United Kingdom VAT & Duties Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Taylor & Anor (t/a Riverside Sports + Leisure Club) v Customs and Excise [2003] UKVAT V18056 (19 March 2003)
URL: http://www.bailii.org/uk/cases/UKVAT/2003/V18056.html
Cite as: [2003] UKVAT V18056

[New search] [Printable RTF version] [Help]

Taylor & Anor (t/a Riverside Sports + Leisure Club) v Customs and Excise [2003] UKVAT V18056 (19 March 2003)

PENALTY—Conduct involving dishonesty—Appellants proprietors of sports and leisure club—Membership subscriptions paid annually or monthly—Monthly subscriptions entitled members to use of club month by month—Aggregate of monthly subscriptions higher than annual subscription—Difference described as "credit charge"—Appellants claimed that difference was exempt—Commissioners ruled that whole of monthly subscription was standard-rated as consideration for monthly membership—Appellants continued to treat difference as exempt in spite of ruling and having taken advice—No appeal against ruling—VAT returns rendered on that basis, and tax at standard rate withheld—Whether conduct dishonest—Appeal dismissed

PENALTY—Conduct involving dishonesty—Mitigation of penalty—Commissioners allowed 65 per cent mitigation—Whether mitigation sufficient—Appeal dismissed

LONDON TRIBUNAL CENTRE

P D TAYLOR AND G TAYLOR

t/a RIVERSIDE SPORTS AND LEISURE CLUB Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: MR ANGUS NICOL (Chairman)

MRS ANGELA WEST FCA

MRS ELIZABETH MACLEOD CIPM

Sitting in public in Bristol on 5 and 6 December 2002

Mr Peter Smallwood, VAT consultant, for the Appellant

Mr Ben Collins, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

The Appellants trade in partnership, though Mrs Taylor takes no active part in the business. The Appellants carry on business at two premises: the Riverside Sports and Leisure Club ("Riverside") in Gloucester, and the Abbey Sports and Leisure Centre ("Abbey") in Nuneaton. They provide sports and leisure facilities for the clubs' members. There are several categories of membership, for all of which an annual fee is payable. In addition, for most of the categories of membership the fee can be paid monthly by direct debit. In such cases the fee is higher. In the Membership Details for March 2000 the fees are stated as, e.g. "Peak Membership - £290 per annum or £29 per month". In the membership application form it is stated that paying by monthly instalments "incurs an interest charge which represents approximately 30% of the annual rate". The Appellants claimed that the 30 per cent was for the provision of credit, and that therefore it should be exempt from VAT under Item 3 of Group 5 of Schedule 9 to the Value Added Tax Act 1994 ("the 1994 Act"). In November 1997, having sought and been given advice, the Appellants wrote to the Commissioners claiming to have overpaid VAT, by accounting for tax on the 30 per cent "interest charge", over the previous three years, and claiming a repayment of £16,905.10 in total. The Commissioners took the view that the monthly charges at the higher rate were fees for supplies of monthly, rather than annual, membership, and were taxable at the standard rate. They rejected the Appellants' claim in a letter dated 26 January 1998. The Appellants' accountants took issue with the Commissioners, who reviewed their decision and affirmed it in a letter dated 2 June 1998, and advised the Appellants what they should do if they wished to appeal to this Tribunal.

At all times the Appellants had continued to treat the difference between the annual and monthly fees as exempt. They did take some further advice. Officers visited the Appellants in November 1999, and discovered that VAT was not being accounted for on the 30 per cent of the monthly fees, which was admitted by Mr Taylor in an interview. He denied any intention of evading tax and denied having acted dishonestly. The Appellants were assessed to VAT in respect of the arrears in the sum of £28,210, and to a penalty under section 60 of the 1994 Act. The penalty was reduced to £9,869 in view of the degree of co-operation given by Mr Taylor.

The Appellants appealed against the penalty, on the ground, first, that they, or Mr Taylor, had not acted dishonestly, and, alternatively, that greater mitigation should have been allowed.

The legislation

Section 60 of the 1994 Act provides, so far as bears upon this appeal, as follows:

"(1) In any case where—

(a) for the purpose of evading VAT, a person does any act or omits to take any action, and

(b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),

he shall be liable ... to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct.

. . .

(7) On an appeal against an assessment to a penalty under this section, the burden of proof as to the matters specified in subsection (1)(a) and (b) above shall lie upon the Commissioners."

