England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT

		Royal Courts of Justice Strand London WC2A 2LL
		24 November 2009

1. THE DEPUTY JUDGE: This is a renewed application by Brayfal Limited for permission to apply for judicial review of a decision of the Revenue and Customs not to allow Brayfal Limited to account for VAT monthly, but to hold them to what is a default position for VAT registered traders to quarterly returns.
2. The history is that between 1993 and November 2007, Brayfal, a trading company, were allowed monthly accounting periods. That has the effect of assisting cash flow and effectively providing them with working capital. But in respect of three periods in 1996, the Revenue and Customs withheld the repayment of input tax alleging that the company through its transactions had been involved in MTIC frauds involving a considerable sum of money. I am told today that the amount of VAT that was withheld was a matter of £1 million, so obviously it was a matter of considerable importance; and that, together with what happened next, meant that the company effectively ceased to trade.
3. What happened next is that the Revenue and Customs withdrew the arrangement under which they had allowed monthly returns, and from September 2007 decided that there should be quarterly returns. That itself would have had a profound effect upon the amount of money available to the company at any particular time. Those two things together caused it to cease trading. The company appealed to the Tribunal against the decision to withhold the VAT. The Tribunal found on essential features in the claimant's favour on 22 August 2008, namely that they did not find it established that the company knew or ought to have known that it was involved in transactions connected with the MTIC frauds that had been going on, even though, as a matter of fact, their transactions had been associated with the frauds. The effect would be that the withheld VAT had to be paid over to the claimants so that they were, on the face of it, successful.
4. There was an appeal to the High Court by the Revenue and Customs. The High Court sent the matter back to the Tribunal for further consideration and further reasons. A hearing has taken place, and the decision is expected soon. The company's business, so far as is material, has remained dormant, but Mr Kibbler, who is the leading light at the company, has investigated a line of business importing mobile telephones from Hong Kong, which is not quite the same as the pattern of business that previously existed until 2006 and he wishes to start that business. Essential to the economics of it are said to be being able to account for VAT monthly, partly because the nature of the business as proposed is that it will attract a charge to VAT at the point of import into this country: in other words, compared with what would normally happen and what would happen with other goods, the importer in this case, Brayfal, would have to pay the VAT up front, and so if it was necessary to wait for a quarter in order to get it back, there would be a potentially quite profound effect on cash flow.
5. So it was that on 15 January 2009, the solicitor for Brayfal applied to the Revenue for the opportunity to account monthly. The position is that the default period is three months, but the Revenue and Customs have a discretion, not in the regulation itself confined in any way or described, but simply a discretion to allow monthly accounting, and that is the discretion it was being asked to exercise.
6. The decision was against the application of the company, and was given on 29 January 2009:

(1) The Commissioners have refused Brayfal's ... VAT returns [in 2006], and have appealed for a reconsideration of the tribunal decision ... Until this matter is resolved the Commissioners will not be in a position to consider Brayfal's VAT stagger.

(2) If Brayfal continue to trade as they have done historically, they will not be in a repayment position for VAT due to the implementation of the reverse charge.

(3) You refer to Brayfal considering importing goods from Hong Kong. This would involve a change to the trade pattern of Brayfal. This pattern of trade would be observed, and if consistent, Brayfal would be eligible to reapply for monthly returns after a 12 month period has passed, provided that their VAT returns consistently demonstrate trade which results in a VAT repayment."

7. Those reasons were expanded in a further letter written the following month. It is the lawfulness of the exercise of the discretion, reasons for which were given on 29 January as expanded, that is brought into question in these proceedings. As to the first reason, the fact that there is an appeal, a slightly odd state of affairs arises which Mr Hutton for Customs has not entirely been able to explain away, it seems to me. The position is that the one reason -- indeed, the first reason -- given for not being prepared to go onto monthly returns in the letter of 29 January was that the final conclusion of the proceedings relating to those three VAT returns periods in 2006 has not yet been reached, and when it has been, Revenue and Customs will be in a position to reconsider it. Recently, since the new decision of the Tribunal is thought to be imminent, Brayfal suggested that this hearing, a permission hearing, should be adjourned until the outcome was known, because at least one way or other that would deal with the first reason given in the letter of 29 January, and on this occasion it is Revenue and Customs who were not prepared to have that and did not consent to an adjournment, so the hearing has taken place.
8. As I understand it, it is not now suggested, in the light of that turn of events, that the court should uphold a decision of the Revenue and Customs on the basis that they were right to say, "We will see that those proceedings run their course first", since they themselves have decided that that is not necessary.
9. The second and third reasons are references, obliquely at least, to the policy under which the Revenue and Customs will consider allowing monthly returns, and the policy is set out at V1-28, paragraphs 12.10 and 12.11. It has been gone through in the argument today and I will not read it out. I do not understand there to be any real attack on the policy. The policy itself in any event in its terms is not inflexible, but it has to be applied in each case, and obviously should not be applied inflexibly.
10. The case made by the company is that Mr Kibbler has researched his trading proposals with Hong Kong. The items that he intends to import through the company are items which will now involve, under a scheme started in 2007, the payment of the VAT upfront to the Revenue and Customs by the importer, so that the risk of them not getting VAT until they have passed through a number of further traders and further transactions is eliminated.
11. It is submitted principally that the starting point is that the Revenue and Customs should deal with matters proportionately, and secondly that they should deal with the taxpayer in a way that is subject to judicial scrutiny or review, as indeed it is simply by the dint of these proceedings happening. So what is said to be disproportionate is that, in the trading proposed, the Revenue and Customs do not run any risk of losing money, for example to an MTIC fraud or to any other fraud, because they will get the money accounted for on import of goods into this country, so that the risk to the Revenue and Customs is eliminated. But, on the other hand, insisting on quarterly repayments would put the company at an unnecessary, unreasonable and disproportionate disadvantage because it would have to carry a very substantial debt from quarter to quarter which could at least be attenuated by monthly returns.
12. The request for monthly returns in paragraph V1-28, to which reference has been made, says:

"Requests for monthly returns should normally only be allowed to repayment traders [that is traders whose pattern of trade persistently results in them claiming tax at the end of a period] subject to the criteria detailed in 12.10 [and there is a list of matters there]. Ensure the above criteria are met before setting the repayment indicator and amending stagger. However, you may also allow monthly returns where the trader can provide evidence of projected repayments for a set period."

13. The essence of the Revenue and Customs' case is that this really has to be treated as a company starting out in business. This is new business -- a new pattern of trade that is proposed -- and what is put forward is a proposed pattern of trade which might result, as the company suggests, in very little risk to the Revenue, but the thrust of the policy is for the Revenue to be able to see, and to be able to see for 12 months in the normal way, what the pattern and nature of the trade is before deciding whether the default position of three-month returns can be departed from and monthly returns allowed. It is said that that is a reasonable policy because the Revenue and Customs are entitled to deal with an actual trading situation rather than proposals from a non-trading situation of what may happen in the future.
14. In my judgment, there is absolutely nothing arguably unlawful about that. Burnett J, in refusing permission, after dealing with some historic aspects of the case as appeared then to be live, said:

"The claimant has made representations to revert to monthly returns in the light of its proposed commercial activities. I cannot see that there is an illegality in HMRC's decision to continue to apply the default position of quarterly returns for the time being. While they have discretion to allow monthly returns, it is entirely understandable why they have chosen not to exercise that discretion in favour of the claimant."

15. Leaving aside the question of the pendency of the appeal, which I say has effectively been abandoned by Revenue and Customs, the approach underpinning the policy seems to be one that cannot be called into question, namely it is a policy of wait and see, so that actual trading circumstances are being dealt with before the default position, with the possibility of some lessening of control by the Revenue and Customs is allowed to be changed from quarterly to monthly. However, beguilingly Mr Patchett-Joyce has put the matter, and he has put the matter clearly and cogently, it seems to me that the allegation that the policy as applied to the circumstances of this claimant is unlawful is not truly arguable at all.
16. Accordingly, I refuse this renewed application for permission to apply for judicial review.
17. MR HUTTON: My Lord, I am instructed to ask for the costs of the acknowledgment of service.
18. THE DEPUTY JUDGE: I have had various figures in different cases today, what are you asking for?
19. MR HUTTON: I am afraid we do not have any figures, my Lord.
20. THE DEPUTY JUDGE: You will have to give one otherwise you will not get anything.
21. MR HUTTON: I am advised £320.
22. THE DEPUTY JUDGE: I do not think you object to that, do you?
23. MR PATCHETT-JOYCE: My Lord, if my learned friend is seeking even the acknowledgment of service, then one would have expected it to have been made clear at a much earlier stage.
24. THE DEPUTY JUDGE: It would not have put you off, would it?
25. MR HUTTON: I apologise, we said at the end of the summary grounds that we would ask for costs if so advised.
26. THE DEPUTY JUDGE: I think it is virtually a formality.
27. MR PATCHETT-JOYCE: My Lord, I do not think I can say anything more than I have said. Obviously my client wishes to commence trading. He will be bitterly disappointed by this, and anything which he has to pay is coming out of his back pocket. If the commissioners had sought it, they should have sought it properly.
28. THE DEPUTY JUDGE: I think just to say in the AOS or the draft grounds is enough, is it not? It is all that normally happens, otherwise costs would be incurred in making an application, which is unnecessary. I think in principle costs of the acknowledgment of service should be allowed. It is in a total amount of £320 and I allow it.