First-tier Tribunal (Tax)

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Cite as: [2013] UKFTT 507 (TC)

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Sunlander Outdoor Products Ltd v Revenue & Customs [2013] UKFTT 507 (TC) (25 September 2013)
VAT - ASSESSMENTS
Making

[2013] UKFTT 507 (TC)

TC02896

Appeal number: TC/2011/03811

VAT –Assessments –s73 VATA 1994 –preliminary issue as to whether assessment duly made and notified – the assessment was made and it was notified – preliminary issue determined in Respondents’ favour

FIRST-TIER TRIBUNAL

TAX CHAMBER

	SUNLANDER OUTDOOR PRODUCTS LTD	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S	Respondents
	REVENUE & CUSTOMS

TRIBUNAL:	JUDGE SWAMI RAGHAVAN

Sitting in public at 45 Bedford Square, London on 17 June 2013

Mr Les Minney, chartered accountant, of Minney & Co. for the Appellant

Mr Alan Bates, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

DECISION on PRELIMINARY ISSUE

Introduction

1. The underlying appeal in this matter relates to a purported assessment against the appellant for £144,152 in relation to VAT periods 02/03 through to 05/05. This decision is however in relation to the preliminary issue of the validity of the purported assessment.

2. The issue of how the “validity” of an assessment is to be approached given the relevant legislation and case law is discussed below. The appellant puts the issue of validity in terms of there having been no valid assessment raised or communicated to the appellant. HMRC point to a distinction drawn in legislation and in case law on making an assessment on the one hand and notifying the assessment on the other. The parties dispute what actions were carried out by HMRC and whether certain documents were sent by HMRC and received by the appellant.

Background facts

3. The appeal which gives rise to these proceedings was lodged on 13 May 2011. One of the grounds of appeal was the validity of the assessment purported to have been made in February 2006 in the amount of £144,152 in relation to VAT periods 11/03 through to 05/05. The appellant also challenges the quantum of the assessment.

4. On 12 March 2012 I heard HMRC’s application to strike out the appeal in so far it challenged quantum on the grounds that that aspect of the appeal was out of time, together with the appellant’s application for permission to extend its time to appeal. HMRC’s application was dismissed and the appellant’s application was granted. The full reasons for the decision are set out in Sunlander Outdoor Products Limited v HMRC [2012] UKFTT 325 (TC). That hearing proceeded on the assumption there was a valid assessment as of 2 February 2006. The current hearing was listed further to a direction made by the Tribunal on 8 October 2012 following an application made by consent by the parties for a preliminary issue determination on the matter of assessment validity.

5. For the purposes of this hearing it is sufficient to recount the following by way of background. The main business of the appellant was to sell outdoor furniture. The directors of the appellant were Mr Richard Swift and Mr Morris. The company’s accountant was Mr Les Minney. The company ceased trading some time in 2005. The company’s registered office address was the address of its accountants in Union Street, Dunstable. The appellant was selected by HMRC for a visit and on 10 January 2006 HMRC Officers Ms Henton-Pusey and Miss Alison France attended at the address of the accountants. HMRC took away the records of the appellant held by Mr Minney. Following examination of the records HMRC came to the view that there were errors which resulted in both under and over-declarations of VAT and wrote to the appellant on 2 February 2006.

6. The letter included the following:

“…You will, therefore, shortly be receiving a Notice of Assessment (VAT 655) for £144,152. This assessment is issued without prejudice to any further action that may be taken by the Department. You will find a list of the errors in the enclosed Schedule of Assessment. A more detailed schedule will be sent to you in due course.”

7. It is common ground that the letter of 2 February 2006 was received by the appellant but that the “more detailed schedule” was not created or therefore sent.

8. But, there is a dispute of fact as to whether the “Schedule of Assessment” said to be enclosed was enclosed or if it was enclosed whether it was received with the letter. It is also disputed whether a Notice of Assessment (VAT655) was subsequently produced, sent and received.

9. The appellant was wound up on 21 March 2007 upon the petition of HMRC and joint liquidators were appointed on 7 September 2007. The liquidators were represented by Clarke Wilmott solicitors who forwarded correspondence they had received from HMRC to Mr Minney on 28 March 2008. This included a document headed “Schedule of Assessment”. At the foot of the schedule the following was stated “Assessment Produced By: Julie Fitzhenry INSOL 104 B06” and “Date: 17/11/2006”. The parties were alerted to the fact the date stated on this document post-dated the date of the letter of 2 February 2006 by Judge Mosedale at a hearing of HMRC’s application to strike out an earlier appeal. That hearing took place on 28 April 2011.

