United Kingdom VAT & Duties Tribunals Decisions

 


Weston v Customs and Excise [2003] UKVAT V18190 (12 June 2003)

18190

ASSESSMENT —requirements re form No. 4 in Schedule to VAT Regulations 1995 – Prescribed accounting periods – power of Commissioners to vary length of period for which a return is to be made Regulation 25(1)(c) – direction required. Appeal allowed.

MANCHESTER TRIBUNAL CENTRE

MARTIN WESTON Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Mrs E Gilliland (Chairman)

Ms Rayna Dean

Sitting in public in Manchester on the 21 February 2003

Mr Philip Rayner Vat Consultant for the Appellant

Mr N Poole of counsel instructed by the Solicitor for the Customs and Excise for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1. This is an appeal by Mr Martin Weston, a kitchen retailer, (the Appellant) against an assessment to Value Added tax in the sum of £43,667 plus interest issued by the Commissioners on 20 June 2001 as subsequently amended on 9 January 2002 and reduced to £34,981.
2. The background of the matter is that on 12 January 1998 the Appellant applied for registration for VAT with effect from 1 December 1997. In the application form (VAT1) he stated that he had been trading since 1 December 1997. He stated however that he thought that his taxable supplies would amount to £1,000,000 in the next 12 months. The application form is stamped as having been received on 14 January 1998 and there is no dispute that the Appellant was duly registered for VAT pursuant to that application. Although no copy of the registration certificate has been produced to the Tribunal, it is not disputed that the Appellant subsequently made VAT returns in respect of the 3 monthly periods ending in February, May, August, and November. The clear inference is that the Commissioners registered the Appellant for VAT from 1 December 1997 and that he was required pursuant to Regulation 25 of the Value Added Tax Regulations 1995 (the Regulations) to make returns every 3 months in respect of the periods 02, 05, 08, and 11 in each year. We are satisfied and find that these were the periods notified by the Commissioners to the Appellant.
3. On 17 May 2001 an officer of Customs and Excise, Mr R E Grace, visited the Appellant's premises and was informed that the Appellant had sold the business. He then went to the Appellant's accountants who showed him records. He understood that the Appellant had ceased trading as from 31 March 2001. He inspected the records. The officer was not satisfied with the records. In particular he found that certain invoices which had been used by the Appellant to support input tax claims had been duplicated or were merely delivery notes or pro forma invoices. There were also other claims to input tax which were not supported by any evidence. On 25 May 2001 the officer wrote to the Appellant through his accountants requesting all sales invoices from 1 April 1999 to 31 March 2001 along with supporting documentation as well as 7 missing purchase invoices relating to input tax which had been claimed. A schedule of disallowed input tax was enclosed. The Appellant does not appear to have responded to this request and by a letter dated 18 June 2001 Mr Grace notified that Appellant that he would shortly be receiving an adjustment note for £43,668 plus penalties and interest. Details of the calculation were set out in the letter. The letter stated that the Appellant's return for the period 2/01 should have included details for the 6 months period 01/09/00 to 28/02/01. On 26 June 2001 the Commissioners issued the assessment in the sum of £43,667 plus interest in respect of the period 1 June 2000 to 28 February 2001. The accounting periods in respect of which the assessment was stated to be made were 08/00 from 1 June 2000 to 31 August 2000 and 02/01 from 1 September 2000 to 28 February 2001. Subsequently the Appellant through his accountants provided copies of missing invoices. This enabled the Commissioners to reduce the assessment in respect of the period 08/00 which had been in the sum of £8,686 to nil. On 9 January 2002 the amended assessment was issued for the balance of £34,981. This was attributed wholly to the period 02/01 from 1 September 2000 to 28 February 2001.
4. By a Notice of Appeal given on 13 November 2001 the Appellant appealed against the assessment issued on 26 June 2001 and the approximate amount of money in dispute was stated to be £32,000. It is not in dispute that the assessment which is being appealed against is the assessment issued on 26 June 2001 as amended on 9 January 2002. The stated ground of appeal was that the Commissioners had not used best judgment. The Notice of Appeal was given on behalf of the Appellant by Mr Rayner of Portcullis VAT Consultancy Limited and Mr Rayner signed the Notice of Appeal. Mr Rayner has represented the Appellant at the hearing of this appeal.
