A1 Construction (Derby) Ltd v Revenue & Customs [2011] UKFTT 178 (TC) (16 March 2011)
[2011] UKFTT 178 (TC)
TC01047
Appeal number: TC/2010/05685
Assessment
to input tax claimed in relation to supplies – whether invoices supplied by
Appellant could be relied upon – whether invoices supplied by Appellant satisfy
Regulation 14 of the VAT Regulations 1995
FIRST-TIER TRIBUNAL
TAX
A1
CONSTRUCTION (DERBY) LIMITED Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL: Ms. J. Blewitt (JUDGE)
Sitting in public at Birmingham on 8 March 2011
Mr Singh, the Appellant,
assisted by Mrs Sajjan, was unrepresented
Mr Mandalia, Counsel
instructed by the General Counsel and Solicitor to HM Revenue and Customs, for
the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal by the Appellant, through its Director Mr Singh, against the
decision of the Respondents, notified to the Appellant by way of letter dated
24 May 2010, to assess the Appellant to input tax claimed in relation to
supplies allegedly received from VCL Group UK Ltd.
Law
2. The
assessments were raised pursuant to Section 73 (2) VAT Act 1994 for the VAT
periods 10/07 and 01/08 in the sum of £12,873.57. In accordance with Sections
25 and 26 of the VAT Act 1994 a taxable person is entitled, at the end of each
prescribed accounting period, to credit for so much of his input tax as is
attributable to the making of taxable supplies and then to deduct that amount
from any output tax that is due from him. Section 24 of the VAT Act 1994
defines input tax in relation to a taxable person, as VAT on the supply to him
of any goods or services used or to be used for the purposes of his business.
3. Regulations
29 (2) and 13 of the VAT Regulations 1995 require that at the time of claiming
deduction of input tax, the taxpayer is required to hold a VAT invoice from the
person making the taxable supply to it and the invoice must contain the
particulars detailed in Regulation 14 of the VAT Regulations 1995, namely:
(a) an identifying number,
(b) the time of the supply,
(c) the date of the issue of the document,
(d) the name, address and registration number of the supplier,
(e) the name and address of the person to whom the goods or services
are supplied,
(f) the type of supply by reference to the following categories—
(i) a supply by sale,
(ii) a supply on hire purchase or any similar transaction,
(iii) a supply by loan,
(iv) a supply by way of exchange,
(v)a supply on hire, lease or rental,
(vi) a supply of goods made from the customer’s materials,
(vii) a supply by sale on commission,
(viii) a supply on sale or return or similar terms, or
(ix) any other type of supply which the Commissioners may at any time
by notice specify,
(g) a description sufficient to identify the goods or services
supplied,
(h) for each description, the quantity of the goods or the extent of
the services, and the rate of VAT and the amount payable, excluding VAT,
expressed in sterling,
(i) the gross total amount payable, excluding VAT, expressed in
sterling,
(j) the rate of any cash discount offered,
(k) each rate of VAT chargeable and the amount of VAT chargeable,
expressed in sterling, at each such rate, and
(l) the total amount of VAT chargeable, expressed in sterling.
Background
4. The
Appellant carries on business providing sub-contracted labour within the
construction industry from the registered address at 22 Stenson Road, Derby, DE23 1JA. The Appellant was registered for VAT with effect from 1 April 2007 until
16 September 2009.
5. The
Appellant’s VAT returns indicated no trading activity since the VAT period
ending 31 July 2008. As a result, the Respondents had a meeting with Mr Singh to
discuss the Company’s trading activities. Inspection of the Appellant’s
business records for the three years 2007 to 2009 indicated that payments had
been made to other sub-contractors, including VCL Group UK Ltd (“VCL”). The
documents pertaining to VCL were three handwritten receipts on the Appellant’s
headed paper for three different dates in three different amounts and stated
“Paid to Sub-Contractor VCL Group UK LTD.”
6. During
the meeting with the Respondents, Mr Singh stated that he had paid VCL ether by
cash or cheque and had not received any invoices. He stated that he had met
representatives of VCL, “one Indian and one white” whose names were unknown to
him, on a site in Leicester near to the M6. The males had spoken to the
Appellant about work and as a result came to work for the Appellant.
7. By
letter dated 1 October 2009 the Respondents notified the Appellant that in the
absence of any proper VAT invoices in support of the supplies alleged to have
been received from VCL, recovery action would be taken in respect of the input
tax claimed by the Appellant.
8. In
a telephone call to the Respondents on 27 October 2009, the Appellant’s
accountant, Mr Akbar, stated that Mr Singh had now received invoices from VCL
but that they had been destroyed in a fire at the Appellant’s business premises
in December 2007. The Appellant’s accountant stated that further attempts to
contact VCL had been unsuccessful and it was believed the Company may no longer
be trading.
