United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2004] UKVAT V18702

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PL Coulthurst (t/a PLC Contractors) v Customs and Excise [2004] UKVAT V18702 (16 July 2004)

INPUT TAX — no supporting evidence — reasonableness of the Commissioners' decision to disallow — subject to small amendment on quantum, appeal dismissed

MANCHESTER TRIBUNAL CENTRE

PL COULTHURST T/A PLC CONTRACTORS Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Lady Mitting (Chairman)

Mr P Whitehead (Member)

Sitting in public in York on 2 July 2004

The Appellant appeared in person

Mr Bernard Haley of the Solicitor's Office of HM Customs and Excise, for the Respondents

DECISION

Mr Coulthurst was appealing against part of an assessment originally dated 20 December 2001 in the sum of £30,262.79 plus interest and amended by notice dated 19 August 2002 to £22,213 plus interest. That part of the assessment in dispute arose from the Commissioners' decision to disallow part of Mr Coulthurst's claim for input tax. Mr Coulthurst did not dispute the elements relating to under-declared output tax and scale charges. The periods covered by the assessment were 05/99 to 08/01 inclusive.

The appeal had originally come on for hearing before the same chairman and Mr Arthur Brown on 20 June 2003 when no oral evidence was taken and the hearing was adjourned in the circumstances described below. It was scheduled to resume on 2 July 2004 when Mr Brown was unfortunately not well enough to take part and the case was heard de novo. On 20 June 2003 Mr Coulthurst had been represented by Mr Hamilton, his business adviser, but he represented himself on the resumed hearing. We heard oral evidence from Mrs Jennifer Gracey on behalf of the Commissioners and Mr Coulthurst addressed us but did not give formal evidence.

Mr Coulthurst is an agricultural contractor and has been registered for VAT with effect from 1 July 1997. On 7 September 2000, Mrs Gracey paid a routine visit to Mr Coulthurst to look at both this registration and that of an associated company, Nethermore Ltd. Mrs Gracey saw Mr Coulthurst's wife who said her husband hadn't known about the visit. Mrs Gracey sought production of Mr Coulthurst's records but these were only made available on 22 October 2001 after a notice of demand was issued. The records produced to Mrs Gracey consisted of two back up computer disks, one for each registration, and some purchase and sales invoices. The source documents were incomplete and it was later understood from correspondence from Mr Hamilton that those not produced were missing. Mrs Gracey arranged for the PLC disk to be interrogated by a Customs and Excise Computer Accounts Officer and he produced for her a complete set of the transactions on the disk ("the Commissioners' analysis"). From the analysis, Mrs Gracey could see that she had no source documents which were not on the analysis; some entries related to Nethermore rather than to PLC Contractors and there were a number of duplicated entries for input tax. A comparison between the Commissioners' analysis with the source documents which Mrs Gracey did have and the VAT returns revealed a discrepancy in the claim for input tax of £20,595.46. Mrs Gracey then raised the original assessment including the assessment relating to this amount of over-claimed input tax. In a letter of 12 December 2001 to Mr Coulthurst, Mrs Gracey informed him that because the source records were incomplete the assessment would be amended if further information became available that provided an audit trail to the true VAT liability for the registration.

Correspondence subsequently ensued between Mrs Gracey and Mr Hamilton. Further documents were produced, most of which supported items already listed on the disk and for which credit had therefore already been allowed. There were however three new invoices from Fishers Seeds and Grains Limited which had not been included on the disk and in respect of these, Mrs Gracey allowed the input tax thus resulting in a reduction of the input tax element of the assessment of £2,657.56. In effect, apart from the double claimed items, Mrs Gracey had allowed Mr Coulthurst's claim for input tax in respect of every single item for which he had either produced a source document or which featured on the computer analysis.

