[2010] UKFTT 101 (TC)

TC00412

Appeal number TC/2009/10048

VALUE ADDED TAX — repayment supplement — VATA 1994, s 79 — period between submission of return and repayment exceeding 30 days — whether supplement due — whether Commissioners' inquiries of a kind to "stop the clock" — yes — whether checks into the credibility of transactions amount to inquiries – yes  — appeal dismissed - costs

FIRST-TIER TRIBUNAL

TAX

                                FUTURE COMPONENTS LIMITED               Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS (VAT)         Respondents

                                                TRIBUNAL: Nicholas Aleksander (Tribunal Judge)

                                                                        Catherine Farquharson

Sitting in public in London on 21 January 2010

Denis Edwards of counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

The Appellant having failed to attend the hearing but the Tribunal being satisfied that reasonable steps had been taken to notify the Appellant of the hearing and that it was in the interests of justice to proceed with the hearing.

© CROWN COPYRIGHT 2010

DECISION

1.     This is an appeal against a review of HMRC dated 3 April 2009 upholding a decision not to pay repayment supplement.

2.     Mr Edwards represented HMRC.  On 19 January 2009 the Tribunal received a faxed notice from CTM Limited (the Appellant’s representatives) stating that they were no longer instructed, but as a matter of goodwill to the Appellant setting out their arguments.  The notice also stated that the Appellant’s sole director – having decided to continue on his own, would not attend the hearing as he was daunted with the prospect of facing counsel for HMRC alone.

3.     In the light of the notice from CTM Limited, we were of the view that the Appellant had been notified of the hearing and that it was in the interests of justice to proceed with the hearing in the absence of the Appellant.

4.     We heard evidence from Simon Vincent, a Senior Officer of HMRC.  We also had before us a bundle of documents, which included witness statements from Gordon Brown, a Senior Officer of HMRC, Mark McCoy, an Officer of HMRC, Helen Carus-McDonalde, an Officer of HMRC and Richard White, the sole director of the Appellant.

Background Facts

5.     The background facts and chronology is not in dispute.  We find as follows:

6.     The Appellant (“Future”) was a wholesaler of computer components.  It was registered for VAT from 23 February 2003 and it was deregistered on 3 March 2009.  On 3 November 2003, HMRC received Future’s VAT return for the period 1 October 2003 to 31 October 2003 claiming a repayment of VAT of £28,665.50.  On 5 November 2003 the return was (in common with all VAT returns) tested by HMRC’s automated computer systems, and having failed credibility checks, was selected for further scrutiny. 

7.     Following further internal HMRC checks, the return was referred to Mr Vincent on 13 November 2003 for him to undertake further enquiries.  Mr Vincent telephoned Mr White on Friday 14 November 2003 and explained that he was inquiring into the return, and arranged to visit Future on Monday 24 November 2003, which was the first available date in his diary.  Mr Vincent explained to us in giving evidence that there was a concern that Future might be involved in some way in MTIC frauds.  He therefore wanted to visit Future in order to see their premises, gain an understanding of their business and how it operated, and review original business records, including export records.

8.     The visit took place on 24 November 2003, and lasted approximately two hours.  Mr Vincent interviewed Mr White and examined business records.  He noted down the details of the largest customer of the business, and the largest supplier.  Given the nature of the business and the goods it supplied, Mr Vincent was concerned that it might be involved in MTIC fraud.  Mr Vincent therefore wanted to undertake further investigations into Future and into the customer and the supplier.  Mr Vincent initially reviewed the electronic records of HMRC relating to the customer and the supplier, and noted from those records that Future's principal customer was also supplied directly by Future's principal supplier, which was odd.  Mr Vincent considered that the information in the electronic records was insufficient for him to be able to reach a decision, and he decided that he needed to speak to the HMRC officers responsible for the affairs of the customer and the supplier. 

9.     Mr White called on 1 December to ask about progress, and at that time Mr Vincent had not completed his investigations.  However by 8 December he had gathered all the information that he could.  Although he continued to have some concerns about the repayment claim, he decided to authorise repayment in the light of  the amounts involved and that there appeared to be no tax lost in the supply chain.  On 9 December the VAT repayment was made by direct bank transfer to Future's bank account.

