Davies (t/a Special Occasions/2XL Limos) v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 April 2012 |
| Neutral Citation | [2012] UKUT 130 (TCC) |
| Date | 24 April 2012 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2012] UKUT 130 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Judge Howard Nowlan, Judge Greg Sinfield.
Nigel Gibbon of Northgate Company Services Ltd for the appellant.
Ewan West (instructed by the Solicitor to HM Revenue and Customs) for the respondents.
The following cases were referred to in the judgment:
Boss Holdings Ltd v Grosvenor West End PropertiesUNKWLR [2008] UKHL 5; [2008] 1 WLR 289
Cirdan Sailing Trust v C & E CommrsVAT [2006] BVC 514
R & C Commrs v Stone (The Kei)UNKVAT [2008] EWHC 1249 (Ch); [2008] BVC 635
Value added tax - Zero-rating - Supply of transport to passengers - Whether supplies by taxpayer qualifying for zero-rating - Taxpayer's limousines originally designed to carry ten passengers but adapted to carry nine - Whether limousines "designed or adapted to carry not less than 10 passengers" - Test applicable at time of supply - Original design capacity irrelevant to VAT treatment at time of supply - Value Added Tax Act 1994, Sch. 8, Grp. 8, Value Added Tax Act 1994 schedule 8 group 8item 4(a).
This was an appeal by the taxpayer against a decision of the First-tier Tribunal that limousines originally designed to carry ten passengers but which had been adapted so that they only carried nine failed to qualify for zero-rating under VATA 1994, Sch. 8, Grp. 8, item 4(a).
The taxpayer supplied transport services in stretched limousines which had initially been designed to carry ten persons but had been adapted to carry only nine. VATA 1994, Sch. 8, Grp. 8, item 4(a) provided that zero-rating applied for VAT purposes to: "transport of passengers … in any vehicle, ship or aircraft designed or adapted to carry not less than 10 passengers".
HMRC took the view that transport in the limousines failed to qualify for zero-rating. The taxpayer appealed, contending that the limousines should be treated as zero-rated because they had originally been designed to carry ten passengers.
The First-tier Tribunal dismissed the taxpayer's appeal. The taxpayer appealed to the Upper Tribunal, contending that, since the vehicles had been designed for the carriage of not less than ten passengers originally, zero-rated treatment was established and it did not matter whether the vehicles had subsequently been adapted so as to carry nine or fewer passengers.
HMRC argued that the natural meaning of the legislation was that the test of carrying capacity was to be applied at the time of supply as the vehicles were then configured, whether in their designed or adapted state.
Held, dismissing the appeal:
1.The natural construction of VATA 1994, Sch. 8, Grp. 8, item 4(a) was to read the reference to the vehicle "being designed or adapted" to refer to the factual possibility that the vehicle might, at the point of the relevant supply of transport services, be in the configuration in which it was originally designed, or it might have been adapted for some different passenger carrying capability. Thus the carrying capacity had to be considered by reference to whichever of those two situations was in point at the time of the relevant supply.
2.The fact that item 4(a) made reference to the design capacity of a vehicle was explained by the fact that the relevant test was geared to the capacity of a vehicle to carry a given number of passengers, and the actual number of passengers carried on any particular journey or supply was irrelevant. Accordingly the wording quite naturally addressed what a vehicle was designed to do and not what was actually done on a particular journey. The wording also needed to address the fact that a vehicle might have been adapted, and the seating capacity changed from that in the original design. Where the vehicle had been adapted, it was the seating capacity following the adaptation alone that was relevant.
3.Much clearer words would have been required to render the original design capacity relevant to the VAT treatment at the time of supply.
1.This was a relatively straightforward appeal on the issue of whether the supply of transport services in stretched limousines originally designed to carry 10 persons, but currently adapted to carry only 9 persons, is zero-rated.
2.Item 4(a) of Group 8 of Schedule 8 to the VAT Act 1994 provides that zero-rating applied to the:
transport of passengers … in any vehicle, ship or aircraft designed or adapted to carry not less than 10 passengers.
3.The appellant's vehicles were stretched limousines which had all initially been designed to carry 10 persons. It was common ground between the parties that the driver counted as a passenger when applying the provision just quoted. Whilst the vehicles had been designed to carry 10 passengers, they had been adapted by the removal of the seat to the side of the driver, such that, as adapted, they could only carry 9 passengers. The explanation of that adaptation was not particularly significant but, as we understood it, vehicle licensing requirements would have been more onerous, and effectively impossible to satisfy, with the vehicles in question had they carried 10, rather than 9, persons. Whether the licensing requirements actually required the removal of the tenth seat, or whether the seat next to the driver was simply removed to provide more luggage space when the vehicle was used for airport trips, once it could not be used to carry a passenger was not clear to us but it is immaterial.
4.The appellant's case was that the test quoted above bore only one possible interpretation, namely that there were two distinct ways in which the test might be satisfied. The first was that the vehicle had to have been designed to carry 10 or more persons and, if so, it was then irrelevant that it might have been adapted to carry fewer persons. The second way in which the test could be satisfied was by showing that a vehicle initially designed to carry fewer passengers had been adapted, implicitly at the time the services were being provided, to carry 10 or more persons. The supply of transport services would be zero-rated if either limb of the test was satisfied.
5.The respondents contended that the reference to the vehicle being "designed or adapted" to carry 10 or more persons simply contemplated the reality that at the time the vehicle was used it might either be in the state or configuration as it was designed, or it might have been adapted. Whichever was the case, it simply had to be demonstrated that, at the time of the supply of the services, the vehicle was then configured for the carriage of "not less than 10 passengers". In the present case, this test was not satisfied because the vehicles had all been adapted to carry only 9 passengers.
6.The First-tier Tribunal (Judge Hacking and Mr Whitehead) heard the Appeal on 4 April 2011 in Manchester and dismissed the appellant's appeal against the decision and review decision of HMRC to deny zero-rated treatment. For substantially the reasons given by the First-tier Tribunal (albeit that we express one point slightly...
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