Phillip Drakard Trading Ltd v Commissioners of Customs and Excise

Brooke J: This is an appeal by Philip Drakard Trading Ltd ("the company") on a point of law pursuant to the Tribunal and Inquiries (Value Added Tax Tribunals) Order 1972 from a decision of a VAT tribunal given as long ago as 2 July 1990 in which it was concerned with the company's appeal against a decision of the Commissioners of Customs and Excise on 1 December 1989 when they reduced the net amount of VAT repayable for the three months ending on 31 August 1989 from a figure of about £76,000 to a figure of just over £35,000.

The tribunal was concerned with three issues. The appeal before me is limited to one issue which is concerned with the question whether the company should have accounted for VAT on its disposal of two Volvo vehicles in May and June 1989. The company contends that on neither occasion was there any taxable supply of the vehicles. So far as the facts are concerned, the tribunal found that the company's business was concerned with road transport and haulage to various parts of Europe. It owned 16 transport haulage vehicles and bought and sold commercial vehicles and property. It had an annual turnover about £1.5m a year until it was affected by the recession in March and April 1989. It was then compelled to sell its assets and to dismiss two-thirds of its lorry drivers. It had an overdraft facility with its bankers of £200,000 which was usually wholly utilised.

The appeal is concerned with two Volvo tractor unit vehicles, B 781 RAH (which I will call "vehicle A") and F 844 YPW (which I will call "vehicle B").

So far as vehicle A was concerned, the company entered into a hire-purchase agreement in respect of this vehicle with British Credit Trust Ltd ("BCT") on 5 December 1988. Under that agreement there was a total cash price of £20,700 inclusive of VAT. A deposit of £6,700 was credited. There were to be hire-purchase charges of £2,380 and, if one excludes a £10 acceptance fee, broadly speaking the consideration under the hire-purchase agreement was to be paid by 24 monthly instalments of £682.50. The terms of that agreement are in the papers before the court.

So far as vehicle B was concerned, this was a very much more valuable vehicle and it was the subject of a hire-purchase agreement between the company and Farming and Agricultural Finance Ltd made in November 1988. For all practical purposes, it appears from the tribunal's findings the terms of the agreements were the same and so, for the purposes of this appeal, I need really only be concerned with vehicle A.

When the company got into financial difficulties it told its bank and the finance companies that it could not keep up hire-purchase payments. What the chairman of the tribunal said after relating the terms of the relevant agreements was this:

Mr Drakard [who was the moving spirit behind the company] entered into a guarantee and indemnity guaranteeing the company's performance of its obligations under its agreement with BCT and indemnifying BCT against any loss thereunder.

With the company's business in recession, it could not keep up its hire-purchase payments. Mr Drakard told the bank and all the finance companies with which the company had dealings. Mr Drakard got in touch with a Mr Myhill whom he knew as another road haulage operator. He handed the two Volvos and other stuff to Mr Myhill who said he would settle the hire purchase. Mr Drakard knew the settlement figure which had been communicated to Mr Myhill by BCT. In cross-examination Mr Drakard said that Mr Myhill paid BCT (and the other finance house) direct. If the money had been paid to the company Mr Drakard considered that it would have been taken by the bank and the company would still have been liable under the hire-purchase agreement. "The money never came to" the company. "On transfer of the vehicle Mr Myhill was under an obligation", so Mr Drakard said, "to pay off the hire-purchase debt". There was no written agreement.

The tribunal chairman then says this:

In a letter dated 21 June 1989 BCT wrote to the company saying that it, BCT, had confirmed a settlement figure of £12,444.13 on 18 April 1989 when an instalment payment of £682.50 had been called by direct debit. After "your settlement cheque" was received the company's bankers recalled the instalment which led to a balance of £682.50 being outstanding on the company's account with BCT, payment of which was sought. This was described in a letter of 21 August 1989 as an "error made by your bankers". Nothing turns on the error, but the correspondence makes it clear that a settlement figure was paid and what was the amount of the settlement figure.

The tribunal chairman then referred to two very belated invoices but the representative of the commissioners accepted that they had not been authorised by the company and the chairman said that he need say no more about them.

After setting out the facts, the tribunal chairman then considered the relevant law when he turned to consider the question whether the company made a taxable supply of the two vehicles to Mr Myhill. He reminded himself of Value Added Tax Act 1983 section 2 subsec-or-para (1)sec. 2(1) of the Value Added Tax Act 1983 which provides that:

Tax shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.

He then referred to Value Added Tax Act 1983 section 2 subsec-or-para (2)subsec. (2) of sec. 2 which defined a taxable supply as:

…a supply of goods or services made in the United Kingdom...