United Kingdom VAT & Duties Tribunals Decisions

 


Borderline Business Agency Ltd v Customs & Excise [2004] UKVAT V18448 (06 January 2004)

Employment Agency; provision of temporary staff to charitable bodies; agency responsible for payment of temporary staff's wages, tax and National Insurance contributions, whether services thus provided to charitable bodies standard rated-yes; Value Added Tax Act 1994 section 73

EDINBURGH TRIBUNAL CENTRE

BORDERLINE BUSINESS AGENCY LTD Appellants - and – THE COMMISSIONERS OF HM CUSTOMS AND EXCISE Respondents Tribunal Chairman: J Gordon Reid, QC., FCIArb Sitting in Edinburgh on 10 December 2003.

For the Appellants Mrs Helen Pope, Managing Director

For the Respondents Gillian Carty, Shepherd & Wedderburn, WS

CROWN COPYRIGHT 2004. DECISION

Introduction

This is a best judgment appeal against an assessment dated 14/3/03 reduced on review on 18/7/03 by the Respondents ("Customs") to £2,834.00. The Appellant was represented by Mrs Helen Pope, the managing director of the Appellant. She led the evidence of her husband, Ian Pope. Customs were represented by Miss Gillian Carty, Shepherd & Wedderburn, W.S., Edinburgh. She led the evidence of Dorothy McGill and Angela Cook, Customs Officers. Customs produced a bundle of productions to which the Appellant contributed. There was no dispute about the authenticity of the documents or where appropriate, their transmission and receipt.

Facts

The Appellant carries on an employment agency business based in Duns, Berwickshire. The business was established by Mrs Pope in about 1985 when she carried on business in partnership with her husband. The business was subsequently transferred to her as a sole trader in 2000 and then to the Appellant in 2002. The VAT registration has also been duly transferred along with the business. For convenience we refer to the business as the Appellant even although for part of the period to which the assessment in question relates, the business was not trading as a limited company. The Appellant provided and provides temporary office staff for businesses principally, although not exclusively in the Borders. The Appellant has about forty to fifty clients on its books. The Appellant is always responsible for paying the wages, tax and national insurance of the temporary staff. The invoices which the Appellant renders to its clients includes those payments although it simply specifies the number of hours worked by the temporary employee and the rate per hour charged. The clients are thus under no obligation to pay the temporary staff direct and do not do so. The Appellant has a full time book keeper, Ann Wood and two part time staff. Mr Pope also helps out from time to time although he is an engineer by profession; his work as an engineer takes up most of his time.

Some of the Appellant's clients include bodies having charitable status such as East Lothian Housing Association and the Princess Royal Trust. At some point in 2000, these bodies questioned whether they should be paying VAT on the invoices rendered by the Appellant. The Appellant made enquiries of a VAT office. It is not clear which office. Anne Wood made the enquiry. It is not clear what information she provided when making the enquiry but she appears to have been advised, although the precise context is unclear on the evidence, that if the Appellant recorded the registered charity number on its invoice to the charity in question then no VAT would be payable on the invoice. The Appellant's accountant was also consulted but only on a general, non-fee paying basis. He appears to have indicated without considering matters in any detail that Customs' advice should be followed. The Appellant acted on what Ann Wood narrated she had been told. Accordingly, in relation to four of its charity clients, the Appellant did not charge VAT on invoices rendered during the VAT periods beginning 1/12/00 and ending on 30/11/02. They inserted the registered number of the relevant charity on each such invoice. In doing so, the Appellant was acting in good faith. They genuinely believed that this was the correct way to proceed.

On 29/10/02, Dorothy McGill, who is a senior assurance officer, carried out a routine VAT inspection of the Appellant's books and records. She met Ann Wood at the Appellant's premises. She examined certain books and records and annual accounts. This revealed a shortfall in the expected output tax and so she asked Ann Wood about zero rated supplies. Ann Wood explained that services provided to charities had been zero rated on the advice of the charities. Mrs McGill indicated that VAT should have been charged but that she would check the position. By letter to the Appellant dated 6/11/02, Mrs McGill confirmed that the supplies to the charities should not have been zero rated and requested details of such supplies over the past three years which had been zero rated. Further correspondence ensued and the Appellant provided the requested details. The Appellant accepted that they were in error but in a letter received by Customs on or about 25/2/03 Mrs Pope explained that they had been told by the VAT Office that as long as we quoted the Charity Reference Number on our invoices we would not have to charge VAT and this we proceeded to do. Mrs Pope went on to explain that the Appellant would not seek to recover the VAT from its clients.

