Judgment summary
This is an appeal by Luxurico Limited against HMRC's refusal to allow recovery of input VAT of £477,508.60 incurred on the importation and acquisition of a Hypercar motor vehicle (the Index Vehicle) in November 2020 (1). By the date of the hearing, all matters other than the Index Vehicle input tax issue had been conceded, resolved or were no longer pursued, leaving that issue as the sole matter for determination (1).
Luxurico trades as Platinum Executive Travel, operating a luxury vehicle hire business (2). It argued that the Index Vehicle was acquired as a flagship hire vehicle and fell within the exception in Article 7(2E) and (2F) of the Value Added Tax (Input Tax) Order 1992 (2). HMRC contended that Luxurico had not established that the relevant condition was satisfied and that the input tax block applied (2).
The dispute was confined to whether, at the time of acquisition and importation in November 2020, Luxurico objectively intended primarily to use the vehicle for self-drive hire or hire with a driver (3). The Tribunal heard oral evidence from Mr Saleem Iqbal, Mr Aleem Iqbal and Mr Christopher Tyler, and considered the witness statement of Mr Andrew Kirkby for HMRC (4).
The Tribunal concluded that, at the time of acquisition and importation, Luxurico objectively intended primarily to use the Index Vehicle for self-drive hire and/or hire with a driver within Article 7(2E) and 7(2F), and allowed the appeal (6, 82-84).
Background
Luxurico Limited carries on a luxury vehicle hire business under the trading name Platinum Executive Travel (2). It acquired and imported the Index Vehicle, a Hypercar, in November 2020, incurring input VAT of £477,508.60 (1).
The appeal originally covered a number of VAT assessments across accounting periods from September 2019 to March 2022, but by the hearing only the Index Vehicle input tax issue remained live (1).
It was common ground that the Index Vehicle is a motor car for the purposes of Article 7 of the Value Added Tax (Input Tax) Order 1992, that Luxurico is a taxable person, and that the ordinary conditions for input tax deduction would otherwise be satisfied (3). The dispute concerned only whether Luxurico objectively intended, at acquisition, to use the vehicle primarily for a relevant purpose under Article 7(2E) and (2F) (3).
Core dispute
The sole issue was whether, at the time of acquisition and importation in November 2020, Luxurico objectively intended primarily to use the Index Vehicle for self-drive hire and/or hire with a driver within Article 7(2E) and 7(2F) of the Value Added Tax (Input Tax) Order 1992 (3, 18).
HMRC accepted that Luxurico operated a luxury hire business and that the vehicle was marketed for hire and initially insured for self-drive hire, but argued that the evidence, including limited hire activity in 2020 and 2021, incomplete and inconsistent mileage records, gaps in later insurance cover, and social media content describing the vehicle as a 'dream car', did not establish that commercial hire was the primary intended use (20-24).
Luxurico argued that the statutory test looked to objective intention at acquisition, not retrospective actual use, and relied on pre-arrival commercial interest, advance bookings, contemporaneous insurance and marketing, and explanations for limited hire activity including Covid-19 restrictions, persistent vehicle issues, and a June 2021 accident that took the vehicle off the road (26-31).
Court findings
The Tribunal found that entitlement to deduct input tax is determined at the time the input tax is incurred, by reference to intended rather than actual use, assessed objectively (12-14). Subsequent events are relevant only as evidence from which original intention may be inferred, not as the test itself (15).
The Tribunal found that Luxurico carried on a genuine luxury vehicle hire business and that the Index Vehicle was acquired as a flagship vehicle consistent with that business model (66). It found genuine commercial demand and advance bookings existed before the vehicle arrived in the UK, and that the vehicle was insured for self-drive hire and marketed for hire shortly after acquisition (66).
The Tribunal accepted that the vehicle suffered significant issues shortly after delivery, that Covid-19 restrictions affected the wedding and events market forming part of Luxurico's customer base, and that a June 2021 accident rendered the vehicle unavailable for a substantial period, causing bookings to be lost or cancelled (66).
The Tribunal accepted HMRC's criticism that mileage records were incomplete and inconsistent but found this did not demonstrate the vehicle was acquired primarily for private use (66). It found that social media content, including references to the vehicle as a 'dream car', reflected marketing strategy rather than establishing personal enjoyment as the dominant intended use (66, 79-81). It also found that independent third-party investigations by insurers and lawyers proceeded on the basis that the vehicle was operated as part of a commercial hire business (66).
Overall, the Tribunal concluded that the dominant and most important intended use of the Index Vehicle at acquisition was commercial hire, satisfying Article 7(2E) and 7(2F), so the input tax restriction in Article 7(1) did not apply (82-83).
Outcome
The Tribunal held that Luxurico had discharged the burden of proving that, at the time of acquisition and importation in November 2020, it intended primarily to use the Index Vehicle for a relevant purpose within Article 7(2E) and 7(2F) of the Value Added Tax (Input Tax) Order 1992 (83).
The appeal was allowed (84).
Major issues / areas of contention
- Whether Luxurico objectively intended, at the time of acquisition and importation of the Index Vehicle in November 2020, to use it primarily for self-drive hire and/or hire with a driver within Article 7(2E) and 7(2F) of the Value Added Tax (Input Tax) Order 1992 (3, 18).
- Whether the absence of contemporaneous mileage logs and inconsistencies in mileage records demonstrated private use rather than commercial hire intention (21, 66, 75-78).
- Whether gaps in insurance cover after the initial self-drive hire policy undermined Luxurico's claimed hire intention (22, 74).
- Whether social media and YouTube content describing the Index Vehicle as a 'dream car' indicated a dominant personal use purpose (23, 79-81).
- Whether limited documentary evidence of completed hires during 2020 and 2021 was explained by Covid-19 restrictions, vehicle issues, and the June 2021 accident (27, 76-78).
- The correct legal test: intended use at acquisition assessed objectively, not retrospective actual use over the period of ownership (12-17, 67-69).