[2012] UKFTT 155 (TC)
TC01850
Appeal number :
TC/2010/08121
VAT –
Regulation 34 VAT Regulations 1995 – whether Appellant could recover VAT
deliberately overpaid in earlier period by adjusting subsequent returns without
making voluntary disclosure – no – HMRC’s assessment also subject to time
limits under Schedule 39 Finance Act 2008 – overpaid tax not recoverable
FIRST-TIER TRIBUNAL
TAX
HUNG
ON CHAN Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL: MICHAEL
S CONNELL (TRIBUNAL JUDGE)
MS SUSAN
STOTT (MEMBER)
Sitting in public at 4th
Floor City Exchange 11 Albion Street Leeds LS1 5ES on 10 November 2011
for the Appellant : Mr Patrick
Mullen, Accountant
for the Respondents : Mr John
Nicholson, Officer of HM Revenue and Customs
© CROWN COPYRIGHT
2011
DECISION
The Appeal
1. This
is an appeal by Mr Hung On Chan (‘the Appellant’) against a decision of the
Commissioners of Her Majesty’s Revenue and Customs (HMRC) to assess the
Appellant pursuant to s73 of the Value Added Tax Act 1994 (VATA) in the sum of
£4,268.00 representing Value Added Tax (VAT) due for the period 01.06.06 –
30.11.09 and reference under the accounting periods 08/06 – 11/09.
2. The
Appellant had brought forward an overpayment of £5,648.83 VAT from 28.02.06 and
then, in a series of VAT returns between 08/06 and 11/09, adjusted the output
tax and VAT returns in order to recover the overpayment. HMRC say that the VAT
deductions by the Appellant were unauthorised adjustments to his VAT returns
and that he should have made a voluntary disclosure on 28.02.06 to HMRC in
order to recover the overpayment at that time. HMRC say that legislation
restricts the time in which to make a disclosure and that the earliest which
could be amended was for the period ending 31.08.06 so that, in consequence,
any overpayment at 28.02.06 cannot be repaid.
3. The
evidence before the Tribunal included a bundle prepared by the Appellant and a
bundle prepared by HMRC, which collectively comprised schedules prepared by
both HMRC and the Appellant of the Appellant’s VAT under and over declaration
for the period under appeal, a copy exchange of correspondence between the
parties, the Appellant’s notice of appeal, relevant legislation and oral
evidence by Mr Stephen Tuck, the Officer of HMRC who had undertaken the
inspection of the Appellant’s VAT records and the Appellant.
Factual Background
4. The
Appellant runs a restaurant and licensed premises at The Station Inn,
Tollerton, York and is registered for VAT. In January 2010 HMRC undertook an
inspection of Mr Chan’s VAT records and returns for the period from 28.02.06 –
30.11.09. The VAT returns had been prepared by Mr P Mullen, the Appellant’s
accountant, using a SAGE accounting system. HMRC accepted that the returns
were correct but queried why the original VAT returns submitted by the
Appellant to HMRC differed from those produced at the inspection. It was
explained by the Appellant that the original quarterly returns were produced
fairly simply by the Appellant adding up takings and expenditure in each
quarter and calculating the VAT payable. The Appellant said that, to avoid any
risk of underpaying VAT, he had intentionally paid more VAT than he was obliged
to pay so that, in the event of any inspection, he could be assured that there
was no risk he had underpaid VAT. The Appellant’s accountant, Mr Mullen, then
carried out a reconciliation each year at the time of preparation of accounts
and adjustments were then made to later VAT periods to reflect the correct
figures. The Appellant agreed that in some periods too much VAT had been
declared and in others too little. He said that his financial accounts could
only be prepared after the year end and therefore the SAGE printed VAT returns
were only available some 12-18 months after the original quarterly returns had
been submitted to HMRC. The Appellant agreed that he had intentionally
submitted incorrect VAT returns but only for the purpose of avoiding being
penalised for underpaying VAT. The Appellant says that, as at 01.03.06, he was
in credit for overpaid VAT in the amount of £5,648.83. He says that trading
conditions in subsequent years became difficult and that he therefore began to
reclaim some of the overpaid credit.
5. HMRC
submit that the Appellant’s returns should have been amended by way of a
voluntary disclosure at the time the overpayment became apparent and that a
voluntary disclosure as at 02/10 was out of time.
Relevant Legislation
6. Regulation
34 Statutory Instrument 1995/2518 - Value Added Tax Regulations 1995
34(3) Where, in relation to all such
overstatements or understatements discovered by the taxable person during a
prescribed accounting period, the difference between :
(a) under-declarations
of liability, and
(b)
over-declarations of liability,
does
not exceed £50,000, the taxable person may correct his VAT account in
accordance with this regulation …
34(7) Where the conditions revered to
in paragraph (3) above do not apply, the VAT account may not be corrected by
virtue of this regulation.
