[2009] UKFTT 262 (TC)

                                                                                                            TC00209

Appeal number TC/2009/11544

VAT – application to strike out – jurisdiction of Tribunal – s 83(1) VATA – whether a decision by HMRC – whether an appealable matter – s 80 VATA

FIRST-TIER TRIBUNAL

TAX

                                   BARRY O’BRIEN T/A POSTER
                                             SITES (SOUTHERN)                            Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS (VAT)         Respondents

                                                TRIBUNAL: JUDGE ROGER BERNER

Sitting in public in London on 9 October 2009

The Appellant, Mr O’Brien, in person

Alan Bates instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.     This is an application by HMRC for a direction that this appeal be struck out under rule 8(2)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Tribunal Rules”) on the ground that there is no appealable decision under section 83 of the Value Added Tax Act 1994 (“VATA”).

2.     The Appellant, Mr Barry O’Brien, who trades as Poster Sites (Southern), appeared in person.  HMRC were represented by Alan Bates of counsel.

The Appeal

3.     Mr O’Brien appealed to this Tribunal on 30 June 2009, referring to a “decision” of HMRC dated 18 June 2009.  The status of HMRC’s letter of that date, namely whether it amounts to an appealable decision or not, is an issue in this application.  I set out the text of that letter below:

“Dear Mr O’Brien,

I am writing in reference to 07/99 return which you have previously queried and would like to apologise for the delay in reply.

In your correspondence you have stated that as you were declared bankrupt on 28^th May 1999 which falls within the 07/99 period, the return you completed for tax due to HM Revenue and Customs VAT for 07/99 for £5592.50 should be included in your bankruptcy debt and not be classed as post bankruptcy.  The only way in which the full amount of £5592.50 can be included as pre bankruptcy is if you can provide some form of evidence such as invoices to show that all VAT accounted for in that period was the result of work you had either completed, were already undertaking or you were under an obligation to complete, at the commencement of your bankruptcy and not new work undertaken following your bankruptcy order.  If you are unable to provide the necessary evidence HM Revenue and Customs will be willing to pro rata the amount declared on the 07/99 return to work out how much can be classed as pre bankruptcy and how much post bankruptcy.  This decision is taken exceptionally having taken into account the individual circumstances in this case and is without prejudice to others.

I will not take any action in regards to the 07/99 return until I receive a reply from you.

Yours faithfully,

Miss Julie Richardson
National Insolvency Unit”

4.     The background to this letter is a claim by Mr O’Brien, which he told me had been made by letter in January 2009, for repayment of an amount which he claims ought not to have been paid as VAT on account of it being a bankruptcy debt within s 382 of the Insolvency Act 1986.

5.     Subsequent to the letter of 18 June 2009, Mr O’Brien telephoned HMRC on 25 June 2009 and informed them that he no longer had documentation from the relevant period.  HMRC again offered to pro rate the amounts based on information they had.  Mr O’Brien advised that he would instead take the matter to the Tribunal.

6.     The grounds for Mr O’Brien’s appeal were as follows:

“I explained to Miss Richardson the system concerning booking for outdoor advertising and that the VAT in the 7/99 return would have related to displays in March, April and May 1999.  Invoicing was always done at the end of the display and paid circa 40 days afterwards.  Thus payments received in July 1999 would relate to displays in May ’99, June to April and so forth.  I drew her attention to Sec 392 of the Insolvency Act 1986 ‘bankruptcy debt’.  I stated that I did not agree with her decision and that I would appeal.”

Was there a decision?

7.     Mr Bates submitted that the letter of 18 June 2009 could not in any way be described as a decision that was appealable under s 83 VATA.  It was instead a request for information, on the basis of which it would have been possible to conduct a review and subsequently reach a decision.  Mr O’Brien’s appeal was at best premature.  The Tribunal had no jurisdiction in relation to these proceedings and the appeal should accordingly be struck out.

