DECISION
Background
1. The
Appellant trades as a wholesaler of optical wear and was registered as a
limited company for VAT with effect from 19 August 2007.
2. The
Appellant submitted the VAT return for the period 10/07 which was received by
HMRC on 22 November 2007. The return included a repayment claim in the sum of
£15,260.18 in respect of the input tax declaration. No output tax was declared
on the return.
3. HMRC
visited the Appellant on 1 July 2008 and following inspection of the
Appellant’s business records relating to the VAT period 10/07 repayment claim
disallowed input tax for the following:
(a)
Tax invoices dated after 31 October 2007 in the sum of £2,462.17;
(b)
Invoices from non VAT registered businesses in the sum of £7,074.03;
(c)
Invoice from Lemon Ice (an associated company) where no output tax had
been declared in the sum of £525.00.
4. In
a letter to the Appellant dated 3 July 2008, HMRC confirmed the disallowed
input tax amounts as above and stated that the input tax claim had been reduced
to £5,198.98, which was subsequently paid to the Appellant.
5. On
24 May 2010 the Appellant wrote to HMRC to reclaim input tax in the sum of
£2,462.00 for the period 01/08 which had been prematurely included in the 10/07
period. This was repaid to the Appellant; £1,682.00 on 2 August 2010 and
£780.00 on 20 July 2010.
6. HMRC
also reviewed the decision to disallow the input tax claim in the sum of
£525.00 in relation to Lemon Ice and subsequently repaid this amount; £146.00
on 30 June 2010 and £379.00 on 12 July 2010.
7. By
letter to the Appellant dated 28 September 2010 HMRC set out the adjustment to
the 10/07 claim and confirmed that the adjustment in respect of £7,074.03 for
invoices from non VAT registered businesses would be upheld on the basis that
the suppliers were not taxable persons for the purposes of VAT, not entitled to
charge VAT and therefore the VAT claim was not recoverable as input tax.
8. Evidence
of payment for supplies on which the input tax had been claimed was requested
by HMRC by letter to the Appellant on 24 March 2009. The Appellant responded on
30 March 2009 providing copies of proof of cash payments.
9. HMRC
visited the Appellant on 7 April 2009 following which it was noted that the
Appellant had not provided evidence of payment in respect of the input tax
claim of £5,198.98 for the period 10/07 which had been repaid. Evidence of
payment was requested.
10. On 23 April 2009
HMRC raised an assessment in the sum of £4,809.00 for the period 04/08 where no
evidence had been provided in respect of receipts for a number of invoices
totalling £2,196.49 and an unsigned document from A W Opal Limited which was
not accepted by HMRC as evidence of payment.
11. On 15 May 2010
HMRC wrote to the Appellant to outline his right to request a review and any
further evidence of payment was invited for consideration.
12. On 21 May 2010
HMRC amended the assessment to the sum of £2,533.00.
13. By Notice of
Appeal dated 25 September 2009, the Appellant appealed on behalf of the
following companies:
(a)
Snob Eyewear Ltd;
(b)
MCM Capital Ltd;
(c)
Daytona Surf Ltd;
(d)
H.D. Optical Ltd;
(e)
Style Factory Ltd and
(f)
Business 4 All Ltd
Against HMRC’s decisions to disallow input tax repayment
claims. The Grounds of Appeal stated that “all of these companies are owed
monies by the VAT, all the VAT returns are up to date as of now...we have had
the same VAT officer now for some 6 years and we had many disagreements and we
now find most of our VAT payments are suspended without any reason given...VAT
is refused to be repaid on the ground that the supplier charging VAT is not VAT
registered, however the supplier had applied for VAT registration and is
therefore obliged to charge VAT which we paid. However our VAT office has
refused to pay it back to us.”
14. HMRC requested
further and better particulars of the Appellant’s grounds of appeal in respect
of the 6 associated companies by letter to the Appellant dated 9 November 2009.
15. At a pre hearing
review on 29 June 2010 the Appellant withdrew the associated appeal. Judge
Demack directed the Appellant to serve amended grounds of appeal for the
periods 10/07, 04/08 and 07/09.
Preliminary Issues
16. The Appellant
served amended grounds of appeal by the date directed, together with a bundle
of supporting documents.
17. At the hearing,
Mr Booth objected to HMRC’s bundle on the grounds that it had deliberately been
provided on the morning of the hearing whereas the Appellant had served his
bundle of documents in advance of the hearing.
18. HMRC submitted
that their Statement of Case had been served on 22 October 2010 and their
bundle had been served on the Appellant the week prior to the hearing by TNT
next day delivery.
19. There was no
explanation as to why the bundle had not reached the Appellant prior to the
hearing; however we noted that there was no direction made by the Tribunal for
service of the bundle and the content appeared to us to be designed to assist
both the Appellant and the Tribunal during the hearing. The Appellant was
invited to consider whether he wished to apply to adjourn the hearing or have
time to consider the documents contained in HMRC’s bundle. Mr Booth invited us
to proceed with the hearing and did not seek for the hearing to be stood down
or an adjournment. It transpired during the hearing that documents contained
within HMRC’s bundle were relied upon by the Appellant and consequently we
found that there was no prejudice or unfairness to the Appellant in proceeding
as he invited us to do.
