Tyne Valley Motorhomes v Revenue & Customs [2014] UKFTT 969 (TC)

FTT-Tax
Tyne Valley Motorhomes v Revenue & Customs
[2014] UKFTT 969 (TC) · 2014-09-23
[1]The appellant is a partnership which at material times traded as a vendor of motor vehicles of the mobile home type. The appeal is against assessments of VAT totalling the revised figure of £703,583 originally notified to the appellant on 30 March 2011 in a larger sum. The assessment relates to the alleged incorrect zero-rating of sales of mobile homes which the appellant had sold as zero-rated under Group 12 of Schedule 8 to the VAT Act 1994 (the Act) relating to aids for the handicapped. The assessment relates to periods 03/07 to 09/10. The appellant also appeals against a penalty under Schedule 24 to the Act in the sum of £47,632.05 for allegedly giving HMRC inaccurate VAT returns which were carelessly inaccurate. The penalty relates to periods 03/09 to 09/10.[2]The relevant statutory provisions relating to the zero-rating issue are the following.[3]We quote the provisions as amended and only so far as they are relevant to this appeal:
“Schedule 8 Group 12 Item No 2 The supply to a handicapped person for domestic or his personal use, …, of- (f) motor vehicles designed or substantially and permanently adapted for the carriage of a person in a wheelchair …; 2A The supply of a qualifying motor vehicle – (a) to a handicapped person – (i) who usually uses a wheelchair, or (ii) who is usually carried on a stretcher, for his domestic or personal use; NOTES (5L) A qualifying motor vehicle for the purposes of item 2A is a motor vehicle … - (a) that is designed or substantially and permanently adapted to enable a handicapped person - (i) who usually uses a wheelchair, to enter, and drive or be otherwise carried in, the motor vehicle;”
[4]Before discussing the statutory provisions it may be helpful to mention the general nature of the vehicles in question and the adaptations to them. The vehicles are ordinary mass produced motor homes and so were not specifically designed by their manufacturers to be for the use of disabled people. They have doors on both sides at the front for access to front seats. The right hand door gives direct access to the driver’s seat and the left hand door to a passenger seat. They have what might be termed living accommodation behind those seats and there is additional access via another door at the side of the vehicle which gives access into the living accommodation. Additional seating is available in the living space for use during travel. Access to the front seats is also possible from the living accommodation. The adaptations in question were additional handles to assist access through the side door and therefore access up steps into the living accommodation area. We will consider the adaptations in more detail below.[5]As can be seen from that brief description, the adaptations were relevant to the means of access to the vehicle but not directly to driving it or being carried in it except for the obvious point that it is impossible to drive or be carried in it if one cannot first get into the vehicle.[6]The access to the vehicle was on foot both before and after the adaptation. The adaptation did not enable a person to enter while still in the wheelchair and had no relevance to whether a person could sit in a wheelchair while being carried once having got into the vehicle.[7]The adaptation of the vehicles in this case was clearly not necessary or effective for the carriage of a person in a wheelchair i.e. so that the person concerned could sit in the wheelchair while in the vehicle. Item 2 was therefore irrelevant and we quote it only for completeness. Item 2A was the provision the appellant relies upon and which HMRC say is not applicable on the facts of this case.[8]HMRC argued before us that the reference to “a handicapped person” in item 2A(a) must be a reference to a particular handicapped person and we agree that is so. The fact that item 2A(a) is followed by a description of the handicapped person as being one who “uses a wheelchair most of the time” must involve consideration of the characteristics of a particular person. It would be impossible to identify by objective criteria the characteristics of an adaptation which would be used by a person postulated to need to use a wheelchair “most” of the time as opposed, presumably, to one who uses a wheel chair some of the time or only a little of the time. On the other hand it would be possible to decide whether a particular person uses a wheelchair most of the time, though as that itself imports a question of degree (‘most’ as opposed to say ‘some of’ the time) there could be difficult marginal cases.[9]In addition, the definition of “handicapped” in Note (3) to the Group – “handicapped means chronically sick or disabled” – itself suggests, if indeed it does not import, an element of personal characteristics appropriate to an actual person.[10]In this respect we are in agreement with the decision of the First Tier Tribunal in the case of Dennis and Christina Bunning T/A Stafford Land Rover [2012] UKFTT 32 (TC) at paragraphs 58 and 59.