Fairness in the tax system

The first is Franco and Maria Cortellessa. The taxpayers ran a fish and chip shop. Each summer they took a long holiday in Italy. Rather than leave the local citizenry chipless, they let the shop fully equipped to a third party during their six week break and the third party (who I will call Joe) ran his own fish and chip business. In six weeks his turnover was not high enough to require him to register for VAT.

So what did Customs do? They demanded the VAT on Joe’s sales from the Cortellessas! ‘Nothing to do with us,’ they said. ‘We don’t even have a clue what Joe’s sales were’. ‘Tough’, said Customs, ‘We will estimate them. It’s your shop. You never told us you had ceased trading.

Therefore we will hold you responsible for everything that happened in the shop’. ‘But we didn’t cease trading’, said the Cortellessas, ‘we went on holiday’. ‘We don’t care’ said Customs, ‘we want some VAT and you are the only person we can find to demand it from’.

Fortunately the VAT tribunal agreed with the Cortellessas. So all’s well that ends well. Or is it? Why did Customs insist on taking this extraordinary claim to a VAT tribunal in the first case? Has Dawn Primarolo called in the Chairman of Customs & Excise and demanded an explanation? Has she said that New Labour believes in fairness in taxation and demanding tax from someone who clearly did not generate the turnover is the antithesis of government policy? Has she said that she wants Customs to act fairly, not try to collect the maximum tax however outrageous their claims may be? I very much doubt it.

Next is Nicholas Levett-Scrivener. He bought a Land-cruiser that he uses exclusively for business (he has two private cars in addition).

‘You may use it exclusively for business’ said Customs, ‘but you can’t have the input VAT back because it is still available for private use’. ‘But I have two cars which I use for all my private motoring’, said Mr Levett-Scrivener. ‘Too bad’ said Customs, ‘we think you would use the Land-cruiser privately in an emergency’. No I wouldn’t’ said Mr Levett-Scrivener. But sadly the VAT tribunal did not believe him.

Nor do I. I think that if he were to find his young child critically injured and the Land-cruiser was sitting outside with the key in the ignition, he would put her in it and rush her to hospital rather than waste a few minutes getting one of his cars out. Accordingly because he would not be prepared to risk sacrificing the life of his child in order to obtain a few hundred pounds VAT relief, fairness Primarolo-style demands that he should be denied that VAT relief.

Mr Levett-Scrivener is not unique. A number of other VAT tribunals have denied a deduction for VAT relief on motor vehicles used exclusively for business either on the same ground or the even odder one that standard commercial insurance policies automatically provide cover for pleasure purposes so, as it would not be illegal to drive the vehicle for pleasure, the vehicle must somehow be intended to be available for that purpose.

Mr Levett-Scrivener is however unlucky because some VAT tribunals have eschewed such theoretical possibilities and looked at what is likely to happen in practice.

If Dawn Primarolo really believes about fairness I think that she would say ‘This is absolutely daft. Tax relief should be governed by whether or not an item is a business item, not by whether Customs can come up with some ingenious circumstance in which the vehicle might possibly be used for non-business purposes, however improbable such use might be’.

If she really believes in fairness I think that she would move a government amendment to the Finance Bill to eliminate this nonsensical position that Customs have persuaded the VAT tribunals to adopt. If New Labour really cares about the family they cannot allow the retention of a tax system that denies a business asset a business status solely because it might be used privately in an emergency.

Again, unfortunately, I do not expect it to happen. This is because I do not believe that Gordon Brown and Dawn Primarolo are really committed to fairness. That is just an empty word they use when they want to justify raising extra tax. Robert Maas is a partner with Blackstone Franks

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