First-tier Tribunal (Tax)

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Cite as: [2011] UKFTT 366 (TC)

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Enviroengineering Ltd v Revenue & Customs [2011] UKFTT 366 (TC) (02 June 2011)
VAT - APPEALS
Applications generally

[2011] UKFTT 366 (TC)

TC01221

Appeal number TC/2010/04306

Application by HMRC to strike out appeal – Correction to VAT returns for 04/00, 07/00 & 10/00 – Whether appeal has reasonable prospects of succeeding – No – Application allowed

FIRST-TIER TRIBUNAL

TAX

ENVIROENGINEERING LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)

RICHARD CORKE FCA (MEMBER)

Sitting in public at Eastgate House, Newport Road, Cardiff on 3 May 2011

William Lewis for the Appellant

Jonathan Holl of HM Revenue and Customs, for the Respondents

DECISION

Background

1. Enviroengineering Limited (the “Company”) was established in 1997 to act as the manufacturing arm of Enviropower Limited and occupied a factory on the Severn Bridge Industrial Estate in Caldicott.

2. On 15 May 2000 the Company was struck off the Register of Companies (the “Register”) by Companies House. Despite the Company having been struck off the Register, and therefore non-existent, on 28 August 2000 it submitted its VAT return for the period ending 30 April 2000 (“04/00”) to HMRC. On 9 October 2000 its VAT return for the period ended 31 July 2000 (“07/00”) was submitted and the VAT return for the period ended 31 October 2000 (“10/00”) was submitted by the Company on 10 January 2001. These returns showed substantial sums due to HM Revenue and Customs (“HMRC”) and, as payment was not made on time penalties were imposed and interest was charged which were subsequently paid by the Company.

3. The Company was restored to the Register in May 2004 on the instigation of Mr Lewis who, on examining the Company’s records understood the figures in these VAT returns to have been derived from what he described as “false invoices”. Mr Lewis only became aware of this on 27 May 2007 following his own investigation into the Company’s affairs and correspondence with HMRC. An appeal was made to the Tribunal on 5 May 2010 following a letter from HMRC dated 30 April 2010 saying HMRC could not adjust a return of 10 years ago.

4. On 16 June 2010 HMRC applied to the Tribunal for the appeal to be struck out on grounds that the Company’s appeal had no reasonable prospect of success. This application was listed for a hearing in Cardiff on 24 August 2010. Although Mr Lewis was present at the hearing on behalf of the Company, HMRC were not represented. In the circumstances the Tribunal Judge (Malachy Cornwell-Kelly) who considered that HMRC had appeared to “have acted unreasonably in the conduct of the appeal in failing to be represented, to explain their absence or to make any further submission to the Tribunal”, dismissed the application and, in a direction released on 1 September 2010, directed that the Statement of Case be served within 60 days and that HMRC pay Mr Lewis £150 by way of wasted costs and £22.50 travelling expenses.

5. On 17 September 2010 HMRC applied for direction released on 1 September 2010 to be set aside and for a further hearing to be listed. On 4 November 2010 the Company applied for a direction that, as a result of HMRC’s failure to comply with the direction of 1 September 2010, the appeal be allowed. These matters were considered at a hearing in Cardiff on 28 January 2011 where it was directed (in a direction released on 4 February 2011) that:

(1) The direction dated 1 September 2010 be set aside.

(2) The application [of the Company] dated 4 November 2010 for the appeal to be allowed is dismissed.

(3) A preliminary hearing to determine the issues and any application by HMRC for the proceedings to be struck out be listed in Cardiff at the first available date.

(4) HMRC shall be given an opportunity at the preliminary hearing to make representations as to why they should not pay the wasted costs of Mr Lewis of £150 and £22.50 travelling expenses incurred in respect of the hearing before the Tribunal on 24 August 2010.

6. The reason for the final direction was that under rule 10(5) of the Tribunal Procedure (First-tier)(Tax Chamber) Rules 2009 (the “Rules”) the Tribunal may not make an order for costs against a party unless that person has had an opportunity to make representations. As HMRC was not represented at the hearing on 24 August 2010 it would not have possible for any representations to have been made. Given that the Tribunal Judge was of the view that it had appeared that HMRC had acted unreasonably in regard to that hearing a costs order seemed appropriate. Accordingly, and in compliance with the Rules, it was right that HMRC should be given an opportunity to make representations.

