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Lead Asset Strategies (Liverpool) Ltd v Revenue & Customs [2009] UKFTT 122 (TC) (05 June 2009)
VAT - REGISTRATION
Other

[2009] UKFTT 122 (TC)

TC00090

Appeal number LON/2008/0689

VAT – request to backdate effective date of registration – statutory power – HMRC administrative procedure – whether HMRC acted reasonably – yes – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

LEAD ASSET STRATEGIES (LIVERPOOL) LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS (VAT) Respondents

TRIBUNAL: ROGER BERNER (Judge)

MRS E R ADAMS FCA ATII (Member)

Sitting in public in London on 7 May 2009

David West, Advisor, Morley and Scott, Chartered Accountants, for the Appellant

David Manknell, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

This is the appeal of Lead Asset Strategies (Liverpool) Limited ("LASL") against a decision of The Commissioners for Her Majesty's Revenue and Customs ("HMRC") contained in a decision letter dated 6 March 2009 refusing the application of LASL to amend its effective date of registration for VAT from 11 September 2007 to 3 November 2005. Correspondence on the issue continued between the representatives of LASL and HMRC almost up to the date of the hearing itself. HMRC reviewed its earlier decision on a number of occasions in response to representations made on behalf of LASL, culminating in a letter from HMRC dated 27 April 2009 maintaining the decision to refuse the backdating of the effective date of registration which is now the subject of our Decision.

For the reasons which we set out below, we dismiss this appeal.

Evidence

We heard oral evidence on behalf of LASL from Mr John Clay, a former partner of Morley and Scott, Chartered Accountants, who had until his retirement at the end of September 2007 been the client partner responsible for the affairs of LASL and from Mr David West, also of Morley and Scott, who represented LASL at the hearing before us. On behalf of HMRC, oral evidence was given by Mrs Janet Commock, an officer of HMRC based in the Registration Unit at Deansgate, Wolverhampton.

The Facts

We were provided with a good deal of factual background which is useful for understanding the context in which this dispute has arisen but which is not of itself directly germane to the issues we have to decide. The material facts are those relating to the registration process itself. We therefore divide this section into A. Background and B. The Registration Process.

A. Background

LASL was incorporated on 3 November 2005 for the purpose of acting as project manager on a property development project to be undertaken in Liverpool. On inception of the project the developer was an associated company of LASL, Lead Asset Strategies Limited. The role of LASL as project manager was to coordinate the design function and to obtain planning permission for the development.

In 2007 a joint venture party for the Liverpool development project was identified, an investment fund that was based in Jersey. As a result, on the request of the joint venture partner, it was agreed that the property developer for the project should not be located in the UK, but in Jersey. For this reason a new developer company, Pacemaker Holding Company Limited ("Pacemaker") was incorporated in Jersey. Pacemaker commissioned LASL to arrange for its acquisition of the development land, for plans to be drawn up and for planning permission to be obtained for mixed commercial and residential development on the site. The arrangement between Pacemaker and LASL, we were told, was that LASL would bear most of the costs of arranging the transactions and plans and would become entitled to a success fee on certain land transactions having taken place, aimed at compensating LASL for the costs and effort it had expended in arranging these matters.

B. The Registration Process

There were three instances of applications in relation to VAT registration to which we were referred. We shall record first the facts we have found regarding the registration of LASL with an effective date of registration of 11 September 2007, as that is the registration which is the subject of this appeal. We shall then refer to an earlier exchange of correspondence between LASL's then accountants, Findlay, Weatherfield, Scott and Co and HMRC regarding possible registration of LASL, either singly or as part of a group registration with its associated company, Lead Asset Strategies Limited, and an application by Lead Asset Strategies Limited for its own effective date of registration to be backdated.

LASL 2007 Registration

Mr Clay's evidence

Mr Clay gave evidence that Morley and Scott were appointed as accountants to advise LASL in April 2007, and that he was from that date until his retirement from the firm at the end of September 2007 the client relationship partner for LASL. His role as a partner in Morley and Scott was in advising clients with their accounting and taxation affairs. He is a chartered accountant and described himself as a direct tax specialist although he agreed that he had overall responsibility for the affairs of LASL, including VAT, and said that in his approximately 15 years of practice with Morley and Scott he had assisted with the completion of VAT registration forms on six or seven occasions, three of which were in the final six months prior to his retirement.