[11]HMRC argued that the reference to “a handicapped person” in Note (5L) in which “a qualifying motor vehicle” is defined for the purposes of item 2A must be taken to mean a handicapped person considered objectively not subjectively. Their purpose in so arguing was to say that the adaptation itself must then be viewed in that objective sense.[12]As note (5L) imports a definition into item 2A it would seem somewhat surprising if the reference to “a handicapped person” were to be interpreted differently in the Note and the Item. In effect the item would be using the same phrase twice but with different meanings. Also, the wording “who usually uses a wheelchair” appears in the Note as well as the Item and the same difficulties would arise for the interpretation of the Note, if the reference to a user of the wheelchair is to be read as a reference to an objectively imagined person, as those we have noted in paragraph 8 above for the Item itself.[13]On the other hand, as HMRC argued and as was pointed out in the Stafford Land Rover case, if the reference to “a handicapped person” in the Note means the same as in the Item it might have been expected that it would be referred to as “the handicapped person”. There is some force in that but it does not explain how the difficulties we have referred to could be overcome. Also, as the later reference to “a disabled person” is intended to define what that phrase means in the earlier use of the phrase it would be illogical to refer to it as “the” person referred to earlier as that person had not been defined in the earlier reference.[14]We interpret the Note as referring to a particular handicapped person and so the adaptation can, indeed must, be looked at subjectively in the sense that the adaptation must be intended to assist the handicapped person for whose use the vehicle is being supplied and who uses a wheelchair most of the time in fact not some postulated paradigm of a handicapped person who uses a wheel chair most of the time. In this respect we are not following the Stafford Land Rover case (as to which see paragraphs 61 and 62 of the Decision in that case).[15]We would point out that our interpretation of the statute in this respect is by no means necessarily more favourable to an intending purchaser than the alternative. A person for whom or by whom a vehicle is purchased will have to show that they do in fact use a wheelchair most of the time and that the adaptation is necessary “to enable” them to use the vehicle. The enablement condition is important because it prevents someone who uses a wheelchair most of the time from obtaining the zero rating just because they use a wheelchair most of the time. They also have to show they need the adaptation. This too is a subjective fact and HMRC’s contention that “a handicapped person” means an objectively identified person is further undermined by the condition that the supply should also have that element of enablement.[16]Essentially the issue about the interpretation of the legislation is that it is necessary for the legislation to provide a means for deciding what ‘a handicapped person’ means and then to provide a means of deciding if a particular person is ‘a handicapped person’. It has been decided by Parliament that for these purposes a handicapped person is one who is chronically sick or disabled (using those terms as normal words) – see Note 13 – and who usually uses a wheelchair or stretcher for domestic or personal use – see sub-paragraphs 2A(a) (i) and (ii). Then the legislation refers, in 2A(a) and Note 5L, to such a handicapped person subjectively, i.e. the question is whether the person concerned is actually handicapped in the relevant sense.[17]None of the above undermines the need for the adaptation to be substantial and permanent.[18]Nor does it affect HMRC’s interpretation of the words “to enter, and drive or be otherwise carried in, the motor vehicle”.[19]We will next deal with the meaning “to enter, and drive or otherwise be carried in, the motor vehicle”. HMRC argued before us that the conditions for zero-rating are that the handicapped person concerned must need the adaptation to be able both to enter the vehicle and also either to be able to be carried in it or to drive it. That contention, if correct, would certainly make much of the respondents’ published guidance on the subject of zero-rating for motor vehicles for the use of handicapped persons completely misleading (as to which see below).[20]It would also lead to the most anomalous of situations. It may be supposed that the zero-rating provisions are intended to give effect to some sort of coherent policy aimed at assisting handicapped persons rather than a lottery by which some are arbitrarily assisted and others are equally arbitrarily denied assistance. A handicapped person may well be totally unable to get into a vehicle without assistance but quite able to sit in it and therefore to be carried in it without any further need of an adaptation once they have succeeded in entering it; or vice versa. A person who can climb into a vehicle without help may need an adaptation to drive it.[21]The first thing to note is the rather oddly placed comma between “enter” and “drive”.[22]It is of course true that the use of “or” rather than “and” would have put the point beyond argument.[23]However, the relevant wording is better understood as follows.