9. A
letter dated 20 November 2009 from the Appellant’s accountant to the
Respondents confirmed that no contact had been made with VCL. The letter stated
that all payments had been made by cheque and that the Appellant could provide
cheque stubs. The letter confirmed that the Appellant’s company records
including, the Appellant believed, the VCL Group invoices, had been destroyed
in a fire at the business premises on 21 to 22 December 2007 and a crime
reference number, purported to be issued by Derby police was provided.
10. Enquiries by the
Respondents with Derbyshire Police revealed that there was no record of a fire
at the Appellant’s premises on the dates stated and that the crime reference
number did not relate to a Derbyshire Police crime reference number.
11. As a result of
this information and in the absence of any evidence supporting the Appellant’s
claim to input tax, the Respondents indicated that the claim would be refused
and an assessment raised.
12. By letter dated
1 February 2010 the Appellant’s accountants provided the Respondents with three
documents purported to be the invoices from VCL. The letter stated that “Mr
Singh managed to locate these invoices” but gave no further explanation.
13. The Respondents
replied by letter dated 3 March 2010 in which it was stated that the VAT
Regulations 1995 had not been satisfied and therefore the Appellant’s claim for
input tax in respect of supplies alleged to have been received from VCL would
be disallowed.
Assessments
14. By letter dated
24 May 2010 the Appellant was notified of an assessment to tax in respect of
VAT periods 10/07 and 01/08 in the sum of £12,425 plus interest.
Appeal
15. The Appellant
appealed by Notice of Appeal dated 2 July 2010. The grounds of appeal state
that HMRC requested copies of VAT invoices which were provided, however further
information was required regarding the costing breakdown for the invoices. VCL
are no longer trading and the Appellant has no contact numbers or addresses for
the directors.
Evidence
16. Mr Singh gave
evidence to the Tribunal, assisted by Mrs Sajjan to ensure that he understood
the proceedings and provided all information he deemed necessary for the
Tribunal to determine the appeal. There was no dispute by Mr Singh as to the
figures contained within the assessments.
17. Mr Singh stated
that some of the Company records had been lost in the fire in December 2007 but
that a few months later he had found the paperwork required by the Respondents
and given it to his accountant. Mr Singh stated that the fire took place just before
Christmas, on a Friday evening into Saturday morning. The fire just damaged one
room where the paperwork and clothes were kept and that not all of the
paperwork had been destroyed. Mr Singh stated that the invoices from VCL were
kept in a metal filing cabinet in the room where the fire occurred. The room
had been cleared following the fire and paperwork that was not lost had been
put into a different room. Mr Singh explained that when he was told by HMRC
that the invoices were missing, he looked and located them in a bag in the
different room. Mr Singh clarified that the cause of the fire was unknown and
that Mrs Sajjan had discovered the fire. Mr Singh stated that he gave his
accountant the crime reference number.
18. In cross
examination Mr Singh stated that he had received a telephone call from VCL
asking if they could supply labour and that is how they began to work for him.
Mr Singh was vague in recalling how it came to be that VCL had become aware of
the Appellant Company, stating it was through “a friend or something”. Mr Singh
stated that he did not know the names of those at VCL, but they had provided a
VAT number. Mr Singh explained that when he was paid by cheque from his
customer, he would make payment in cash to VCL for their work. When asked how
he knew the amount owing to VCL, Mr Singh stated that he had no record of the
work provided but had made checks when the work was ongoing. Mr Singh stated he
had made a note of the work done by VCL but no longer had it. Mr Singh stated
that he paid VCL every week and that this was evidenced by his cheque book. Mr
Mandalia for the Respondents queried this reply, as the Appellant had
previously stated that he paid VCL in cash, to which Mr Singh responded that he
paid by cash or cheque, for example in respect of one of the invoices, Mr Singh
stated he had paid the VAT element of £8,750 by cheque and the remaining
£50,000 in cash.
19. Mr Singh
explained that his record of payment was the invoice from VCL which he had
provided to the Respondents. It was put to Mr Singh that the invoice is not
evidence of payment, to which the Appellant replied that it was the only
document he possessed and that he believed it showed proof of payment. Mr
Mandalia for the Respondents sought to clarify why, if VCL had provided an invoice
as proof of payment, the Appellant believed it necessary to make his own records,
to which the Appellant explained that his records were for his own use.
20. Mr Singh gave
further information as to the fire which he alleged had damaged all of the
Appellant Company’s records, stating that everything had been damaged, but that
the paperwork which was salvageable had been provided to his accountant. Mr
Singh stated that 3 files contained his records for the years 2007, 2008 and
2009 which had been provided to his accountant. He stated that the invoices
that he had subsequently produced from VCL had not been in the files and that
he had perhaps forgotten to put them in. Mr Singh explained that when he had
told the Respondents in the meeting on 16 September 2009 that he had no
invoices from VCL, it was a misunderstanding due to his poor English.