On 11 September 2007 Mr Clay assisted Rajdeep Basu, a director of LASL, with the completion and submission of Form VAT 1 in relation to the application for registration of LASL. The forms were completed at Morley and Scott's offices at Lynton House, 7-12 Tavistock Square, London WC1. Mr Clay explained that LASL needed to register for VAT at that time because it was anticipated that within the next 30 days the company would be making a supply of advisory services to Pacemaker with a value of £5.5 million. My Clay's primary concern was to ensure that the company did not fail to register for VAT at that time because it was his view that, in light of the prospective supply to Pacemaker, LASL had become liable to register under para 1(1)(b), Sch 1, Value Added Tax Act 1994 ("VATA").

Mr Clay completed Form VAT 1 on behalf of LASL and it was signed by Mr Basu. So far as they are material the following entries were made on the form:

Question 3	The date of incorporation of LASL, 3 November 2005, was inserted
Question 13	To the question "Are you applying for voluntary registration because your turnover is below the registration threshold?" Mr Clay ticked the box "Yes". He also ticked "Yes" to the statement "My turnover is below the current registration threshold but I want to register now." Finally, to the question "What date do you wish to be registered from?" Mr Clay inserted "11 September 2007".
Questions 14 to 16 inclusive	These questions, headed "Compulsory registration", were not answered.
Question 17	This question, headed "Earlier registration", was not answered.
Question 18	Under the heading "VAT repayment", to the question "Do you expect the VAT on your purchases to regularly exceed the VAT on your taxable supplies?", Mr Clay ticked the box "Yes", and wrote: "The company intends to issue final invoice following completion of project in March 2011. However, it may also issue invoices for advisory services within next 30 days".

The Form VAT 1 was posted on 11 September 2007 to HMRC at the Newry Registration and Deregistration Unit, along with an accompanying letter from Morley and Scott. The letter also enclosed a copy of the planning consent for the development and a copy of the draft accounts for LASL for the twelve-month period to 30 June 2007. The letter contains the following paragraph:

This Company is carrying out property development and trading activities and the provision of advisory services. The Company's primary activity is the acquisition of a property interest at Plot 7, Princes Dock, Liverpool from Peel Holdings Limited. The acquisition price is approximately £16.35 Million and the overall development value over the next 4 years will be some £120 Million. The project is expected to complete in March 2011. In addition, the Company is expected to provide advisory services to third parties and it is expected that the first invoice may be raised within the next 30 days. Unfortunately, the quantum of the invoice is yet to be finalized but is expected to be in excess of the registration limit.

The draft accounts sent with the Form VAT 1 included a Schedule of Administrative Expenses. One of the entries in that schedule was "VAT to be recovered" showing a figure of £46,984 for 2007 and £22,017 for 2006.

In his evidence My Clay stressed that his concern on 11 September 2007 was to obtain registration for LASL quickly in view of the impending invoice that was expected to be issued by LASL to Pacemaker. He had himself previously experienced delays in registration for another client because of questions raised by HMRC, and he was therefore concerned to provide additional information in support of LASL's application. He accordingly wrote the covering letter and included the planning consent and the draft accounts; these items were to demonstrate that LASL was carrying on business. Mr Clay also confirmed in cross-examination that the issue of registration from an earlier date than 11 September 2007, namely with effect from the commencement of LASL's trade, did not arise at the time of the application. The sole concern was the likely raising of the invoice which would take the company through the turnover threshold.

Mr Clay recalled completing the Form VAT 1 on behalf of LASL. At Box 13 he said that he had a dilemma. LASL had not issued invoices and so had no turnover. He explained that he had taken a simplistic approach and so had answered "Yes" to both the turnover question and the statement that immediate registration was wanted. He inserted 11 September 2007 as the date for registration because, he explained, it was not his habit to backdate documents. As the form then directed him to "Go to Question 18 – ignore Questions 14 to 17", that is what he did. Thus, notwithstanding his view that LASL was liable to register under para 1(1)(b), Sch 1, VATA, he did not complete the section of Form VAT 1 regarding compulsory registration.