20. As a preliminary
point, we were invited to consider which matters were before the Tribunal on
appeal.
21. The Appellant’s
amended grounds of appeal covered a number of periods; in summary the Appellant
contended:
(a)
10/07: The repayment claim was reduced to £5,198.89 on various spurious
grounds which have since been found illegal by the VAT complaints section.
Instead of paying the money due to the Appellant, two assessments have been
issued dated 01/08 in the sum of £2,391.00 and 04/08 in the sum of £2,276.00
(b)
01/08: The Appellant was informed that the assessments for the periods
01/08 and 04/08 had been cancelled but the assessments were not removed from
the Appellant’s account. There is confusion as to whether the monies owed by
HMRC have been repaid to the Appellant.
(c)
10/08: The repayment claim of £16,909.57 has not been repaid to the
Appellant.
(d)
01/09: The repayment claim of £1,187.25 has not been repaid to the
Appellant.
(e)
Assessment dated 28 April 2009: An assessment was received in the sum of
£5,060.87 despite signed receipts being provided to HMRC.
(f)
Misdeclaration penalty dated 28 May 2009: This was received as a
consequence of the assessment dated 28 April 2009. It is not accepted by the
Appellant that there was a misdeclaration simply as a result of the VAT Officer
disputing a receipt (signed or not).
(g)
07/09: A repayment claim was approved in the sum of £14,932.35 however
only £8,044.00 was paid by HMRC. The Appellant was advised that monies were
withheld due to the assessments for the periods 01/08 and 04/08 not being
removed from the Appellant’s file.
(h)
01/10: HMRC only repaid £4,450.00 of a £8,137.70 repayment claim as the
Blackburn VAT officer had missed a credit note in the sales daybook. The credit
note has now been coped and provided to HMRC.
(i)
04/10: The Appellant has not received repayment of £10,985.17 as HMRC required
the Appellant’s records to inspect. To date the repayment has not been made.
(j)
Voluntary Declaration: On 14 May 2010 the Appellant submitted a
voluntary declaration reclaiming £2,462.00 relating to monies withheld by HMRC
for the period 10/07 which to date, have not been paid.
(k)
Assessment dated 11 June 2010: The Appellant received an assessment in
the sum of £2,696.54 which he was subsequently told via telephone by an HMRC
officer to ignore. The Appellant requested this in writing but has yet to
receive this confirmation. Subsequently the Appellant was advised that he had
been credited £2,422.98 however no information was given by HMRC as to what
this credit relates to.
(l)
Removal of Penalty: On 14 June 2010 the Appellant was advised of the
removal of a penalty in the sum of £721.00 however HMRC did not detail what
this penalty was for.
22. In order to
clarify the matters raised in the Appellant’s amended grounds of appeal we
heard submissions from HMRC on each issue.
23. HMRC contended
that:
(a)
Period 10/07: This is a matter validly under appeal.
(b)
Period 01/08: HMRC submitted that this was not a valid appeal matter as
it related to whether or not monies had been repaid by HMRC.
(c)
Period 10/08: HMRC submitted that this was not a valid appeal matter as
it related to whether or not monies had been repaid by HMRC.
(d)
Period 01/09: HMRC submitted that this was not a valid appeal matter as
it related to whether or not monies had been repaid by HMRC.
(e)
Assessment of 28 April 2009: HMRC submitted that this was not a valid
appeal matter as it related to whether or not an assessment had been removed.
(f)
Misdeclaration penalty: HMRC submitted that the receipt referred to by
the Appellant is relevant in that it relates to the matters validly under
appeal, however no penalty has been imposed.
(g)
Period 07/09: HMRC submitted that this was not a valid appeal matter as
it related to whether or not monies had been repaid by HMRC.
(h)
Period 01/10: HMRC submitted that this should be a matter of complaint
and does not form part of the decision appealed.
(i)
Period 04/10: HMRC submitted that this should be a matter of complaint
and does not form part of the decision appealed.
(j)
Voluntary Declaration: There is no issue appealed by the Appellant; the
contentions of the Appellant are comment only.
(k)
Assessment 11 June 2010: The issues raised by the Appellant form part of
the appeal.
(l)
Removal of penalty: HMRC contend there is no issue under appeal here.
24. We carefully
considered the points raised by both parties and were mindful of the order made
by Judge Demack at the pre hearing review. We found that the Appellant was
bound by the decision of the Tribunal on 29 June 2010 and that the matters
under appeal were those involving the periods10/07, 04/08 and 07/09. We found
that in any event, the issues raised in respect of other periods related to
whether or not monies had been paid to the Appellant by HMRC, which was not an
appealable decision upon which we could adjudicate.
