The High Court held that a taxpayer was excluded from claiming an input tax deduction in respect of the supply to him of a motor vehicle for business purposes where he failed to show that he did not intend to make the car available for private use.

Facts

The taxpayer operated a farming and contracting business as a sole trader. He purchased a 4 X 4 diesel motor vehicle for use in connection with his business. The taxpayer parked the car on the business premises and the keys were locked in his office. The car was insured for personal and social use in addition to business use.

The taxpayer claimed as input tax the VAT paid on the purchase of the car. When the Revenue refused his claim, the taxpayer appealed to the VAT tribunal contending that the car had been purchased with the intention that it would be used solely for business purposes. In order to support his argument, the taxpayer highlighted the modifications made to the vehicle to maximise its effectiveness for towing and to make loading easier. He pointed out that tools and other equipment linked with the business were permanently stored in the motor vehicle, and that there were three other vehicles available for his personal use. In particular, they included an identical petrol vehicle purchased at about the same time as the vehicle in the present appeal.

The tribunal allowed the taxpayer's appeal on the basis that the motor vehicle in question had been purchased with the intention that it was to be used exclusively for business use in accordance with the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222), art. 7(2E)(a). That provision stated that a relevant condition for a motor car to qualify for deduction of input tax was that the taxpayer intended to use the vehicle exclusively for the purposes of a business carried on by him.

The Revenue and Customs Commissioners appealed to the High Court, contending that the tribunal had erred in failing to consider the provisions of art. 7(2G)(b) to which art. 7(2E)(a) was subject. Article 7(2G) provided that a taxable person should not be taken to intend to use a motor car exclusively for the purposes of a business carried on by him if he intended to make it available (otherwise than by letting it on hire) to any person (including, where the taxable person was an individual, himself, or where the taxable person was a partnership, a partner) for private use, whether or not for a consideration.

Revenue and Customs argued that the taxpayer had taken no positive steps to prevent the vehicle from being available for personal use by himself so that, as a matter of law, the vehicle could not be said to have been purchased with the intention that it was solely for business use.

Issue

Whether the taxpayer intended to use the vehicle exclusively for business purposes at the time it was acquired.

Decision

Lindsay J (allowing the appeal) said that, in the absence of any evidence to the contrary, where a taxpayer had purchased a vehicle and obtained insurance permitting private use, he should be taken to have intended to make that vehicle available to himself for personal use. An intention to use the vehicle exclusively for business purposes did not necessarily exclude the possibility of an intention to make the vehicle available for personal use.

In the present case, although the taxpayer had expressed his intention to use the vehicle purely for business use, the fact that the motor car's insurance cover permitted personal use led necessarily to the conclusion that the taxpayer had intended to make the vehicle available for personal use (C & E Commrs v Upton (t/a Fagomatic) [2002] BTC 5,323 applied). In all the circumstances, the taxpayer had not been entitled to reclaim the VAT as input tax, and the tribunal had erred in law in considering the provisions of art. 7(2E)(a) independent of art. 7(2G)(b) to which it was subject.

Chancery Division.
Judgment delivered 15 November 2006.