19276
Value added tax – input tax – business purpose – whether input tax on car registration number purchased from the Driver and Vehicle Licensing Agency recoverable – Value Added Tax Act 1994, section 24 - decision on the facts - yes
LONDON TRIBUNAL CENTRE
COLIN HOOPER
Appellant
- and -
HM COMMISSIONERS FOR REVENUE AND CUSTOMS Respondents
Tribunal: Dr David Williams (Chairman)
Tym Marsh (Member)
Sitting in public in London on 22 September 2005
The Appellant represented himself
Anna Markham of counsel, instructed by the Solicitor to Her Majesty's Revenue and Customs, for the Respondent.
© CROWN COPYRIGHT 2005
DECISION
- The issue in this case is whether the Appellant is entitled to recover input tax of £256 from the Respondent on the purchase from the Driver and Vehicle Licensing Agency ("DVLA") on 22 May 2002 of the use of the registration number HO 02 PER.
- The precise test is in section 24(1) of the Value Added Tax Act 1994. It is: Was the purchase "used or to be used for the purpose of any business carried on or to be carried on by" the Appellant? Counsel took the tribunal to Customs and Excise Commissioners v Rosner [1994] STC 228 in which Latham J discussed this test without reference to other authority save on the factual issue in the case. It is, he said, a deceptively simple phrase. But the thread that allows one to keep control of the phrase is that there must be a clear nexus (or link) between the matter in which the expenditure has been incurred and the business itself. That nexus (or link) cannot merely be the fact that the business will benefit from the expenditure.
The evidence
- Mr Hooper gave evidence under oath that he was at the time the owner and landlord of the "Windmill Motorinn". It was a country pub in a small village a little distance from a main road. He bought the building, but no business, in 1995. A brewery chain had closed it two years before. His purchase was a somewhat dilapidated local hostelry in a village of some two dozen houses. After considerable building work over two years, he turned it into a 40 seat restaurant and public bar with 7 en-suite rooms, and a flat above for his residence. It would have had minimum customer goodwill when reopened after four years closed. He had not previously run a similar business. He realised that for the public bar to be successful he would need to build a clientele consisting of both passing trade and regular customers. In his view, converting occasional customers into regular customers depended very much on his own personality as a landlord and on him being on the premises when customers appeared.
- He was keen to build up the business. He told us of his attempts to do that by local publicity. This included having a brown tourist sign erected on the main road and advertising in local magazines. It also involved the name he chose for the business. Some publicity proved a waste of money. He spent £650 on one advertisement that, so far as he could tell, produced not a single customer. He decided to obtain a car registration number as part of this approach. He read about them in Sunday newspapers, but purchased the number on the DVLA website. It had proved a successful piece of publicity. He lived on the premises. When his car was parked in front of his public house people knew he was there. Put simply, the cost of obtaining the number was an advertising or publicity cost of his business.
- There were some contradictory claims in his evidence. In a typed statement he claimed that the "sole purpose was to initially promote my business and accrue a valuable capital asset for future sale." Put that way, this appears as two purposes and not a sole purpose. Nor is it obvious that a purchase in 2002 was for the "initial" promotion of a business started in 1997. The promotion actually taking place at the time was the (later successful) disposal of a business built up over several years.
- Mr Hooper told the tribunal that he considered that the number was a capital asset to the business. He also told the tribunal that he had bought and then sold, at a profit, the number CO51 BAR. He had sold that while registered for VAT and had accounted for this to the Respondent. He later purchased, and still owned, H60 PER.
The importance he put on this suggested that he was unaware that the capital/income distinction is of little relevance to a claim for input tax, and that business purpose is the only test. Put that way, his two purposes were in effect part of the same purpose.
- In reply to the tribunal's questions, Mr Hooper stated that there were not many other people with the same family name in his area, and the car was readily recognised as his. He had lived within the area throughout his life and claimed that he was well known in the area. He stated that the business was known locally as much by his name - as "Hooper's" - as it was by the formal trading name of the establishment.