In one respect Mr Clay gave some conflicting evidence on which we ought to make a specific finding. In the course of his evidence My Clay was referred to a letter from Morley and Scott to HMRC dated 14 April 2008 in which it was stated that:

"The person that prepared the VAT 1 was not a VAT expert and confirmed that they were unclear as to which date to put in Box 13. They noted in Box 3 the date of incorporation, 3 November 2005, and assumed that would be the VAT registration date."

Mr Clay was asked to confirm that the statements in the paragraph from which this extract has been taken were true, and he did so. However, this conflicts with the evidence that Mr Clay also gave that the sole concern was to obtain registration because of the impending invoice and that the issue of registration of LASL from an earlier date did not arise. It could not be clearer that the date to be inserted in the answer to Question 13 on Form VAT 1 was the proposed registration date. We therefore do not accept that Mr Clay assumed that the date of incorporation would be the date for registration. That question, as his evidence shows, was not considered by him when completing the Form VAT 1.

Correspondence between HMRC and LASL

Mr Clay retired from Morley and Scott on 30 September 2007. Subsequently, on 12 October 2007, HMRC wrote to LASL seeking further information in the form of a property questionnaire. Specific questions were directed at the ownership of the land to be developed, the planning permission (a copy of which, as noted above, had already been supplied with the original application), an estimate of taxable supplies expected to be made on completion of the development and evidence of the taxable supplies being made in relation to the advisory services. LASL replied on 22 October 2007 confirming that LASL had no interest in the land but would be carrying out services and charging a fee to the developer. The anticipated date of the fee to be charged to the developer was here stated as 5 November 2007. The letter also said that "LASL will need a VAT number in advance of 5 November 2007 to put on its VAT invoice".

HMRC then wrote to LASL on 26 October 2007 and again on 8 November 2007 asking for copies of signed and dated contracts between LASL and the developers. Following a reminder on 20 November 2007, Morley and Scott sent a fax to HMRC on 22 November 2007 attaching a draft invoice of LASL addressed to Pacemaker and prospectively dated 30 November 2007 in the sum of £5.5 million plus VAT at 17.5% of £962,500. On the same day (22 November 2007) LASL itself wrote to HMRC explaining that there was no formal contract between LASL and Pacemaker and enclosing a further copy of the draft invoice. Pacemaker itself faxed HMRC on 30 November 2007 to confirm that LASL was employed as its consultant in respect of the acquisition and development of the Liverpool site and that LASL would be entitled to a fee of £5.5 million plus VAT due on that day.

Following these exchanges of correspondence, on 6 December 2007 HMRC gave LASL a Notification of Registration as an Intending Trader, registered with effect from 11 September 2007. Form VAT 4, showing the full registration details, was issued on 7 December 2007.

The next correspondence came from Morley and Scott on 18 January 2008 when they wrote to HMRC. In this letter Morley and Scott asserted that the original VAT 1 registration application form had omitted a proposed VAT registration date, and sought backdating to 1 July 2006 in order that the company could recover input tax incurred on supplies it had received in relation to the development project. This, as will be apparent, was an incorrect assertion, as the response to Question 13 on Form VAT 1 had included 11 September 2007 as the relevant date, and this was readily acknowledged by Morley and Scott in a letter to HMRC dated 18 February 2008. In that letter Morley and Scott stated that the insertion of 11 September 2007 in answer to the registration date question in Question 13 was "an administrative error" on their part. They then put forward a proposed backdated registration date of 3 November 2005, namely the date on which LASL was incorporated. The response of HMRC was the decision letter dated 6 March 2008 refusing the application to backdate the registration date from 11 September 2007, from which decision LASL now appeals.

Mrs Commock's evidence

Mrs Commock is employed by HMRC as a Reconsideration and Appeals Officer in the National Registration Appeals Team. Her role is to reconsider decisions in relation to registration in cases where traders and officers cannot reach agreement. It was Mrs Commock who was the HMRC officer responsible for reviewing the registration process in relation to LASL's application and the request for amendment of the effective date of registration, resulting in the review letter of 27 April 2009 that confirmed the original decision not to backdate LASL's registration.

Mrs Commock explained that as part of the registration process she would expect the processing officer, in an intending trader case, to look for evidence to support the prospect of the trader making future supplies. Such evidence would include contracts, bank accounts and other relevant material. The review would be focussed exclusively on whether there was an intention to trade. The processing officer would not be expected to analyse detailed figures in accounts to determine if a different, voluntary, date for registration might be more appropriate for the circumstances of a particular intending trader.