Law
25. The following
legislation and Regulations were referred to in the course of the hearing:
VAT Act 1994 s6 (5)
If, within 14 days after the time
applicable under subsection (2) or (3) above, the person making the supply
issues a VAT invoice in respect of it, then, unless he has notified the
Commissioners in writing that he elects not to avail himself of this
subsection, the supply shall (to the extent that it is not treated as taking
place at the time mentioned in subsection (4) above) be treated as taking place
at the time the invoice is issued.
Section 24 Input tax and output tax.E+W+S+N.I.
(1)Subject to the following provisions of this
section, “input tax”, in relation to a taxable person, means the following tax,
that is to say—
(a)VAT on the supply to him of any goods or services;
(b)VAT on the acquisition by him from another member State of any goods; and
(c)VAT paid or payable by him on the importation of
any goods from a place outside the member States,
being (in each case) goods or services used or to be
used for the purpose of any business carried on or to be carried on by him
Section 25 Payment by reference to
accounting periods and credit for input tax against output tax.E+W+S+N.I.
(1)A taxable person shall—
(a)in respect of supplies made by him, and
(b)in respect of the acquisition by him from other
member States of any goods,
account for and pay VAT by reference to such periods
(in this Act referred to as “prescribed accounting periods”) at such time and
in such manner as may be determined by or under regulations and regulations may
make different provision for different circumstances.
(2)Subject to the provisions of this section, he is
entitled at the end of each prescribed accounting period to credit for so much
of his input tax as is allowable under section 26, and then to deduct that
amount from any output tax that is due from him.
(3)If either no output tax is due at the end of the
period, or the amount of the credit exceeds that of the output tax then,
subject to subsections (4) and (5) below, the amount of the credit or, as the
case may be, the amount of the excess shall be paid to the taxable person by
the Commissioners; and an amount which is due under this subsection is referred
to in this Act as a “VAT credit”.
(4)The whole or any part of the credit may, subject to
and in accordance with regulations, be held over to be credited in and for a
subsequent period; and the regulations may allow for it to be so held over
either on the taxable person’s own application or in accordance with general or
special directions given by the Commissioners from time to time.
(5)Where at the end of any period a VAT credit is due
to a taxable person who has failed to submit returns for any earlier period as
required by this Act, the Commissioners may withhold payment of the credit
until he has complied with that requirement.
(6)A deduction under subsection (2) above and payment
of a VAT credit shall not be made or paid except on a claim made in such manner
and at such time as may be determined by or under regulations; and, in the case
of a person who has made no taxable supplies in the period concerned or any
previous period, payment of a VAT credit shall be made subject to such
conditions (if any) as the Commissioners think fit to impose, including
conditions as to repayment in specified circumstances.
(7)The Treasury may by order provide, in relation to
such supplies, acquisitions and importations as the order may specify, that VAT
charged on them is to be excluded from any credit under this section; and—
(a)any such provision may be framed by reference to
the description of goods or services supplied or goods acquired or imported,
the person by whom they are supplied, acquired or imported or to whom they are
supplied, the purposes for which they are supplied, acquired or imported, or any
circumstances whatsoever; and
(b)such an order may contain provision for
consequential relief from output tax.
26A Disallowance of input
tax where consideration not paidE+W+S+N.I.
(1)Where—
(a)a person has become entitled to credit for any
input tax, and
(b)the consideration for the supply to which that
input tax relates, or any part of it, is unpaid at the end of the period of 6
months following the relevant date,
he shall be taken, as from the end of that period, not
to have been entitled to credit for input tax in respect of the VAT that is
referable to the unpaid consideration or part.
(2)For the purposes of subsection (1) above “the
relevant date”, in relation to any sum representing consideration for a supply,
is—
(a)the date of the supply, or
(b)if later, the date on which the sum became payable.
(3)Regulations may make such supplementary,
incidental, consequential or transitional provisions as appear to the
Commissioners to be necessary or expedient for the purposes of this section.
(4)Regulations under this section may in particular—
(a)make provision for restoring the whole or any part
of an entitlement to credit for input tax where there is a payment after the
end of the period mentioned in subsection (1) above;
(b)make rules for ascertaining whether anything paid
is to be taken as paid by way of consideration for a particular supply;
(c)make rules dealing with particular cases, such as
those involving payment of part of the consideration or mutual debts.
(5)Regulations under this section may make different
provision for different circumstances.
(6)Section 6 shall apply for determining the time when
a supply is to be treated as taking place for the purposes of construing this
section.]
VAT Regulations 1995
Claims for input tax
29. —
(1) Subject to paragraph (2) below, and save as
the Commissioners may otherwise allow or direct either generally or specially,
a person claiming deduction of input tax under section 25(2) of the Act shall
do so on a return made by him for the prescribed accounting period in which the
VAT became chargeable.
10/07
26. Two issues arise
under this period. The first relates to input tax in the sum of £2,462.17 which
HMRC disallowed as the VAT was chargeable after the relevant period.
