[2010] UKFTT 191

TC00493

VATA94 – Voluntary Disclosure – Application for Repayment – Case for refund not established – Appeal Dismissed

IN THE FIRST TIER TRIBUNAL                                             Reference No: MAN/08/222

TAX CHAMBER

BETWEEN

                             LYLE TAGGART & ANNE TAGGART            Appellant

TRADING AS THE FULLERTON ARMS

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (“HMRC”) (VAT)                                                                Respondents

DECISION – Full Findings of Fact and Reasons

TRIBUNAL : IAN WILLIAM HUDDLESTON (JUDGE)

CELINE CORRIGAN

                        Mr. B. Hughes for HMRC

                        No-one appeared for the Appellant

Sitting in Belfast on 8 April 2010

© CROWN COPYRIGHT 2009

DECISION

The Appeal

1.               This is an appeal by Mr. and Mrs. Taggart trading as the Fullerton Arms ("the Appellant") against HMRC's refusal to allow input tax for a single tax period 04/02, being the trading period from the 1 February 2002 to the 30 April 2002.

2.               The input tax which is claimed arises from a voluntary disclosure made by the Appellant formally on the 9 July 2006 on foot of a voluntary disclosure of errors on VAT Returns Form ("the VAT 652").

3.               This decision contains a full written statement of findings and reasons for the purposes of Rule 35(b) of the Tribunal Procedure Rules 2009.

4.               The Appellant did not appear and was not represented, but on the basis that they had been notified of the time and venue sufficiently in advance, the Tribunal decided to proceed under Rule 33 of the Tribunal Procedure Rules 2009.

The Facts

5.               The Appellant is a husband and wife partnership who, at the operative time, traded as a public house with ancillary accommodation and provision of food from premises known as the Fullerton Arms at 22/24 Main Street, Ballintoy, Ballycastle, County Antrim, BT54 6LX ("the Premises").  The Premises were leased from a third party and not owned by the Appellant.

6.               The Appellant was registered for VAT in respect of this business with effect from the 10 March 1998.

7.               We were informed that the Appellant had previously been registered as a builder under a separate VAT registration. 

8.               The history of this case is somewhat convoluted.  In previous proceedings before this Tribunal, however, it was accepted that a letter written by the Appellant's agent, Dr. Morris Laverty, dated 15 March 2005 would be accepted as, firstly, a voluntary disclosure and, secondly, one that fell within the three year time limit, within which such claims are required to be submitted.  The relevant regulation is Regulation 29(1)A of the Value Added Tax Regulations 1995 / 2518 which provides:

"The Commissioners shall not allow or direct a person to make any claim for deduction of input tax in terms such that the deduction would fall to be claimed more than three years after the date by which the return for the prescribed accounting period in which the VAT became chargeable is required to be made."

9.               Although HMRC previously took issue on the basis that the claim itself was actually made outside that time limit, nonetheless in earlier proceedings before this Tribunal the point appears to have been accepted, and so the case comes before this Tribunal as to whether or not the input tax should be allowed.

10.            The original letter of 15 March 2005 refers to a total expenditure on renovation works carried out to the Premises of £79,249 (representing the total of materials and labour) which was subject to total VAT of £11,803.04.  Submitted with that original letter was a document provided by a quantity surveyor entitled "Estimated Cost of Alteration Works to Fullerton Arms Hotel, Ballintoy".  We shall refer to this as the "Cost Estimate".

11.            When the Appellant's agent, Dr. Maurice Lowry, subsequently lodged the Voluntary Disclosure on behalf of the Appellant (ie. the 652 Form) the amount which appears as a voluntary disclosure and which is therefore declared to be repayable to the Appellant was included as a figure of £31,666 for the VAT period  with which we are concerned, ie. 04/02.

12.            In the correspondence between the Appellant's agent and HMRC, both at the time and since, there has been no actual breakdown of how that figure is comprised.

