New Lodge Estate Working Mens Club v Revenue & Customs [2013] UKFTT 460 (TC) (27 August 2013)
[2013] UKFTT 460 (TC)
TC02850
Appeal number:
TC/2012/03908
Value added tax - application by Appellant for an
extension of time to appeal - cross application by HMRC to strike out appeal -
omission by HMRC to offer a reconsideration - delay by Appellant in lodging
appeal - whether reasonable excuse - no - application refused and appeal struck
out
FIRST-TIER TRIBUNAL
TAX CHAMBER
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NEW LODGE ESTATE
WORKING MENS CLUB
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE MICHAEL CONNELL
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Sitting in public at Phoenix House, Rushton Avenue, Bradford on 23 January 2013
Mr. Ian Spencer for the
Appellant
Ms. Pat Roberts Officer of HM
Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2013
DECISION
1.
This is an application to the Tribunal by New Lodge Working Men’s Club
(‘the Appellant’) for permission to appeal out of time against a decision by
HMRC dated 15 January 2007 to deny a VAT recovery claim made on 22 September
2006 of £19,219 in respect of gaming machines operated by the Appellant.
2.
HMRC make a cross application under Rule 8 of the Tribunal Procedure
(First tier Tribunal)(Tax Chamber) Rules 2009 ("the Rules") to strike
out the Appellant’s appeal as having been made out of time under s 83G Value
Added Tax Act 1994 ("VATA 1994"). The Appellant lodged its Notice of
Appeal with the Tribunal on 08 March 2012.
Background
3.
The background to this application is that Prior to 6 December 2005
takings from gaming machines as defined in Group 4 of Schedule 9 to the VAT act
1994 were liable to VAT at the standard rate because they were excluded from
the exemption for betting and gaming which Group 4, provided whereas other
types of machines were not. The then current definition of ‘gaming machine’
covered those machines where the element of chance in the game was provided by
‘means of the machine,’ which were taxable for VAT purposes, whereas games of
chance played on machines where the result is determined by other means were
VAT exempt. Some machines were configured so that the random number generator,
which determines the outcome of the game, was sited outside the machine and
consequently those machines fell outside the definition of a taxable gaming
machine. Other machines had been developed to take advantage of section 16 of
the Lotteries and Amusements Act 1976 or section 21 of the Gaming act 1968,
which provided that small prize gaming, and fixed odds betting terminals
(FOBT’s) were respectively subject to Amusement Machine Licence duty and
General Betting Duty, but VAT exempt.
4.
The decision of the European Court ("the ECJ") in Finanzamt
Gladbeck v Linneweber (C-453/02) decided that Article 13B (f) of Sixth
Council Directive (EEC) 77/388 precluded German legislation which provided that
the operation of games of chance and gaming machines was exempt from VAT where
it was carried out in licensed public casinos, while the operation of the same
activity by traders other than those running casinos did not enjoy a similar
exemption.
5.
The decision in Linneweber suggested that UK law also breached the principle of fiscal neutrality because of the different VAT
treatment of similar machines. A revised definition of ‘gaming machine’ was
therefore announced and came into force on 6 December 2005 This changed the
definition of gaming machine so as to provide that FOBT’s and section 16/21
machines were gaming machines.
6.
On 22 September 2006 the Appellant submitted a voluntary disclosure to
recover overstated VAT paid in respect of gaming machine income for a three
year period ending 4 December 2005. Mr. Graville Hardy, the club secretary
lodged form VAT 652 with HMRC via the club accountants Messrs Harris & Co
claiming repayment of £19,219.
7.
On 11 October 2006 HMRC replied to the Appellant asking for information
regarding the claim and why the club considered that the decision in Linneweber
supported their claim. The information requested by HMRC related to the number
and category of machines operated, the types of games offered by the machines,
the location size and pattern of stake and prize payouts, information on how
many of the machines use a random number generator and where the random number
generator was located. HMRC said that once they had received the Appellant’s
response the matter would be referred to ‘Policy’ for consideration.
8.
The Appellant provided the information requested in so far as relevant
and within its knowledge, in letters to HMRC dated 30 October 2006 and 30
December 2006. Mr. Hardy said that the change in the law was an implicit
admission that the previous rules were unfair to those clubs which operated
jackpot and pub machines (as opposed to fixed odds betting terminals and
section 16 and section 21 machines).
9.
On 15 January 2007 HMRC replied to the Appellant stating:
‘The position
of this department is that in order to ensure that all gaming machine takings
are treated equally; all machines are now liable to VAT. My understanding of
your claim is that you are seeking for all gaming machine takings to have no
VAT chargeable; in fact the opposite will apply. The claim relies on the Linneweber
ruling; however, this department believes that no claim arises as a result of
this.