5. Although Mr Grace has given evidence on behalf of the Commissioners in support of the calculation of the assessment, and Mr Rayner has conceded that certain invoices were not in a satisfactory form for deductible tax, the assessment was not in fact the issue before us. The point which has been taken by Mr Rayner and argued before us without objection from Mr Poole who represented the Commissioners, is that the assessment is invalid in law because it was not made in respect of a prescribed accounting period within regulation 25 of the Regulations. Mr Grace was asked a number of questions in cross-examination in relation to the events giving rise to the making of the assessment in respect of the extended period of 6 months for the period 02/01.
6. The power of the Commissioners to raise an assessment is derived from s.73 of the Value Added Tax Act 1994 (the Act). Subsection (1) provides that where a person has failed to make any returns required by the Act or to keep any documents and afford 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 to the best of their judgment and notify it to him. If however, the Tribunal should hold that Commissioners were not entitled to make the assessment in respect of that period of 6 months, it is conceded by the Commissioners that the appeal against the assessment must be allowed.
7. It is not in dispute that the Appellant did make a return for the period 08/00. Although Mr Grace was not initially satisfied that it was correct, the Appellant did in fact provide the missing documents which enabled the assessment for 08/00 to be reduced to nil in January 2002. Nothing now turns on the correctness or otherwise of that return. The fact that the return was made however is of significance because it shows that the Appellant was making returns on a 3 monthly basis. Under Regulation 25(1) of the Regulations every person who is registered for VAT "shall in respect of every … period of 3 months ending on the dates notified either in the certificate of registration issued to him or otherwise, not later than the last day of the month next following the end of the period to which it relates, make to the Controller a return on the form numbered 4 in Schedule 1 to these Regulations showing the amount of VAT payable by or to him and containing full information in respect of the other matters specified in the form and a declaration signed by him that the return is true and complete". As we have already stated, we are satisfied that the dates which had been notified to the Appellant for the purposes of Regulation 25 were periods of 3 months ending on the last days of February, May, August and November respectively in each year.
8. Although the reasons are not entirely clear, the evidence is that the Commissioners did not send out to the Appellant any return for completion and submission by him in respect of the period 11/00 ending in November 2000. In the normal case the Commissioners will every 3 months send out to the registered trader a return for him to complete and it is this form which is actually returned by the trader. The sending out of the form is computer generated from Southend. What appears to have happened in the present case is that a letter from the Commissioners addressed to the Appellant at his registered business address was returned by the Post Office as "not known at this address". This appears to have occurred after the receipt by the Commissioners of the return for the period 08/00 and before the return for 11/00 was due to be sent out. The effect of the return of the letter was that the sending out of the return for 11/00 was put on hold while inquiries were made by the Commissioners as to the correct address of the Appellant. In fact the Appellant had not changed his address and his registered address was at all material times his correct address. The most likely explanation for the return of the letter was that a new postman had been unable to find the address and had caused the letter to be returned to the sender as not known at that address.
9. The Appellant did not however ignore the requirement to make a return for the period ending in November 2000. The evidence indicates that the Appellant did submit a return in respect of the period 11/00. It was submitted late and is marked as having been received on 24 January 2001. A copy of the document appears as item 3 in the Appellant's bundle of documents. It has not been disputed that what the Appellant did was to make a photocopy of an earlier form of return, having blanked out the period and the figures. He then manually inserted the period 11/00 and figures for the period 11/00. The form was signed by the Appellant and it contained the required declaration. There is no evidence that any of the figures submitted on the form was incorrect. In fact the form was not dealt with by the Commissioners. The reason appears to have been that the computer at Southend was unable to process it. Precisely why this should have been so has not been clearly explained. However by a