Crown & Cushion Hotels Ltd v Customs & Excise

For the input-tax exclusion applicable to cars let on hire, the question is whether the consideration is less than the amount that would have been payable in a hypothetical commercial transaction at arm’s length. An actual arm’s-length transaction is unnecessary. The comparison focuses on transaction value and open-market equivalents.

Whether a car is made available for private use depends on its actual legal and physical availability. Insurance for private use may be evidence, but it cannot itself make a car available. Contractual exclusion, exclusive control by a business and physical security may establish that the car is unavailable for private use.

The appellant owned hotels and leased one hotel, together with its equipment and inventory, to Eden Ltd. When a Rolls-Royce used for the hotel’s wedding business became unroadworthy, the appellant acquired a substantially more expensive replacement without separately increasing the rent. Customs and Excise disallowed the input-tax credit.

The VAT and Duties Tribunal upheld that decision. It found that the replacement was supplied for less than arm’s-length consideration and that the appellant intended to make it available for private use because of the initial insurance arrangements. The appeal concerned whether the Tribunal had erred in law or reached a conclusion unavailable on the evidence.

1. Appeal dismissed. The appeal was confined to questions of law under section 11(1) of the Tribunals and Inquiries Act 1992. There was no proper basis for interfering with the Tribunal’s factual findings or procedure.

2. Under Article 7(2G)(a) of the Value Added Tax (Input Tax) Order 1992, the issue was whether the consideration was less than the amount payable if the transaction were commercial and conducted at arm’s length. The provision did not require an actual arm’s-length transaction. The Tribunal correctly compared the transaction with the hypothetical open-market value.

3. The Tribunal was entitled to find that the consideration was insufficient. The appellant had introduced, without additional charge, a car almost ten times more valuable than the vehicle it replaced. Relevant factors included the absence of a separate financial agreement, the lack of increased rent, and the availability of a substantially cheaper suitable replacement.

4. On Article 7(2G)(b), the Tribunal had applied the guidance in Customs & Excise Commissioners v Upton [2002] EWCA Civ 520. That decision concerned a car which was legally and physically available to its owner for private use. The present case was materially different.

5. Insurance for private use could be evidence of availability, but it could not itself create availability. The car formed part of the hotel inventory, was kept locked at the hotel and was under Eden Ltd’s exclusive control. The appellant had contractually excluded private use by Mr Fraser. The Tribunal therefore placed too much weight on the insurance and insufficient weight on the legal and physical restrictions. The appellant succeeded on Article 7(2G)(b), but the finding under Article 7(2G)(a) was sufficient to dismiss the appeal.

• High Court (Chancery Division): appeal from the VAT and Duties Tribunal dismissed.