(i) and (ii)):

“substantially and permanently adapted to enable a handicapped person … to enter, and drive or be otherwise carried in, the motor vehicle”
. The words “to enable” therefore apply to all the words “to enter” and the words “[to] drive or [to] be otherwise carried”. A more natural reading of that extended phrase is that the adaptation should make it possible for the handicapped person to do all or any of the three activities which he could not do without the adaptation, namely entering, and/or driving and/or being carried.[24]Seen in that light the oddly placed comma can be explained because entering, driving and being carried are the items in a list of things which may be achieved by the adaptation rather than ones which must all be achieved.[25]We hold that it is sufficient for an adaptation to facilitate either entry to the vehicle or the ability to drive it or the ability to be carried in it. For the avoidance of doubt when we say ‘facilitate’ we mean to make possible what would otherwise have been impossible. It is not enough that the adaptation makes it easier to do one or more of those things. That is the effect of the word “enable” in the definition.[26]The next issue to be determined is the interpretation of the phrase “substantially and permanently adapted”. Both substance and permanence must apply in respect of an adaptation before a vehicle can qualify.[27]Necessarily, there is a question of degree involved in the use of the word “substantially”. The legislation provides no basis for a quantification of the degree of substance required before an adaptation will qualify. The word must simply be given its meaning as an ordinary word in the English language and so the issue is essentially one of fact.[28]In this respect we were referred to Croall Bryson & Company Limited [2011] UKFTT 494 (TC) . In that case the tribunal held (at paragraph 140) that Parliament can be taken to have intended to provide the zero rate for persons who use wheelchairs and, although it is not spelled out, the tribunal appears to have interpreted the provision on the basis that as long as the effect of the adaptation is to achieve that object its substance will be judged accordingly. In other words substance should be judged according to the effect achieved by the adaptation rather than by its extent; whether in terms of the cost of materials or time and skill required to make the adaptation. The tribunal particularly mentioned time in paragraph 142 of its decision.[29]As far as “permanently” is concerned that too is not defined and no statutory basis is provided for adding or subtracting anything from the meaning of that word as an ordinary English word. It is the case that HMRC have issued guidance that appears to negate the need for permanence in some cases as we will explain below.[30]We turn to the facts of this case.[31]The assessment is based on the decision of HMRC that the fitting of D Lock handles to approximately 50 vehicles did not entitle their sale to be zero-rated. In a few cases steps were also added. In the original decision letter dated 4 January 2011 the decision was explained in the following way: “The adaptations made to the motor homes, i.e. the fixing of the grab handles prior to supply, do not amount to an adaptation that enables a handicapped person to enter and drive or be otherwise carried in a motor vehicle. The disability of the individuals is not in dispute. Grab handles are a general use item and not an item ‘specifically designed to enable a wheelchair user to enter, drive or travel in a vehicle’. The addition of the grab handle to the motor home is not substantial because at best it only enables the handicapped person to enter the vehicle more easily but does not facilitate the carriage of the handicapped person while in the vehicle”.[32]The assessment was made on 31 March 2011 and was subsequently amended. The actual calculation of the assessment is not in dispute and, as can be seen from the letter quoted above, it is not in dispute that the persons concerned were disabled and that can be taken to mean disabled in the relevant sense.[33]The Commissioners’ case as presented at the hearing was that the adaptations were not substantial, they were not shown to have been effected in order to enable a person to enter and drive or be carried in the vehicle but rather only to assist such a person to do that and objectively they could also assist non-wheelchair users and were in fact a security measure.[34]We have already ruled as a matter of law that it would be sufficient for an adaptation to either enable a person to enter or to drive or to be carried in the vehicle.[35]We hold that there is no basis for saying that because an adaptation can achieve objects other than the enablement of a disabled person in the relevant sense that means they do not qualify. Therefore the mere fact that an able bodied person could use the handles and that they do provide security is irrelevant. We take it however that what HMRC were arguing was that these were relevant facts in considering whether the handles had in fact been fitted for the purpose of enabling the disabled to enter the vehicle rather than that a potential dual purpose would disqualify an adaptation.