8.     Mr O’Brien argued that the letter was clearly a decision, and that it was in respect of an appealable matter under s 83(1)(t) as “a claim for … the repayment of an amount under section 80 [VATA]”.  He referred me to the originally enacted s 80(1) VATA, which read:

“(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay that amount to him.”

Section 80 was amended by s 3 of the Finance (No 2) Act 2005 with effect in any case where a claim is made on or after 26 May 2005 whenever the event occurred in respect of which the claim is made, so it is the amended version that applies in this case.  The original s 80(1) was replaced by three new subsections as follows:

“(1) Where a person—

(a)     has accounted to the Commissioners for VAT for a prescribed accounting period (whenever ended), and

(b)     in doing so, has brought into account as output tax an amount that was not output tax due,

the Commissioners shall be liable to credit the person with that amount.

(1A) Where the Commissioners—

(a)     have assessed a person to VAT for a prescribed accounting period (whenever ended), and

(b)     in doing so, have brought into account as output tax an amount that was not output tax due,

they shall be liable to credit the person with that amount.

(1B) Where a person has for a prescribed accounting period (whenever ended) paid to the Commissioners an amount by way of VAT that was not VAT due to them, otherwise than as a result of—

(a)     an amount that was not output tax due being brought into account as output tax, or

(b)     an amount of input tax allowable under section 26 not being brought into account,

the Commissioners shall be liable to repay to that person the amount so paid.”

9.     Previous decisions of the VAT and Duties Tribunal have held that an appeal lies under s 83 only in respect of a decision made by HMRC.  In Olympia Technology Limited (Decision no 19984) the Tribunal chairman (Mr Theodore Wallace) held that there had to be some determination against which to appeal.  He referred to the rather curious omission of the word “decision” from the opening words of s 83, when s 40(1) of the earlier consolidation Act, the Value Added Tax Act 1983, had referred to an appeal lying “against a decision”.  That omission had been the subject of comment by the President of the Tribunal in Marks & Spencer Plc v Commissioners of Customs & Excise [1998] V&DR 93:

“The 1994 VAT Act is a consolidation Act and the presumption with such Acts is that no change in the law is intended: see for example Lord Diplock in Commissioners of Inland Revenue v Joiner [1975] STC 657 at 666g,h. The presumption must therefore be that, as with section 40(1) of the VAT Act 1983, a decision is a pre-requisite to an appeal. The presumption is confirmed by related provisions elsewhere in the 1994 Act. For example, section 84(3) refers to a decision. And the same section retains the provisions of subsection (10) which enable the tribunal to entertain an appeal against a ‘decision’ of the Commissioners even where that decision depends on a ‘prior decision’ of the Commissioners. Accordingly I interpret section 83 as requiring that there be a decision of the Commissioners as the necessary pre-requisite to our jurisdiction.”

10.  For my part I am content, in the circumstances of this case, respectfully to adopt the following passage from Mr Wallace’s decision in Olympia Technology (at [12]) as the correct statement of the law on this point:

“In my judgment in order for the Tribunal to have jurisdiction there must be an issue between the parties which has been sufficiently crystallised to constitute a decision falling within one of the paragraphs of section 83. Such decision will normally be in writing and be clearly expressed as a decision subject to appeal whether or not the word decision is used. Where a determination is not expressed as an appealable decision it may nevertheless constitute such a decision in the light of its contents and the surrounding circumstances. There may on analysis be a clear determination although there is no mention of the right of appeal. On the other hand a letter by the Commissioners may clearly be intended not to give rise to a right of appeal …”

11.  I turn now to consider the letter of 18 June 2009.  The first point to note on this is that in the last sentence of the second paragraph there appear the words “This decision …”.  I put this to Mr Bates, but it remains unclear to me whether this expression was intended to refer to the letter as a whole or to the offer made by HMRC to pro rate the VAT declared in the 07/99 return.  Either way it appears that HMRC themselves regarded the letter as a decision of sorts, and I conclude that Mr O’Brien would not unreasonably have taken it to be a decision.