27. Regulation 29
(1) of the VAT Regulations 1995 requires a taxpayer to claim the deduction of
input tax on a return for the period in which VAT became chargeable.
28. We heard
evidence from Mr. Gary Howard Kennedy, the HMRC Officer who had been involved
in the decision to disallow the Appellant’s claim. Mr Kennedy confirmed that he
had inspected the Appellant Company’s records for the VAT period 10/07,
including the purchase invoices which were produced as evidence to support the
claims for input tax.
29. Mr Kennedy
stated that he made a reduction in the amount claimed in respect of purchase
invoices that were dated after the period end however he did not dispute that
the Appellant was entitled to reclaim the amount of £2,462.17 in the subsequent
period.
30. Mr Kennedy
exhibited a letter from the Appellant to HMRC dated 22 April 2008 in which a
voluntary declaration of an error was highlighted. Although the Appellant gave
a lower figure of £2,285.42, Mr Kennedy stated that there had been no dispute
at the time of his visit to the Appellant on 20 June 2008 and consequently the
input tax was denied in the period 10/07 but reclaimed and repaid for the
period 01/08.
31. We accepted Mr
Kennedy’s evidence and found that, the claim having been made in the correct
period and repaid accordingly, input tax was correctly denied in the sum of
£2,462.17 in the period 10/07.
32. The second
matter arising in respect of the period 10/07 relates to the denial of a claim
by the Appellant in the sum of £7,074.03. HMRC disallowed this amount on the
basis that the three companies involved, namely Priory Eyewear, Genesis Eyewear
and Outlook Optical were not VAT registered and accordingly the VAT shown was
not input tax.
33. HMRC relied on
Section 4 (1) of the VAT Act 1994 and submitted that the amount claimed was not
charged by a taxable person and therefore the amounts shown were not VAT and
not deductible as input tax by virtue of Section 24 (1) of the VAT Act 1994.
34. Mr Kennedy
confirmed in evidence that his inspection of the Appellant Company’s records
for the period 10/07 revealed that the Appellant had made a number of claims
for input tax on invoices from companies that were not, at the time of the
claim or his visit, registered for VAT. The claims disallowed were:
(a)
£1,279.78 Priory Eyewear Ltd invoice date 19 July 2007
(b)
£4,917.50 and £484.75 Genesis Eyewear Ltd invoices dated 30 October 2007
(c)
£392.00 Outlook Optical invoice date 17 October 2007
35. Mr Booth on
behalf of the Appellant did not dispute that the companies in respect of whom
the Appellant’s claims were disallowed were not VAT registered, but submitted
that in 2008, if he had applied for VAT registration he would have received a
notice from HMRC telling him of his obligation to apply VAT to sales and record
this on invoices.
36. Mr Booth
referred us to examples within the documents provided of invoices which stated
“VAT registration applied for.” Mr Booth stated that having received invoices
from the three companies named above which stated that VAT registration had
been applied for, the Appellant paid VAT in good faith.
37. Mr Booth
accepted that subsequently the companies were not VAT registered and submitted
that the reality is that, despite Mr Kennedy’s suggestion, he cannot obtain
repayment from the companies involved despite his lengthy trading history with
the companies.
38. Mr Booth stated
that the Appellant should be given a special dispensation as he was not to know
that the companies were not VAT registered or to be VAT registered when he paid
VAT. Mr Booth submitted that the rules governing VAT at the time the Appellant
paid it obliged the companies to charge VAT and that the Appellant was entitled
to the benefit of extra statutory concession 3.9 Notice 48 which provides that
where a non-VAT registered person has made a supply to a taxable person and the
invoice represents an amount as VAT, the recipient of the supply is not legally
entitled to treat the amount as input tax, although if it is clear that the
taxable person treated the amount as input tax in good faith, action to recover
the amount may be remitted on grounds of good faith.
39. Mr Kennedy
considered the Appellant’s argument in his letter to the Appellant dated 14
August 2009. Mr Kennedy explained his view that the extra statutory concession
should not apply due to the Appellant’s close connection to the suppliers,
about which more will be said in due course.
Decision in respect of the period 10/07
40. We found that
this Tribunal has no jurisdiction on the issue of extra statutory concession.
The sole matter for us to determine is whether the claim for input tax in
respect of companies not registered for VAT in the total sum of £7,074.03 was
correctly disallowed.
41. We considered
the Appellant’s submissions as to the rules governing VAT at the time the VAT
was paid. The Appellant was vague as to what rules he was referring to and
accepted that they may not be statutory but could have been in the form of
guidance.
42. In the absence
of any evidence in support of the Appellant’s argument, we did not accept that
the rules or guidance upon which he relied were binding or legislative. We
therefore did not accept that there was any obligation upon the companies to
charge, or the Appellant to pay VAT. Whether or not the Appellant paid the VAT
in good faith, we find does not affect HMRC’s decision to disallow the
Appellant’s claim as section 4(1) and 24 (1) of the VAT Act 1994 clearly states
that the amounts involved were not VAT and as a consequence not deductible as
input tax.
