20073
New motor car Input tax Exclusion from credit Value Added Tax (Input Tax) Order 1992 Satisfying the relevant condition Intention to use exclusively for the purpose of a business Intention to make available for private use
BELFAST TRIBUNAL CENTRE
H M ELECTRICS LIMITED Appellant
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: Ms H GIBSON QC (Chairman)
MR A F HENNESSY
Sitting in public in Belfast on 15 June 2006
Ms Mary Farr, instructed by Patrick McGuckian solicitors, for the Appellant
Mr James Puzey, instructed by solicitors, for the Respondents
© CROWN COPYRIGHT 2007
DECISION
- This is an appeal against the Respondent's decision to disallow the input Value Added Tax on the BMW X5 registration number IIW 45 ("the subject motor car") purchased by the Appellant on 19th February 2002. It was subsequently sold and replaced by a Toyota land cruiser 4 wheel drive.
- We heard evidence from Mr Hugh McAlary managing director of the Appellant company. A witness statement of Mr F. Quinn served by the Respondents was not objected to by the Appellant.
THE FACTS
- Mr Hugh McAlary stated that the company engaged in electrical contracting for industrial concerns, schools and local councils and in some private work. Their work required hoist lifting equipment. This equipment had to be towed on site. Mr McAlary stated that it was too costly for the company to hire a towing car as a result of which a decision was made to purchase the subject motor car. The non-private contracts involved 24 hour call-out. The subject car was used for call-outs during working hours and for emergency ones outside working hours.
- At the time of the acquisition of the car Mr McAlary and his wife Rosemary McAlary were the sole directors of the company. His son Declan worked for the company as contracts manager. He subsequently became a company director in January 2006. During the period of the Appellant company's ownership of the subject car, Declan McAlary lived at home at 95, Glen Road, Maghera.
Mr McAlary said that all company business was at the time of acquisition and continues to be, conducted from 95, Glen Road Maghera, the home of the McAlarys. Mr McAlary stated that the house was rated for business as well as private purposes. Mr McAlary stated that the business premises were located in an adjoining yard. An office was sited there. The keys to the subject motor car were kept in the office.
- Mr McAlary stated that although the car was insured for anyone to drive it, only he and his son Declan did so. Emergency call-outs averaged 5 per week. No other employees did call-outs. One person would attend the call-outs. Mr McAlary said that he, his wife and his son each had their own private car. Mr McAlary's was a company car. Mr McAlary stated that if on call he might take the subject motor car to a social event. If called out he might take his golf clubs in the car and go directly to the golf club after finishing the job.
- Under cross-examination Mr McAlary accepted that there were five seats in the car even though only one person would be attending the call-out. Mr McAlary stated that for example a Ford pick me up would not have the horse power necessary to tow. He accepted that as demonstrated by the invoice the car had a high specification including an electric glass sun-roof. Mr McAlary admitted the car was not insured for business purposes only and stated he had not thought to ask for that. He accepted that the car had a cherished number-plate but pointed out that four of the company cars had cherished number plates. Mr McAlary stated the directors had agreed at a board meeting to purchase the car for business purposes. The car was very occasionally used for towing out of normal hours. No mileage log was kept to prove it was only used for business purposes. When asked how did the company ensure that the car was not used for private purposes, Mr McAlary stated that the keys were kept in the office but accepted they all had access to them at all times. The family's own cars were kept at the house but the subject car was kept in the yard. A call-out rota was worked out during the week and the weekends were split. He said that he did not take the car as a matter of course to play golf but if he went out on call, then he would take his clubs in case he might be able to play golf afterwards. Mr McAlary stated that he made the assumption that the condition was fulfilled otherwise the company would have had to buy a lorry.
- No evidence was called on behalf of the Respondents who relied on the written statement of Mr F. Quinn which had not been objected to by the Appellant.
- A minute of the board meeting of 5th January 2002 was produced by the Appellant at the conclusion of the evidence. The Respondents did not object and accordingly it was admitted in evidence.
ARGUMENT
- The Tribunal had the benefit of very clear submissions from counsel including a skeleton argument from Ms Farr.
- Mr Puzey submitted that in order to succeed in its appeal the Appellant must satisfy the provisions of paragraph 7 (2) (a) of the Value Added Tax (Input Tax) Order 1992 (as amended). He conceded that the Appellant satisfied 2 (a) (i) and (ii), but asserted that the relevant condition at (2)(a)(iii) was not satisfied. The Appellant company had not demonstrated that it intended to use the subject car exclusively for business purposes. It had not shown that at the time of purchase, it had intended not to make the car available for private use as required by paragraph 2 E and G (b). Mr Puzey referred to the decision in Elm Milk and to paragraphs 23 and 37 in particular and stated that when considering whether there was an intention not to make a motor car available for private use, one is presumed to intend the natural consequences of one's acts. Mr Puzey submitted that there must be sufficient and effective restraints on the availability for private use and such restraints could be physical or legal, but no such restraints had been put in place in this case. No steps had been taken to make it unavailable for private use. Mr Puzey submitted that the board minute did not prove that the motor car was to be restricted from private use and the Appellant did not have a recorded decision excluding private use as had been the case in Elm Milk and the Peter Jackson cases. The car insurance was not restricted to business user. Mr Puzey submitted that its £45,000 purchase price, the fact that the X5 carried passengers, its CD player and sunroof did not characterise a contractor's workhorse a car to be used for wholly business purposes. No log books were kept to record mileage. Mr Puzey referred to Mr Quinn's evidence whereby Mr McAlarey said that he occasionally went to social functions in the subject motor car when on call. Mr Puzey submitted that there must be cogent evidence as to restriction on availability for private use. The Appellant had not discharged that burden. Post facto evidence needs to be regarded with care but he asserted that in any event the post facto evidence confirmed that the car was available for personal use and that it was indeed used for personal purposes. He submitted if the appeal were allowed, the statutory provisions would be rendered worthless.