12.  No reference is made in the letter to a right of appeal.  That, however, is not decisive.  Although not expressed as an appealable decision, a letter may constitute such a decision in the light of its contents and the surrounding circumstances.  Here Mr O’Brien had made a claim for repayment of the whole of the amount of £5,592.50.  The letter makes clear that, without further evidence, such a claim would be denied, and the result would be a partial repayment only.  The letter was followed by a telephone conversation between Mr O’Brien and Miss Richardson of HMRC in which Mr O’Brien explained that he had no documentation from the relevant period, and Miss Richardson repeated the pro rata offer, essentially confirming that repayment would not be made in full.  In those circumstances, viewed objectively, I consider that a person in the position of Mr O’Brien would be entitled to conclude that all avenues short of appeal had now been exhausted and that there was a determination on the part of HMRC not to make repayment in full.  In my view that issue – whether or not to make a repayment in full – is sufficiently crystallised as between the parties so as to represent a decision against which an appeal may lie, in appropriate circumstances, under s 83.

13.  It is clear that HMRC are entitled to investigate claims, and are not obliged to issue a decision until they have had a reasonable opportunity to do so, so long as delay does not reach unreasonable proportions (see R v Commissioners of Customs and Excise, ex parte Strangewood Ltd [1987] STC 502).  But in a case such as this, where the circumstances are that HMRC have expressed a conclusion that no repayment in full can be made in the absence of further evidence, which they have been informed is unavailable, the mere fact that the further evidence has been requested does not in my view prevent that expressed conclusion from representing a decision for these purposes.

Is the appeal in respect of an appealable matter?

14.  My finding that the appeal is in respect of a decision is not sufficient to resolve HMRC’s application for a strike-out in Mr O’Brien’s favour.  It remains for me to decide if Mr O’Brien’s appeal is in respect of an appealable matter within s 83(1).  If it is not, then this Tribunal has no jurisdiction and HMRC’s application must be allowed.

15.  Mr O’Brien’s argument is that s 80 VATA applies to his claim, and that consequently the appeal is in relation to an appealable matter under s 83(1)(t).  As I described earlier, Mr O’Brien referred me to the originally enacted s 80, but I have considered the provisions in their amended form as they apply to this case.

16.  The basis for Mr O’Brien’s claim is that the debt that was due to HMRC was a “bankruptcy debt” within the meaning of s 382 of the Insolvency Act 1986, and that accordingly it ought to have been proved in his bankruptcy, and not been paid to HMRC.  The payment that was made after the commencement of Mr O’Brien’s bankruptcy was, he argued, an overpayment which fell within s 80.

17.  Section 382 of the Insolvency Act 1986, so far as material, provides as follows:

“382.— “Bankruptcy debt”, etc.

(1) “Bankruptcy debt”, in relation to a bankrupt, means (subject to the next subsection) any of the following—

(a) any debt or liability to which he is subject at the commencement of the bankruptcy,

(b) any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy,

(c) any amount specified in pursuance of section 39(3)(c) of the Powers of Criminal Courts Act 1973 in any criminal bankruptcy order made against him before the commencement of the bankruptcy, and

(d) any interest provable as mentioned in section 322(2) in Chapter IV of Part IX

…

 (3) For the purposes of references in this Group of Parts to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in this Group of Parts to owing a debt are to be read accordingly.

(4) In this Group of Parts, except in so far as the context otherwise requires, “liability” means (subject to subsection (3) above) a liability to pay money or money's worth, including any liability under an enactment...”