43. The appeal in
respect of the period 10/07 is dismissed.
04/08
44. In the period
10/07 the Appellant claimed input tax in the sum of £5,198.98 which was
subsequently repaid to the Appellant. HMRC were provided with evidence of
payments supporting the deduction of £389.13 by the Appellant.
45. HMRC formed the
view that the supplies with input tax totalling £4,809.00 had not been paid
within the 6 month time limit prescribed by section 26A of the VAT Act 1994 and
accordingly an adjustment should have been made to reflect this in the VAT
return for the period 04/08.
46. The Appellant’s
04/08 return was not submitted by the due date and consequently a centrally
issued assessment in the sum of £2,766.00 was issued.
47. A nil return was
submitted for the 04/08 period by the Appellant in January 2009. This return
was rejected by HMRC due to the adjustment of input tax identified in the sum
of £4,809.00.
48. An assessment in
the sum of £4,809.00 was notified to the Appellant by notice dated 28 April
2009 for the period 04/08. Subsequently, due to the centrally issued assessment
having been raised, the assessment in the sum of £4,809.00 was reduced to
£2,533.00 on 9 June 2010.
49. The supplies in
question were:
(a)
A W Opal £2,613.46 VAT
(b)
Luxol £932.40 VAT
(c)
Luxol £52.50 VAT
(d)
Itchycoo £211.73 VAT
(e)
The In Crowd £999.86 VAT
50. In evidence, Mr
Booth conceded that he did not dispute the disallowance of input tax in respect
of Itchycoo, although he did not agree with it, on the basis that he accepted
there was no evidence upon which he could rely in support of his contentions.
51. As regards the
remaining suppliers, Mr Booth submitted that receipts had been provided to
HMRC. Mr Booth queried why the documents he had provided were rejected by HMRC
due to being unsigned when similar unsigned documents from companies such as
Ikea and PC World were not rejected.
52. Mr Booth
referred us to a letter to The Right Hon Jack Straw MP, undated but signed by
Mr Geoff Pearson, Managing Director of Savoy Eyewear. Mr Booth contended that a
receipt dated 15 April 2010 relating to supplies provided to the Appellant from
A W Opal contained the same signature, which had been rejected by Mr Kennedy of
HMRC as illegible. Mr Booth contended that the letter addressed to The Right
Hon Jack Straw MP verified that this was Mr Pearson’s signature.
53. Mr Booth
submitted that he had also made cash payments during the relevant period due to
poor credit ratings and that the director’s loan account had been provided to
HMRC to show the cash payment made.
54. Mr Booth stated
that he had spoken to an HMRC officer, Mr Mark Gut, in relation to the Notice
of Assessment dated 11 June 2010 in the sum of £2,696.54 (£2,533.00 plus
interest of £163.54) and had been told to ignore it as it was incorrect. Mr
Booth stated that to date, Mr Gut has not put this in writing, despite Mr
Booth’s requests. Mr Booth explained that a further Notice of Assessment of the
same date was received advising of a credit to the Appellant’s account in the
sum of £2,422.98, however it is unknown to what this relates.
55. Mr Booth
submitted that although he had connections to some of the companies to which
his claims for input tax had been disallowed, there was no evidence of fraud on
his part. This was accepted by Mr Kennedy in cross examination, who stated that
he had simply highlighted the amount of trade between a number of small
companies where there appeared to be no external trading. Mr Booth stated that
the Appellant Company carried out accountancy services for a number of optical
agencies and that it was reasonable that he was nominated as spokesperson for
those companies. Mr Booth submitted that his human rights had been infringed by
HMRC and that the only connection relevant in law was any other company of
which he was director.
56. The evidence of
Mr Kennedy was that there had been correspondence between himself and the
Appellant which resulted in his assessment of 7 April 2009 disallowing input
tax in the sum of £4,809.00. Receipts for payments in respect of a number of
companies had been accepted by Mr Kennedy, such as Style Factory Ltd which was
registered for VAT, Church View Optical Ltd and Jill Eyewear Ltd, for which
documents purporting to show payment were accepted.
57. Mr Kennedy’s
witness statement dated 31 March 2011 set out the background to the Appellant
Company and associated companies. In summary, the Appellant notified HMRC of a
change of address by letter dated 8 October 2007 signed by Ms St Pierre. The
new address arose from a tenancy agreement between the Appellant Company and
Jill Eyewear Ltd, the director of the latter company being at that time Mr
Stuart Robinson. The new address of Unit 11, Craven Nursery Park, Skipton, North Yorkshire was also, at that time, the address of Church View Optical Ltd
and Jill Eyewear Ltd.
58. The Appellant
notified HMRC of a change of address by letter dated 10 January 2008. The
letter stated that the new director was Ms Julie Ann Booth. Mr Kennedy stated
that contact had been made by Ms St Pierre with HMRC 11 days after submitting
her resignation to enquire about the Company’s repayment claim.