letter dated 12 February 2001 the Commissioners wrote to the Appellant at his registered address saying:- "I have been advised by the VAT Central Unit that they have recently received a VAT return for the period 11/00 covering from 1 September 2000 to 30 November 2000. Our headquarters are unable to process the return, as the period does not exist on your file. From examination of your VAT account, it would appear that the Department did not issue a standard VAT return for the period 11/00 because, at the time, enquiries were under way to establish the correct address for your principal place of business. This action has now been completed and you will be issued with a long period return, which will likely be for period 05/01 covering from 1 September 2000 to 31 May 2001. You should include on this return the figures from the rejected period mentioned above. No further action will be taken to process the return for period 11/00. I trust this clarifies the position for you, but should you have any queries on the matter, do not hesitate to contact this office at the above address". It is difficult to understand precisely what was meant by the statement in this letter that the period 11/00 "did not exist" on the Appellant's file. All that appears to be meant is that because the sending out of a return had been put on hold whilst inquiries were made as to the Appellant's address, no return was expected for the period 11/00 and the computer could not process the manually altered form. Under Regulation 25, the return must be made "on the form numbered 4 in Schedule 1 to these regulations…". The copy form submitted does appear to us to follow form 4 in all material respects. There is nothing in Regulation 25 which provides that only the actual form sent out by the Commissioners may be used by the trader to make his return.
10. In the event the Commissioners subsequently sent the Appellant a return form which was stated to be for the period 02/01 and to cover a period from 1 September 2000 to 28 February 2001. The Appellant returned this form completed and dated on 17 April 2001. It is stamped as having been received on 19 April 2001.
11. The period of 3 months ending on the notified dates specified in Regulation 25(1) may be varied by the Commissioners. In particular, they may require returns to be made monthly (proviso (a)); and proviso (c) confers a power for the Commissioners to shorten or lengthen the period for which a return is to be made. Proviso(c) states: "where the Commissioners consider it necessary in any particular case to vary the length of any period or the date on which any period begins or ends or by which any return shall be made, they may allow or direct any person to make returns accordingly, whether or not the period so varied has ended". The issue in the instant case is whether the Commissioners exercised their power under proviso (c) to vary the length of the period 02/01 from the prescribed accounting period of 3 months from 1 December 2000 to 28 February 2001 to a different prescribed accounting period of 5 months from 1 September 2000 to 28 February 2001. This depends on whether the Commissioners ever directed the Appellant to make a return for that period of 5 months. Without any such direction, the obligation of the Appellant was to make returns for periods of 3 months only and unless he was obliged to make a return for the period of 5 months from 1 September 2000 it cannot in our judgment properly be said that the Appellant either failed to make a return "required under this Act" within s.73 of the Act or that "such return" was incomplete or incorrect. Unless a return can be said to be "required" by the Act, the Commissioners have no power under s.73 to assess the amount of VAT due. The amount of VAT "due" is intimately linked with the required return. If the trader is only bound in law to make returns in respect of a 3 months period, it cannot be said that Vat in respect of a 5 months period is due from him. A prescribed accounting period is defined (with immaterial exceptions) in Regulation 2 as the period referred to in Regulation 25.
12. In our judgment, the letter dated 12 February 2001 was not such a direction. First it is not expressed to be a direction. It does not actually direct the Appellant to do anything. Although it contemplates that the Appellant will be "issued" with a "long period return" ,it does not refer to the 3 month period by reference to which the Appellant was obliged to make returns. Secondly it does not direct that the accounting period is to be a period of 5 months. The only period referred to is a different period of 9 months. Thirdly it merely states that it is "likely" that the return will be for a period of 9 months from 1 September 2000. It contemplates that something may happen in the future but nowhere does it require the Appellant to make a return in respect of any defined period.