7. Section
77, Value Added Tax Act 1994
Assessments : time
limits and supplementary assessments
77(1) Subject to the following
provisions of this section, an assessment under section 73, 75 or 76 shall not
be made :
(a) more than 4 years after the end
of the prescribed accounting period or importation or acquisition concerned, or
(b) in the case of an assessment
under section 76 of an amount due by way of a penalty which is not among those
referred to in subsection (3) of that section, 4 years after the event giving
rise to the penalty.
8. Schedule
39 of the Finance Act 2008 stipulates the time limit in respect of assessments
and claiming input tax. The provisions of Schedule 39 are explained in VAT
Notice 700/45 Paragraph 4.7.
‘4.7 What’s
the time limit for claiming input tax?
The
time limit for making claims was increased with effect from 01 April 2009 from
three years to four. However, in order to ensure that the accounting periods that
were out-of-time on 31 March 2009 are not brought back in-time by the change,
the following transitional arrangements apply :
The
transitional arrangements provide that no claim made between 01 April 2009 and
31 March 2010 can be made for any accounting period for which the VAT return
was due before 01 April 2006.
Thus,
on 31 March 2009, the earliest accounting period for which a claim may be made
is that ending on 28 February 2006 (for which the due date of the return was 31
March 2006).
On
30 April 2009, the earliest accounting period for which a claim may be made
under regulation 29 would be that ending on 31 March 2006 (the due date of the
return for the period being 30 April 2006).
Similarly,
on 31 October 2009, the earliest accounting period that can be claimed for will
also be that ending on 31 March 2006. However, by 30 April 2010, the four-year
time limit will have come fully into effect so that a claim made on that date
can go back to the quarter ending 31 March 2006.’
The Appellant’s submissions
9. The
Appellant accepts that, at 28.02.06, he had made intentional overpayments of
VAT totalling £5,648.83 and then submitted a series of incorrect VAT returns in
order to recover this overpayment. He submits that the whole of the amount was
taken into account within the statutory 3-year period, that is before
28.02.09. He contends that the 3-year time limit is a ‘rolling period’ and
that the overpayment made as at 28.02.06 was correctly taken into account
before 28.02.09 by overclaiming input tax. He argues that regulation 34 of the
1994 Regulations is framed primarily to allow a taxpayer to correct ‘minor’
adjustments without reference to HMRC and that the adjustments he made were
within the tolerances referred to in regulation 34. He argues that it is
common practise for adjustments to be made to VAT returns without reference to
HMRC.
10. The Appellant
produced a schedule of underpayments and overpayments for the period in
question, which was broadly similar to the schedule prepared by HMRC. The only
point of contention was whether the overpayment at 28.02.06 had been
legitimately reclaimed and extinguished within the statutory 3-year period.
The Appellant argued that it had and that it would be wrong in equity for HMRC
to unfairly claim to recover VAT which had already been paid in full.
11. HMRC say that,
under Regulation 34(3) of the 1995 Regulations, only overstatements or
understatements which are discovered by the taxable person may be
corrected in VAT returns and that, because the Appellant had intentionally
overpaid VAT and failed to account for VAT at the correct time due to
unauthorised adjustments, he was now time-barred from doing so. HMRC argue
that it is not possible to use the provisions set out in Regulation 34 of the
1995 Regulations to adjust deliberate errors. They contend that under and over
declarations, if deliberate, cannot be considered as being ‘discovered’. HMRC
argued that the assessment raised under s73 VATA was issued on 01.07.10. They
say that the earliest return that was assessable by HMRC at that date under
s77 VATA was the Appellant’s return for the quarter ending 31.08.06 and was
determined correctly, having been made to the ‘best judgement’ of the assessing
officer, Mr Stephen Tuck.
12. The Appellant,
by his own admission, knowingly submitted false VAT returns. He signed the
declaration on the VAT return certifying that ‘information given’ was ‘true and
complete’ when quite clearly he knew it was not. The deliberate manipulation
of figures on a VAT return in order to under or over declare VAT as a method of
managing the business’ cash flow has no basis in law. The provisions of
Regulation 34(3) of the 1995 Regulations are quite clear. Only overstatements
or understatements ‘discovered’ by a taxable person may be corrected. Deliberate
errors cannot be corrected save by way of voluntary disclosure and the 3-year
time period for doing so means that the Appellant was out of time after
28.02.09. Accordingly, HMRC were correct to issue an assessment to recover the
£4,268.00 tax which the Appellant had purported to deduct by adjustments to his
returns. The Tribunal accordingly determines that the assessment raised on
05.07.10 was correctly raised under Section 73 VAT.
13. The appeal is
accordingly dismissed.
14. 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.
MICHAEL S CONNELL
TRIBUNAL JUDGE
RELEASE DATE: 22 February 2012