59. On 19 March 2008
the VAT Variations Unit in Wolverhampton received a letter from the Appellant
Company giving consent for HMRC to “speak freely on all matters relevant to”
the Appellant and two associated companies; Style Factory Ltd and Bits and
Doins Ltd, signed by J. A. Booth.
60. A further change
of address was notified to HMRC in March 2008. On 20 June 2008, Mr Kennedy
visited the premises at Kendal to find it unoccupied. The sign outside the
property bore the name “Stylottica” which is a company controlled by Mr Booth. A
Companies House search of the address of Unit 3, Library Road, Kendal showed
that it is the registered address for Priory Eyewear Ltd, of which Mr Robinson
was a former and current director.
61. On 24 June 2008,
Mr Booth contacted Mr Kennedy informing him of the Appellant Company’s new
address in Preston. Mr Kennedy visited the premises on 1 July 2008, at which
time Mr Stuart Robinson was present. Mr Kennedy noted that the address of Mr
Robinson given in his capacity as company director of Priory Eyewear Ltd is
also the address given on invoices from Genesis Eyewear and is also the address
of Ms Christine Brooks, who Mr Kennedy explained was company secretary for
(inter alia) Luxol Ltd, who provided accountancy services for the Appellant
Company and also Stylottica.
62. Mr Kennedy
stated that during his inspection of the Appellant’s invoices, he noted that
the address on invoice number 1206 from Outlook Optical dated 17 October 2007
was Unit 20, Craven Park, Skipton, North Yorkshire; the same industrial estate
as two companies run by Mr Robinson; Church View Optical Ltd and Jill Eyewear
Ltd, and also the same industrial park as Priory Eyewear Ltd.
63. Mr Kennedy
stated that at the time of his visit Mr Booth had confirmed that the invoices
had not been paid, which corroborated Mr Kennedy’s view of the Company’s bank
records which showed minimal cash movements, insufficient to meet the invoices
inspected by Mr Kennedy at the time.
64. Following
further correspondence between Mr Kennedy and the Appellant, and further review
of documents provided by Mr Booth, Mr Kennedy wrote to the Appellant on 7 April
2009 to state that the company had failed to produce evidence of payment for
invoices totalling £2,196.49, the claim for which would therefore be
disallowed. Mr Kennedy also stated that he would not accept a document
purporting to be a receipt from A W Opal dated 26 May 2007 as valid and the input
tax claimed thereon would also be disallowed.
65. On 7 April 2009
Mr Kennedy issued an assessment for input tax disallowed in the sum of
£4,809.00.
66. On 15 May 2009,
Mr Kennedy wrote to the Appellant highlighting that it is usual practice to
have receipts signed by the recipient and that if signed receipts were obtained
by the Appellant, Mr Kennedy would review the position. The letter also referred
the Appellant to Section 26A of the VAT Act 1994 which provides for the refusal
of input tax claims on unpaid invoices. Mr Kennedy explained that the documents
which he had rejected appeared basic and on letterheads which could easily be
compiled on a computer. Mr Kennedy stated that the invoices did not appear
pre-printed as he would expect and that in the absence of the Appellant’s bank
statements or cashbook to show payment or transfer of monies, he sought the
signature of an officer of the companies to verify against records held by
HMRC.
67. At a meeting
with the Appellant on 17 July 2009, Mr Kennedy stated that the Appellant had
drawn his attention to Extra Statutory Concession 3.9 Notice 48, which provides
that on the grounds of equity, a person may be permitted to deduct VAT incurred
on a payment where it had been treated as input tax in good faith. Mr Kennedy
considered this point, and by letter dated 14 August 2009 notified the
Appellant of HMRC’s view that the Extra Statutory Concession should not be
applied due to the relationship between the Appellant and his suppliers. Mr
Kennedy explained in evidence that there was a long history of trading between
the Appellant and his suppliers and that given this trading relationship, HMRC
took the view that the Appellant may be able to recover the VAT.
68. In October 2009,
Mr Kennedy ceased to have responsibility for the Appellant. In preparation for
the hearing, on 8 November 2010 Mr Kennedy obtained exhibits relevant to the
matters under appeal from HMRC Chaucer’s Walk, Blackburn, Lancashire. In the
course of obtaining the documentation, Mr Kennedy discovered documentation
which had not been available to him whilst he held responsibility for the
Appellant. Mr Kennedy found a copy of a receipt from A W Opal Ltd for payment
of the invoice upon which Mr Kennedy had disallowed the Appellant’s input tax
claim. The document was signed and dated 15 April 2010. The signature is
illegible but underneath was written “Mr G Pearson”. Mr Kennedy compared the
signature to that held for Mr Pearson on the HMRC’s electronic folder and found
there to be a difference significant enough for him to question the validity of
the signature. Mr Kennedy also queried in evidence why there had been such a
delay (over 1 year) between his refusal of the unsigned document to the
appearance of the signed copy, particularly as A W Opal Ltd had been based at
the same address as the Appellant in Preston and highlighted the fact that Mr
Pearson, according to a Companies House search, was not an officer of the
company at the time the invoice was issued and the claim made. Mr Kennedy
confirmed that the Appellant had not provided any other evidence of payment in
support. Mr Kennedy exhibited documents in support of his evidence that his
Companies House search had also revealed that Mr Pearson is or had been a
director of a number of companies associated with Mr Booth, such as the
Appellant Company itself, Pineapple Slice Ltd, Style Factory Ltd, K D Optical
Ltd, Dales Optical Ltd, Mayfair Ltd, Bitz and Doins Ltd and Lakeside Optical
Ltd. Mr Kennedy also confirmed that the Companies House search revealed that Mr
Pearson had been a director of a number of companies associated with Ms
Christine Brooks. Mr Pearson had ceased to be a director of A W Opal Ltd on 1
June 2010, when Mr Stuart Robinson took over.