This was also important as there was another "Windmill" a few miles away. He also made the point that people tended to refer to him by his surname. In cross-examination, he accepted that he had decided to sell the business at the time he obtained the number. But he emphasised that he had not sold his entire interest. He had kept the premises and sold the business on a leasehold basis. He had also kept some assets, such as the registration number. That would be of limited use to the lessee. He also emphasised that he had to keep the business running as a going concern until it was actually sold five months later. He rejected the suggestion that he had obtained the number for personal reasons. He accepted that he had in the final quarter of 2003 purchased H6O PER.
- The Appellant told the tribunal that apart from this appeal and an error of £100 in the same return (and which he had paid when it was pointed out to him) he had had no disputes with the Respondent over value added tax. Nor had any other expenditure of his been questioned. This issue only arose when he had had an inspection at the time he was selling the business. The Respondent did not seek to challenge this, and the tribunal accepts it. The Appellant's evidence is therefore to be viewed in the context of a business that had not otherwise sought to claim non-allowable input tax or defaulted on its tax obligations.
- No oral evidence was offered for the Respondent.
The tribunal's decision
- The Appellant had not been represented at any stage in this appeal. He mentioned several tribunal decisions in his correspondence with the Respondent, drawing some limited information about them from a standard work on value added tax. That being so, Miss Markham very properly took the tribunal to the decisions. The Appellant, however, made no attempt to advance any argument based on any of them at the hearing. The tribunal was not greatly assisted by them. Like this case, they turned on their own facts. None was recent. The later cases were illustrations of applications of the statutory rule as interpreted in Rosner.
- The tribunal broadly accepts the Appellant's account of the conduct of his business and the need for publicity. It finds that the reality of the Appellant's business was that over a short number of years he converted and developed a closed public house into a reasonably successful business including a restaurant, public house and rooms, and then realised the assets by holding on to the freehold but leasing the business he had created there. His business as a whole went beyond "merely" being a landlord. It must also reflect the development element. The tribunal accepts that as part of that business he needed to create both local and wider publicity. Further, it accepts that the business needed to take steps to retain its customers. And it would need to appear successful.
- A registration number could form a part of an approach to obtaining publicity locally and creating the impression of success. In this case the number chosen had some value in uniqueness and identity. The tribunal accepts the evidence that the claimant's surname was how he was known and was uncommon in that area. It notes that the number chosen was readily identifiable - unlike many "cherished" numbers that are often cryptic uses of initials of the owners. It also considers it relevant that the sum involved was modest when viewed against the other costs that the Appellant must have incurred in developing the property, for example adding a new kitchen and developing the seven bedrooms. The number was purchased from the DVLA website at the going price, rather than from a private source. In 2002 that was not an unusual purchase. Nor would a sum of that amount warrant elaborate consideration as a business decision. The acquisition was consistent with the other aspects of the publicity for the business described by the appellant. In so far as there was a "personal" element, the tribunal took the view that on the facts of the case that assisted the business and was not separate from it. In Rosner terms, there was clearly both a personal and a business benefit, but the link between the expenditure and the business was closer than mere benefit and the "nexus" was present.
- The tribunal did not consider relevant that the Appellant had bought and sold one "cherished" number, passing that through his business and VAT accounts, or bought and retained another one. The evidence was that both occurred after the acquisition of this registration number, and neither pointed to motive or purpose at the time of this acquisition. The tribunal's focus is on the Appellant's purpose at the time of this expenditure. For the same reason, it did not find any particular importance in the purchase of the number occurring a few months before the sale of the business. The situation was one of building up a business over a number of years to sell it on as a going concern. The Appellant would be concerned to maximise the goodwill on sale. That would warrant continuing development and publicity costs right up to the final point of sale. The disposal was by way of a lease with associated equipment. The tribunal assumes that the purchaser would be unlikely to want to buy this particular asset with the business. But it is not currently concerned with any consequences after the period in which this input tax was claimed.
- The tribunal is therefore satisfied that on all the evidence the Appellant has shown that, on the balance of probabilities and judged at the relevant time, his purchase was for the purpose of his business. Accordingly the input tax is deductible and the appeal succeeds.
David Williams
Chairman
Released: 6 October 2005
LON/