7. The present hearing is therefore the preliminary hearing, as directed on 4 February 2011, to determine an application by HMRC, dated 16 June 2010, to strike out the Company’s appeal or determine the issues and also to give HMRC an opportunity to make representations as to why they should not pay the wasted costs that Mr William Lewis incurred when he attended the hearing before the Tribunal on 24 August 2010.

Wasted Costs

8. Mr Holl accepted that HMRC had been notified of the hearing on 24 August 2010 but explained that neither he nor the office manager to whom the notice of hearing was also addressed had seen any correspondence from the Tribunal advising them of the date of the hearing. Also no telephone calls from the Tribunal had been logged that day suggesting that there had not been an attempt to ascertain why HMRC were not represented. He also submitted that the Tribunal had misdirected itself at the 24 August 2010 hearing by not addressing the issues before dismissing the strike out application.

9. Mr Lewis explained that the Tribunal clerk had made several telephone calls but did not know whether these were to HMRC or to the Tribunals central administration but contended that he should not be out of pocket as a result of HMRC’s failure to attend the hearing at which, he said, the judge did consider the issues before making directions.

10. As the directions made following the hearing on 24 August 2010 and released on 1 September 2010 were set aside by the directions released on 4 February 2011, the issue of whether or not the judge considered the issues in relation to the strike out application does not arise. However, having regard to the circumstances of the case and considered the representations of Mr Holl for HMRC, like the judge on 24 August 2010 we consider that the failure by HMRC to attend that hearing was unreasonable.

11. We therefore consider that it is appropriate to direct that HMRC pay the wasted costs of Mr Lewis of £150 and £22.50 travelling expenses that he incurred in respect of the hearing before the Tribunal on 24 August 2010.

Application to Strike out the Appeal

12. We now turn to the application by HMRC for this appeal to be struck out on the grounds that the Company has no reasonable prospects of success.

13. In his submissions before us Mr Holl contended that in this case there was no decision to enable us to determine what was under appeal and even if there was such a decision any appeal against it was out of time. He referred to the fact that the issues revolve around VAT returns filed during the period when the Company was struck off but pointed out that the effect of its restoration on the Register was that the Company is treated as though it had always been in existence. Therefore, he submitted the returns had been correctly submitted in 2000 and it was too late for these to be changed.

14. Mr Lewis made much of the fact that the VAT returns were based on false invoices and were submitted at time when the Company was struck off the Register and therefore did not exist. He also contended if the invoices had been genuine, as they had never been paid they would have been treated as a bad debt by the Company and any output tax repaid. Mr Lewis also referred to output tax having been paid by the Company and said that as no corresponding input tax had been claimed by recipients of invoices HMRC had made a profit out of the transactions.

15. He submitted that as he had been unable to establish the invoices were “false” until he received information from HMRC on 27 May 2007 the appeal, which was made on 5 May 2010 was therefore in time.

16. Assuming that the appeal was made in response to the letter from HMRC dated 30 April 2010 the appeal itself is in time. However, the issue for us to determine is not whether the appeal was made on time but whether or not we consider that there is any reasonable prospect of the Company’s case succeeding (see rule 8(3)(c) of the Rules).

17. As the Company, by its restoration to the Register, is deemed to have continued in existence as if it had not been struck off the Register (see s 1028 Companies Act 2006) it must follow that the VAT returns filed for the periods 04/00, 07/00 and 10/00 were properly submitted by the Company and are valid returns for those periods irrespective of whether input was or was not claimed by the recipient of the invoices.

18. If Mr Lewis is correct and these returns were based on “false” invoices they would clearly overstate the Company’s liability to VAT. However, Regulation 34 of the VAT Regulations 1995 (the “Regulations”) limits the period during which any overstatement in a return may be corrected to four years from the end of the prescribed accounting period for which the return was made.

20. In this case the most recent of the three accounting periods concerned ended on 31 October 2000. Therefore, the time limit to correct the return, or for the Company to make a claim for bad debt relief, would have long since expired.

21. Given that the Company is out of time to either correct any overstatement of VAT or make a claim for bad debt relief we consider that, having heard the representations from Mr Lewis on its behalf, there is no reasonable prospect of the Company’s appeal succeeding.

Conclusion

22. We therefore direct that:

(1) HMRC pay the wasted costs of Mr Lewis of £150 and £22.50 travelling expenses that he incurred in respect of the hearing in Cardiff on 24 August 2010 within 28 days of the release of this decision.

(2) The appeal be struck out.

23. 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.