Mitigation of the penalty is provided for in section 70:

"(1) Where a person is liable to a penalty under section 60 ... the Commissioners or, on appeal, a tribunal may reduce the penalty to such amount (including nil) as they think proper.

(2) In the case of a penalty reduced by the Commissioners under subsection (1) above, a tribunal, on an appeal relating to the penalty, may cancel the whole or any part of the reduction made by the Commissioners.

(3) None of the matters specified in subsection (4) below shall be matters which the Commissioners or any tribunal shall be entitled to take into account in exercising their powers under this section.

(4) Those matters are—

(a) the insufficiency of the funds available to any person for paying any VAT due or for paying the amount of the penalty;

(b) the fact that there has, in the case in question or in that case taken with any other cases, been no or no significant loss of VAT;

(c) the fact that the person liable to the penalty or a person acting on his behalf has acted in good faith."

The facts

There was no significant dispute as to the facts, except as to advice given to the Appellants by their accountant. The Appellants had carried on business and been registered for VAT since September 1988 in respect of both Riverside and Abbey. These two clubs provided sports facilities, such as squash, tennis, and a gym, and other leisure facilities such as a sauna. The Membership Details referred to a once only joining fee of £50 for peak membership, £25 for off-peak membership, and £75 for joint membership. The details contained the following paragraph:

"Thereafter subscriptions are paid annually or monthly by direct debit, with no contractual obligation to pay your membership for any set length of time. This allows you the flexibility to retain your membership for just as long as you wish...."

There are ten categories of membership for which fees may be paid either annually or monthly, and another three with annual fees only. In this document there is no suggestion that the monthly fees are instalments of an annual fee, nor that there is interest or any other credit charge.

The membership application form contains the following statement:

"For those who prefer to pay membership fees by instalments a direct debit mandate must be completed. The joining fee and first month's fee are due when joining, with the direct debit starting one month later. If rates are to be altered Riverside will notify you 10 working days in advance. You are not obliged to continue paying the direct debit for any fixed period. You are responsible for cancellation. Paying by direct debit incurs an interest charge which represents approximately 30% of the annual rate."

The difference between the annual fee and the monthly fees over a year for the several categories of membership vary between 20 per cent and 32.5 per cent.

In November 1997, Mr Taylor sought advice about the VAT position, and approached a Mr Hincks of Mentor Tax Consultants Ltd. He advised in a letter dated 13 November 1997 that it must be established that the price charged for the monthly membership did include an element of credit, and that exemption applied only where a separate charge for credit was made and was disclosed to the customer. His opinion was that to succeed with a claim for a refund of VAT the Appellants would have to satisfy the Commissioners that members paying monthly had enough information from which the credit charge could be calculated.

On 24 November 1997 Mr Taylor wrote to the Commissioners saying that the Appellants (though he expressed it in the first person singular) had been overpaying VAT on membership income. He continued,

"I have operated an approximate 30% credit charge for standing orders since 1990 at Riverside and from day 1 at Abbey (February 1997). By accumulating the standing order income for both clubs and taking 30 % of that value I can assess the value of membership income which should not have attracted VAT (see below) over the last three years."

He then set out the calculation for the three years 1995 to 1997 inclusive for both Riverside (£15,094.23 overpaid) and Abbey (£1,810.87). In answer to the Commissioners' request, Mr Taylor sent a copy of the constitution and terms of membership, and of the document which explains the details of the terms.

The Commissioners' reply, dated 26 January 1998, ruled as follows:

"The view of Customs is that the monthly charge is for a series of separate and successive supplies of monthly membership. There cannot, as a consequence, be a supply of credit but simply a comparably larger consideration for each month's membership than might be paid if an annual membership were taken out. The whole of the membership charge, whether paid monthly or annually, is liable to VAT at the standard rate.

There has been no overpayment of VAT on the membership income and, therefore, no refund of Vat is due."

Duckett Parker replied on 2 March 1998, taking issue on the Appellants' behalf, with the Commissioners' reasons. That letter was answered on 14 April 1998, with the following advice:

"Your letter is being processed as a request for a local reconsideration and I will inform you of the outcome as soon as the reconsideration has been completed. However, if after receiving our decision, you still wish to appeal to an independent VAT tribunal you will need to apply to the Tribunal for an extension of time to hear the appeal as your letter was received outside the statutory 30 day time limit for an appeal."

The Commissioners' decision, having reconsidered the matter, was contained in a letter of 2 June 1998 in which they affirmed their previous decision.