[36]The evidence about the handles themselves is as follows. We saw a motor vehicle that had such a handle attached to it. The couple who owned the vehicle had brought it to the tribunal and the wife of the couple, who is a wheelchair user, demonstrated its use to us and explained that she would be unable to enter the vehicle without the assistance of the handle.[37]We also saw a sales leaflet relating to the handles. They are described as ‘Caravan Motorhome Door Security Lock/Grab handle 31’ and they are apparently 32.5 cm long. About half way along the handle there is a cushioned area for the user to take hold of. They are fitted to the outside of the vehicle and in order to fit them two holes have to be made in the outer panel of the vehicle.[38]The handles could be removed later but the holes in the side of the vehicle would still be there albeit presumably patched up unless the whole panel were to be replaced.[39]The appellant’s witnesses were Mrs Elaine Armstrong and Mr Jonathan Bell, partners in the appellant’s business.[40]Mrs Armstrong told us that the business began trading in 1996 and started to sell adapted vehicles at some time after 1999. She specifically said that the business had had regard to Public Notice 701/7 concerning what she described as VAT reliefs for disabled persons. She may have meant Information Sheet 7/01 or Public Notice 701/59 or both but nothing turns on that.[41]She described a visit from officer Keith Henderson on 2 September 2003. She said in her witness statement that he reviewed sales invoices for adapted vehicles and customer declarations and raised no concerns about adaptations. When she gave evidence Mrs Armstrong said adaptations “must have been discussed … we would have discussed them”. Mr Henderson’s audit report shows that he traced several zero-rated sales in the supporting documents and was satisfied they were correct.[42]Mr Henderson said in his witness statement that he could not remember discussing grab handles and that he no longer has a note book relating to this visit. We do not take the fact that he cannot remember, after this lapse of time, discussing grab handles as an indication that he did not discuss them. In his oral evidence he said he would have noted a specific query and would have given a ruling later if a query had arisen.[43]Mrs Armstrong described a visit from officer Derrick Robinson on 4 February 2005 who she said discussed at length the zero-rating of adapted mobile homes. In particular she recalled him telling her that adaptations for customers suffering from degenerative illnesses could qualify. Until then, she said, the business had only claimed zero-rating for persons who were what she described as permanently disabled. She said that sales to customers with degenerative illnesses explains in part an increase in zero-rated sales. She said Mr Davidson had also reviewed sales invoices and customer declarations and did not raise any concerns. When she was cross examined about this visit she said she was confident they were correctly zero-rating the vehicles because “you go off the booklet” (a reference to Notice 701/59).[44]Mr Robinson’s audit report shows that he visited the appellant because of an input tax claim. That claim turned out to be in part because the appellant had originally omitted sales for October from its output records. That had been the subject of a voluntary disclosure by the appellant and was an innocent error.[45]In the course of examining the reason for the input tax claim Mr Robinson also considered the zero-rating. It seems clear he examined it in detail as his report contains the following: “The zero-rating provisions were discussed in detail with trader and they advised it was their normal practice to zero rate in cases only where customer required a permanent adaptation to vehicle as per guidance given in PN 701/59, para 3.2 to 3.5 and was able to assure them of eligibility. The trader normally requires customer to complete the relevant declaration by using the original template in the PN, and therefore retains an actual PN701.59 appropriately completed for each ZR sale. I was satisfied that trader had taken all reasonable steps to check the validity of each declaration and noted the value of these supplies in 12/04 to be £108,945”.[46]In his oral evidence Mr Robinson said he recalled discussing examples of adaptations.[47]Mrs Armstrong spoke of a visit on 16 August 2005 by officer Julie Farbridge who, she said, reviewed sales to disabled customers and invoices and sales orders for them. Mrs Farbridge’s audit report corroborates Mrs Armstrong’s evidence. It refers to tracing sales invoices and disabled certificates and includes a note “Satisfied with liability of these sales”. Mrs Farbridge said in her oral evidence that she could not remember what was said about adaptations. She said that if she had been asked outright whether a grab handle was sufficient she would have taken the information away and given a written response.