69. Mr Kennedy
exhibited the results of a Companies House search of Mr Robinson, which
revealed that he was director of a number of companies whose invoices to the
Appellant were the subject of denial of input tax and that both Mr Robinson and
Mr Booth have been directors of Isis Eyewear Ltd and Sight for Sore Eyes Ltd.
70. Mr Kennedy
raised concerns over Mr Booth’s connections with A W Opal Ltd which had also
led him to query the validity of the invoice provided; A W Opal Ltd had,
shortly after it commenced trading, invoiced Mr Booth for rent and rates on its
premises, staff and vehicle charges and building work carried out at the
Appellant’s premises. Mr Kennedy suggested that this was an indication that A W
Opal Ltd occupied premises as an agent for Mr Booth. In addition, a letter from
A W Opal Ltd signed by Mr Robinson and dated 2 June 2010 authorised HMRC to
take instruction and communicate with Mr Booth in respect of the tax affairs of
A W Opal Ltd.
71. As a result of
the apparent connection between the Appellant Company, Mr Booth and A W Opal
Ltd, Mr Kennedy remained of the view that the Appellant’s claim should be
disallowed without verification of the date of payment from an independent
source, such as bank statement.
72. Mr Kennedy
confirmed that the decision to disallow the Appellant’s claims in the period
04/08 arose from a combination of lack of evidence of payment in respect of
Itchycoo Ltd, The In Crowd Ltd and Luxol Ltd, and failure to meet the
requirements of Section 26A of the VAT Act 1994 by making payment within 6
months. Mr Kennedy stated that he had no knowledge of decisions made in respect
of any other companies and that he had only been instructed to deal with the
Appellant Company.
Decision in respect of the period 04/08
73. Section 26A of
the VAT Act 1994 applies to supplies on which a taxable person can recover input
tax, but where there has been a failure to pay for the said supplies within 6
months of the relevant date, the taxable person may not in such circumstances
be entitled to credit for input tax in respect of the VAT that is referable to
the unpaid consideration or in part.
74. The relevant
date is defined by Section 26A (2) of the VAT Act 1994 as the date of the
supply or if later, the date upon which the sum became payable.
75. Section 26A (6) of
the VAT Act 1994 provides for Section 6 of the same Act to apply in determining
when a supply is treated as taking place, that being the invoice date.
76. The invoices in
respect of the claims made in this period were dated within the period 10/07.
Evidence of payment was provided by the Appellant in respect of £389.13 and consequently
HMRC reduced the disallowed amount claimed from £5,198.98 to £4,809.00.
77. As the £5,198.98
claimed was repaid to the Appellant, assessments totalling £4,809.00 were
raised against the Appellant in order to recover the amount disallowed.
78. The correspondence
from Mrs Brewis to the Appellant dated 28 September 2010 and 17 November 2010
set out the basis of the assessments and the evidence sought by HMRC, namely
proof of payment in respect of A W Opal, Luxol, Itchycoo and The In Crowd. The
letter from Mrs Brewis dated 17 November 2010 states “you told me that you
cannot obtain proof of payment of supplies from Ichycoo and The In Crowd.”
During the hearing, the Appellant accepted that there was no evidence, and
therefore no dispute in respect of the disallowed sum relating to Ichycoo.
79. In respect of
supplies purported to be made by The In Crowd and Luxol, the supplies were
shown in the Appellant’s purchase day book and invoices were produced in
respect of the three supplies. However there was no evidence of payment in
respect of the supplies, either by way of receipt of payment (whether the
Appellant’s or that provided to the recipient) or bank statements showing the
transfer of monies. We were not satisfied in the absence of such evidence that
payment had been shown by the Appellant to have been made.
80. Even if payment
had been made, we could not be satisfied that the Appellant had paid for the
supplies within 6 months of the date of the supply, which in the absence of any
evidence to show payment was due at a later date, we found to be the relevant
date.