The case of
the Linneweber considered the European principle of fiscal neutrality as
it applies to VAT, specifically looking at the different tax treatment that had
been applied to identical gaming machines in Germany solely on the basis that
the machines were situated in different locations. The UK has not applied different VAT liabilities to identical gaming machines and HMRC do not accept
that the U.K.'s tax treatment of gaming machines breached the principal and
fiscal neutrality.
Therefore, for the reasons given above, I have
refused the claim. You have the right to appeal to an independent VAT tribunal.’
10.
The Appellant did not respond to HMRC's letter and the time-limit for a
review of HMRC's decision expired 30 days from the date of the decision letter
that is on 14th of February 2007.
11.
HMRC's Business Brief 11/10 which was issued in March 2010 stated that
HMRC would process:
‘all existing claims were satisfactory evidence has
been provided by 31st of March 2011.’
And
that:
‘HMRC’s aim is to consider all claims lodged prior
to 16 March 2010 with the aim of making repayment, where appropriate, based on
the criteria laid down in the Brief by 31 March 2011. …………We would appreciate
your continued patience in this matter…’
And
also that:
‘HMRC will
‘not consider any previous claims that have been rejected (for whatever reason)
and which are not now under appeal. ……No new claims for the repayment of VAT
for the period between 1 November 1998 and 5 December 2005 can be made.’
12.
Nothing further happened with regard to the Appellants claim until 17
February 2011, when Mr. Hardy wrote to HMRC saying:
‘We refer to our letter dated 30 December 2006, and
our claim in respect of the VAT ruling on gaming machine income. The claim
incorporated the Linneweber ruling, which we believe has been accepted,
and VAT repayments have had to be undertaken. We would be grateful if you let
us know the current situation in relation to our case’
13.
HMRC replied on 3 March 2011 saying :
‘…..As
explained in Revenue and Customs Brief 11/10, claims that have previously been
rejected (for whatever reason) and which are not under appeal will not be
considered. No new claims for the repayment of VAT paid for the period between
1 November 1998 and 5 December 2005 can be made.
Your claim
has already been rejected and was not appealed. Consequently the submitted
claim for £19,219 in respect of periods 09/03 - 12/05 is considered closed and
will not be reconsidered.
You can still make an application to the tribunal
and ask if they will accept a late notice of appeal’
14.
On 7 November 2011 the Appellants agent Ian Spencer and Associates Ltd
wrote to HMRC saying that HMRC’s letter of 15 January 2007 was flawed and
prejudicial to the Appellants interests because:
(1)
HMRC did not provide details of where any appeal to an independent VAT
tribunal might be sent, and the time limits for submitting such an appeal.
(2)
HMRC's letter failed to mention the Appellant's right to request a
review or reconsideration of the decision. It was the Appellants understanding
that HMRC’s own internal guidance required the decision maker to notify a
taxpayer of its right to request a reconsideration. The right to request a
reconsideration in any event remained open, and if on undertaking such a
reconsideration the decision was to reject the claim the Appellant would then
be able to submit an appeal to the Tribunal.
15.
HMRC responded offering to conduct a review of the decision, which was
undertaken and notified to the Appellant on 23 December 2011, upholding the
decision to refuse the claim. The reviewing officer added in his letter, that
prior to the implementation of Tribunal reform on one April 2009, HMRC was not
under any legal obligation to offer taxpayers a reconsideration or to inform
them of the right of appeal when issuing a decision letter. Further, the
version of ‘Notice 700 The VAT guide’, extant at the time of the decision,
contained ample guidance on the appeal procedure and would have been more
accessible to taxpayers in general than HMRC internal guidance. However, HMRC
had in this instance informed the Appellant of its right to appeal but no such
appeal was made.
16.
In a further exchange of correspondence between the Appellants agent and
HMRC, the agent suggested that the 30 day period within which an appeal should
be lodged was from the conclusion of the review rather than the date of the
decision.
17.
HMRC responded that for appealable decisions made prior to 1 April 2009,
the time limit for serving notice of appeal was 30 days, as set out in rule
4(1) VAT Tribunal Rules 1986, and that should the taxpayer request a
reconsideration of the decision within the 30 day period, rule 4(2) allowed the
Commissioners to extend the appeal period to a date 21 days from the date of a
further letter confirming the disputed decision. If the request for
reconsideration was made after the 30 day period, the Commissioners would still
undertake a reconsideration, has had been done in this case, but would not be
able to extend the 30 day appeal period. If the taxpayer were to subsequently
appeal against the decision they would have to apply to the Tribunal for an
extension of time to serve an appeal.