10. The disputed facts and their relevance to the preliminary issue are discussed in more detail below.

Evidence

11. On behalf of the appellant I received witness statements and heard oral evidence from Mr Les Minney, the appellant’s accountant and Mr Richard Swift, director of the appellant. On behalf of the Respondents, I received a witness statement and heard oral evidence from Julie Henton-Pusey, the visiting officer. All the witnesses were cross-examined. I directed, following an application by HMRC, that Mr Minney give his evidence without Mr Swift being present.

Framing of preliminary issue on assessment validity

12. HMRC point to a distinction drawn in legislation and in case law on making and notifying the assessment. The appellant puts this in terms of there being no valid assessment having been raised or communicated to the appellant.

Law

13. Section 73(1) of the Value Added Tax Act 1994 (“VATA”) as it was in force at the time of the purported assessment stated:

“Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgement and notify it to him”.

14. Section 77(1)(a) VATA stated:

“(1) Subject to the following provisions of this section, an assessment under section 73…shall not be made-

(a) more than [3] years after the end of the prescribed accounting period or importation or acquisition concerned…”

15. In making their submission that the above legislation drew a distinction between making and notification of assessments HMRC also drew my attention to a similar distinction drawn between the two acts of making and notifying in s77 VATA (Assessments: time limits and supplementary assessments).

16. The appellant referred me to the decision in House (trading as P&J Autos) v CCE [1996] STC 154 as authority for the proposition that the minimum requirements for a valid assessment are that it should “state the name of the taxpayer, the amount of the tax due, the reason for the assessment and the period of time to which it relates”. The appellant also accepted that both the High Court and Court of Appeal have accepted that those minimum requirements may be satisfied by their being contained in one or more documents sent together.

17. By way of authority for the proposition that making and notification are two separate acts HMRC took me to the Upper Tribunal decision of Queenspice Ltd v Revenue and Customs Commissioners [2010] UKUT 111(TCC) where Lord Pentland after referring to observations of Parker LJ (with whom Hooper and Pill LJJ agreed) in Courts plc v CCE [2004] EWCA Civ 1527 stated:

“…the passage makes it clear – as has been made clear in the past – that i) the assessment of the amount of tax considered to be due pursuant to s73(1) of the 1994 Act, and (ii) the notification thereof to the taxpayer, are separate operations: see also the Court of Appeal in House ([1996] STC 154 at 161), per Sir John Balcombe. Secondly, Jonathan Parker LJ also makes clear that the 1994 Act does not prescribe a time limit in respect of notification. This is consistent with the principle that notification can be validly given by means of the provision of several documents, issued over time and taken together.”

18. Although the appellant has put its case in terms of issuing or raising an assessment on the one hand and communicating it on the other, there was nothing in any of its arguments which suggested that it disagreed with the proposition that when the legislation spoke of making and notifying assessments these were two different operations. The more important question though is what the consequences are of making such a distinction.

Consequences of making / notification distinction?

19. HMRC referred me to the High Court case of Grunwick Processing Laboratories Limited v HMCE [1986] STC 441. This concerned an appeal from the VAT tribunal. The taxpayer submitted that the assessment was not notified to the taxpayer as the statute required it to be and the assessment was therefore flawed. The Tribunal chairman had found that there was no proper notification but also that the result was that the assessment was simply unenforceable unless and until it was notified properly. Macpherson J dealt with the appellant’s argument on the point as follows:

“The point has very little, if any, merit since the taxpayer company plainly got the assessment through their own solicitors, but it is a point which exists and had to be met, and has to be met by me.

I conclude that on the facts the chairman was correct and he was correct in his conclusions. The matter could be and indeed, in my judgment, has been rectified by notification now. There has been formal notification in accordance with the 1983 Act so that any irregularity is cured, and the taxpayer company can no longer have the protection, in my judgment, of that argument.”

20. In Queenspice the following passage from De Voil indirect tax service was quoted with approval:

“an assessment is not invalidated, it is merely unenforceable unless and until it is duly notified, and a failure to notify can thus be rectified. Such rectification may take the form of the inclusion of a copy of the assessment in a statement of case sent to the appellant.”

21. HMRC argue that it is enough for the purposes of today’s hearing to show that the assessment was made. Where an assessment had been made but not notified the assessment is not invalid but merely unenforceable until such time as the trader has received notification of the assessment and has therefore had an opportunity to lodge an appeal against it. The appellant did not put forward any countervailing legal arguments, however having considered the authorities I was referred to I am not persuaded, for the reasons outlined below, that they necessarily establish with enough certainty that it is sufficient to stop my consideration at the issue of whether the assessment was made and not go on to consider the issue of notification too.

