Value Added Tax

Value Added Tax

The Milk Run

The tribunal decides that input tax on a car can be recovered. JOHN PRICE considers the restriction on the private use of cars.

'WELL, WELL, WELL!', I muttered, 'I thought that my previous article ("Input Tax on Cars", see Taxation, 19 February 2004 at page 484) had sorted out why a small business cannot normally recover VAT on a car, however infrequent the private use is in practice'.

'Yes', said the Busy Practitioner, 'you explained the practical impossibility of making it unavailable for private use if it is parked at home and that a mere intention of no private use does not suffice'.

'Which is tough, but at least the principle is relatively clear to understand. Now, the tribunal in Elm Milk Limited (18592) has stirred the subject up again! It has held that a consultancy company, controlled by the family of the only employee, could recover VAT on a Mercedes E320. The employee had done over 50,000 miles in it, it was parked near the office and the keys were kept there, but it was within 50 yards of his home!'

'So how on earth did he prove to the tribunal that it was not made available?'

'He produced a copy of a board resolution saying that the company would buy the car for business use only, that it did not intend to make it available to anyone for private use and that such use would breach the employee's terms of employment.'

'But if he was the only employee, presumably he organised that?'

'Yes. At the time, he was the sole director. The decision does not explain why, but apparently he is now just an employee. Moreover, there was no formal job contract.'

'So what did he use for his private motoring?'

'He claimed it was his wife's car, a Rover 75.'

'Pull the other one! Surely even the closest of couples need to go in different directions on a Saturday morning from time to time?'

'Quite, but counsel for Customs is not recorded in the decision as having queried that point and concentrated on the availability issue.'

'Well, it was available, wasn't it?'

'Not according to the tribunal! It found the employee to be a witness of truth. He had done what could be done to put a legal embargo on private use of the car and he intended to stick to it. Any private use would be in defiance of the Board resolution — which contained the relevant terms of his employment.'

'But was that resolution for real in the circumstances?'

'You might think that Customs had a point in arguing it wasn't. However, the tribunal seems to have decided that, as insurance companies refuse to insure for business use only, the company had done everything it could.'

'But surely the basis of other decisions has been that a one-man band cannot do enough?'

'Which is what surprises me. However, being a decision of the President of the VAT and Duties Tribunals, this is for real! If it stands up over time, presumably sole traders will have to create the equivalent of a board resolution, such as a proposition witnessed by a lawyer.'

Easier decision

'A decision much easier to understand is MasterCard Security Services Limited (18631).

'In that case, the tribunal accepted that there was no intention to make available for private use the cars used by security guards, who worked from home in 12-hour shifts. Guards living close together were paired so that number one coming off duty could collect number two from his home. They then drove to number one's home where he got out and number two started the next shift. Private use was forbidden and was mostly impractical given a mileage of 150,000 miles in 18 months and usage logs maintained. Cars were, of course, sometimes parked at homes, presumably usually at weekends, but they had to be available for emergency call-outs and they would in due course be collected. Disciplinary action had been taken in the few cases of private use discovered.

'The only case authorised had allowed a guard, who had no car of his own, to drive to a hospital to which a family member had been admitted in an emergency. The car was then collected and the guard had to find his own way home. The tribunal accepted that this one incident had not been foreseen and did not affect the intention at the time the cars were leased.

'The tribunal accepted that, although standard conditions of employment borrowed from elsewhere, which had been used without adaptation, contained conflicting causes regarding private use, the actual policy of the company did forbid it.'

'Now that I do understand.'

' Yes', I said. 'The logic is easy to follow. In contrast, the decision in Elm Milk seems to be based primarily on the VAT tribunal's reaction to the individual's evidence in the witness box.

'The difficulty I see with it is how advisers, Customs and the tribunals are to distinguish between such a case and others where, as in Elm Milk, the availability is there. Dressing up the paperwork to establish the intention is easy; the problem is how to judge whether it is credible, even if private use is technically illegal and any use in practice is not the key!'

A St J Price FCA is a VAT consultant in Gloucestershire and author of Value Added Tax in the Tolley's Tax Essentials series, now in its fourth edition. He may be contacted on 01285 851888: Fax 01285 851889: E-mail: asjohnprice@btopenworld.com.

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