18.
On 8 March 2012 the Appellant, through its agent lodged a Notice of
Appeal with the Tribunal of HMRC's decision of 15 January 2007 rejecting the
Appellant’s claim for a refund of VAT. Because the notice of appeal had not
been lodged within the requisite 30 day period, the Appellant requested
permission to appeal out of time. The reasons given in support of the late
appeal were that:
‘HMRC's original decision issued in January 2007
failed to advise the Appellant of its right to have the decision reconsidered
which was in contradiction of how other taxpayers were treated. This was
prejudicial to the Appellants interests The Appellant requested a
reconsideration and HMRC obliged on 12 January 2012 but mistakenly advised that
any appeal, would be late as it would be made more than 30 days after the date
of the original decision. The Appellant had sought clarity from HMRC as it was
its view that the 30 day period was from the date of reconsideration or review’
19.
The Appellant stated its grounds of appeal as follows:
‘The Commissioner’s decision to reject the
Appellants claim is in contradiction of the EC principle of fiscal neutrality
and subsequent established case law. The Appellants gaming machines were
similar if not identical to the VAT exempt gaming machines operated elsewhere.
As such HMRC are in breach of the fiscal neutrality principle and repayment
should be made.’
The Appellants case
20.
Mr. Spencer for the Appellant said that the club is a not for profit
private members club run by volunteers and a committee, with a paid steward.
Mr. Hardy the club secretary was hoping to attend the hearing, but had been
hospitalised and was still recuperating. It was his recollection that the club
had not received HMRC's decision letter of 15 January 2007 but he would not be
able to swear on oath to that effect. Mr. Spencer said it was noteworthy that
Mr. Hardy's letter of 17 February 2011 made no reference to HMRC's decision
letter and instead referred to his earlier letter dated 30 December 2006, which
indicated that the decision letter not been received. Mr. Spencer produced to
the tribunal, a number of letters which had been sent by HMRC to other
Appellants for whom he acted as agent, on the same issue which had been wrongly
addressed. He submitted that the decision letter had in fact never reached the
Appellant. The VAT reclaim was a substantial sum, and it was inherently
improbable that the Appellant would not have responded to the decision of 15
January 2007 rejecting the claim.
21.
Mr. Spencer said that the Appellant had not chased up its letter of 30
December 2006 for a number of reasons. The Club was not staffed by
professionals and relied on updates issued by trade associations, Deloitte's,
information provided by Dransfield novelty company, which supplied the gaming machines
and generally as part of a larger affiliation of working men's clubs was simply
‘awaiting events’.
22.
Mr. Spencer also referred to a number of other cases where again he was
acting as agent for clubs in similar appeals and that in many of those cases HMRC
had afforded the opportunity of a review of the decision and allowed the club
to quantify its claim out of time. He said this was plainly unfair to the
Appellant. HMRC's had not adhered to its own internal guidance which recognises
taxpayers as customers and that those customers should be given proper
guidance.
23.
Finally, Mr. Spencer referred to the case of Potters Bar Golf Club
[2012] TC 02346, where the First-tier Tribunal decided in ‘similar
circumstances to this case’ that allowing the taxpayers appeal out of time
would cause no serious prejudice to HMRC and HMRC's strike out application
cases was refused.
The Respondents case
24.
Mrs. Roberts for HMRC said that at all relevant times there was a time
limit for the making of an appeal which was 30 days from the making of HMRC’s
decision on 15 January 2007. Prior to the inclusion of s 83G in the VATA 1994,
the time for appealing was set out in Rule 4 of the Value Added Tax Tribunal
rules 1986 (SI 1986/590). Under that rule a notice of appeal was required generally,
to be served on the Tribunal before the expiration of 30 days after the date of
the document containing the disputed decision. From 1 April 2009, a similar 30
day period applies, depending on whether or not there has been a review.
25.
Ms. Roberts for HMRC said that it would not be in the interests of
administration of justice to admit the appeal. The original refusal of the
claim was made in January 2007 but it was not until March 2011 that the appeal
was lodged. In the notice of appeal the Appellant submits as a reason for the
appeal being made late that it had not been advised of its right to request a
review and that it had not been given details of the procedure for appealing to
the Tribunal. Ms Roberts said that it is not incumbent upon HMRC to advise an
Appellant on how to go about appealing to the Tribunal.
26.
During the 2009 – 2010, HMRC issued Business Briefs 63/08 and 40/09,
which set out HMRC’s view on the decisions of the VAT Tribunal, and HMRC’s
position generally with regard to claims for refunds of VAT. Business Brief
11/10 (referred to above), was issued in March 2010. By then, the Appellant was
already significantly outside the time-limit within which to bring an appeal
but there was another year’s delay before the Appellant eventually lodged its
appeal. There appeared to have been a conscious decision not to follow up the
initial claim of September 2006, either by a request for a review by HMRC or by
way of appeal to the Tribunal.