The Appellants did not appeal that decision as the earlier letter had suggested. At all times after the Commissioners' original decision letter of 26 January 1998, the Appellants continued to treat the difference between the annual and monthly fees as exempt. On 18 March 1999 Duckett Parker wrote again to the Commissioners, challenging their decision on the same grounds as before. On 7 April 1999 the Commissioners replied, saying that their decision had already been reviewed, upholding the view that there was no separate supply of credit.

On 26 November 1999, officers visited the Appellants' premises, and observed that the output figures were not consistent with VAT being accounted for and paid at the rate of 17.5 per cent, and revealed that since 12/97, 30 per cent of membership fees had been treated as exempt, contrary to the Commissioners' ruling of 2 June 1998. On a further visit, on 28 April 2000, Mr Taylor was asked for an explanation. He said that he had thought that the decision was "only a local decision", and that other clubs were doing the same as he, and that treating that portion of membership fees as exempt was accepted nationally. We pause here to observe that no evidence was adduced either that such schemes were operated nor that the practice was accepted nationally.

Evidently Mr Taylor sent the letters he had had from the Commissioners to Mr Hincks, who wrote to him again on 6 July 2000 making reference to them. In that letter (which was copied to Duckett Parker), having summarised the Commissioners' ruling, Mr Hincks referred to item 3 of Group 7 of Schedule 9 to the 1994 Act, and repeated his former view, that the exemption applied only when a separate charge for credit was made and was disclosed to the customer. Later he said, inter alia:

"We need to look at what the member thinks he is getting. I am sure that any member would consider that they are obtaining an annual membership payable by way of monthly instalments of the period of 12 months. Where there is instalment credit I am of the view there is an exempt supply with the consideration for that supply being by way of interest or the finance charge paid and included in each instalment over the term of the agreement.

From the literature issued to members with regard to annual membership rates it is clear that the monthly instalment includes an element of instalment credit (interest), it actually says so. I therefore feel that there are sufficient grounds to dispute Customs' earlier ruling. If it is necessary to appeal the matter to the VAT Tribunal it will be most advantageous if a number [of] members could act as witnesses to confirm what they consider is actually being received e.g. an annual membership payable by 12 monthly instalments, for which there is an interest charge, or simply monthly membership. I must say however that from the membership literature a certain statement made under the heading 'Joining fee' is not particularly helpful. This reads, '... with no contractual obligation to pay for your membership for any length of time. This allows you flexibility to retain your membership for as long as you wish." What does this actually mean? Is it that a member may, should he/she so wish, be a member for say just 3 months, 6 months etc. If so do we have a case to answer and are Customs correct when they say there is a monthly membership for a higher fee. We should continue to argue there is not, but even if there is, it remains clear from the literature that the additional fee is for interest and not simply a higher fee for monthly as opposed to annual membership."

On 14 July 2000, Mr Hincks sent a copy of that letter to Mr Parker of Duckett Parker, and added,

"I have seen the Membership Application Form (copy enclosed) that has been in existence since 1994/95 and this actually states that paying by Direct Debit incurs an interest charge representing approximately 30% of the annual rate. There is of course, as said in my letter, the reference under 'Joining Fee' to the fact that 'there is no contractual obligation to pay membership for any set length of time'. This is not particularly good. However, notwithstanding this I am of the view that there is a very good chance of success. If this is not the case Phil should consider whether appealing [sic] the matter to the Vat Tribunal."

He also advised that if the Appellants were minded to appeal to the Tribunal they should obtain evidence from one or two members as to what they considered that they were getting for the subscriptions. In a further letter, dated 27 October 2000, Mr Hincks quoted passages from the Commissioners' letters of 26 January and 2 June 1998, and commented that the Commissioners gave no explanation for their ruling nor did they say what evidence they had to support it. He also said,

"... I did however point out [in my letter of 8 July] that the membership literature was not particularly helpful in that it says '...with no contractual obligation to pay for your membership for any length of time. This allows you flexibility to retain your membership as long as you wish.' This may indeed indicate that the members were in fact taking out a membership on a monthly basis as long as they required. If this is the case I tend to agree with Customs that the increased monthly membership subscription does not include an element of credit. At the end of the day what was your intention and you will I think need to decide what you are actually supplying."