Mrs Commock said that each case is specific to its own facts. The application form VAT 1, when received, is logged on to the system. Various mechanistic checks are automatically performed, such as verifying postcodes. Documents that accompany the Form VAT 1, such as in this case the covering letter and the draft accounts, would be reviewed to the extent they provided evidence in support of the application. Those documents would not be considered in isolation, but only in relation to the statements made on Form VAT 1.

In cross examination Mrs Commock was asked why a query was not raised in respect of the apparent contradiction between the completion of Question 13 (Voluntary registration) on Form VAT 1 and the answer to Question 18 and the covering letter which indicated the prospect of taxable supplies within a 30 day period and thus suggested that compulsory registration was applicable. In reply Mrs Commock said that the use of the word "may" in relation to the prospective invoice would not have suggested a contradiction, and that even if there had been an apparent contradiction no query would have been thought necessary because compulsory registration would have resulted in the same effective date of registration (11 September 2007) as LASL had requested on a voluntary registration basis. Similarly, no query would have been relevant on subsequent correspondence which had suggested prospective invoices on 5 and 30 November 2007. In each case a liability to register might have arisen at that time, but an application for an earlier effective date of registration had already been made.

Mrs Commock also explained that it was not the responsibility of the processing officer to review documents, including accounts, to establish if a different voluntary registration date from that applied for might be more advantageous for the intending trader. Thus, in this case, the fact that there were entries in the accounts with the description "VAT to be recovered" would not be expected to generate a query. A processing officer might well be aware of the rules and restrictions governing the recovery of input tax incurred before registration, but it was not part of the job of the processing officer to determine a voluntary registration date by reference to those criteria.

It was put to Mrs Commock that one of the points made in the HMRC letter of 27 April 2009 was that the "financial records were unaudited accounts and therefore the figures could not be substantiated". This raised the question whether the fact that the accounts were not audited accounts had meant that they had not been considered in the same way as would have been the case if they had been audited. Mrs Commock did not agree that this was the case and maintained that it was not for the processing officer to establish the voluntary registration date for the trader. It was not the responsibility of the officer to check the figures in the accounts, but to check the registration date that there was evidence supporting the registration date that the trader had applied for. We find that the unaudited status of the accounts did not affect the way in which the application was processed.

Prior registration processes

As briefly mentioned earlier there were two other circumstances concerning VAT registration to which we were referred. In 2006 there was an exchange of correspondence between LASL's then accountants, Findlay, Weatherfield, Scott & Co, and HMRC regarding the possible registration of LASL at that time. On 5 September 2006 those accountants wrote to HMRC requesting registration forms to register LASL for VAT on its own account and also forms for group registration with LASL's associated company, Lead Asset Strategies Limited. HMRC responded to this request on 18 September 2006, sending the relevant forms for both types of registration. There was no reply from the accountants to this letter, and so on 3 November HMRC wrote to them again to say that registration was unable to proceed. No further action was taken at that time to register LASL.

Earlier in 2006, on 10 March, Lead Asset Strategies Limited had itself written to HMRC seeking to backdate its own effective date of registration in order to recover input tax on certain pre-registration supplies to it. A decision of HMRC refusing that request was issued on 28 April 2006, and it appears that Lead Asset Strategies Limited took no further action to pursue the matter.

The Law

We set out here the relevant statutory provisions, in each case of the VATA:

Section 3: Taxable persons and registration

(1) A person is a taxable person for the purposes of this Act while he is, or is required to be, registered under this Act.

(2) Schedules 1 to 3A shall have effect with respect to registration.

Schedule 1: Registration in respect of taxable supplies

1(1) … a person who makes taxable supplies but is not registered under this Act becomes liable to be registered under this Schedule-

(b) at any time, if there are reasonable grounds for believing that the value of his taxable supplies in the period of 30 days then beginning will exceed [the registration threshold].

6(1) A person who becomes liable to be registered by virtue of paragraph 1(1)(b) above shall notify the Commissioners of the liability before the end of the period by reference to which the liability arises.

