Factual and Procedural Background
The case concerns an appeal by the Appellant against the refusal by the Respondents to allow a VAT credit claim of £20,805 on the purchase of three cars. The Respondents contended that the Appellant had not demonstrated that the cars were not made available for private use, whereas the Appellant argued that the cars were used exclusively for business purposes and not made available for private use.
The Appellant is a specialist in mainframe computers, providing consultancy services to clients, involving frequent business travel. He owns three business cars (an Audi A8, a Mini Cooper S, and a Porsche Cayenne) and maintains contracts with his children, who work as contractors for his business and are prohibited from private use of the cars by contract. The cars were insured for both business and social use at purchase but later only for social use. The keys were kept in a locked safe accessible only by the Appellant, and mileage records accounted for 93% of the cars' use as business-related.
The VAT repayment initially due to the Appellant was halted following a verification visit by the Respondents. The Appellant had previously made similar VAT reclaim claims on vehicles, which were accepted by the Respondents in 2007.
Legal Issues Presented
- Whether the Appellant intended to use the cars exclusively for business purposes.
- Whether the cars were made available for private use, either by the Appellant or others.
- Whether contractual and physical measures taken were sufficient to prevent the cars being made available for private use under Article 7 of the Value Added Tax (Input Tax) Order 1992.
Arguments of the Parties
Appellant's Arguments
- The cars were not made available for private use at any time.
- Contracts with his children expressly forbade private use of the vehicles.
- Keys were secured in a locked safe, limiting access to the cars.
- All insured users had their own private vehicles of equivalent value, reducing any need to use the business cars privately.
- Previous VAT inspections, including one in 2007, had accepted similar VAT reclaims on vehicles.
- The insurance policies showing social use only were arranged by his wife during her illness and should not be taken as indicative of private use intention.
Respondents' Arguments
- The insurance policies initially allowed private use, indicating the possibility of private use.
- The cars were parked at the Appellant's residence with no physical barrier preventing private use.
- The contracts forbidding private use by the Appellant's children were insufficient in practice to prevent private use.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| The Commissioners for Customs & Excise v Upton [2002] EWCA Civ 520 |
Clarification of "made available" for private use in the context of VAT input tax claims by sole traders. |
The Court acknowledged the difficulty for sole traders to avoid the presumption that a car is made available for private use but recognized exceptions such as physical unavailability or legal restraints; applied to distinguish the present case from Upton. |
| Elm Milk [2006] EWCA 164 |
Legal impediments, such as employment contracts forbidding private use, can prevent a car being made available for private use. |
The Court applied this principle to assess the Appellant's contracts forbidding private use and found them sufficient to support the claim that the cars were not made available for private use. |
| Zone Contractors Ltd [2016] UKFTT 594 |
Consideration of factual circumstances in VAT claims on cars, emphasizing fact-specific inquiries. |
Referenced as supportive of the approach that each case must be considered on its facts; no binding precedent set. |
| Borton [2016] UKFTT 472 |
Similar to Zone Contractors, focusing on fact-specific assessments of availability for private use. |
Referenced to illustrate tribunal practice but not treated as binding precedent. |
Court's Reasoning and Analysis
The Tribunal carefully examined the statutory framework under Article 7 of the Value Added Tax (Input Tax) Order 1992, which excludes VAT credit for cars unless the taxable person intends to use the car exclusively for business and does not intend to make it available for private use.
The Court relied heavily on the interpretation provided by the Court of Appeal in Upton and Elm Milk, focusing on the distinction between actual private use and intention to make a car available for private use. It acknowledged the high evidential threshold required to prove that a vehicle is not made available for private use, especially for sole traders.
The Tribunal found the Appellant to be an honest and credible witness. It accepted that the Appellant had taken both legal and physical steps to prevent the cars from being made available for private use, including contracts forbidding private use and securing keys in a locked safe accessible only to him. The presence of other private vehicles for the Appellant and family members further supported the conclusion that the business cars were not intended or made available for private use.
The Tribunal discounted the insurance policies showing social use only as evidence of private use intention, attributing them to the Appellant's wife's illness and related uncharacteristic errors.
In applying the legal principles, the Tribunal concluded that the Appellant met the stringent conditions of Article 7(2E) and (2G), demonstrating both an intention not to use the cars privately and not to make them available for private use.
Holding and Implications
The Tribunal ALLOWED the appeal.
The direct effect of this decision is that the Appellant is entitled to the VAT credit claimed on the purchase of the three cars, as the Tribunal found no intention to use or make available the vehicles for private use. No new precedent was established, and the decision is fact-specific, relying on the particular circumstances and evidential record of this case.