DIRECTOR’S CAR

Revenue and Customs Commissioners v Elm Milk Ltd: [2006] EWCA Civ 164

CA: Ward, Arden and Moore-Bick LJJ: 3 March 2006

The claimant company purchased a motor car for business use by its sole director, who was required to travel extensively in the course of his employment. The car was kept in a car park near the company's office and within 50 yards of the director's home. The keys were kept in the office. Insurance for the car was not restricted to business use but the director's private motoring was done in another vehicle. By resolution of the company's board it was stated that the car was to be used for business purposes only by the director, that it was not intended to be made available to anyone for private use and that it would be in breach of an employee's terms of employment to use it for private purposes. A claim by the company to deduct input tax on the purchase of the car was disallowed by the revenue on the ground that the relevant condition for allowing an exception from the general exclusion of motor cars from credit of input tax in article 7(2)(a) of the Value Added Tax (Input Tax) Order 1992, namely that the car was exclusively for the purposes of its business under article 7(2E), had not been satisfied, as the circumstances were such that company had shown an intention to make the car available for private use within the meaning of article 7(2G)(b). An appeal by the company was allowed by the Value Added Tax and Duties Tribunal who held the company to be entitled to the credit claimed. An appeal by the revenue was dismissed by the judge.

The revenue appealed.

The Court of Appeal held:
a purposive approach should be adopted in interpreting article 7 of the Value Added Tax (Input Tax) Order 1992 and consideration given expressly to the overall scheme of the legislation, which sought to exclude the right to claim a deduction from VAT paid on the purchase of a motor car and to create an exception with a high threshold, namely that it was not the taxpayer's intention to make the car available for private use. Claims to deduct input tax had to be carefully scrutinised where there was a close connection between the user of the car and the taxpayer. However, the purpose of the provisions could equally be achieved if the concept of availability of the car was not to be restricted to its physical availability but extended to cases of unavailability brought about by the imposition of effective legal restraints. It was a question of fact for the tribunal whether, in all the circumstances, the taxpayer intended not to make the car available for private use, by whatever means, including suitable and effective contractual restraints. The prohibition on private use, backed up by the terms of the director's employment and the arrangement as to the keys of the vehicle, was sufficient evidence for the tribunal to conclude that the company had satisfied the condition in article 7(2G) so as to entitle it to repayment of the tax.

The appeal was dismissed.

Appearances: Nicholas Paines QC and Kieron Beal (Solicitor, Revenue and Customs) for the commissioners; Oliver Connolly (Burges Salmon) for the company.