- Ms Farr for the Appellant submitted that the Appellant's employees did not use the motor car for social purposes and argued that Mr Hugh McAlarey was still on call after playing golf. The fact that the car was comfortable did not preclude it from being a "work" car. Ms Farr submitted that the Board minute demonstrated an intention to use exclusively for business purposes. She contended that the minute clearly evidenced that the car was not to be used for private purposes. It constituted a legal restraint and any other use would be "ultra vires". It was in effect an instruction to the company's employees as in the Peter Jackson case. A departure would be a breach of the employees' contracts of employments.
- In reply Mr Puzey argued that the minute did not constitute a restraint and furthermore there was no evidence that the McAlareys felt constrained by it. Indeed the post facto evidence confirmed that the motor car was available for personal use at the time of purchase.
CONCLUSIONS
- The input tax on the supply of a new motor car will be excluded from any credit under section 25 of the Value Added Tax Act 1994 unless paragraph 7 (2) (a) of the Value Added Tax (Input Tax) Order 1992 (as amended) is satisfied. In other words the tax charged on the supply of a new motor car will be ineligible for credit unless the motor car is:
(i) a qualifying motor car
(ii) supplied .. to a taxable person; and
(iii) the relevant condition is satisfied.
Paragraph 2(E) provides that for the purposes of 2(a) "the relevant condition" is that the supply is to a taxable person who intends to use the car
(a) exclusively for the purposes of a business carried
on by him subject to paragraph 2(G)
Under paragraph 2(G) a person shall not be taken to intend to use a motor vehicle exclusively for the purposes of a business carried on by him if he intends to :
.
" (b) make it available to any person (including, where the taxable person is an individual, himself
.) for private use, whether or not for a consideration
."
- The Tribunal concludes and indeed it was conceded by the Respondent that paragraphs 7(2)(a)(i) and (ii) of the Value Added Tax (Input Tax) Order 1992 (as amended)are satisfied. Therefore the only question to be decided by the Tribunal is whether the Appellant company intended to use the car exclusively for the purposes of a business carried on by it as prescribed by paragraph 7(2)(a)(iii). This necessarily involves determination of paragraph 2(G) i.e. at the time of purchase did the Appellant company intend to make the vehicle to any person for private purposes?
- In the case of Commissioners of Customs & Excise v Elm Milk [2006] EWCA Civ 164, the Court of Appeal considered the question as to when a trader may recover the input tax on a motor car purchased for business purposes. The restrictive approach adopted in previous cases such as Commissioners v Upton (trading as Fagomatic) [2001] STC 912 was rejected. At paragraph 39 of the judgement of the Court, Lady Justice Arden stated :
' Parliament has not in Article 7(2) (G) 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 so available.
..There is thus no reason why a car cannot be made unavailable for private use by suitable contractual constraint, that is effective restraints.'
In the case of Peter Jackson (Jewellers) Ltd v Commissioners HMRC (19474), the Tribunal considered that a verbal instruction to his staff prohibiting private use of the vehicle was a genuine, lawful and reasonable order which he expected and trusted his staff to obey. The Tribunal said this amounted to an implied contractual term not to use the vehicle for private purposes. There was a legal restraint against them doing so.
- In the instant case there were no physical restraints against the subject car being used for private purposes. The car was kept at the yard beside the house. The keys were kept in the office but Mr McAlary candidly accepted that they had access to them at all times. The company minute of 5th January 2002 records the board's approval for the purchase of a '4 wheel drive vehicle' to be used for towing trailers re transportation of elevator hoist to and from sites and to be used as service vehicle on emergency call-outs. These are undoubtedly all functions connected with the business. The minute does not however state that the vehicle is not to be used for private purposes. The Tribunal does not accept that the minute clearly evidenced that the car was not to be used for private purposes or that it constituted a legal restraint against such use as submitted on behalf of the Appellant. Mr McAlary did not give evidence to this effect. Nor did he suggest that any private use of the car would constitute a breach of his contract of employment. Indeed the post facto use made of the car involved some limited private use albeit connected with call-out needs. The Tribunal does not consider that Mr McAlary believed he was acting unlawfully and in breach of his contract of employment with the company in so doing.
- The Tribunal concludes that whilst the Appellant company purchased the subject car for business purposes, there were no effective restraints against private user and hence the Appellant cannot show that it did not intend to make it available for private use. In those circumstances the relevant condition specified in paragraph 7(2)(a)(iii) has not been satisfied. Consequently the Appellant was not entitled to claim the input tax on the purchase of subject motor car. Accordingly the appeal fails.
- The Respondents made no application for costs and we make no order.
HEATHER GIBSON
CHAIRMAN
RELEASED: 22 February 2007
LON/05/8013
