First-tier Tribunal (Tax)

[2010] UKFTT 513 (TC)

TC00768

Appeal number: LON/2008/2185

Application for reinstatement of appeal following strike out for noncompliance with an “unless” direction - Refused

FIRST-TIER TRIBUNAL

TAX

JANICE TRADERS LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL JUDGE:  Peter Kempster

Sitting in public at 45 Bedford Square, London WC1 on 8 October 2010

Mr Abu Shahidullah (Director) for the Appellant

Mr Ben Watson of counsel (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       This was an application by the Appellant (“the Company”) pursuant to Tribunal Procedure Rule 8(5) for reinstatement of its appeal, which on 21 June 2010 the Tribunal struck out for non-compliance with Directions issued on 20 January 2010.

2.       The original appeal related to disallowance of VAT input tax incurred in 2006 and 2007; also, a misdeclaration penalty.  In outline, the Company claimed as input tax VAT incurred on numerous purchases made at petrol stations by a number of individuals.  The Respondents (“HMRC”) took the view that these purchases related to a courier business carried on by a person other than the Company, and accordingly disallowed the VAT.  HMRC say the Company had never made any taxable outputs despite being registered since 2005, and they concluded that the Company had no genuine commercial activity.  The Company contends these purchases related to an intended trade of the Company, and the individuals in question were seeking business on behalf of the Company. 

The hearing

3.       Mr Watson for HMRC submitted:

(1)        During the course of the enquiry there had been extensive delays by the Company in producing proper records.  By a letter to the HMRC Inspector, Mr Jones, dated 19 December 2007 the Company provided details of the individuals, describing them as “agents” retained on commission with no formal contracts and paid in cash.  That letter had been produced to the Tribunal as an exhibit to the witness statement of Mr Jones dated 24 September 2009, prepared for use in the appeal proceedings.

(2)        At the pre-trial review hearing in January 2010 (“the PTR”) it was put to the Company that if the individuals were independent agents then it was unlikely that the VAT would be input tax of the Company.  At that point the Company changed its explanation to being that the individuals were employees of the Company.  Judge Demack addressed this new contention by issuing a Direction as follows:

“This Tribunal records … that the Appellant’s input tax repayment claim is very largely founded on its contention that its employees (as opposed to an earlier claim involving its agents) were supplied with fuel for use in the course of their duties …  This Tribunal directs that unless by 18 February 2010 the Appellant shall have produced to the Respondents the records the Respondents require all traders to maintain relating to their employees’ income tax and national insurance contributions to establish that it was trading and did have employees this appeal shall stand dismissed without further direction.”

(3)        On 8 February 2010 the Company purported to comply with that Direction by supplying certain documents to the Tribunal and HMRC, described as Forms P46 for ten individuals, plus schedules detailing the payments made by the Company to the individuals – all these payments were said to be below the threshold at which the Company would be liable for employer’s NIC.  However, when HMRC scrutinised these documents they detected that the forms used were versions that had not been in issue until 2009 at the earliest; this was evident from the version number printed on the forms.  HMRC detected a further problem in that the NI numbers of several of the individuals were in a format that had never been used for valid NI numbers, and two of the other numbers could not be traced to the individuals who were purportedly using them. 

(4)        When challenged on this by HMRC, in a letter dated 26 February 2010, the Company, in a letter dated 27 April 2010, claimed that the forms had been completed on 10 March 2006 which was also when they had been signed.  By a letter to the Tribunal dated 14 June 2010, the Company changed its explanation and stated that the Company’s accountant had lost his file and so had reconstructed the forms that were originally prepared, using the current version of the form.  The Company also stated that the Accountant had now recovered his file and copies of the purported original forms were sent to the Tribunal.

(5)        HMRC concluded that the terms of the PTR Direction had not been complied with and applied to the Tribunal for the appeal to be struck out accordingly.  On 21 June 2010 the Company was informed that its appeal had been struck out for failure to comply with the “unless” direction. 

(6)        The Company applied for its appeal to be reinstated.  HMRC resisted the Company’s application for reinstatement of its appeal.  HMRC submitted that the documents were obviously false and the Company was engaged in an attempt to mislead the Tribunal.

4.       Mr Shahidullah for the Company submitted:

(1)        The individuals were employees of the Company.  They had written contracts of employment.  The NI numbers would have come from the cards produced by the employees and seen by the Company’s accountant.  It was unfortunate that the accountant had misplaced his file, but Mr Shahidullah had not been aware of what the accountant had done when he told HMRC that the forms had been completed in 2006.  The schedules provided were the original documents.  The replacement P46’s had been signed by each of the employees, at the instigation of the accountant. 

(2)        The original forms had been provided to Mr Jones with the Company’s letter dated 19 December 2007.  That letter had been sent by recorded delivery.  A copy of that letter was handed up to me.

(3)        The Company had complied with the Direction.  It was unfortunate that it had not been made clear that substitute forms were being supplied in February 2010 but the originals had already been sent Mr Jones in December 2007.  The appeal should be reinstated.

5.        Mr Watson for HMRC further submitted:

(1)        The letter handed up at the hearing was different from that held on HMRC’s file, which was the letter exhibited as Appendix 5 to Mr Jones’ witness statement.  There was nothing on HMRC’s file corresponding to the letter handed up.

(2)        Until the PTR in January 2010 the Company had claimed the individuals were “agents” and made no suggestion that they were employees, so it was inconsistent that PAYE forms would have been prepared or submitted back in 2007.  In correspondence there had been no suggestion by the Company that the PAYE information had already been supplied to HMRC over two years earlier.

Findings and decision

6.       I am not in a position to make a finding concerning the authenticity of the letter handed up at the hearing.  If it is not authentic then, given the use to which it has been put, it would probably constitute a forged document.  That is, of course, a very serious matter and it would not be appropriate for me to reach any conclusion without hearing formal witness evidence on the point.  What is clear to me, and I so find, is that the Company has been less than straightforward in its dealings with both the Tribunal and HMRC.  If the PAYE documents were sent to Mr Jones in December 2007 then in relation to the PTR Direction the Company need only have referred to that fact; instead the Company’s accountant prepared what were described as substitute forms, backdated to 2006 and, I was told, signed again by each of the individuals.  Further, that explanation of events was not given to HMRC when they challenged the documentation supplied to them pursuant to the PTR Direction.  The Company could have said that, unfortunately, the accountant could not find his file but “substitute” forms had been prepared; instead the Company maintained that those documents had been prepared and signed in 2006.  Only subsequently did the Company give a different explanation of events.

7.       I find that the Company did fail to comply with the PTR Direction, which was in “unless” form, and also that the Tribunal was correct to strike out the appeal.  The Company having made the application for reinstatement of proceedings, I consider the burden of proof is on the Company to show (to the usual civil standard of balance of probabilities) that it would be fair and just to reinstate the appeal.  From the submissions made to me I see no reason why reinstatement would be fair and just. 

8.       For the reasons given above, as communicated to the parties at the conclusion of the hearing, THE APPLICATION IS REFUSED.

9.       Mr Watson for HMRC stated his intention to make an application for costs, which the Tribunal will consider when it is received. 

Rights of appeal

10.    This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Tribunal Procedure Rule 39. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

TRIBUNAL JUDGE

RELEASE DATE: 22 October 2010