Ian Flockton Developments Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 06 March 1987 |
| Date | 06 March 1987 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Mr. Kevin Prosser (instructed by Messrs. Beetenson & Gibbon) for the company.
Mr. David Latham Q.C. and Mr. Robert Jay (instructed by the Solicitor of Customs and Excise) for the Crown.
Before: Stuart-Smith J.
The following cases were referred to in the judgment:
Mallalieu v. Drummond (H.M.I.T.) ELRTAXWLRTAX[1983] A.C. 861, [1983] BTC 39 (C.A.); [1983] 1 W.L.R. 252, [1983] BTC 380 (H.L.)
Morgan (H.M.I.T.) v. Tate & Lyle Ltd. ELRTAX[1955] A.C. 21; (1954) 35 T.C. 367
Value added tax - Input tax - Racehorse acquired by plastics manufacturing company for promotional purposes - Whether acquisition and upkeep of horse involved supply of goods or services used or to be used in the company's business - Subjective test - Whether test correctly applied by Tribunal -Value Added Tax Act 1983 section 14 subsec-or-para (3)Value Added Tax Act 1983, sec. 14(3).
The taxpayer company manufactured mouldings and plastic storage tanks. It did not advertise its products but relied on its salesmen and recommendations to acquire new business. The directors had no particular interest in horse racing, but on the suggestion of its accountants the company purchased a racehorse to promote its image and to provide a talking point for its salesmen in discussions with potential customers.
The company appealed against an assessment to VAT disallowing its claim that it was entitled to deduct input tax paid on the purchase and upkeep of the horse as supplies of goods or services "used or to be used for the purpose of (the company's) business" within the meaning of theValue Added Tax Act 1983, Value Added Tax Act 1983 section 14 subsec-or-para (3)sec. 14(3).
A VAT Tribunal dismissed the appeal (1985) 2 BVC 205,292.The Tribunal accepted that the test to be applied in deciding whether supplies were used or to be used in the business was a subjective one, requiring it to ascertain the purpose in the mind of the person who obtained the supplies on behalf of the company. It heard the evidence of Mr. Ian Flockton and accepted that the purpose in buying the horse was to further the interests of the company. However, the Tribunal then held that in applying the subjective test it should place itself in the position of an average businessman and ask itself what would have been his decision? The Tribunal concluded that the company ought not to have had any commercial belief that the purchase and running of a racehorse could have been for the purpose of its business.
The company appealed contending that the Tribunal had only to be satisfied that there had been an honest belief at the time of the supply that it would be for the benefit of the company's business, and that that was the only purpose of obtaining the supply. It was irrelevant that the reasons for the decision were misconceived.
The Crown accepted that the correct test was subjective, but submitted that the basis of the Tribunal's decision was unclear and that the case should be sent back to the Tribunal to be reheard.
Held, allowing the company's appeal:
The Tribunal must not substitute the test of what the average businessman would do for the test of what was in the mind of the witness at the time of the expenditure. Once the Tribunal accepted Mr. Flockton's evidence that the company's only purpose in purchasing the racehorse was to further its business, the question whether Mr. Flockton and the other directors ought to have believed that the purchase and running of the horse would be for the company's benefit became irrelevant. The company's appeal was allowed. The case would not be sent back to the Tribunal.
By notice of motion dated 7 August 1985 the company appealed against the decision of a VAT Tribunal made on 15 July 1985. The grounds of appeal were that:
(2) The VAT Tribunal erred in law in applying the wrong test of whether or not the goods and services supplied to the company were goods or services used or to be used for the purposes of any business carried on by the company; and
(3) the only reasonable conclusion from the facts found by the Tribunal was that the said goods and services were used or to be used as aforesaid.
Stuart-Smith J.: This is an appeal brought under section 13sec. 13 of the Tribunals and Inquiries Act1971 in respect of a decision of the VAT Tribunal sitting at Manchester given on 15 July 1985 in respect of a VAT entitlement of Ian Flockton Developments Ltd., the appellant in this case.
The appellant is a manufacturing company which makes plastic mouldings and storage tanks, and it is registered for VAT. The company's customers are project engineers in chemical factories. In the ordinary way the company's orders are not sought by advertising but by personal contact and recommendation.
At the material time the company was anxious to find new customers - as indeed most businesses are - and conceived the idea that the purchase and running of a racehorse would in some way advance the company's business. It is in relation to the expenditure in respect of the running and purchase of that horse that this appeal arises.
The relevant legislation at the time was the Finance Act 1972 (as amended in 1977 and 1982). It is common ground that that is similar to the provisions of the Value Added Tax Act 1983, and I refer to Value Added Tax Act 1983 section 14sec. 14 of the 1983 Act.
Value Added Tax Act 1983 section 14 subsec-or-para (1)Section 14(1) provides:
A taxable person shall, in respect of supplies made by him, account for and pay tax by reference to such periods (in this Act referred to as "prescribed accounting periods"), at such time and in such manner as may be determined by or under regulations.
Value Added Tax Act 1983 section 14 subsec-or-para (2)Section 14(2) provides:
Subject to the provisions of this section, he is entitled at the end of each such period to credit for so much of his input tax as is allowable under section 15 below, and then to deduct that amount from any output tax that is due from him.
Value Added Tax Act 1983 section 14 subsec-or-para (3)Section 14(3) provides:
Subject to Value Added Tax Act 1983 section 14 subsec-or-para (4)subsection (4) below,
"input...
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