On 25 April 2000, Mr Patrick Finn and Mr Dumper interviewed Mr Taylor at Riverside, between 10.43 and 12.10. Although the Commissioners said that they did not rely upon this interview as evidence of dishonesty, there were parts of it which were of evidential importance. Mr Finn referred to the letter from the Commissioners of 26 January 1998 and Mr Parker's reply dated 2 March 1998. Mr Taylor said that the latter had been written on his instructions. Asked if he had taken advice from his accountant, Mr Taylor replied,

"As a result of getting previous correspondence, I obviously discussed it with my accountant and his view was that it wasn't as clear cut as the VAT office were claiming, and that there were grounds for contesting their view. Consequently he suggested that he would go ahead and contest correspond with the VAT office and contest the issue."

Mr Finn then referred to the Commissioners' answer to that letter, dated 14 April 1998, containing the suggestion that the Appellant might wish to appeal, and asked if Mr Parker had shewn that letter to Mr Taylor, who said that he had not. There then ensued the following exchange:

"PF Now, that as I say was the 14th of April 98. On the 2nd of June 98 Officer Clarke wrote a second letter to Duckett Parker and in this letter he gives his own ruling that 'There has been no overpayment of VAT and no refund is due.' Are you aware of that, were you aware of that letter to Duckett Parker?

PT No.

PF Are you saying that Duckett Parker didn't draw your attention to the response to their letter?

PT I've not seen a copy of that."

Mr Taylor did say, however, that he might have discussed it with Mr Parker. When it was suggested to Mr Taylor that he had instructed his accountant to press the matter with the Commissioners, Mr Taylor replied,

"I wouldn't suggest I've instructed my accountant to press the matter. I mean what's happened is the accountant has said 'I don't believe that is the case, I don't think it's as clear cut as that and it's my belief that this can be contested.'"

Mr Taylor agreed that he had taken a decision and had decided that the matter should be contested, and he said,

"... My attitude towards this matter is of it being an ongoing not clear-cut situation. Now whether that's gleaned from my accountants saying 'Look', you know. Whether he's rung me and explained that he's had correspondence from yourselves, and he's saying that 'I still don't believe this to be as black and white as they're making out, and it can be referred to tax consultants', and that sort of situation. It was still not a clear situation in my mind, of it being, no you can't...."

Mr Taylor went on to say that that was his state of mind until the day on which Mr Dumper came and looked at his books, and that if his accountant had said to him that what he was doing was not correct he would have stopped then and repaid any tax that had been withheld. He explained why he had carried on the "scheme" in these terms:

"I was operating this scheme and the reason why I felt it was okay for me to operate this scheme, as you call it, was because I had attended seminars of fitness professionals, and had been in discussion in workshops with other fitness professionals, operating other clubs, and they were indicating to me that this was common practice...."

"... this is why it's being operated by other, it was being operated by other people and therefore it was something that I should, I could do. It wasn't something that you know you can get away with or anything. It was just something that people were doing you know...."

It was pointed out to Mr Taylor that he had received the letters from Bristol and from Graham Clarke, and he replied,

"At this stage and at no other stage was my accountant saying to me this is no, you must not do this, this is not, you know. I know this sounds ridiculous, in looking at the two letters that I've received or he's received one. But for him to say 'Look, I've received this notification from them etc. etc.' and the conversation ended up with you know 'This isn't as black and white as it appears.'"

The interview continued on this theme. Mr Taylor said, more than once, that if he had consulted a tax adviser and had been advised that he should stop treating the 30 per cent as exempt, he would have done so, but that neither accountant nor tax consultant had so advised him.

Mr Taylor was asked why it had taken him so long to take further advice after receiving the Commissioners' letter of 26 July 1998. Mr Taylor said that the officers' visit had caused the Appellants to consider the issue with concern, but that before that it had been a matter that was being dealt with by his accountant, and conversations on the subject had been held on an ad hoc basis, and there was no hurry. He was not concerned that, if the ruling eventually went against the Appellants he would have a large amount of tax to pay, since if that happened it was money that they were due to pay anyway. He said that the Appellants had taken no action as yet on the letter from their tax consultant. There then took place the following exchange:

"PF ... although Customs and Excise had written you letters saying 'This is the view of Customs and Excise', you believed that Customs and Excise were wrong?

PT Yes

PF And your accountant was encouraging you in that belief?

PT Yes.

PF Yes, and that you were making whatever enquiries you felt appropriate to get enough evidence, or persuade Customs and Excise to change its mind?

PT Yes.

PF And that only when your own researches led you to a conclusion that Customs and Excise were not wrong, but were in fact right, if that were the case. If the tax consultant had said to you ...

PT I see where you're going.

PF ... had said to you 'No, we think, having looked at every avenue we can, that Customs and Excise unfortunately are right,' you would then have looked back through your records and made a voluntary disclosure to Customs and Excise, is that what you're saying?

