Waterloo Car Hire (A Partnership)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 November 2016 |
| Neutral Citation | [2016] UKFTT 752 (TC) |
| Date | 09 November 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Michael Connell, Member Sheila Cheesman
Mr Albert Fox and Mr Daniel Gance appeared for the appellant
Mr John Corbett, Officer of HM Revenue and Customs, appeared for the respondents
Income tax – Closure Notice and Discovery Assessments – Taxes Management Act 1970 (TMA 1970), s. 28B and 30B – Whether cost of cars purchased by appellant and provided to mini cab drivers for hire should be treated as fixed assets giving rise to capital allowances and not revenue items treated as stock – Yes – Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), s. 33 – Appeal dismissed.
The First-tier Tribunal (FTT) found that: (1) the cost of cars purchased by a taxi business and made available for use by its self employed drivers represented capital rather than revenue expenditure; and (2) HMRC omitting to mention the legislation under which closure notice assessments and discovery assessments were made did not invalidate them.
Waterloo Car Hire (the appellant) was a partnership trading as a mini cab, car hire and courier business. The business used self employed drivers and, to promote driver loyalty, it bought second hand cars which it made available for drivers to use, for a weekly charge, when their own cars were unavailable. The appellant included in its cost of sales the cost of the second hand cars purchased during the year. In most cases the cars were transferred to the driver once they had ceased to have an economic value.
Following enquiries opened under the Taxes Management Act 1970 (TMA 1970), s. 12AC, HMRC issued discovery assessments for two years under TMA 1970, s. 30B and closure notice revenue assessments for a further two years under TMA 1970, s. 28B. This was on the basis that the cars were essentially plant and machinery and not revenue items and should have been treated as capital items and therefore disallowed under the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), s. 33, with any allowances claimed under the capital allowances legislation (but not short life assets, because cars were excluded per the Capital Allowances Act 2001 (CAA 2001), s. 83 and 84). The appellant appealed against both the discovery assessments and closure notice revenue assessments.
Based on the evidence, the FTT dismissed the appellant's submission that the weekly charges were payments under some form of instalment plan to purchase the vehicles instead of being hire charges. The FTT had not been provided with a written contract detailing terms and conditions of any agreement for sale. The FTT therefore found that the cars were fixed assets subject to capital allowance legislation and not items that could properly be included in cost of sales.
The FTT also dismissed the appellant's submission that by HMRC omitting to mention the specific legislation, under which either the revenue assessments or discovery assessments were made, invalidated them. The FTT noted that the taxpayers and their agent were plainly aware that notices had been issued under TMA 1970, s. 12AC, and the reasons why the enquiries had been opened. Although there was an error in HMRC's statement of case and skeleton argument in referring to TMA 1970, s. 29, as opposed to TMA 1970, s. 30B, this was remedied prior to the hearing and did not operate retrospectively to invalidate the early assessments.
The appeal was accordingly dismissed.
The appellant was unable to supply any evidence to support its contention that cars purchased by the partnership and made available to its self employed drivers were being sold to the drivers under instalment plans, rather than being hired to the drivers. The FTT therefore ruled that the cars were purchased for use in the partnership's business to generate profit and promote driver loyalty and were therefore fixed assets.
[1] This is an appeal by Melvyn Sheath and Denise McConkey, trading in partnership as Waterloo Car Hire (the Appellant) against HMRC's decision of 5 August 2015, to issue Discovery Amendments for years 2009–10 and 2010–11 under regulation 30B Taxes Management Act 1970 (TMA) and Closure Notice Revenue Assessments for years 2011–12 and 2012–13 under s 28B(1) and (2) TMA 1970.
[2] The sole issue or determination by the Tribunal is the treatment of second hand cars bought by the Appellant partnership and made available for use by its self employed mini cab drivers. The Appellant disputes HMRC's decision to refuse its claim for the cost of the cars to be included in cost of sales in its accounts as revenue expenditure and to treat the cars as fixed assets where relief for the expenditure is by way of the capital allowances legislation.