[48]Mrs Armstrong described a visit on 11 May 2006 by officer Yvette Hay who discussed zero-rated sales and raised no concerns. There is some corroboration of that in Mrs Hay’s audit report which refers to five zero-rated sales though it is clear that the main purpose of that visit was related to an input tax repayment claim which had arisen because of exceptional expenditure on the business premises. In her oral evidence she said that she was not asked to give any liability ruling. She said she would have looked at the medical certificates if they were there and when she looked at the documents she would have looked to see if the sales were to disabled people.[49]The above dates and the fact that visits occurred were corroborated by officers audit reports and/or notes.[50]In addition, Mrs Armstrong said she recalled another meeting with a male officer whose name she cannot recall and who attended the appellant’s current premises. She recalled a detailed discussion about what adaptations would qualify and recalls that swivel seats were mentioned. Jonathan Bell, a partner in the business, was present during that discussion. She recalled that meeting because there was only one visit by a male officer at those premises. HMRC have not found any report of that meeting.[51]As far as the handles themselves are concerned Mrs Armstrong said what was fitted depended on the customer. She said she did not regard them as security items. She also said she did not think anyone would choose to have “those horrible looking things on a mobile home”. It is a matter of opinion whether they are horrible looking things but having seen one we see some force in a suggestion that they are not greatly pleasing from the aesthetic point of view. She agreed they cost £59.93.[52]On 18 November 2010 officer Diane Muir visited and she said the grab handles were not sufficient to qualify for zero-rating and the assessments stem from that meeting. Mrs Armstrong added that after Mrs Muir told her this she started to cry. We take that as an indication that the ruling came as a complete surprise to her.[53]We found Mrs Armstrong to be a truthful witness and accept her evidence as truthful including her evidence about the visit from the unknown officer.[54]Mr Bell said in evidence that the officer had been quite happy with the adaptations when he saw him which is a reference to the unknown officer. He also stressed that he had read the Public Notice and was sure he was complying with it.[55]A VAT information sheet 7/01 issued in June 2001 was referred to in evidence as was Public notice 701/59 issued in March 2002 and not amended until after the events relevant to this appeal. The latter seems to be the more relevant document so far as this appeal is concerned. We will quote paragraphs 3.2 to 3.4 which are the relevant ones. For convenience we will add our own comments in italics immediately after the part we are commenting on:
“3.2 What does ‘adapted for the carriage of a disabled wheelchair/stretcher user’ mean? A motor vehicle is adapted for the carriage of a disabled wheelchair user if it is: · adapted to suit his specific needs; and the adaptation; · allows him to enter and travel in the vehicle whilst seated in the wheelchair or on the stretcher; · allows him to enter, travel in or leave the vehicle; Note: this clearly states that only enabling entry to the vehicle can be sufficient. · enables him to drive the vehicle; or Note: this clearly states that only enabling driving the vehicle can be sufficient. · allows a wheelchair to be carried on or in the vehicle. 3.3 What is a ‘permanent’ adaptation? An adaptation is permanent if it can be used for as long as the disabled wheelchair user requires it. Generally the adaptation would require welding or bolting to the vehicle. Note: the facts of this case appear to fully satisfy this requirement at least as stated in the Notice. 3.4 What is ‘substantial’ adaptation? A substantial adaptation enables a wheelchair user to use a vehicle which he could not use before it was adapted. For example, a spinner device, such as a knob on a steering wheel, may not seem substantial to an able bodied person but it would be substantial for a disabled wheelchair user who could not otherwise drive the vehicle”
. Note: A spinner device is certainly more easily removable than the grab handle in the present appeal. The spinner device, as was stated in evidence, would cost less than the grab handles. The spinner device would only assist with driving not with entering or being carried in the vehicle.[56]On our interpretation of “substantially and permanently” adapted we find that the grab handles are sufficiently substantial and permanent to qualify.[57]The substance of an adaptation is to be judged according to its effect and the effect of the adaptations in this case is that persons who would not have been able to enter the vehicles were enabled to do so.