(2) The Commissioners shall register any such person (whether or not he so notifies them) with effect from the beginning of the period by reference to which the liability arises.

9 Where a person who is not liable to be registered under this Act and is not already so registered satisfies the Commissioners that he-

(a) makes taxable supplies; or

(b) is carrying on a business and intends to make such supplies in the course or furtherance of that business,

they shall, if he so requests, register him with effect from the day on which the request is made or from such earlier date as may be agreed between them and him.

Jurisdiction

It was submitted by Mr Manknell, and we accept, that our jurisdiction in this appeal is to review the rationality of HMRC's decision on the principles set out in John Dee Ltd v Customs & Excise Commissioners [1995] STC 265. Accordingly it is for us to consider whether HMRC have acted in a way in which no reasonable panel of Commissioners could have acted or whether they have taken into account some irrelevant matter or have disregarded something to which they should have given weight. The Tribunal cannot substitute its own decision for that of HMRC, and cannot therefore itself amend the effective date of registration of LASL.

The Issues

In reviewing the decision of HMRC on the basis described above, there are three issues that fall to be considered:

(1) Whether in the circumstances of this case HMRC have a statutory power to backdate the effective date of registration, and if so in those circumstances HMRC's discretion is "at large";

(2) The applicability of HMRC's administrative procedure in relation to a retrospective change to the effective date of registration if there has been a genuine error in completing the Form VAT 1 by the person registering; and

(3) Whether in this case there has been departmental (that is, HMRC) error with regard to the effective date of registration at the time when LASL's application was processed.

A statutory power?

Mr West on behalf of LASL argued that the power of HMRC under para 9, Sch 1, VATA to agree an earlier effective date of registration than the date on which the request for registration is made is not restricted by whether or not the registration process has been completed and the intending trader is therefore already registered at the time to request to backdate is made. He argued that for such a restriction to apply it would be necessary to imply into para 9 words such as "provided that the request is not made after the registration process is completed", and that this should not be permitted as a matter of statutory construction.

We find the construction of para 9 to be clear on its face, without the addition of any further words. Para 9 applies only in a case where a person is neither liable to be registered nor is already registered. Here, once LASL was registered from the date it had itself specified in Form VAT 1, there remained no scope for a request for a different registration date to be entertained under para 9. The statutory power that HMRC has to agree with an applicant an earlier date for registration than the day on which the request is made can apply only up to the time that the applicant is registered.

In our view this analysis is consistent with the judgment in the High Court of Mr Justice Lloyd in Customs & Excise Commissioners v Eastwood Care Homes (Ilkeston) Ltd and others [2001] STC 1629. In that case it was held that article 24(6) of EC Council Directive 77/388 (the Sixth Directive) had been correctly transposed into national legislation by para 9, Sch 1, VATA. Article 24(6) required that relevant persons be free to choose between exempt status and normal registered status. There, by applying for group registration at a certain date, the taxpayer had made a relevant choice for the periods both before and after registration. It was a proper requirement to exclude from voluntary registration a person who was already registered. Mr Justice Lloyd said at [23]:

"No-one would seek to argue that a taxable person (in terms of the directive) who is not subject to compulsory registration, cannot choose in favour of one status at one time and later of another for the future, subject no doubt to provisions required in terms of administrative efficiency and the protection of the revenue. But that is not what these respondents seek to do. While the provisions of which they now seek to take advantage were in force, they opted (by inertia) for exempt status. Then in 1995 they opted in favour of the normal regime, but only with prospective effect and through a group scheme. Later they realised that a different treatment would have been to their advantage between 1992 and 1995, so they sought to alter their treatment but only for that period. I find it very striking that the choice they seek to make is not prospective but purely retrospective. In my judgment that is not a choice which art 24(6) envisages at all, and certainly not one which the article requires member states to afford to persons in the position in which the respondents were in July 1996."

In the case of LASL, having opted, by inertia or otherwise, not to be registered until 11 September 2007, and then having been registered from the date specified in Form VAT 1 (which was also the date of the request), para 9, Sch 1 does not provide for a later retrospective registration from an earlier date to be agreed.