The Law

10.  The circumstances in which a repayment supplement is due are prescribed by section 79 of the Value Added Tax Act 1994, as follows:

79(1) In any case where —

(a) a person is entitled to a VAT credit, …

and the conditions mentioned in subsection (2) below are satisfied, the amount which, apart from this section, would be due by way of that payment or refund shall be increased by the addition of a supplement equal to 5 per cent of that amount or £50, whichever is the greater.

(2) The said conditions are—

(a) that the requisite return or claim is received by the Commissioners not later than the last day on which it is required to be furnished or made, and

(b) that a written instruction directing the making of the payment or refund is not issued by the Commissioners within the relevant period, and

(c) that the amount shown on that return or claim as due by way of payment or refund does not exceed the payment or refund which was in fact due by more than 5 per cent of that payment or refund or £250, whichever is the greater.

(2A) The relevant period in relation to a return or claim is the period of 30 days beginning with the later of—

(a) the day after the last day of the prescribed accounting period to which the return or claim relates, and

(b) the date of the receipt by the Commissioners of the return or claim.

(3) Regulations may provide that, in computing the period of 30 days referred to in subsection (2A) above, there shall be left out of account periods determined in accordance with the regulations and referable to—

(a) the raising and answering of any reasonable inquiry relating to the requisite return or claim, …

(4) In determining for the purposes of regulations under subsection (3) above whether any period is referable to the raising and answering of such an inquiry as mentioned in that subsection, there shall be taken to be so referable any period which—

(a) begins with the date on which the Commissioners first consider it necessary to make such an inquiry, and

(b) ends with the date on which the Commissioners—

(i) satisfy themselves that they have received a complete answer to the inquiry, or

(ii) determine not to make the inquiry or, if they have made it, not to pursue it further,

but excluding so much of that period as may be prescribed; and it is immaterial whether any inquiry is in fact made or whether it is or might have been made of the person or body making the requisite return or claim or of an authorised person or of some other person.

11.  As can be seen from the background facts, it is not in dispute that two of the three conditions imposed by subsection 79(2) were satisfied.  The sole issue is whether subsection (3) operates to extend the "relevant period" of 30 days.  HMRC received the relevant VAT return on 3 November 2003 and the applicable 30 day period runs from this date.  The repayment was authorised on 8 December 2003, 35 days later.

12.  The regulations referred to in subsection (3) are regulations 198 and 199 of the Value Added Tax Regulations 1995 (SI 1995/2518). The relevant provisions of those regulations are as follows:

198. In computing the period of 30 days referred to in section 79(2)(b) of the Act, periods referable to the following matters shall be left out of account—

(a) the raising and answering of any reasonable inquiry relating to the requisite return or claim …

199. For the purpose of determining the duration of the periods referred to in regulation 198, the following rules shall apply —

(a) in the case of a period mentioned in regulation 198(a), it shall be taken to have begun on the date when the Commissioners first raised the inquiry and it shall be taken to have ended on the date when they received a complete answer to their inquiry …

13.  HMRC's position is that an inquiry within the meaning of these regulations was raised (at the very latest) on 14 November 2003, when Mr Vincent telephoned Future to arrange an appointment to visit them.  HMRC go on to say that the enquiry terminated on 8 December 2003 when Mr Vincent had satisfied himself about the credibility of the claim and authorised repayment.  On that basis, the period of 25 days (including both 14 November and 8 December) must be left out of account, and the repayment was therefore made within 30 days.  It therefore follows that no repayment supplement is payable.

14.  Future argue that if an inquiry was raised, it could only have been raised when Mr Vincent visited Future and asked for specific materials.  These were provided at the visit, and so by the time Mr Vincent left, there was no inquiry outstanding.  Not more than one day should therefore be left out of account, and the repayment was not therefore made within 30 days and repayment supplement is payable.

15.  In support of their submissions, Future referred us to the decision of the VAT and Duties Tribunal in Alliance & Leicester plc (2007) VATD 20094.    In that case the tribunal distinguished an inquiry from an general investigation.  An inquiry must be into a specific return.  Thus a routine audit visit is not an inquiry for these purposes (although it may lead to one).  Future submit that Mr Vincent's visit was routine, and that all his questions were answered by the time the visit finished.

