20673

Output Tax:  supplies of fuel and membership of association whether exempt under VATA 1996 Schedule 9 Group 9 or 12, research funds obtained from membership:  not exempt supplies.

EDINBURGH TRIBUNAL CENTRE

	MOTOR VEHICLE PROTECTION ASSOCIATION	Appellant(s)

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

			Tribunal:	 (Chairman):  T Gordon Coutts, QC
					 (Member):	  Mr K Pritchard, OBE., BL., WS

Sitting in Edinburgh on Thursday 24 April 2008

for the Appellant(s)	Mr James McDonald

for the Respondents	Mr Julien Winkley

© CROWN COPYRIGHT 2008.

DECISION

Introductory
The Appellant Association represented by Mr James McDonald the founder and trustee thereof appealed against a decision of the Respondents amending the Appellant’s VAT return to require it to account for output tax in the sum of £62,806.  The Appellant had declared no output tax and claimed only input tax in its first return presented after its application for registration on 25 April 2007.  The Appellant had advised HMRC that its taxable supplies would be petrol and derv sale of goods.

The first, repayment, return claiming input tax of £80,249, unsurprisingly, attracted a visit from Mr Shields of the Commissioners.

The Tribunal heard evidence from Mr McDonald and the above-mentioned John Shields.  

The supplies which the Appellant was said to have made consisted of the sale of fuel and membership fees of the Association.

The Association
Information about the Association was found in its constitution, a document prepared by Mr McDonald, perhaps in his paralegal capacity, and in a copy of the printed application for membership.

The constitution talks about third party insurance, and objectives to reduce emissions from exhaust vehicles, the promotion of the continued use and value of a motor vehicle, and it purported to allocate a membership fee for research and development.  

The membership fee of £100, which 1812 persons have paid entitled the member to discounted fuel.  The discount in substantial measure was the absence of VAT.  The Association was said to be non-profit making, but that was simply an assertion by Mr McDonald and did not appear from its constitution.  Mr McDonald readily admitted that he had neither charged output tax on supplies or declared it in his VAT return as he asserted.   The Association was non profit making and therefore exempt.  The membership was said to be the motor vehicle and not an individual.

The Invention
Mr McDonald stated that he had devised some object which had the effect of reducing emissions from vehicles.  The Tribunal was not given any information about the method, construction, manufacture or installation of such an object save that a chit was produced from Murray Motors outlining the results of an analysis which, said Mr McDonald, demonstrated the difference between a vehicle without his device and a vehicle with his device.  The figures were incomprehensible to the Tribunal and no independent or credible explanation of these was provided.

The Tribunal does not require to make, and does not make any findings in relation to the utility, efficacy or originality of the claimed invention the function of the Tribunal being solely to determine the VAT liability on supplies.

Supplies
There was no dispute that fuel had been supplied by the Association, it was said to its member vehicles but, plainly, vehicles are not sentient beings and the supply must truly have been made to the owner or operator of the vehicle.  The Tribunal does not require to make any findings in regard to whether the supply did not create any profit as was asserted by Mr McDonald  The fact is that fuel was supplied by a registered trader and profit or not is irrelevant.  VAT is a tax on turnover not profit.

The Membership Fees
These payments purported to provide funds for research and development of Mr McDonald’s device.  What in fact they did was to entitle the “member” to fuel at a low price.  The Tribunal was told and sees no reason not to accept that testing was undertaken of emissions from various vehicles but it was significant that none of these tests showed the result of the device.  They were simply an accumulation of data from the assorted vehicles which were driven into the garage.  The Tribunal was not persuaded that any significant research was in fact done in that regard and certainly none with any object of benefiting the member.

Contentions for the Appellant
The Appellant’s principal contentions were that the membership was an exempt supply.  This was said to be supported by passages from Tiley and Collison; UK Tax Guide 2006-7 paragraphs 12.10 and 68.15; 12.10 deals with introductory fees and has nothing to do with trading and 68.15 deals with research that requires to be conducted by a body which has objects which are in the public domain and are of a political, religious, patriotic, philosophical, philanthropic or civic nature (Group 9(1) VATA 1994 Schedule 9).  None of these applied.  Mr McDonald also contended that exemption for membership fees was available under Group 12 of that Schedule that deals with the supply of goods and services by a qualifying body, i.e. a non-profit making organisation as is mentioned in Item 1 of Group 9 and primarily concerned with the raising of money.   Mr McDonald’s submissions were on the most charitable view, self deluding sophistry.

The Appellant’s activities cannot by any stretch of language fit within the wording of Group 9 or Group 12 the membership therefore is not entitled to exemption.  It was contended that the supply of fuel followed the membership position.  Apart from the fact that it does not it is plain that there are two separate supplies.  The membership subscription is not exempt on any definition.  It is further to be noted that even if the supplies were exempt that would not entitle the Appellant to deduction of input tax.  Input tax would only be deductible if the supplies were zero rated and not as claimed here exempt.

Decision
The substance of the appeal has no merit and the appeal itself is dismissed.

T GORDON COUTTS, QC

CHAIRMAN

RELEASE:  9  MAY 2008

EDN/07/142