The First-Tier case of Noel Payne, Christopher Garbett and Coca-Cola European Partners GB Ltd (TC06082) has been raised by clients when enquiring about VAT recovery on cars and vans.
While it’s slightly unusual to discuss the decision made in an Income Tax Tribunal, the issue in this case was whether the three, very specific, types of van provided by Coca-Cola to their technicians, were “goods vehicles” for the purposes of section 115(2) of the Income Tax (Earnings and Pensions) Act 2003.
In making his decision the Tribunal Chairman considered how each vehicle was constructed during the time it was supplied to the technician and whether adaptations that had been made to the vehicles altered the purpose of the vehicle from being a “goods vehicle”.
He decided that, in regard to two of the three vehicles, the adaptations were sufficient to alter the purpose of the vehicle from being “primarily suited for the conveyance of goods or burden” to a vehicle whose purpose was mixed; either for the carriage of passengers or the “conveyance of goods or burden”, depending upon the need of the user.
The question raised by some VAT clients is whether a similar ‘purpose test’ could be successfully used to argue that, in some cases where HMRC consider a vehicle to be a car, the vehicle is a commercial vehicle and as such input tax recovery is not blocked.
My answer to this is that, in my opinion, it is unlikely.
For VAT purposes, the VAT (Input Tax) Order 1992 (SI1992/3222) defines a car as (paraphrased) a vehicle whose purpose is the carriage of passengers or has further roofed and windowed passenger accommodation behind the driver, but excludes, amongst others;
As a piece of legislation, the VAT (Input Tax) Order 1992 (SI1992/3222) is significantly clearer in its description than s115(2) ITEPA 2003 and as such, in my opinion, provides much less scope for dispute.
The third exclusion listed above offers the only potential opportunity to make a ‘purpose test’ argument based on the decision in the Payne, Garbett & Coca-Cola case but, in legislation, this exclusion is very specific in its vocabulary, referring to “vehicles constructed for a special purpose other than the carriage of persons and having no other accommodation for carrying persons than such is incidental to the purpose”.
In my opinion the use of the phrase “special purpose” refers to a vehicle whose purpose is clearly outside of the norm, but where the obvious purpose is not the carriage of passengers. An example of this could be a vehicle recovery truck.
I don’t believe a van could reasonably be described as “constructed for a special purpose” and therefore, if it meets the VAT definition of a car then I don’t think a ‘purpose test’ argument could be successful.
by Tony Pocock – VAT Consultant – Qdos Vantage
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