PT Yes."

Then in a later passage,

"PF Right, so your accountant didn't say to you, 'Don't pay the VAT, we'll argue'?

PT I, I, again, not quite as black and white as that. It's a case of saying...

PF Well, you either did or you didn't.

PT Well, you know, I felt that this was an acceptable practice and therefore I applied it. I may have notified my accountant that I was applying it, and probably would have done, but whether he would have said 'No don't', or whether he would have said 'Well, you know, in light of ... or wait'. I don't think he would have said 'No don't do that, wait until we get a review from the VAT office', because I would have waited, but....

. . .

PF Did the accountant say to you 'Don't pay the VAT and we'll argue it'? Did he say that?

PT The straight answer to that straight question is no.

PF Okay, that's all right.

PT That's, that's, that's no. That's cornering.

PF No I just wanted to be quite clear.

PT All right, let me explain that that's not ... that's cornering. That's almost putting words in mouth. It's not a case of saying 'The accountant ...' no he didn't at the same time he didn't say the other side of the comment, he didn't say 'Pay the VAT'."

At the end of the interview, Mr Taylor said that he had had no intention of evading VAT, and that he had not acted dishonestly. He was reminded at that stage about the contents of Notice 730.

Mr Alan Dumper, an officer of Customs and Excise, gave evidence relating to the visit to the Appellants' premises at Riverside on 8 March 2000. He said that the visit had been selected because of the apparent inconsistency between the output tax declaration and the sales figures declared. He said that he had a suspicion of what the situation was, but without a visit he did not actually know. It became apparent that the Appellants were not accounting for VAT at 17.5 per cent, and the fact that the Appellants' records shewed the correct liability to VAT but that they chose not to pay confirmed the suspicions. On that first visit neither Appellant had been present. Mr Dumper met Mr Taylor on a subsequent visit, on 28 April 2000, when Mr Dumper put his findings to Mr Taylor and the matter was discussed. Mr Taylor said that he thought the decision that he was not entitled to treat the 30 per cent as exempt was only a "local decision", and Mr Dumper said that, although he had not make a note of it, he was sure that he would have explained that there was no such thing as a "local decision". In any case, the Appellants' liability to tax had already been established in correspondence. Mr Dumper said that he was not aware of any other health club treating monthly payments in the way the Appellants had.

Asked about the interview, Mr Dumper said that he had no recollection of Mr Finn asking if Mr Taylor wished a legal representative to be present, nor saying that having a legal representative would delay the interview and his presence might affect the matter of co-operation. He could not remember if the Notice 730 had been given to Mr Taylor only at the adjournment of the interview: he had done hundreds of interviews since then.

Mr Finn gave evidence relating to the interview. He said that the transcript was accurate. He had asked Mr Taylor if he wished to be legally represented, and had not said that that might affect the matter of co-operation, but he had said that if a legal representative were to be present the interview might have to be postponed. It was normal practice to give the Notice 730 at the beginning of an interview, and it was unlikely that it would have been done at a break. He had not mentioned Mr Taylor's right to silence, since this was not a criminal interview and he was not under caution.

As to mitigation, Mr Finn said that if there was enough evidence to establish dishonesty, then that ought to be admitted and acceptance of dishonesty would earn full mitigation. Notice 730 does not say that. But, Mr Finn said, he reported the matter and it was for someone else to make the decision about mitigation. He had, himself, recommended that less mitigation should be allowed, and his recommendation had not been followed.

As to the interview itself, Mr Finn said that he was asking what was in Mr Taylor's mind when he decided to ignore the Commissioners' advice. Mr Taylor had made it clear that he felt that it was an ongoing matter, and still felt the same; but it was up to the Appellants to challenge the ruling, which they had not done, and to make part-exemption adjustments, which, again, they had not done. Mr Finn agreed that if a trader ignored the Commissioners' advice in such a matter it did not necessarily mean that he was dishonest. The Commissioners considered that this was a case of dishonesty. VAT is a self-assessing tax, and it is up to the taxpayer to get it right.

After the conclusion of the Commissioners' evidence, Mr Smallwood, on behalf of the Appellants, submitted that there was no case to answer on dishonesty, on the ground that there was no evidence of dishonesty. It was the Commissioners' case that dishonesty was a matter of inference, and that it was a reasonable inference from Mr Taylor's conduct that he had been dishonest. We ruled that there was a case to answer.