Custom subsequently issued an assessment on 14/3/03 in the sum of £2,834 plus interest of £115.76 i.e. £2949.76 in total. This was based on the details provided by the Appellant mentioned in the preceding paragraph. The sum of £2,834 was calculated on the basis of 7/47 of the total zero rated invoices rather than charging VAT at 17.5% on the total of these invoices i.e. it was assumed that the invoice total included VAT. Following further correspondence, the decision to issue the assessment was reviewed by Angela Cook, an experienced Review Officer. She had never heard of the procedure of inserting a charity's registration number on an invoice. By letters to the Appellant dated 17/6/03 and 24/6/03 she confirmed the assessment but excluded the interest charge. Her decision was based essentially on the view that as a matter of law VAT should have been charged when invoicing the charities in question. In reaching her decision, Miss Cook made no assumption as to whether the Appellant had been misled by Customs at any stage. Had she been of the view that the Appellant had been misled she would have deferred making a decision and referred matters to a Complaints Officer.

Submissions

Miss Carty submitted that the Appellant's returns were incorrect and that Customs were entitled to issue an assessment to the best of their judgement. This they had done and as there was no dispute on quantum the appeal must fail. The question of possible misdirection canvassed by Miss Cook in correspondence and in the evidence was not relevant.

Mrs Pope did not add anything to what she had already said during the course of the Hearing. Essentially, her argument was that the Appellant was in effect being unfairly penalised. Customs were actually obtaining a windfall because if VAT had been charged as she accepted it should, then the Charities in turn would have reclaimed it as input tax. The Appellant had acted in good faith on information received from Customs.

Decision.

It is not disputed that VAT should have been charged at the full rate on the supplies to the various charities. In these circumstances, the returns which should have reflected this were incorrect. Customs were entitled to assess the amount of VAT properly due to the best of their judgement.

I have considered whether the question of misdirection affects the position. That is a convenient label for present purposes and is derived from Miss Cook's letter dated 17/6/03 and her evidence. The evidence about misdirection is somewhat inconclusive. Mr Pope gave evidence, and while I found him to be entirely credible, the evidence he gave was largely hearsay and sometimes double hearsay. Mrs Pope did not give evidence although she was invited to consider doing so. Anne Wood was plainly the appropriate person to speak to the discussion with Customs about zero rating supplies to charities. Unfortunately, she did not give evidence. On the evidence that has been led, I am unable to make findings of fact as to which VAT office she contacted, what information she provided and what detailed advice was provided to her. Although correspondence and the evidence of the Customs officers mentioned calls being recorded it is not clear whether that system was in operation when Anne Wood contacted one of Customs' VAT offices. In these circumstances, any argument based on alleged misdirection must fail before this Tribunal. It is therefore unnecessary to consider the relevancy of such an argument in the context of the present appeal. It does seem to me however that if Customs were aware that an Appellant may have been seriously misled by a Customs officer, they would be duty bound to investigate it and if well founded this might lead to the discharge or quashing of the assessment. Miss Cook very fairly said as much in evidence (cf the Parliamentary Statement dated 21/7/78 on complaints to an Independent Adjudicator).

Miss Cook, in evidence, also indicated that she had never heard of a supplier inserting the registered number of a charity in an invoice as a basis for zero rating the supply. If it were to be established that that proposal came from a Customs officer and that whatever information the Appellant provided to Customs that proposal was simply wrong and misleading, then there might be grounds for putting the matter before the Complaints Officer with a view to obtaining compensation, which would presumably be or include the amount of the reduced assessment which I understand the Appellant has now paid to Customs.

In the present appeal, however, although I am entirely satisfied that the Appellant company through Mrs Pope, acted in good faith throughout, there is insufficient evidence to show that the assessment was not made to best judgement. The evidence of Mrs McGill and Miss Cook was credible and reliable and I have no reason to doubt their bona fides. A finding that an assessment has not been made to best judgement is uncommon and most best judgement appeals focus on quantum. Here, the amount of the assessment is not in dispute. In these circumstances, the assessment as amended was made to best judgement and so the appeal must be dismissed. Miss Carty indicated that if the appeal failed she would not seek expenses. I accordingly find no expenses due to or by either party.

J. GORDON REID Q.C. F.C.I.Arb.

CHAIRMAN

Release Date: 6 January 2004.

EDN/03/80