not establish beyond a peradventure that there was no other mileage.  The Appellant’s claim that the whole of the mileage done in the Audi was for business purposes is disputed by the Commissioners. We cannot, therefore, make any assumption about it. We therefore have to consider whether, on the balance of probabilities, the whole of the mileage was for business purposes. It was the Appellant’s evidence that he used the car only for business purposes. Taking the car to refuel, or to a garage for servicing, would, in our view, come under that heading if the rest of the mileage was for business purposes.  We bear in mind that the Appellant was endeavouring to establish that the car had no other use and was not “available for private use”, and that it was for that reason that, he said, he used it only for business.  We have to consider whether we can accept that as the truth.  It seems to us that there are two possibilities: either the Appellant was telling us the truth, or he had come to the Tribunal with the intention of telling us deliberate lies. Having heard him give evidence and having considered his evidence, we consider that he was a witness of truth. We therefore find, on the balance of probabilities, that the mileage was all for business purposes. While that fact does not assist the Appellant so far as his appeal against the refusal of input tax is concerned, it does determine the matter of scale charges in his favour.

19.	For the above reasons, this appeal is dismissed so far as the input tax issue is concerned, and allowed on the issue of the scale charges.

20.	Both parties expressed the intention of not applying for the costs of this appeal, and accordingly we make no order as to costs.

ANGUS NICOL
CHAIRMAN

RELEASED: 15 August 2005

LON/04/841