21. Mr Singh
accepted that the invoices from VCL which he had provided did not contain
invoice numbers or a breakdown of the work carried out, and stated that he had
not been aware of the requirements of the VAT Regulations 1995.
22. Mr Pitt, the
HMRC Officer responsible for the decision to assess the Appellant gave evidence
during which he confirmed that the notes of the meeting with the Appellant on
16 September 2009 had been made contemporaneously and typed up at a later date.
Mr Pitt stated that he had checked the Appellant’s bank statements which did
not show any evidence of cash withdrawals, although he had seen payment of
£8,750. Mr Pitt confirmed that, having heard the Appellant’s evidence, his
decision to assess the Appellant to input tax remained unaffected.
Decision
23. The Appellant
gave no satisfactory explanation to the Tribunal as to why he had initially
told the Respondents that he had never received invoices from VCL then
subsequently went on to say in October and November 2009 that invoices had been
received but destroyed in the fire. The Tribunal was not satisfied that the
evidence given by the Appellant as to the fire was accurate, particularly as no
explanation was provided as to how a crime reference number came to be provided
by the Appellant which subsequently transpired to be false. The Tribunal noted
the inconsistencies in the Appellant’s evidence as to how he met his contacts
at VCL, having told the Tribunal that they had telephoned asking for work. This
evidence was at odds with the account given by the Appellant at the meeting
with the Respondents on 16 September 2009 at which he said that he had met two
males, whose names he did not know, at a site in Leicestershire near to the M6.
The Tribunal also noted the discrepancies in the two sets of invoices provided
by the Appellant; those on the Appellant’s headed paper and provided to the
Respondents on 16 September 2009 showed the following:
(a)
14/10/07 “paid to sub-contractor VCL Group Ltd” £50,000 and VAT of
£8,750, total £58,750;
(b)
20/12/07 “paid to sub-contractor VCL Group Ltd” £13,000 and VAT of
£2,275, total £15,275;
(c)
29/01/08 “paid to sub-contractor VCL Group Ltd” £8,000 and VAT £1,400,
total £9,400 and annotated “gross should have been £8,000, £1,400 adjusted in
04/08 VAT quarter.”
As compared with those subsequently provided to the
Respondents on 1 February 2010, purported to be from VCL which showed the
following:
(a)
05/10/07 “Invoice to A1 Construction (Derby) Limited” £50,000 and VAT of
£8,750, total £58,750;
(b)
20/12/07 “Invoice to A1 Construction (Derby) Limited” £13,000 and VAT of
£2,275, total £15,275;
(c)
29/01/08 “Invoice to A1 Construction (Derby) Limited” £6,807 and VAT of
£1,191, total £7,998;
The Tribunal was concerned as to
the lack of explanation as to why the documents relating to 29 January 2008
differed and why, if the Appellant’s documents were kept as a record, they were
inaccurate. The Tribunal found as a fact that the documents provided by the
Appellant, purporting to be invoices from VCL, were unreliable and lacked
veracity.
24. Having found the
Appellant’s evidence to be vague and inconsistent, the Tribunal preferred the
evidence of Mr Pitt, who presented as a credible witness, and accepted the note
of the meeting between the Respondents and the Appellant on 16 September 2009
as an accurate record of the account given by the Appellant.
25. There was no
real dispute by the Appellant as to the different explanations given by him as
to the existence and/or whereabouts of the invoices purported to be from VCL.
The Tribunal found as a fact that in such circumstances, the Officer’s decision
to assess the Appellant to input tax was reasonable and that the Appellant had
been assessed to the best of the Respondent’s judgement.
26. The Tribunal found
that the invoices provided by the Appellant, purportedly from VCL, did not
comply with the VAT Regulations 1995 in that the Appellant did not hold the VAT
invoices at the time of claiming deduction of input tax; having provided the
documents to the Respondents on 1 February 2010. In addition, the invoices
supplied on 1 February 2010 did not contain the particulars detailed in
Regulation 14 (1) (a), (b), (g) and (h) of the VAT Regulations 1995. The
Tribunal did not accept that that the Appellant’s ignorance of his obligations
under the VAT Regulations 1995 rendered the Respondent’s decision unreasonable.
The Tribunal found as a fact that the Appellant’s ignorance of the VAT
Regulations 1995 did not provide strong grounds upon which to dispute the
assessment bearing in mind the extent to which the invoices were deficient.
27. The appeal is
dismissed and assessment (with interest) upheld.
28. 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 Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. 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: 16 March 2011
