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Cite as: [2006] UKVAT V19913

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Mitchells Agritrials Ltd v Revenue & Customs [2006] UKVAT V19913 (29 November 2006)
    INPUT TAX Motor car Purchased by company dealing in agricultural trials of a Landrover Discovery Whether intention to make available for private use No restrictions on private use Appeal dismissed




    Tribunal: LADY MITTING (Chairman)


    Sitting in public in Birmingham on 6 November 2006

    Julian Millichamp, VAT Consultant, for the Appellant

    James Puzey of counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents


  1. The Appellant company appeals against an assessment to VAT in the sum of 4,141 plus interest issued on 19 July 2004 for period 07/02. The assessment was raised to recover input tax which the Commissioners maintain was wrongly claimed on the Appellant's purchase of a Landrover Discovery.
  2. We heard oral evidence from Mrs Sarah Purvis for the Appellant. The Commissioners called no oral evidence but we were referred to a witness statement from Mrs Pamela Breteche, the assessing officer, which had not been objected to.
  3. The evidence
  4. Mrs Purvis (then Miss Mitchell) set up Mitchells Agritrials Ltd ("Mitchells") in February 2001. She was sole director and sole shareholder and her father acted as company secretary. She had one employee for the first twelve months and her now husband also worked for the company from April 2002 to 2004 as business development manager. The company dealt in the testing of chemicals, fertilisers and seeds for producing companies. The practical work was carried out by Mrs Purvis herself and consisted of sowing, spraying, monitoring, harvesting and analysing in marked areas of fields under test conditions. This of necessity involved transporting a large amount of equipment both large and small. Small items could be carried in Mrs Purvis's rucksack but larger items such as a 3 metre boom, spraying equipment, a combine and drill all had to be transported in a heavy duty 4 x 4 vehicle capable of travelling over fields and with a towing capacity. Initially Mrs Purvis hired a Landrover Defender to which she could attach a trailer. Thereafter however, on 30 October 2001, the company purchased the Discovery. Three adaptations were made to the vehicle. First it was fitted with a specialist cornering system which rendered the vehicle more stable when towing or when fully laden. Secondly a heavy duty moveable toolbar was fitted and thirdly rubber mats were fitted throughout to try and keep the vehicle itself clean.
  5. Mrs Purvis owned for her own personal use a Vauxhall Cavalier, also used for business purposes. The Cavalier was insured with the National Farmers Union ("NFU") which also provided all the company insurance cover. On purchase of the Discovery, Mrs Purvis phoned the NFU to ascertain whether it was possible to insure the Discovery for business use only but was advised it was not. This call was evidenced by a handwritten note from the NFU dated 30 October 2001.
  6. When Mrs Purvis started the company, she was living at home with her parents at Hoo Farm, Hoo Lane, Tewkesbury and all the company equipment was stored there in an extensive range of outbuildings. In January 2003, Mrs Purvis purchased her own property at 8 Pins Green in Malvern to where smaller and more easily moveable items and those which were in regular use were transferred and stored. Larger items of equipment, and in particular the Discovery, she continued to keep at Hoo Farm. Mrs Purvis told us the Discovery was used solely for the purposes of business, had never been used privately and there had never been any intention so to do. All personal journeys she undertook in the Cavalier. The Discovery was eventually sold on e-Bay after she wound up the company in March 2005 when she no longer had any need for it.
  7. Mrs Purvis's then accountants sought confirmation from the Commissioners in June 2002 that input tax could be reclaimed on the purchase of the Discovery which they maintained in their letter was used solely for business purposes. The Commissioners replied in the following terms:-
  8. " , I must remind you that for VAT purposes the test is not just what the vehicle is used for, but additionally what use is the vehicle available for. If the vehicle is available for private use then input tax deduction cannot be made "

    On the strength of this the input tax was reclaimed in period 07/02. On 30 June 2004, Mrs Breteche paid a routine visit to Mrs Purvis at 8 Pins Green. During the course of the visit she was told by Mrs Purvis that the Discovery was normally kept at Hoo Farm with other large items of equipment. However on the visit she observed the vehicle parked outside 8 Pins Green. Mrs Breteche drew the conclusion that the vehicle was being used for private as well as business purposes and as such the company had not been entitled to recover the input tax and she raised an assessment accordingly.

  9. Correspondence then ensued between Mrs Purvis and the Commissioners, it being dealt with on behalf of the Commissioners by Mrs Sally Blackford. In a letter dated 23 November 2004, Mrs Blackford asked three questions concerning the use of the Discovery including in particular about the insurance cover for the vehicle and whether or not it had been adapted. In her reply Mrs Purvis set out the adaptations but Mrs Blackford considered that neither the adaptations to the vehicle nor the terms of the motor insurance prevented it from being available for private use. She therefore upheld the assessment.
  10. The legislation
  11. Input tax may not be recovered on the purchase of a motorcar by virtue of Article 7(1) of the VAT (Input Tax) Order 1992 ("The Order"):
  12. "7(1) Subject to paragraph (2) to (2H) below tax charged on
    (a) the supply (including a letting on hire) to a taxable person;
    (b) the acquisition by a taxable person from another member State; or
    (c) the importation by a taxable person,
    of a motor car shall be excluded from any credit under section 25 of the Act."