13.            Supporting information was sought in a letter from HMRC dated the 17 October 2006.  That request was repeated in HMRC's letter of the 30 April 2007 and subsequently.  In the proceedings before this Tribunal, directions were issued on the 7 November 2008 requiring, inter alia, that the Appellant serve its list of documents by the 28 November 2008.  No such list appears to have been served, but we were furnished with a copy letter from Dr. Laverty dated 24 March 2009 which (in summary) contained the following information:

(a)              Dr. Laverty advised that the original invoices were not available because they had been destroyed "in a fire at [his] clients' previous accountants";

(b)            that the "first work" that was started was a new pool room and first floor alterations;

(c)             that this work was carried out by a partnership trading under the name of McNeill & McAuley at a total net cost of £45,387, together with VAT of £6,491.68;

(d)            that the McNeill & McAuley Partnership ceased to trade five years previously (therefore in 2004) and that "the paperwork was destroyed in the fire";

(e)             that the cost of the materials included in those works was £35,662, plus VAT of £5,311.36;

(f)              that these materials were purchased from JSC, Builders Merchants, Armoy, and that again the relevant invoices were destroyed in the fire;

(g)             that following from those works there were additional works to include a kitchen extension, a dining room extension, and alterations to the existing bedrooms at a further total cost of £79,249 plus VAT of £13,868.57.  The letter does not say whether or not this work was also carried out by McNeill and McAuley, but again no original invoices were available due to the fire.

14.            HMRC called Mrs. Deirdre Doherty, an officer based in Custom House, Belfast, to give evidence, which she duly did.

15.            The Tribunal enquired of Mrs. Doherty as to whether or not any cross compliance checks were carried out.  Mrs. Doherty was able to confirm that the Building Partnership had indeed ceased to trade.  The Builders Merchants, however, were still trading.  Mrs. Doherty was not, however, able to enlighten the Tribunal further as to whether or not the details contained in Dr. Laverty's letter accorded with the VAT records of either trader.  Nor was she able to explain how the total VAT referred to in the letter of 24 March 2009 (£37,475) could be reconciled with the amount which was included on the VAT 652 Form (£31,666).  Mrs. Doherty was able to confirm, however, that that figure (ie. the £31,666) equated to an outstanding debt owed by the trader to HMRC as at the 2 September 2008 which was comprised of an outstanding principal debt of £29,652.40, together with surcharges and interest, making a total figure the £31,666.

The Decision

16.            Section 26 of the Value Added Tax Act 1994 provides for the reclaim of input tax, but it does so on the basis that there is supporting evidence.  HMRC have refused to allow the voluntary disclosure and the reclaim of input tax in this case on the grounds that:

(a)             there has been no information provided to verify it, other than the Cost Estimate;

(b)            there has been no information provided to clarify the periods in which the works were carried out.

17.            It would seem to the Tribunal that the works to the Premises have been extensive.  They have been carried out to premises that were not owned by the Appellant.  If works of that magnitude were carried out to premises not owned by the trader, it would be reasonable to expect that there would be verifying information and/or an agreement or variation to the leasing arrangements under which they were held – for example by a reduction in rent.  From the evidence given by Mrs. Doherty, no such information has been made available.

18.            Dr. Laverty in his 2009 letter made reference to at least two other traders who had been involved in the works.  Whilst the building partnership is no longer trading, presumably some sort of secondary evidence could have been made available to verify the works which were carried out, as Mrs. Doherty was able to confirm that the builders merchants was still trading.  Traders have an obligation to maintain business records for a period of at least seven years and given that the voluntary disclosure form was lodged in 2006, one might have expected that those trading records and/or receipts would be available to support the Appellant's claim.

19.            Regardless of this speculation, however, the onus of establishing the input tax clearly rests with the Appellant.  HMRC have sought that information and this Tribunal has twice directed that such information be adduced.  To date nothing has been forthcoming. The only information that has ever been advanced is the Cost Estimate and in terms of status, it simply confirms that works were done – not when they were done or that the VAT was properly charged. The last set of directions in this case were issued on the 20 October 2009 and required service of the witness statements and documents on which the Appellant would seek to rely.  The Appellant had been given notice of this hearing on the 7 December 2009.  Neither HMRC nor the Tribunal Office have received any further correspondence since that notification of listing.

20.            In the absence of any verifying information on the VAT claimed and, indeed, any explanation of how it is made up, and because of the Appellant's failure to comply with the earlier directions, this Tribunal finds that there is insufficient evidence of the input tax which has been claimed as repayable.  In those circumstances, therefore, this Appeal is dismissed.

21.            No order as to costs.

22.            As the Appellant did not attend, his attention is drawn specifically to the provisions of Rule 38 of the Tribunal Procedure Rules and to the time limit of 28 days from the Release Date of this decision within which the Appellant can apply to have this decision set aside.

IAN WILLIAM HUDDLESTON

TRIBUNAL JUDGE

Release Date: 27 April 2010