18.  Mr O’Brien’s argument in essence is that the obligation to pay VAT arises on the supply.  All supplies relevant to the 07/99 return took place in March, April and May of 1999 before the commencement of his bankruptcy.  Invoices were delivered immediately after the services were performed and were paid about 40 days thereafter.  The debt or liability to HMRC arose before, or by reason of obligations incurred before, commencement of his bankruptcy, and consequently was a “bankruptcy debt”.  I heard no argument on the effect of a debt or liability being a “bankruptcy debt”, but my understanding is that such a debt or liability would fall to be proved in the bankruptcy, and could not otherwise be enforced.  In the case of Mr O’Brien, there is no longer such a debt or liability, as the amount has been paid.  The question is whether, as Mr O’Brien asserts, his claim for repayment in these circumstances is properly founded upon s 80 VATA.

19.  I am not here considering the merits of Mr O’Brien’s claim, but whether his appeal can be brought under s 83 by virtue of his claim falling within s 80.  Turning to s 80, I can immediately dismiss s 80(1A) as not being relevant: HMRC have made no assessment for the relevant period.  Nor can s 80(1) apply, as there is no dispute that the amount that was due to HMRC was output tax relative to the services provided by Mr O’Brien.  That leaves s 80(1B) which provides for repayment in circumstances other than where an amount has been wrongly brought into account as output tax or allowable input tax has not been brought into account.  But s 80(1B) only applies where an amount has been paid that was not VAT due to HMRC.  In this case there is clearly no dispute that what was paid was indeed VAT.  That VAT was at the relevant time due to HMRC.  Section 80 does not operate by reference to whether that VAT is recoverable or not, or from whom it is recoverable.  Mr O’Brien’s claim is that payment was made out of the wrong pocket; it should have been proved as a bankruptcy debt and not paid outside the bankruptcy.

20.  In my view this is not a circumstance that falls within s 80.  The VAT in question was due to HMRC, and when paid it is not recoverable under any of the provisions of s 80.  It follows that, although I have found that there was a decision of HMRC, that decision was not in relation to any appealable matter falling within s 83.  Accordingly, this Tribunal has no jurisdiction in relation to these proceedings and under rule 8(2)(a) of the Tribunal Rules I must strike out the whole of these proceedings.

Costs

21.  HMRC applied for their costs of this appeal to be paid by Mr O’Brien under rule 10(1)(b) of the Tribunal Rules, which provides that the Tribunal may make an order in respect of costs:

“if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings”

Mr Bates argued that Mr O’Brien had acted unreasonably in bringing this appeal.  He referred me to a history of litigation in the Tribunal and the Courts brought about by appeals made by Mr O’Brien.  I can summarise these briefly as follows:

(1)  An appeal in October 2006 as regards whether the supplies made by Mr O’Brien in his business of outdoor advertising were standard-rated or exempt, which failed at the Tribunal level and on appeal to the High Court because Mr O’Brien did not pay or deposit the relevant tax or make a hardship application;

(2)  An application in February 2009 for permission to appeal out of time against a notification of liability to VAT in April 2006 and in respect of penalties issued in August 2006 that was refused, and an application for judicial review of that refusal;

(3)  An appeal against unpaid amounts of VAT which was dismissed by this Tribunal (Judge John Avery Jones) on 25 September 2009 on the basis that there was no appealable decision; and

(4)  An appeal in June 2009 against a default surcharge that was subsequently withdrawn by HMRC.

22.  Mr Bates drew my attention in particular to the dismissal of Mr O’Brien’s appeal by Judge John Avery Jones on 24 September 2009.  He said that during that hearing, at which he had represented HMRC, the judge had taken Mr O’Brien through the provisions of s 83(1) and had explained to him the limits of the Tribunal’s jurisdiction.  He also referred me to a letter sent by HMRC to Mr O’Brien on 5 October 2009 setting out HMRC’s position, including that they would seek an order for costs in this appeal, and urging Mr O’Brien to withdraw his appeal in this case and in the case of the default surcharge, in which case HMRC would not pursue its application for costs.  Mr Bates argued that, given the history of litigation between Mr O’Brien and HMRC and Mr O’Brien’s awareness of the jurisdictional limitations, his behaviour in bringing and continuing with this appeal had been unreasonable and that costs should be awarded against him.  Furthermore Mr Bates argued that Mr O’Brien had been advised that, to the extent that he had any concerns in relation to VAT, it was open to him to set out those concerns in writing to afford HMRC a reasonable opportunity to respond and to either put matters right or provide an explanation of their position.  It was not reasonable nor appropriate for Mr O’Brien to make the Tribunal his first port of call in the event of the slightest disagreement with HMRC.  Mr O’Brien’s appeal, submitted Mr Bates, was unnecessary and misconceived and his actions in bringing the appeal were unreasonable.