22. In Grunwick while Macpherson J clearly endorsed the Tribunal chairman’s view as to the consequences of non-notification it is also clear he agreed there had been the necessary notification on the facts, and there is no discussion as to why notification was only relevant to enforceability of the assessment. Further, being an appeal from the VAT Tribunal as opposed to say the county court, the issue of whether the assessment was enforceable or not was not before the tribunal or the High Court.

“…the appellants were accordingly notified of exactly what the effect of the assessment was and as to the time periods to which it related”.

24. Although the Upper Tribunal clearly endorsed there being two separate actions of making and notification it did not stop its analysis short at the operation of “making” but went on to consider notification.

25. While I have no reason to think that the proposition that due notification is a pre-requisite to enforceability is not correct the statements to that effect in the authorities I was referred to make this point by way of observation rather than as a matter of binding precedent. The authorities do not in any case establish that an assessment is capable of being appealed to the tribunal and determined by the tribunal if the assessment was made but was not notified. It will I think therefore be necessary to consider both whether the purported assessment was made and whether it was notified.

Was the assessment made?

26. The authorities I was referred to did not set out what requirements needed to be satisfied in order for an assessment to be regarded as made. It has already been discussed above at [16] that certain matters must be specified in order for there to be notification. As set out by May J in House as quoted in Queenspice at [25] these are:

“(a) the taxpayer’s name, b) the amount of tax due, (c) the reason for the assessment, and (d) the period of time to which it relates.”

27. Given these are the minimum requirements for notification of an assessment it seems to me that by implication these pieces of information ought to be established and recorded within HMRC by the time the purported assessment is said to have been made. In relation to the level of detail required for the reason for the assessment I note from the decision in Queenspice at [30] that the reason for the assessment was stated as being “that the correct amount of VAT was not declared for the periods shown.” None of the other documents referred to by Lord Pentland mention further reasons given and at [36] he concludes that when taken together the documents he identified set out clearly and unambiguously, the four matters identified as being the necessary elements of valid notification. I take from this that the requirement to notify “the reason for the assessment” does not necessarily require detailed reasons to be notified.

28. Ms Henton-Pusey’s evidence included a description of HMRC’s procedures for inputting figures onto HMRC’s system and the generation of documents and schedules and her recollections about issuing what she termed a pre-assessment letter and attached schedules. HMRC argue Ms Henton-Pusey made the assessment on or around 2 February 2006 based on her recollection of creating the Schedule of Assessment, the reference to the Schedule as an enclosure in her letter of 2 February 2006 and HMRC’s records that a form VAT655 was scanned to their Electronic Folder (EF) system on 4 February 2006 and issued to the appellant on 7 February 2006. Ms Henton-Pusey’s evidence states it was not possible for there to have been a VAT655 generated without prior production of a VAT641 and Schedule of Assessment.

29. The appellant disputes that an assessment was made (or using their term “raised”). Their case rests on attacking the credibility of the evidence given by Ms Henton-Pusey. I disagree with that suggestion for the reasons set out at [44] to [45] below. I also think that the appellant’s point that Ms Henton-Pusey’s evidence lacks weight because it speaks to matters outside her knowledge is not founded. Her evidence as to assessment procedure was within her frame of reference and not an area of specialist expertise. I accept her evidence that the procedure was for details of the period, the type of error, total VAT due to/from HMRC to be keyed onto a particular tab (ADS Data) on the Officer’s Assessment section and that this information automatically populated the next tab “VAT 641”. Reason codes for the errors were selected from a drop-down list setting out the key to the reasons and the codes are listed on the VAT641. The VAT 641 then had to be printed for signature by the officer and counter signature by a checking or authorising officer. When the VAT 641 was printed a Schedule of Assessment from the details on the ADS Data tab was automatically printed too and this feature could not be overridden. The assessing officer then sent the authorised VAT 641 to be keyed onto HMRC’s mainframe which in turn automatically generated a VAT 655 Notice of Assessment(s) and/or Overdeclaration. One copy was issued to the trader at the address on the VAT655 and the other copy was captured to the Electronic Folder with the date of issue to the trader noted on a secure note facility.

30. I find that this process was followed by Ms Henton-Pusey in relation to the purported assessment. I was able to examine a copy of the VAT641 Officer Assessment which was printed out and signed by Ms Henton-Pusey as assessing officer and Miss Alison France as checking officer and counter-signatory on 2 February 2006. The VAT655 was created and scanned to the EF system on 4 February 2006.

31. I conclude the assessment was made on 2 February 2006. The appellant points to the fact the VAT655 which was signed and countersigned does not bear a date. I understood their concern on this to be raised principally in the context of the issue of whether any assessment was notified or, as the appellant put it, whether any assessment was communicated. But to the extent the appellant is seeking in any way to use this as a basis to question whether the assessment was made I do not think this would get them anywhere. The decision sets out at [55] the reasons why the copy document does not bear a date stamp (which I accept) and in any case I find that the act of making the assessment occurred beforehand on 2 February 2006 when the relevant details were confirmed and checked by the respective issuing and checking HMRC officers.