Genuine Error

HMRC operate an administrative policy of permitting retrospective changes to the effective date of registration in certain cases. This policy derives from the general power of care and management of VAT provided by section 6, Customs and Excise Management Act 1979. There are two aspects of the policy for us to consider: first, in this section of our decision, we consider the policy in relation to genuine error on the part of the applicant in completing the Form VAT 1, and secondly, in the following section, we consider the policy in relation to departmental (that is, HMRC) error.

The policy is set out in HMRC's internal policy and guidance in Manual V1-28, Volume 1: Registration. Para 8.8, so far as material to cases of genuine error, is reproduced below:

8.8 Change of EDR to an earlier date

You may receive requests from registered traders to amend their EDR [effective date of registration] to an earlier date than that already allocated. Commonly this is where they belatedly find that input tax incurred prior to the EDR can't be claimed as it is 'out of time'.

In limited circumstances we may permit a retrospective change to the EDR if there has been a genuine error in completing the VAT 1 by the person registering. Section 33 details the circumstances and procedures to follow.

Otherwise refuse requests of this nature. VAT Act 1994, Schedule 1, paragraphs 5 & 6 and paragraphs 9 & 10 of the [sic] do not allow an EDR to be varied after a trader is registered. When the trader applied for registration he had the opportunity to negotiate his EDR then and the legislation does not allow this date to be changed retrospectively.

Section 33.1 of V1-28 is as follows:

33.1 Criteria for changing an EDR (trader request)

The EDR given must, at the time of registration, have been a backdated EDR. I.e. at the time of application the trader must have voluntarily applied for an earlier EDR.

The trader must demonstrate that there was a genuine misunderstanding or error in completing the application form. That does not include an error of judgment, e.g. he thought he would be in repayment but found in fact he was a payment trader.

The request must be made before the end of the due date of the first VAT return (i.e. 1 month after the end of the first period), which must not have been rendered.

They must return the original VAT 4 certificate.

The argument of HMRC is that, even if this were a case of genuine taxpayer error, the policy does not operate because LASL's circumstances fail to satisfy the first bullet point in section 33.1. We agree. In this case there was at the time of the original application no voluntary application for a backdated EDR. The registration date applied for by LASL was 11 September 2007, which was the date of the request for registration; a backdated EDR would have to have been from a date earlier than that. Mr Manknell submitted that this requirement of the policy derived from the limitations on the statutory power to agree retrospective registration, which we have discussed above. It is not our task to review the reasonableness of the terms of the policy itself, but only to consider the reasonableness of how that policy was applied by HMRC in this particular case. On that footing we agree that in this case it was reasonable for HMRC to take account of the fact that the original EDR was not backdated and that the policy in section 33.1 could not therefore be operated in LASL's favour.

Even where the criteria in section 33.1 are not met, the policy also includes (at section 33.1.2) additional criteria which may be used to allow an effective date of registration to be pushed back. This applies if "an officer feels there may be mitigating circumstances". The question for us here is not whether we ourselves think there might be mitigating circumstances but whether we are satisfied that HMRC took into account all the relevant considerations, and did not take into account any irrelevant considerations, in reaching their decision not to backdate the effective date of registration on account of mitigating circumstances. In our judgment, having reviewed the full exchange of correspondence, we are satisfied that HMRC took into account everything submitted to them on behalf of LASL, and did not take into account any irrelevant consideration.

That effectively deals with the genuine error issue, but we believe we should, having regard to the arguments and evidence put forward on behalf of LASL, consider the question of the errors made in the application for registration. There were, on our findings, two such errors.

The first was the error of Mr Clay in applying for voluntary registration in spite of his own understanding that the matter fell within para 1(1)(b), Sch 1, VATA, and thus compulsory registration, on the basis that, on account of the invoice expected to be delivered to Pacemaker, there were reasonable grounds for believing that the value of LASL's taxable supplies in the next 30 days would exceed the registration threshold. From Mr Clay's perspective this was an error. However, in considering whether it should be regarded as a genuine error for these purposes it seems to us that the test is not whether Mr Clay thought he had made an error, but whether, viewed objectively, there was an error in the application. To determine this question it would be necessary to decide whether in fact LASL had, by 11 September 2007, become liable to be registered under para 1(1)(b), so that, on an objective basis, an application for voluntary registration could be regarded as an error. We did not have sufficient evidence before us to decide this question, which was not itself in issue. But even if we had been able to decide that LASL had indeed become liable to be registered, and that the application for voluntary registration was thereby, on an objective basis, a genuine error, this would not in our view have availed LASL. If LASL were in fact on 11 September 2007 liable to be registered by virtue of para 1(1)(b), then under para 6, Sch 1 HMRC would had had no discretion at all to register LASL from a date earlier than that date. The administrative power can only be exercised so as to correct the registration date to that which would have applied if the error had not been made. Here that date would have been 11 September 2007, which is the same date as LASL's actual effective date of registration.

