In the aftermath of the 2002 Court of Appeal decision in Upton t/a ‘Fagomatic’ [2002] BVC 451, it was difficult to see how anyone would ever be able to deduct VAT on the purchase of a car, even where the vehicle was never put to private use. The ‘Fagomatic’ decision had seemingly given HMRC an unassailable position based on the ‘available for private use’ test that had ultimately decided the case in their favour. It mattered not whether the car was actually used privately, it merely had to be ‘available for private use’, the manifestation of this being that the insurance policy for the car allowed social and domestic use.
Since the beginning of 2006, however, three cases in quick succession that were decided in favour of the taxpayer, appear to have turned matters on their head. In late February, there was the Tribunal decision in Peter Jackson (Jewellers) Ltd (VTD 19,474). In early March, came the Court of Appeal case in Elm Milk Ltd [2006] BVC 296, and this was followed in May by the Tribunal decision in Philip Shaw (VTD 19,594).
In the Elm Milk case, the taxpayer took steps to restrict private use of a company vehicle by making such use a breach of an employee’s contract of employment. The steps were included in the company’s board minutes. The Court held that HMRC had hitherto given too much weight on the physical and insurance restraints of the private use, and should give more weight to the contractual restraints too.
In the ‘Jackson’ case, the car in question was a pool car that was kept overnight in a paid for bay of a nearby multi-storey car park. It was clearly understood by employees that the car was not available for private use, but unlike in Elm Milk, the restriction was purely an oral one, there was nothing that was actually written down.
In the Shaw case (outlined at page 8 of this edition) the taxpayer bought two BMW X5 vehicles together, one for use in his farm business, the other for use privately. Mr Shaw also owned two other cars privately as well. HMRC [again] argued the case based on the social and domestic cover on the insurance policy, but Mr Shaw rebutted this by showing how the insurance policy for his combine harvester had ‘social, domestic and pleasure’ cover too! He added that the premiums for both the X5s and the harvester were lower as a result.
The interpretation of the courts now seems to be [pragmatically] based on ‘intention’ rather than ‘availability’, and in each of the three cases, the intention was evidenced in a different form; one written, one verbal, and one self-evidenced by the purchase of an identical vehicle. However, it must be borne in mind that there was a genuine intention not to use the cars privately! The recent shift in interpretation is not a means by which the law can be circumvented to allow private use and full VAT recovery!
