The Court of Appeal upheld the decision ([2005] BTC 5,260) that a company was entitled to recover input tax incurred on the acquisition of a car for business purposes where use of the car for private purposes would be a breach of the terms of employment.

Facts

P was the sole director of the taxpayer company which was owned by members of P's family. A board resolution noted that the company was to purchase a motor vehicle solely for business use by P, that the vehicle would not be made available to anyone for private use, and would not be insured for private use. The taxpayer then purchased a car and sought to reclaim the VAT. Customs refused the claim on the ground that input tax deduction was precluded by art. 7(2G)(b) of the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222) because the car was available for private use.

Customs argued that the board resolution should be ignored because it was not intended to be acted upon. The car was normally kept in a park near the taxpayer's office and adjacent to P's home. The keys were kept in the office. Insurance cover included private use because it was not possible to insure the car solely for business use.

The tribunal allowed the taxpayer's appeal on the basis that P had done what he could to place a legal embargo on private use of the motor car. The board resolution was intended to be acted upon and failure to do so would have been a breach of P's terms of employment. The relevant condition of art. 7(2E) was satisfied and input tax on the purchase of the car was deductible ([2004] BVC 4,092; Decision No. 18,592). Customs appealed to the High Court contending that the tribunal's conclusion was perverse but Park J held that the tribunal had not erred. A genuine contractual stipulation against private use of a company car could equally satisfy art. 7(2G)(b) as between a family company and a director who was a member of the whether the interposition measure was available at all. It was apparent from the reasons given by the Indonesian authorities for the determination of the Mauritian DTA that they were increasingly aware of and concerned about what they conceived to be the family as was the case here. It was clear from the tribunal's decision that the facts had been rigorously tested and the tribunal had made findings of fact with which the court could not possibly interfere on an appeal which was limited to questions of law ([2005] BTC 5,260). Customs appealed to the Court of Appeal.

Issue

Whether, on the true interpretation of art. 7(2G) of the Value Added Tax (Input Tax) Order 1992, it could properly be said that the taxpayer intended to make the car available for private use.

Decision

Arden LJ (Ward and Moore-Bick L JJ agreeing) (dismissing the appeal) said that, in all the circumstances, the judge was right to hold that the car was not available for private use. A purposive approach had to be applied to the overall scheme of art. 7. The scheme of the provisions was to exclude the right to deduct VAT paid on the purchase of a car to which the 1992 Order applied. Article 7(2) then created an exception to that exclusion and art. 7(2G) created an exception to that exception. To bring himself within the exception to the exception the taxpayer had to show not simply that he did not intend to use the car for private use but that it was not even available for private use.

The policy was clear. Tax paid on the purchase of cars for private use was not deductible and it would be anomalous and unfair if that rule could be avoided by controllers of organisations who bought cars ostensibly for business purposes but also for private purposes. Cars were by nature mobile and capable of mixed business and private use. The convoluted nature of the provisions demonstrated that Parliament regarded the deduction of VAT on the purchase of cars as the exception rather than the rule and something that had to be subject to rigorous scrutiny and the satisfaction of tough conditions. There was no discretion in Customs to waive compliance with those conditions.

There was nothing to indicate that the concept of availability in art. 7(2G) was concerned with physical availability only. The object was to prevent claims to deduct tax on cars purchased for business save where the possibility of private use was excluded. That purpose could equally well be achieved if the concept of availability was not restricted to physical availability but included also cases of unavailability due to the imposition of effective legal restraints. Parliament had not in para. 7(2G) said that to show that there was no intention to make a car available for private use the taxpayer had to show that it was not physically so available. It had neither said that any particular circumstance constituted making a car ‘available’, nor had it excluded any evidence from the determination of whether a car was or was not made available. It was, therefore, a question of fact for the tribunal whether the taxpayer intended not to make the car available for private use by whatever means. A car could be made unavailable for private use by effective contractual restraints (C & E Commrs v Upton (t/a Fagomatic) [2002] BTC 5,323 distinguished).

Court of Appeal (Civil Division). Judgment delivered 3 March 2006.