The second error in making LASL's application for voluntary registration was in omitting to consider applying for an earlier, backdated, date for registration. This is not, in our opinion, an error of a nature that can be corrected under the HMRC policy. It was an error of judgment, not of completing the application form. Mr Clay made it clear in his evidence, and we have found as a fact, that his sole concern was to obtain immediate registration for LASL at the time of the application in view of the impending invoice to Pacemaker. He himself did not believe this was a case of voluntary registration, so he cannot be assumed to have had a backdated registration, or the issue of the ability of LASL to recover input tax on supplies of services made more than six months previously, in mind when completing the application.

We were referred to a number of decisions of the VAT and Duties Tribunal on amendments to an effective date of registration. All decisions of this nature are of their nature decided on their own special facts and we do not derive any point of principle from those earlier decisions. Among them was Chilli Club Restaurant Ltd (Decision no: V20043). In that case the Tribunal had to decide whether certain supplies made to the registered trader were of goods or services, the distinction being important in relation to the effective date of registration in that case because input tax can be recovered up to three years before registration in the case of goods, but only up to six months before registration in the case of services. Having decided that the relevant supplies were supplies of services, so the six-month restriction applied, the Tribunal went on to consider whether any change to the registration date could, and if so should, be permitted. It was held that the decision of HMRC not to amend the date should be quashed. The basis for the decision was that the taxpayer and its accountants had, at the time of the application, intended to be able to recover the pre-registration input tax, and had erred in completing the form only because of a misunderstanding about the nature of the pre-registration supplies. This is qualitatively different from the error made in this case, which did not arise because of a misunderstanding of the state of the law, but because of the omission by Mr Clay to consider the question of backdated registration at all.

Departmental error

We have referred above to the HMRC guidance on changes to the effective date of registration, and quoted part of section 8.8 of V1-28. In relation to departmental error, section 8.8 continues:

"However, you must remember that there will still be circumstances where you can or must correct an EDR. These will occur when:

There has been an element of Departmental error with regard to the EDR when the trader's application was originally processed"

Mr West argued that HMRC had made two errors in considering LASL's application, and that as a consequence they ought to have acquiesced in the proposed amendment to the registration date. In making this submission Mr West placed considerable reliance on another decision of the VAT and Duties Tribunal in Simon Damels and Stuart Stevenson t/a Homeforce (Decision no: 17948), which was a case concerned with altering the effective date of registration to a later, rather than an earlier, date. In that case the taxpayer had made a number of errors in completing the Form VAT 1. In particular, the taxpayer had stated, on the one hand, that its taxable supplies in the next 30 days were expected to go over £52,000, and on the other, that the estimate of taxable supplies to be made in the next 12 months was £65,000. In evidence the officer of HMRC betrayed a number of misunderstandings of certain questions on the application form. As a result she had failed in that case to detect the inherently unlikely situation revealed by the taxpayer's answers to those questions. This, the Tribunal held, was an error that should have resulted in a correction of the date of registration.

The first error identified by Mr West in argument was in HMRC failing to appreciate a contradiction in the Form VAT 1 and the covering letter. On the face of the form LASL had applied for voluntary registration, and yet in answer to Question 18 it had been stated that LASL "may issue invoices for advisory services within the next 30 days". Furthermore, the covering letter of Morley and Scott dated 11 September 2007 stated that it was expected that the first invoice may be raised in the next 30 days and that the quantum of the invoice was expected to be in excess of the registration limit. This meant, argued Mr West, that LASL was confusing the intending trader voluntary registration process under para 9, Sch 1, VATA with the forward-looking compulsory registration process under para 1(1)(b), Sch 1.