81. As regards the
claim in respect of A W Opal, the Appellant did provide an unsigned receipt dated
26 May 2007 and a signed receipt bearing the same date, with the date below the
signature of Mr Pearson marked as 15 April 2010. We noted the Appellant’s
contention that HMRC have not provided any statutory provision requiring that
receipts must be signed or dated, however we did not find it unreasonable that
HMRC should want to satisfy itself as to the veracity of a claim where
companies involved are not independent or “at arm’s length” of each other.
82. We found Mr
Kennedy’s evidence as to why the document provided by the Appellant had been
rejected to be compelling. We found as a fact that there was a significant and
unexplained delay between the production of the unsigned invoice and the signed
invoice. Taken together with the close connections between the businesses and
their officers, we found Mr Kennedy’s decision to reject the document due to
the lack of independent evidence to verify the document to be entirely
reasonable.
83. However, even if
we had found that there was no basis upon which Mr Kennedy ought to have
disallowed the claim in respect of A W Opal, we accepted HMRC’s submission as
to the application of Section 26A of the VAT Act 1994.
84. There was no
evidence produced by the Appellant to show that the amount payable to A W Opal
was due later than the date of supply or that, if it was due later, payment was
made within 6 months of the due date. The unsigned document was sent to HMRC on
22 March 2009 and the signed document was sent, at the earliest, on 15 April
2010 for a claim relating to the period 10/07. Mr Booth provided no explanation
as to how Mr Pearson, who signed the later copy of the receipt, verified that
payment had been made by the Appellant at a time when he (Mr Pearson) was not
the company director nor was any explanation given as to why this information
was not available to us.
85. In the absence
of any evidence to the contrary, we found that the Appellant had failed to pay
for the supplies within 6 months of the date of supply and therefore the claim
for input tax in respect of the VAT declared as paid to A W Opal must fail.
86. We do not find
that the Appellant’s human rights are infringed by HMRC’s decisions in respect
of any of the matters under appeal. We found that HMRC have acted lawfully and
that the decisions made by HMRC do not contravene the Human Rights Act 1998 or
the ECHR in that they are intended for the purpose of protecting the revenue and
lawful collection of taxes.
87. The appeal in
respect of the period 04/08 is dismissed.
07/09
88. The only issue
raised in respect of this period was whether or not the Appellant had been
repaid monies authorised as owing to him.
89. A reconciliation
schedule had been provided to the Appellant by Mrs E Brewis by letter dated 17
November 2010 in an attempt to clarify the amounts paid to the Appellant and
due from him. This followed an explanation from Mrs Brewis in a letter dated 28
September 2010.
90. The letter of 28
September 2010 confirms that the amounts claimed by the Appellant in respect of
the 07/09 period were allowed in full and offset against debts. Where debts
were subsequently removed, credits were either offset against other debts or
repaid to the Appellant.
91. Mr Booth
accepted in evidence that he had not checked in his own records or bank
statements against the dates provided by HMRC, the payments shown to have been
made on the schedule.
Decision in respect of the period 07/09
92. We found that
there was no decision appealed against relating to this period as HMRC had
allowed the Appellant’s claim in full. The issue as to when, or if, the
Appellant was repaid is not one which this Tribunal has jurisdiction to
determine and in the absence of any evidence by the Appellant to the contrary,
we accept the reconciliation schedule and explanation provided by Mrs Brewis as
to the fact that amounts shown on the schedule were repaid and monies have been
set off against the Appellant’s debts.
93. The appeal in
respect of the period 07/09 is dismissed.
Costs
94. We considered Mr
Booth’s application for costs.
95. The Tribunal
Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 provide for an order
for costs to be made where one of three conditions under Rule 10 (a) – (c) is
satisfied.
96. The Tribunals
Courts and Enforcement Act 2007 provides at Section 29 for costs or
expensesE+W+S+N.I.
(1)The costs of and incidental to—
(a)all proceedings in the First-tier Tribunal, and
(b)all proceedings in the Upper Tribunal,
shall be in the discretion of the Tribunal in which
the proceedings take place.
(2)The relevant Tribunal shall have full power to
determine by whom and to what extent the costs are to be paid.
(3)Subsections (1) and (2) have effect subject to
Tribunal Procedure Rules.
(4)In any proceedings mentioned in subsection (1), the
relevant Tribunal may—
(a)disallow, or
(b)(as the case may be) order the legal or other
representative concerned to meet,
the whole of any wasted costs or such part of them as
may be determined in accordance with Tribunal Procedure Rules.
(5)In subsection (4) “wasted costs” means any costs
incurred by a party—
(a)as a result of any improper, unreasonable or
negligent act or omission on the part of any legal or other representative or
any employee of such a representative, or
(b)which, in the light of any such act or omission
occurring after they were incurred, the relevant Tribunal considers it is
unreasonable to expect that party to pay.
97. We were not
satisfied that any of the conditions under Rule 10 (a) – (c) were met nor did
we consider that HMRC had acted in any unreasonable, negligent or improper
manner which would justify the making of an order.
98. The application
is dismissed.
99. 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: 9 June 2011