Was the assessment notified?

32. It is common ground that while HMRC’s letter of 2 February 2006 by itself was insufficient to constitute notification of an assessment because it lacked all of the necessary details, that the letter when read with either the “Schedule of Assessment” said to be enclosed with that letter or the form VAT655 did constitute due notification. There is a dispute of fact however over whether either of these documents were sent or received.

Was the “Schedule of Assessment” created and enclosed with the 2 February 2006 letter?

33. The evidence of Mr Minney and Mr Swift was that no enclosure was received with the letter of 2 February 2006 and that Mr Swift sought Mr Minney’s advice as to what to do about this. Mr Minney’s advice was to do nothing and await the “detailed schedule” which Ms Henton-Pusey’s letter said would follow on the basis that there was no point in discussing the matter further until the detail was known. Mr Swift confirmed he received this advice.

34. Ms Henton-Pusey’s evidence was that she enclosed the Schedule with the letter to the appellant at his principal place of business (the Union Street address of Minney & Co.). When directed in cross-examination to the copy of the letter of 2 February 2006 which was addressed to Mr Swift’s home address she explained this letter was sent by way of “back-up” as she was not sure whether Mr Minney was still acting for the appellant. To create this further copy Ms Henton-Pusey had over typed Mr Swift’s address onto the version of the letter with the Union Street address. No copy was kept of the version of the letter with Mr Swift’s address on HMRC’s system.

35. HMRC highlight the very late stage at which the allegation that the Schedule was not enclosed had been raised in that neither Mr Minney nor Mr Swift raised any issue about the schedule not having been enclosed until many years later. Mr Swift had telephoned Ms Henton-Pusey on 7 February 2006 but did not bring up the fact that he had not received the enclosure in that conversation.

36. HMRC also drew attention to the fact Mr Minney had subsequently stated in a letter to Ms Henton-Pusey on 6 October 2010 the following:

“Would you please provide for each period a precise and accurate reconciliation between the figures in that letter per quarter and the original schedule of assessment that was forwarded to Mr Swift on 2 February 2006”.

37. In response to cross-examination on this point Mr Minney explained that he would have been referring to the correspondence that had been forwarded to him from the liquidator to Minney & Co.

38. This is consistent with the fact that on 28 March 2008 Clarke Willmott who were acting for the liquidator wrote to Minney & Co. stating:

“Please find attached a letter from HM Revenue & Customs dated 2 February 2006 sent to Mr Swift direct, enclosing a Schedule of Assessment along with historic return details. These are the details that our client has provided to us.”

39. Taking account of the fact that neither Mr Minney or Mr Swift are legally qualified I do not find it surprising that they did not seek to raise any point about the schedule not being enclosed until a question mark had been raised over the assessment in the course of a Tribunal hearing on 28 April 2011. Assessment validity not being in issue from the point of view of Mr Minney and Mr Swift I accept Mr Minney’s explanation as to his statement in the letter of 6 October 2010. The statement does not in my view demonstrate that the Schedule of Assessment was enclosed with the 2 February 2006 letter. There also does not seem to me anything untoward to be drawn from the fact that Mr Swift did not raise the non-enclosure of the schedule in his telephone conversation with Ms Henton-Pusey on 7 February 2006. Mr Minney’s advice to Mr Swift, the merits of which are not in issue, had been to wait for the detailed schedule. Mr Swift accepts he told Ms Henton-Pusey in that conversation, that there was no money, and that she need not bother with sending an assessment. If the schedule had not been enclosed, it does not strike me as surprising, given Mr Swift’s attitude that he would be chasing for the enclosure to be sent.

40. The matter which appears to have precipitated the issue of assessment validity being raised was that it was noticed by the Tribunal Judge at the hearing on 28 April 2011 that the schedule bore a later date (17 November 2006) than the covering letter of 2 February 2006. However I accept HMRC’s explanation that the date of 17 November 2006 is a reflection of the date the assessment was printed out, not the date of its creation. The dating of the schedule does not show the schedule was not produced before that date or point one way or other as to whether any schedule was enclosed with the letter as stated.

41. Given the mail-forwarding procedures which I accept were in place at Minney & Co. if it is correct that a letter was also sent to the appellant at Minney & Co’s Union Street address this would be forwarded, unopened to Mr Swift at his home address. I need to consider Ms Henton-Pusey’ evidence as to sending the letters and enclosures and Mr Swift’s evidence that he did not receive the Schedule of Assessment.