[58]The permanence of the adaptations under consideration is considerably more than the ‘spinners’ referred to in the Public Notice and HMRC did not have any logical basis they could advance in support of an argument that somehow spinners would qualify as permanent but grab handles would not. Any adaptation will be reversible even if reversing it might prove difficult and expensive and we are entitled to take that into account when considering whether the adaptations consisting of the grab handles should be judged to be permanent giving that word its ordinary meaning. Cleary the holes in the side of the vehicle would remain if the grab handles were removed and their actual removal would seem to be most unlikely. In the ordinary sense of the word permanent we find these adaptations were permanent.[59]The undisputed evidence was that the persons who required the motor homes did need the adaptation to enter the vehicles because of handicap and that wheelchair use to the relevant degree was also established. Those facts were amply corroborated by the fact that several officers had seen the documents such as medical certificates that certified those facts to be the case. Indeed samples of such documents were produced at the Tribunal and, as we have pointed out, the initial decision letter also accepted that the people concerned were handicapped and that must have meant handicapped in the relevant sense as otherwise the decision notice would have asserted that they were not handicapped in the relevant sense..[60]We hold that enabling entry to the vehicle is sufficient to qualify for zero-rating without its being necessary for there also to be facilitation of driving or being carried. For the avoidance of doubt we do however find that the grab handles did not enable driving or being carried except in the sense that a person cannot drive or be carried if he cannot enter the vehicle.[61]Accordingly we hold that the assessments to tax are invalid as no tax was due and the zero rate had been correctly applied.[62]It follows that the assessment for a penalty falls as no tax has been under-declared.[63]The penalty was alleged to have arisen because of carelessness. For the avoidance of doubt we find that, whatever the conclusion may have been about the correct interpretation of the statute, the appellants cannot be said to have been careless. In light of the facts about the frequent visits by officers who raised no questions and the wording of the Public Notice set out and commented on above it is plain that the appellants were not careless. They followed the respondents’ own statements and although the respondents now wish to resile from those statements (wrongly so as we have held) a member of the public who follows the published guidance given by the respondents cannot be said to have been careless in doing so. It was frankly ridiculous to hear it said on behalf of the respondents that the appellants should have taken their own professional advice and ignored what they were told about, for example, ‘spinners’. The example of a spinner or steering wheel knob that had less substance than the grab handles in this case and made no contribution to enabling entry to the vehicle would have satisfied any reader of the public notice that requirements for substance and permanence were satisfied by the handles and that the entry, driving and being carried were not cumulative conditions.[64]We accept that the Public Notice cannot determine what the correct interpretation of the statute is and we have not approached the interpretation on the basis that it does but we hold it is certainly relevant to judging whether a person has been careless. If the Commissioners had been right about the interpretation they now seek to put on the statute then the Public Notice is so incorrect as to lead only to the conclusion that it was the Commissioners who were careless not those who followed it.[65]We will add that we consider it to have been utterly wrong for the Commissioners to increase the amount of the penalty by removing some of the mitigation they had previously allowed when and because the appellants submitted their notice of appeal to the Tribunal. They changed their mind about that later but is should never have happened.[66]Indeed we regard it as a misuse of the penalty regime for the Commissioners to have attempted, as they appear to have done by offering to suspend the penalty, to induce the appellant to admit liability. It was not made clear to the appellants or, perhaps more to the point it would not have been clear to the appellants if they had not been represented, that by agreeing to the terms on which suspension was offered they were admitting liability.[67]For the avoidance of doubt we reject any contention that the assessment of the tax was not to best judgment in the relevant sense. The assessment was based on an incorrect interpretation of the law and that makes it invalid as no tax is due but that is not the same as saying it was also not to best judgement.[68]The appeals against the assessments and the penalty are allowed.[69]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. RICHARD BARLOW TRIBUNAL JUDGE RELEASE DATE: 23 September 2014

Cited in 1 later judgment