[3] On behalf of the Appellant, Mr Gance applied for an adjournment. He said that, unfortunately, the Appellant had not been able to produce a bundle of documentation in time for the hearing, as had been directed by the Tribunal. Although HMRC had prepared an improvised bundle, despite not being obliged to do so, other issues had arisen in respect of which he intended to take specialist advice.
[4] Mr Gance said that there may have been procedural errors with regard to the discovery assessments, potentially rendering them invalid. He submitted that the discovery assessments, according to HMRC's statement of case and skeleton argument, had been issued under s 29 TMA 1970, but this could not be right as s 29 TMA 1970 provides for a discovery assessment to be made only in relation to a tax return made and delivered under s 8 TMA 1970 (personal return) or s 8A TMA 1970 (trustee's return), not a partnership tax return. As no such personal or trustee's returns were in issue, s 29 TMA 1970 could not provide the basis for amending the partnership statement.
[5] Mr Corbett for HMRC did not take issue with this and had no objection to the adjournment application. He said however that the reference to s 29 only appeared in HMRC's statement of case and skeleton. The actual assessments had been raised without reference to the appropriate section under TMA 1970 (s 30B), but that did not affect their validity.
[6] Mr Gance said that he nonetheless required at least a month to take specialist advice and prepare submissions, but for religious reasons his availability to attend a Tribunal hearing in October would be severely restricted, (the month of October coincides with the Jewish High Holy days), and asked for the hearing to be adjourned generally so that the parties could agree a mutually convenient date in November 2016.
[7] Today's hearing date had been set by the Tribunals Service on 20 July 2016. A previous application for an adjournment had been made to the Tribunal on 8 August 2016 but refused, subject the Appellant's right to reapply at the hearing.
[8] Having considered:
the substantive issues in the appeal;
that all necessary evidence appeared to be included in the bundle prepared by HMRC;
that both parties had been afforded sufficient time to prepare their submissions;
that all parties and their representatives had attended (Mr Corbett from HMRC having travelled from Belfast);
that there was no clear reason why either party would be prejudiced by the Tribunal proceeding with the hearing;
the application for an adjournment was refused.
[9] The Appellant is a mini cab, car hire and courier business based in south east London that has been trading since 1979. The business normally has around 45 self-employed drivers who accept taxi jobs via the Appellant's switchboard control. The Appellant uses a digital computer radio system which identifies addresses using GPS technology and recognises previous telephone numbers. These are then fed through to the drivers. The Appellant advertises itself a taxi business.
[10] The Appellant has for the last four or five years had a fleet of spare cars which they allow drivers to use when their own car is off the road or otherwise unavailable. Older cars were charged at £80 a week and newer ones at £100 a week. The Appellant operates this system to promote driver loyalty.
[11] The drivers operate individually, charging customers a fare in the normal way. Most payments to drivers would be in cash. They pay £125 a week to the Appellant for the rent of a taxi radio and, it is asserted by HMRC, for the use of the loaned vehicle.
[12] Customers would often be tourists or business people needing a taxi to the airport or to a hotel. Those customers paid the driver who accounted part of the fare to the Appellant. There are also account customers who pay the Appellant direct. The account customers were mostly local businesses.
[13] The individual driver's share is 60% of any account fare and the amount is netted off against the radio rent (and HMRC assert the minicab rent.) The debit or credit balance is paid either to or by the driver as appropriate. Usually, the driver owes the Appellant.
[14] The Appellant maintains ledgers showing how the radio rental and account payments are netted off and cash and cheque payments made. They also maintained books showing car rentals and any expenses claimed.
[15] The Appellant includes in its cost of sales the 60% of accounts income paid to the drivers. Repair and motor expenditure (petrol and insurance costs) in respect of the owned vehicles are also included. These are accepted by HMRC.
[16] The Appellant includes in its cost of sales the cars purchased during the year. The cars are in most cases transferred to the driver once they have ceased to have any economic value.
[17] In their witness statements, Mr Sheath and Mrs McConkey said that the vehicles used by the drivers fall into three main categories:
New vehicles are purchased by the partnership, which are then hired to the drivers on a weekly charge. Ownership of the vehicles remains with the partnership.
Some drivers utilise their own vehicles.
The vehicles purchased by the partnership which are second hand...
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