16.  We disagree, Mr Vincent's visit was not a routine audit, it was specifically to check into the 10/03 VAT return.  We also consider that for the purposes of section 79, the inquiry is not limited to questions to be put to the taxpayer.  Verifying and cross-checking those responses against HMRC's records and those of other traders may be appropriate and reasonable (depending upon the circumstances of the case) and form part of the inquiry.

17.  We note that the tribunal in Alliance & Leicester were not persuaded that the mere selection of a return for pre-payment verification amounts to an enquiry.  Regulation 199(a) provides that the inquiry begins when HMRC "first raise the inquiry".  We consider that this occurred when Mr Vincent telephoned Future on 14 November.  We do not consider that it was unreasonable that Mr Vincent (or an alternative officer) was not immediately available to visit Future – a delay of six business days to arrange an appointment is not unreasonable.  Even if we are wrong on this point, at the very latest, the inquiry would have first been raised at the time of the visit on 24 November.  We do not consider that the inquiry ended with the conclusion of the visit, as Mr Vincent considered that he needed to undertake further verification work by reviewing HMRC's electronic files and raising questions with other HMRC officers.  This took from 24 November until 8 December (a period of 15 days).   The time taken was not in our view unreasonably long in the circumstances of this particular case.  We agree with HMRC, that the inquiry ended on 8 December.

18.  Accordingly we would leave out of account the period of 25 days from 14 November until 8 December.   Even if we are wrong in our determination of when the inquiry commenced, and it did not begin until the visit on 24 November, the period to be left out of account would be from 24 November until 8 December, a period of 15 days (including both dates).  In both cases, the repayment was made within the 30 day deadline, and so no repayment supplement is due.

19.  Accordingly we dismiss the appeal.

20.  The hearing having taken place in the absence of the Appellant, the Appellant has a right to apply for this decision to be set aside.  The Appellant has a right to apply for permission to appeal against this decision.  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.

Costs

21.  Mr Edwards applied for costs both under Rule 10(1)(b) of the Tribunal Rules (on the basis that Future or its representatives had acted unreasonably in bringing or conducting the proceedings)  and under Rule 10(1)(a) (wasted costs).

22.  I note in the context of costs, that I sat last year on a directions hearing in relation to another appeal made on behalf of Future Components Limited – which in that appeal was stated to be in liquidation.  There was no reference in this appeal to the appellant being in liquidation or to the appeal being made under the supervision of and with the consent of the liquidator.  The consent of the liquidator to this appeal may be a material factor in determining whether costs are payable.

23.  The Rules require that the application be made in writing, and that the Tribunal must give the paying person an opportunity to make representations (and if an individual, to have their financial means considered).  Accordingly we make the following directions:

(1)  within 21 days of the date of release of this Decision, the Appellant shall serve a notice in writing to the Tribunal (with a copy to the Respondents) stating whether it is in liquidation.  If the Appellant is in liquidation, the notice shall go on to state the date on which the Appellant was placed into liquidation, the name and address of the liquidator, confirm whether the liquidator assented to this appeal, and shall be signed by the liquidator.

(2)  the Respondents shall have liberty to apply for the Tribunal to make an order for costs pursuant to Rule 10(1)(a) and 10(1)(b) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009.  Any such application shall be in accordance with the requirements of Rule 10(3) and must be made within 28 days of the date of release of this Decision.

(3)  the application shall be delivered by the Respondents to the Tribunal and to the persons against whom it is proposed that the order be made ("paying persons") and shall be accompanied by a schedule of costs relating to the appeal setting out sufficient detail as would allow the Tribunal to undertake a summary assessment of such costs if it decided to do so.

(4)  if any of the paying persons are individuals, they shall deliver to the Tribunal (with a copy to the Respondents) within 28 days of the application a written statement of their means together with any evidence in support.

(5)  the application shall then be set down for a hearing.

Nicholas Aleksander

TRIBUNAL JUDGE

RELEASE DATE: 2 March 2010