23.  For his part Mr O’Brien argued that the history of prior litigation was irrelevant and should not be taken into account by the Tribunal in considering the question of costs in this appeal.  He submitted that he was not unreasonable in making an appeal.  He also submitted that, if it were found that the Tribunal had no jurisdiction, that was a matter that the Tribunal itself ought to have identified when his notice of appeal was lodged, and on that basis he could not be held responsible for any costs incurred.

24.  I reject Mr O’Brien’s argument that the history of his litigation with HMRC is irrelevant.  It is correct that the question of unreasonableness has to be considered with reference to the proceedings in question, but the Tribunal can, indeed must, have regard to the wider context in approaching this question.  The matter must be viewed objectively taking account of all the circumstances, including what might have taken place in earlier appeals.  For example, if an appellant persistently brought an appeal in respect of matters that had already been finally determined, it would clearly be right to take account of the earlier determination in considering whether a later appeal had been brought unreasonably.

25.  I also reject Mr O’Brien’s suggestion that the Tribunal ought to have identified his appeal as outside its jurisdiction at the stage of delivery to it of the notice of appeal.  At that stage the Tribunal staff are performing an administrative function only.  Whilst they will check if relevant sections of the form have been completed, and will for example endeavour to identify from the information provided if particular processes need to be initiated such as hardship applications or applications for permission to appeal out of time, it is no part of their function or responsibility to ascertain if the appeal is against an appealable matter.  That responsibility rests with the parties, or in the case of a dispute with the Tribunal in its judicial function.

26.  Having said that, I have not derived any material assistance from a consideration of the past litigation history.  In particular, although Mr Bates referred me to the previous striking out of an appeal of Mr O’Brien in September 2009, and the helpful comments made by Judge Avery Jones at that time, that was of course well after Mr O’Brien had commenced this appeal.  This cannot therefore assist Mr Bates.  Nor do I consider that the fact that Mr O’Brien is an enthusiastic, if largely unsuccessful, litigant in tax matters compels the conclusion that his bringing of this appeal was unreasonable.

27.  I have reached the conclusion that, taking all the circumstances into account, Mr O’Brien did not act unreasonably in bringing these proceedings, nor in conducting them up to the time of the hearing of this application.  He has failed in his objection to HMRC’s application to strike out his appeal, but that does not mean that his actions in bringing or conducting the appeal were unreasonable.  I have found that there was a decision by HMRC, and I do not consider that it was unreasonable for Mr O’Brien to have taken the view that this was an appealable decision.  I have found against him on the scope of s 80 VATA in the particular circumstances of his case, but I do not consider that he was unreasonable in taking the view that he did, nor in arguing his case.  I therefore dismiss HMRC’s application for costs.

28.  Mr O’Brien also made an application for costs to be awarded against HMRC, likewise on the basis that HMRC’s actions in defending and conducting these proceedings were unreasonable.  I find that HMRC have not acted unreasonably, and I reject Mr O’Brien’s application for costs.

Decision

29.  For the reasons I have given:

(1)  I allow the application of HMRC and direct that the whole of the proceedings of this appeal be struck out pursuant to rule 8(2)(a) of the Tribunal Rules.

(2)  I dismiss the applications of both Mr O’Brien and HMRC for costs, and I make no order as to costs.

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: 15 October 2009