27.
To allow an application to bring an appeal four years out of time would
be unfair and expose the administration of justice to criticism from other
claimants who have similarly failed to comply with time limits for making
claims, and who have not been granted an extension of time to bring an appeal.
It is necessary to apply clear consistent and objective criteria in assessing
the validity of claims
Conclusions
28.
Under s 83G (6) an appeal may be made late if the Tribunal gives
permission. In the exercise of that discretion, the Tribunal must give effect
to the overriding objective in rule 2(1) of the Tribunal Procedure (First-tier
Tribunal) (Tax Chamber) Rules 2009 to deal with cases fairly and justly. For
that purpose it is necessary for the Appellant to show good reason why the
Tribunal should exercise its discretion to allow an appeal to be made outside
the time limit.
29.
The exercise of the Tribunal's discretion involves a balancing exercise
having regard to the respective interests of the parties. Material factors must
be considered including whether the Appellant has a prima facie case.
Furthermore, having regard to the correlation between the overriding objective
with the corresponding objective in rule 1.1 of the Civil Procedure Rules (the
CPRs), in the exercise of its discretion the Tribunal may have regard to the list
of factors set out in the CPR’s considered by the courts when exercising
discretion to extend any time limit. So far as is material in this case those
factors are:
(a)
the interests of the administration of justice;
(b)
whether the application for relief has been made promptly;
(c)
whether the failure to comply was intentional;
(d)
whether there is a good explanation for the failure
(e)
…………..
(f)
whether the failure was caused by the party or as legal representative
(g)
………….
(h)
the effect which the failure to comply had on each party; and
(i)
the effect which the granting of relief would have on each party.
30.
With regard to its substantive appeal, the Appellant may well have a
prima facie case and appears to have quantified its claim. Therefore, whether
there is any real prejudice to HMRC in having to reopen their examination of
the Appellant's claim is questionable. However the Appellant must show good
cause for the delay in lodging its appeal. The balancing exercise to be
undertaken by the Tribunal requires it to weigh the assumed potential loss to
the Appellant of being prevented from pursuing its claim, against the need for
good administration, finality, legal certainty, respect for the general time
limit for bringing an appeal; the discerned prejudice to HMRC in having to
reopen their examination of the Appellant's claim; the Appellant's dilatoriness
in initiating its appeal and the length of delay.
31.
The burden of showing why the Tribunal should exercise its discretion to
permit a late appeal falls on the Appellant.
32.
The Appellant had the opportunity of requesting a review of HMRC
decision or lodging an appeal with the Tribunal in January 2007, but either
chose not to do so, or was very dilatory in deciding to do so. It is not clear
whether the Appellant thought that HMRC was taking a long time in dealing with
the claim or simply awaiting events. However neither reason would constitute a
reasonable excuse. The Appellant failed to prosecute the appeal with reasonable
diligence.
33.
Even if the Appellant did not receive HMRC's decision letter of 15
January 2007, (and there is no record of the letter having been returned to
HMRC undelivered), there is still no explanation as to why the Appellant did
not chase up a response to its letters of 30 October and 30 December 2006. A
total lack of attention to the claim for a period of over four years cannot be
regarded as reasonably prudent conduct. No adequate reasons have been given for
the inordinate delay in initiating the appeal.
34.
HMRC's letter in January 2007 did not offer a reconsideration, while other
decision letters by HMRC to other appellants sometimes did. Nonetheless, the
letter explained that the claim had been rejected and the appellant had the
option of querying the decision or appealing to the Tribunal, both of which
they were in fact invited to do. Instead, they did neither and a reasonable
assumption is that they accepted the decision. It cannot be suggested that
because the Appellant had only been given the option of appealing or querying
the decision, but not the option of reconsideration, this somehow led them to
accept a decision, which they disagreed with. There was no obligation on HMRC
to offer a reconsideration, but in any event the omission to do so did not have
any material effect on the matter.
35.
For the reasons set out above the Tribunal makes the following
directions.
Directions
(1)
The Appellant's application for an extension of time in which to appeal
against the decision of HMRC contained in HMRC's letter dated 15 January 2007
is refused.
(2)
The appeal is struck out pursuant to rule 8(2) of the Rules. In
consequence the Tribunal does not have jurisdiction to entertain the appeal,
(rule 8(2) (a) of the Rules).
36.
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 CONNELL
TRIBUNAL JUDGE
RELEASE DATE: 27 August 2013