13. The Commissioners have not produced any other document which is expressed to vary the Appellant's prescribed accounting period 02/01 from a period of 3 months to a period of 5 months commencing on 1 September and it has not been suggested that any further notice was given to the Appellant requiring him to make a return for that period before the return for period 02/01 was sent to him by the Commissioners. Neither has it been suggested that there was any covering letter with the return which could be treated as a direction pursuant to proviso (c).
14. The question thus is whether the statement at the top of the return form that it is a Value Added Tax Return for the period 01/09/00 to 28/02/01 can itself be regarded as a direction within proviso (c) "varying the length of any period or the date on which any period begins or ends". In our judgment the answer to this question must be in the negative. The statement of the dates on the return is not expressed to be a variation of the Appellant's prescribed accounting period of 3 months from 1 December 2000. If a trader's prescribed accounting period is to be varied by the Commissioners pursuant to proviso (c) of regulation 25, the Commissioners must in our judgment make clear that they are varying or altering the period which the trader was already legally bound to comply with to some other period. The statement of the dates at the top of the return form does not refer at all to the period for which the Appellant was legally obliged to account in respect of period 02/01, namely a period of 3 months from 1 December 2000. Neither does it purport to vary or relieve the Appellant of any obligation to account for the period 11/00. There are no words directing or stating that the prescribed accounting periods are being altered. In the present case, the Appellant had in fact already made a return for the period 11/00. It is correct that the Commissioners did not process that return but that was not due to any fault on the part of the Appellant. The legal obligation on the Appellant was to submit a return on the form numbered 4 in the Schedule to the Regulations. This he did, albeit using a photocopied version of form 4. Having already complied with his legal obligation to make a return for period 11/00 it is difficult to understand why he should be required to make a further return including the same period. Assuming however, that the Commissioners do have power under proviso (c) to Regulation 25 to require a further return in respect of a period for which a return has already been made, we nevertheless take the view if the prescribed accounting periods are to be varied, the Commissioners must clearly state that this is what they are doing. It is important that there should not be any doubt or ambiguity as to what is the relevant prescribed accounting period since it affects not only the trader's legal liability to make a return but also the Commissioners' powers to make an assessment under s.73 of the Act. Support for this approach can, we consider, be found in the decision of the Tribunal in Plummer MAN/99/589. There, the traders had first been registered for VAT from the end of October 1998. On 8 June 1999 the Commissioners issued an Amended Certificate of Registration which specified 1 November 1996 as the effective date and stated that returns were to be made in respect of the period ending 31 August 1999 and three monthly thereafter. On the following day, 9 June 1999, an officer of the Commissioners wrote to the traders confirming the result of a visit which showed that the traders should have been registered from 1 November 1996. The letter then went on in terms to direct that a return be furnished for the period 1 November 1996 to 31 October 1998. This period was different from that stated in the Amended Certificate of Registration. It was held by the Tribunal that the prescribed accounting period was that stated in the amended Certificate of registration and that the express requirement in the letter of 9 June was not a valid variation pursuant to proviso(c) of Regulation 25 of the period stated in the Amended certificate of Registration because there was nothing in the letter to indicate that the requirement in the letter was being made by way of variation or substitution for what had been stated in the Amended Certificate of Registration. Likewise in the instant case, there is nothing in the return form or in any other document to show an intention to vary the prescribed accounting period. The legal position in our judgment is that at all material times the obligation of the Appellant was to make three monthly returns in respect of three monthly periods. No direction varying those periods has been shown to have been given by the Commissioners.
15. Accordingly the appeal is allowed. We also allow the application by the Appellant for his costs. There will be liberty to apply if the Appellant's costs cannot be agreed.

Mrs E Gilliland

Chairman.

Release Date:12 June 2003

MAN/01/0914