We reject this argument for two reasons. The first is that we do not consider that the answers given in LASL's application, and the statements in the covering letter, can reasonably be described as contradictory. If there was any contradiction, this was between the way in which Mr Clay had described the expectation of the anticipated invoice on both the form and in the covering letter and what, from his evidence, was his own conviction, namely that there was a great likelihood that LASL would be issuing the expected invoice in the next 30 days. This personal contradiction could not be discerned from the face of the application form and the covering letter; there was no contradiction between an application for voluntary registration and a statement that an invoice may (not will) be shortly issued. We do not consider that the form and the covering letter displayed anything like an inherently unlikely situation. It was in our view perfectly reasonable for the HMRC officer to assume from the statements made in the form and the covering letter that LASL, advised by its accountants, had come to the view that the mere possibility of an invoice in the next 30 days was not of itself sufficient to trigger liability to register under para 1(1)(b), Sch 1, but that this was provided as evidence of LASL carrying on a business for the purpose of supporting the application for voluntary registration.

The second reason for rejecting Mr West's argument is that, even if a contradiction had been identified, we do not see how this should of itself have led to an alteration to the registration date. As we have described, if it had been the case that, instead of properly registering voluntarily under para 9, Sch 1, LASL had been found to have been liable to register under para 1(1)(b), the result would have been that para 6, Sch 1 would have applied and in consequence the only possible statutory registration date would have been 11 September 2007. Mr West argued that at the very least HMRC should have raised a query, and that this would have enabled LASL to correct the situation, before the registration had been completed. Whilst in practice we can see that the raising of such a query might have provided this opportunity, it can by no means be certain that it would have resulted in a change to the registration date applied for. There was in any event a period of correspondence between LASL and Morley and Scott and HMRC after the application on 11 September 2007 and before the issue of notification of registration on 6 December 2007 during which the failure to apply for registration from an earlier date could have been spotted by LASL or Morley and Scott, but apparently was not. Be that as it may, we would not ourselves regard a failure by HMRC to raise a query, the raising of which might have provided an opportunity to the taxpayer prior to registration to re-think its whole basis for registration, as an error which should result in an amendment to the registration date that reflects such a reconsideration only after the registration has been completed.

The second alleged error identified by Mr West was that HMRC failed to consider properly the entries in the draft financial accounts of LASL that were submitted along with the Form VAT 1 and showed items of "VAT to be recovered" for the periods ending 30 June 2006 and 2007. Mr West argued that the contradiction between the registration date voluntarily applied for on Form VAT 1 and, he said, the clear desire, evidenced by the draft accounts, to claim input tax incurred more than six months previously should have been obvious to a diligent registration officer, and again a query ought to have been raised that would have enabled the proposed registration date to have been amended before the registration process was completed.

We do not agree. It is not the responsibility of HMRC to examine documents submitted by the taxpayer for the purpose of ascertaining whether the taxpayer has made the most advantageous choice of registration date. That determination is solely for the taxpayer to make in the first instance; it must then of course be agreed by HMRC if it is a date earlier than the date of application. We are satisfied that this was the reason for HMRC's decision to refuse LASL's request to backdate the effective date of registration on the ground of departmental error, and that this refusal was reasonable. Financial accounts may be reviewed by HMRC as evidence that an applicant for registration is carrying on a business, but it is entirely reasonable for such a review to be confined to that purpose and it is not reasonable to suggest, as Mr West did, that the HMRC officer owes that applicant a duty of care of the nature suggested and that in this case the officer did not take adequate care.

Decision

For all these reasons we consider that HMRC acted reasonably in the consideration of LASL's application to register for VAT and in the consideration of the request to amend the effective date of registration, and that the decision not to amend the effective date of registration was reasonable. We find that HMRC took into account all relevant considerations and did not take into account any irrelevant considerations.

Accordingly, we dismiss this appeal.

The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. 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.

ROGER BERNER

TRIBUNAL JUDGE

RELEASE DATE: 5 June 2009

Cases referred to in argument and not referred to in the decision

R (on the application of Browallia Cal Ltd) v General Commissioners of Income Tax [2003] EWHC 2779 (Admin); [2004] STC 296

Chapel Town Baths Community Business Limited (VAT and Duties Tribunal, 3 April 2003) (VAT decision number 18142)

Tariq Zaman (VAT and Duties Tribunal, 27 May 2004) (VAT decision number 18647)