    However, this is subject to the exceptions in Article 7(2), in particular Article 72)(a), 7(2E) and 7(2G).

    "7(2) Paragraph (1) above does not apply where
    (a) the motor car is
    (i) a qualifying motorcar;
    (ii) supplied (including on a letting on hire) to, or acquired from another member State or imported by, a taxable person; and
    (iii) the relevant condition is satisfied;
    7(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; or
    (b) primarily for a relevant purpose
    7(2G) A taxable person shall not be taken to intend to use a motorcar exclusively for the purposes of a business carried on by him if he intends to
    (a) let it on hire to any person either for no consideration or for a consideration which is less than that which would be payable in money if it were a commercial transaction conducted at arms length; or
    (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."
  13. We were referred by the parties to the following cases:
  14. Georgiou v Customs and Excise Commissioners 1995 STC 1101
  15. Customs and Excise Commissioners v Upton (Trading as Fagomatic) 2002 EWCA Civ 520
  16. Customs and Excise Commissioners v Elm Milk Limited 2005 EWHC 366 (Ch)
  17. Pegasus Birds v Customs and Excise Commissioners 2004 EWCA Civ 1015
  18. Submissions
  19. Mr Millchamps's primary submission was that the assessment was not raised to best judgment and could not therefore be allowed to stand. It was his contention that Mrs Breteche had applied an incorrect test and had raised the assessment on insufficient evidence. In apparently relying only on the presence of the Discovery outside 8 Pins Green, Mrs Breteche was concentrating on the actual availability and use of the vehicle rather than the true test which was the intention at the time of supply. Further, the fact that Mrs Blackford thought the need to ask questions subsequent to the raising of the assessment shows that those points were relevant but were not considered by Mrs Breteche. We were referred to the submission of Mr Barlow in Georgiou, an argument which found favour with the Judge, that best judgment would be complied with as long as there was a sufficiency of information and at the time of making the assessment the Commissioners had relied upon the totality of the information. In this case there was further information which would have been available to Mrs Breteche had she sought it out and in not so doing, she did not exercise best judgment. Mr Millichamp's second contention was that there was evidence of intention at the date of supply not to make the vehicle available for private use. This intention was evidenced by enquiries made to Customs as to the possibility of recovering input tax, the enquiries made to the NFU concerning insurance cover; the sale of the vehicle on the winding up of the company and the existence of an alternative vehicle (the Vauxhall Cavalier) for private use. Thirdly, on the absence of any restrictions on private use, Mr Millichamp pointed to the inability of the Appellant to obtain business only insurance and also pointed out that Mitchells was a very small operation with only a couple of people involved and it would therefore have been very strange for a company minute to have been made relating to the purchase.
  20. Mr Puzey argued that the conditions in 7(2E) and 7(2G) are separate and distinct. It was not enough to intend to use the vehicle for business purposes exclusively but it also had to be shown that there was no intention to make the vehicle available for private use. The Tribunal had to be satisfied that there are and were intended to be effective restraints against the vehicle being made available for private use. In this case there were no such restraints and the vehicle was therefore inevitably available for private use.
  21. Conclusions
  22. The issue to be decided is whether the Appellant can show on a balance of probabilities that at the time the vehicle was purchased, the Appellant intended it to be used exclusively for business purposes with no intention of making it available for private use by any person. Buxton LJ in Upton at paragraph 28 considered the meaning of "make available for use" in the following terms:
  23. "The first issue is, therefore, what the draftsman meant by 'make available for use'. That is an ordinary English expression, deliberately different from 'use' itself. An object can be available for use without there being any present intention or actually using it. Just as, for instance, a person can be available for, say, military service without there being any intention that he should serve or be asked to serve."

    Also in Upton, Neuberger J stated at paragraphs 41 and 44:

    "41. If an article is supplied by one person to another with no physical or legal restraint as to a particular use, then it appears to me that, as a matter of ordinary language, the article has been 'made available' for that use. The fact that neither the supplier nor the recipient expects, or even intends, the article to be put to the particular use does not prevent the article being 'available' for that use, if there is no physical or legal restraint on such use by the recipient. Further, it cannot be said, at any rate as a matter of ordinary language, that the supplier does not 'make' the article available for that use, simply because he does not expect or intend it to be put to that use. If he supplies the article so that it is, as a matter of fact, available for a particular use, then he has, in normal parlance, made it available for that use. On the other hand, if the supplier provides the article under a contract which bona fide precludes the recipient from putting it to a particular use, or if it is supplied only at such times that it cannot be put to a particular use, then there is clearly a powerful argument for saying that it has not been 'made available' for such use.
    44. In these circumstances, given that one is required to consider the taxpayer's intention at the time of the purchase of the motor car, it seems to me that, where a company acquires a motor car with a view to providing it to, say, a director, with no legal or physical impediment on private use, the company would be intending to make the motor car 'available or private use'. The fact that the company may not intend, and may not event want, the motorcar to be put to such a use is not in point. By intending to provide it for use by a director, who will be legally and physically free to put it to private use, the company is intending to make the motor car available to him for private use".
  24. We fully accept the evidence of Mrs Purvis. There is no evidence before us that the vehicle was used for private purposes but that is not sufficient. The effect of Articles 7(2E) and 7(2G) is that the test of intention to use the Discovery for business purposes only cannot be met if at the time of purchase it was intended to make it available for private use and it is upon this latter requirement that the case revolves. In practical terms, for the Appellant to succeed, it has to be shown on a balance of probability that there was an effective prohibition or restraint on the use of the vehicle for a private purpose. In this case there was no such restraint. Whilst accepting that Mrs Purvis did enquire about a business only insurance cover, the fact remains that the Discovery was insured for social domestic and pleasure purposes in the same way as was her Vauxhall Cavalier and the insurance cover therefore provided no effective restraint. There was no contractual restraint. Mrs Purvis told us that she did have a contract of employment which was in force at the time the vehicle was purchased but she had seen no cause to add to or amend the contract. There was therefore no contractual prohibition. In Elm Milk, there was found to be a legal prohibition in the form or a board resolution noting that the car was to be used for business purposes only. There was no such resolution here and the mere fact that the company was a small company and was not used to minuting decisions cannot create a legal prohibition where it does not exist. Finally there was no physical restraint on private use. Mrs Purvis had full access to the vehicle at all times.
  25. In the absence of any restraint on use, the Discovery was in fact available for private use. Following the reasoning of Neuberger J in paragraph 44 of Upton as cited above, Mitchells acquired the Discovery for the use of Mrs Purvis (or other company employee) with no legal or physical impediment to private use and as such the company must be seen as intending to make the vehicle available for private use. By intending to provide it for her use, when she was legally and physically free to put it to private use, the company intended to make the car available for private use.
  26. Turning to Mr Millichamp's best judgment argument, given the full appellate jurisdiction we have in relation to the construction of the Order, we do not consider this argument to be a particularly helpful or appropriate approach. However as it has been raised we will address it and in so doing we refer to the test set out for the Tribunal in the case of Rahman v Customs and Excise Commissioners 1998 STC 826 in the following terms:
  27. "The passages I have underlined show that the Tribunal should not treat an assessment as invalid merely because they disagree as to hw the judgment should have been exercised. A much stronger finding is required: for example, that the assessment has been reached 'dishonestly or vindictively or capriciously'; or is a 'spurious estimate or guess in which all elements of judgment are missing'; or is 'wholly unreasonable'. In substance those tests are indistinguishable from the familiar Wednesbury principles ([1948] 1 KB 223). Short of such a finding, there is no justification for setting aside the assessment." (p.835).

    Certainly Mrs Breteche did not make detailed enquiries and it certainly seemed to be that she based her view on the presence of the Discovery parked outside the house. Mr Millichamp points to the questions which Mrs Blackford asked about the insurance cover and the adaptations to the vehicle. Had Mrs Breteche made those enquiries she would have learned that the vehicle was available for private use and that, although adapted, the Discovery was perfectly capable of being driven privately as well as for business. Neither of the answers which she would have received could possibly have caused her to alter her opinion. In oral submission, Mr Millichamp relies on the fact that Mrs Breteche did not ask about possession of the keys or whether or not there was a board resolution. Again he would have learned that there was no board resolution and that Mrs Purvis had full access to the keys at all times. Again how could either of these answers have caused her to change her opinion. The fact that Mrs Breteche relied on just one factor cannot possibly be described as acting "dishonestly or vindictively or capriciously". Neither was her assessment spurious or lacking in judgment or wholly unreasonable. The exercise of best judgment is normally applied to the assessment of the amount of VAT due rather than to the facts which give rise to the need to make the assessment. The fact of the vehicle being parked outside 8 Pins Green caused Mrs Breteche to conclude that the return in which the input tax had been claimed was incorrect thus giving her the power to raise an assessment. There is no dispute on the amount of the assessment. We reject Mr Millichamp's argument that the assessment was not raised to best judgment.

  28. The appeal is therefore dismissed. The Commissioners made no application for costs and no order is made. For the sake of completeness, we should also record that the Commissioners did raise a misdeclaration penalty which they mitigated by 75%. This was acceptable to the Appellant company and there was no appeal against the penalty.
    DATE RELEASED: 29 November 2006


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