First-tier Tribunal (Tax)

[2010] UKFTT 289 (TC)

 

 

 

 

 

                                                                                               

TC00578

 

Appeal number:  LON/2008/2071

 

 

Value Added Tax – Input Tax on EU goods purchased – Flat Rate Scheme For Small Business – Input tax payable – Notice 733 helpful – Appeal dismissed

 

 

 

FIRST-TIER TRIBUNAL

TAX CHAMBER

 

 

                        CONTRAST GRAPHIC SUPPLIES LIMITED       Appellant

 

 

                                                                      - and -

 

 

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

 

 

 

                                                TRIBUNAL:  DR K KHAN (Judge)

                                                                         MR A McLOUGHLIN

                                                                       

 

Sitting in public in London on 27 November 2009

 

Mr Richard Coe, Director, for the Appellant

 

Mr Slater, officer, for the Respondents

 

 

© CROWN COPYRIGHT 2010

DECISION

 

Introduction

 

1.         The Appellant appeals against a decision of the Commissioners for her Majesty’s Revenue and Customs (“the Commissioners”) to raise an assessment in the sum of £6,403 to recover incorrectly claimed input tax.

 

Backgrounds and Facts

 

2.         The Appellant is a limited liability company registered for Value Added Tax (VAT) with effect from 16 February 2004, with VAT registration number 770 1664 34.  The main business activity of the Appellant is the provision of supplies to the printing industry.

 

3.         On 24 June 2004 and 16 September 2004 the Appellant contacted the HMRC National Advice Service to request information about the Flat Rate Scheme.  Traders who join the Flat Rate Scheme do not account for VAT in the standard way.  Members of the Flat Rate Scheme instead account for a fixed percentage of their VAT inclusive turnover.  Members of the Flat Rate Scheme are not entitled to deduct input tax as the percentage applied to the VAT inclusive turnover takes account of this.

 

4.         On 30 March 2005 the Appellant submitted an application to join the Flat Rate Scheme.

 

5.         On 13 April 2006 the Appellant was notified by way of letter that its application to join the Flat Rate Scheme had been accepted.  This came into effect on 1 March 2005.

 

6.         On 9 June 2008 the Appellant wrote to the Commissioners requesting to be removed from the Flat Rate Scheme.  The letter stated that the Appellant believed they may not have fully comprehend the operation of the Flat Rate Scheme, and also that the Flat Rate Scheme did not suit its business.

 

7.         On 24 June 2008 the Commissioners informed the Appellant by way of letter that it had been removed from the Flat Rate Scheme with effect from 29 February 2008.  This letter also notified the Appellant that the commissioners intended to raise an assessment.

 

8.         On 23 July 2008 an assessment was raised in the sum of £7,400.  The assessment was raised due to VAT incorrectly claimed on goods acquired from the EC shown on VAT returns from periods 05/05 to 02/08.

 

9.         On 20 January 2009 the Commissioners informed the Appellant by way of letter that the assessment had been reduced to £6,403.  This reduction was due to the fact that part of the assessment related to period 05/05 which was out of time to be assessed.

 

Relevant Legislation

 

10.       Section 26B of the Value Added Tax Act 1994 (VATA) states:

Flat rate scheme

 

(1)       The Commissioners may by regulations make provision under which, where a taxable person so elects, the amount of his liability to VAT in respect of his relevant supplies in any prescribed accounting period shall be the appropriate percentage of his relevant turnover for that period.

 

A person whose liability to VAT is to any extent determined as mentioned above is referred to in this section as participating in the flat rate scheme …

 

(5)       Subject to such exceptions as the regulations may provide for, a participant in the flat rate scheme shall not be entitled to credit for input tax.

 

11.       Section 73(2) of the VATA states:

 

In any case where, for any prescribed accounting period, there has been paid or credited to any person –

 

(a)       as being a repayment or refund of VAT, or

(b)       as being due to him as a VAT credit,

 

an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly.

 

The Appellant’s Contentions

 

12.       In its Grounds of Appeal dated 24 September 2008 the Appellant contends:

 

13.       “The original VAT guidelines consulted prior to joining the scheme were not clear in stating that, you must not normally claim VAT on any acquisitions of goods from EC states.  By not making it crystal clear, stating simply – if a business joins the Flat Rate Scheme it is very likely any business importing from the EC will pay much more in VAT than by staying in the standard rated scheme, we were led into making the wrong choice.

 

14.       Shortly after joining the Flat Rate Scheme, we received a query from the VAT office questioning how we were completing our VAT returns, under the scheme.  We answered their questions and heard nothing further.  If our returns were incorrect, why was no error referred to, giving us the opportunity to correct matters and avoid building the tax required by the current assessment?

 

15.       Forcing this issue, which is purely an error of interpretation, goes against natural justice since we have offered to pay the VAT due had we remained in the standard rated scheme, which we were entitled to do. 

 

16.       The small business, along with many others, does not have the resources to employ experts in VAT and Taxation laws.  Therefore, by operating VAT as a self-regulating tax should not HM Revenue and Customs have a duty of care, when reviewing an application to change methods paying VAT, particularly when this Company’s VAT records clearly show it to be an importer of taxable goods, to advise that such change will result in higher levels of VAT due to the Revenue than if remaining in the Standard Rated Scheme.”

 

The Commissioners’ Contentions

 

17.       The Commissioners do not accept that the published guidance on the Flat Rate Scheme is unclear.  However the Commissioners respectfully submit that where the Appellant’s grounds of appeal relate to the clarity of the guidance and the failure of the Commissioners to alert the Appellant to its incorrect deduction, these matters fall outside the jurisdiction of the Tribunal.

 

18.       The Commissioners contend that the assessment was correctly raised.  The Appellant joined the Flat Rate Scheme as provided for by section 26B of the VATA.  Under section 26B(5) traders on the Flat Rate Scheme are not entitled to claim input tax. Section 73(2) of the VATA provides for the Commissioners to recover incorrectly reclaimed VAT.

 

Conclusions

 

19.       A decision dismissing the Appeal and reasons were given at the end of the hearing.  The reasons are reiterated below:-

 

(a)       There is a liability to account for input tax on goods purchased in the European Community where a business has elected to use the Flat Rate Scheme for Small Businesses.  There is no credit given for input tax arising in such circumstances (Section 26B VATA 1994).

 

(b)       The Flat Rate Scheme is allowed under Regulations made under Section 26B VATA 1994.

 

(c)       The Appellant’s argument that Notice 733 dealing with the Flat Rate Scheme is unclear and unhelpful to taxpayers is not accepted by the Tribunal.  The Notice is clear in its explanations and instructions, in particular, in dealing with the completion of VAT returns and the non-recovery of input tax on goods purchased in the EU.

 

(d)       The Scheme is one elected to by the taxable person and the obligations are on that person to correctly complete returns and pay the relevant taxes.

 

(e)       The Tribunal accepts that Clause 12.4 of Notice 733 could have been laid out in a more helpful manner.  However, Notice 733, taken as a whole, lays down clear guidelines on the operation of the schemes.   In cases where a person needs help or clarification, there is a helpline operated by the Commissioners which the Appellant had used in the past and which could have been consulted for further clarification if in doubt as to the operation of the scheme.

 

(f)        The Appeal is accordingly dismissed.

 

 

 

 

 

DR K KHAN

TRIBUNAL JUDGE

RELEASE DATE:25 June 2010