Mr Taylor gave evidence for the Appellants. He said that the Appellants had acquired Riverside, then a squash club, in 1988, and Abbey in 1996. He said that he had written the letter of 24 November 1997 because after attending leisure industry meetings and seminars, and talking to proprietors of other clubs, it had become clear that others were operating systems under which interest on monthly subscriptions was not liable to VAT. He had also been approached by financiers about setting up financing schemes. The Appellants had not needed any such scheme. He had had no wish to go down the route of selling the membership to a financier, as such a contract was detrimental to the membership. He added that he disliked binding annual contracts. He was, he said, paying VAT on all membership income, and was aware that some clubs were not. These were schemes which took advantage of a loophole, and he thought that they would antagonise Customs and Excise and was advised against such a scheme. So he wrote the letter of 24 November 1997. In the light of the Commissioners' response, he could not understand how other clubs managed not to pay VAT. So, Mr Taylor said, he thought it was a local decision and that the matter should be taken further.

The Appellants offered annual membership, Mr Taylor said. A member could pay annually, or monthly with a charge for deferred payment. A member who paid by monthly instalments got the same membership as if he had paid for the whole year. The annual rate was one rate, and the monthly rate was a little more. A new member would be asked to sign a standing order as he walked through the door. After that he would pay the first instalment, paying in advance on a monthly basis. A member would be allowed to use the club facilities, on making such a payment, for one month. There was annual membership and there was monthly membership. He said that he had thought that the Commissioners' letter of 26 January 1998 was just a local ruling. If that letter had quoted the relevant legislation, or decisions of the Court of Justice, he would have passed it on to his accountant; if advised by his accountant that he could not carry on the scheme he would have stopped.

Mr Taylor agreed that Mr Dumper had said that the whole of the monthly payments were taxable, but that he had said that he had discussed it with his accountant who said that that was wrong. The advice that he had received from Mr Hincks in the letter of 6 July 2000 was that the monthly payment included a credit charge. He had received similar advice in the letter of 13 November 1997. It was still an ongoing issue after the interview. In a final conversation with Mr Dumper, Mr Taylor said that Mr Dumper told him definitively that the scheme must be stopped and that the Appellants would have to pay the tax, with interest, and possibly a penalty. Mr Taylor said that he asked what the penalty would be for, and Mr Dumper said, "We'll see." Mr Taylor said that he thought that the issue was not resolved because of a conversation with his accountant, who said that the matter was not as black and white as the Commissioners maintained, and had written to the Commissioners on 18 March 1999 challenging the ruling. At no time had his accountant nor any tax adviser told him that he could not carry on this scheme. Professional advice said, all along, that it was not certain that the Commissioners' ruling was right. It was put to Mr Taylor in cross-examination that no accountant or tax adviser had told him that he could carry on with the scheme; Mr Taylor said, that they had said so in conversation but not in correspondence. His accountant was fully aware that the Appellants were carrying on the scheme and that it was an ongoing issue. Mr Taylor said, that he had said to his accountant, "Should I carry on with this scheme?" and received the answer, "Carry on with it and we'll deal with it." No-one actually said to Mr Taylor, "You should continue not to pay", it was there by inference. His accountant had said that the Commissioners' ruling was a local decision, as you would expect from a local VAT office, and that it must be taken further. Mr Taylor agreed that there had been no appeal, but said, again, that the matter was still ongoing, in that his accountant had said that there was still ground to be covered.

On the second day of the hearing, Mr Taylor read out a statement, copies of which he provided for the Tribunal, with the stated intention of clearing any inconsistencies. In the statement he said,

"I have known Duckett Parker, the accountants, for many years - Gerry Duckett having been my father's accountant. In 1997 I introduced the concept of nil VAT on interest charges to them. They advised me of the retrospective claim and when a negative response to the concept came from the local Customs and Excise office they said they would take the issue further on my behalf. At this and all other stages they advised me to do 3 things:

1. Continue to operate the concept.

2. Make clear calculations in my records.

Be prudent and budget for repayment should the concept ultimately be rejected.

This statement is not reflected in the transcript when, as you have already noted, there was a great deal of hesitancy on my behalf in responding to questions relating to the advice given by my accountants. The reason for this was that I had no wish to put Duckett Parker in a position where HM Customs and Excise would penalise them for a concept I had introduced to them.... This would have put a relationship created over decades with my father into difficulties.

Now is the time to bring this to your attention because, firstly, I believe enough of this came to light from conversations held yesterday and secondly, because there comes a time when you have to look after your own interests."