The amended assessment was appealed and this was the position when the case came on for hearing on 20 June 2003. At that hearing Mr Hamilton explained to us that Mr Coulthurst used a SAGE computer program for his accounts and he had entered on the program all purchase and sales invoices he had ever received. The computer, acting on this data, then produced a correct VAT return for each period, these being the returns submitted to the Commissioners. Unfortunately, however, as Mr Coulthurst operated from a number of different offices using more than one computer, he inadvertently wrote over some of his back ups resulting in the incorrect restoration of certain data and the complete omission of other data. Therefore, the back up disk which Mr Coulthurst produced to Mrs Gracey which he believed to be complete and accurate, was in fact, unknown to him, flawed and did not, therefore, match the VAT return. It was however the back up disk which was flawed, the VAT return being accurate as it was based on the original input of information.

We understood from Mr Hamilton that the original VAT return would have been accompanied by a transaction list which would have matched it and that these transaction lists could be made available to us. On this understanding, the transaction list should have matched VAT returns and would have produced sufficient supporting evidence for Mrs Gracey to allow the entire claim for input tax. On this understanding we therefore adjourned the hearing, giving detailed and explicit directions that the transaction lists should be produced to Mrs Gracey for each period; Mrs Gracey would then analyse them and notify Mr Coulthurst of any items of input tax which she still wished to disallow and the reasons therefor. In respect of any such items, Mr Coulthurst would then go back to the supplier or his own records to justify the claim.

Following the original hearing, Mr Hamilton produced transaction lists for seven periods, those for 5/99, 8/99 and 05/00 being missing. Mrs Gracey found that the transaction lists matched the returns for periods 11/99, 11/00, 05/01 and 08/01. The remainder did not match. Mrs Gracey wrote a detailed letter to Mr Coulthurst on 17 July 2003 detailing the outcome of her analysis of the new transaction lists. She listed in detail the entries which she could not accept and gave reasons, for example even in period 11/00 where the transaction list and the return matched, a large portion of the claim for input tax was relevant to Nethermore and not to PLC. There were also some additional duplicated entries. There were however seven additional items on the transaction lists which had not been listed in any of the original data examined by Mrs Gracey and subject to verification on two large invoices, Mrs Gracey indicated her willingness to accept the claims for input tax in relation to all seven. Mrs Gracey's position therefore was that she had abided by the terms of our direction. With the exception of items which were referable to Nethermore or which had been double-claimed and verification of two larger amounts, she was again willing to amend her assessment to allow the claim in respect to every item referred to on the transaction list. No response had been received from either Mr Coulthurst or Mr Hamilton to her letter and this therefore remained the position as at the time of the resumed hearing. There were of course three periods for which no transaction lists were available and even on the remaining periods there were discrepancies between the returns and the lists as the transaction lists were not complete.

Mr Coulthurst, for the benefit of Mr Whitehead, repeated the problems which he had had with his computer. He was of the view that Mrs Gracey had not complied with the direction because she had not been able to list every item of input tax which he had originally claimed and with which she disagreed. We did however point out that she could not have any knowledge of the individual items which had not been referred to on a transaction list and she had abided by the direction in that she had referred to every item on those lists.

Mrs Gracey prepared a quarter by quarter schedule showing the amendments which she was prepared to make following the production of the transaction lists and, subject to verification from Mr Coulthurst of the invoices from Blackstone Services in 08/00 and Bell in 11/00, we were asked to uphold the disputed part of the assessment in the following terms. The figures listed below relate only to the disallowed input tax and are not therefore the total figures assessed for each quarter.

Quarter	Over-claimed input tax
05/99	£5,757.98
08/99	£1,466.10
11/99	(£21.32)
02/00	£3,010.91
05/00	£2,815.00
08/00	£203.37
11/00	£2,359.06
02/01	£2,410.88
05/01	£1,004.98
08/01	(£73,40)

We believe that Mrs Gracey has acted entirely reasonably throughout. She was originally faced with a very large discrepancy between the amount of input tax reclaimed on the VAT returns and the supporting evidence produced to her in the form of a few source documents and the, as it turned out, flawed back up disks. In the absence of any further information, and without further query, she allowed the claim for input tax in respect of every single item contained on the disk other than those which were not referable to the registration or for which there had been a clear double claim. When Mr Hamilton produced further original invoices to her, even though these were not referred to on the back up disks, she again allowed the claim. Subject to verification of two large amounts, she has again, without query, on production of the transaction lists agreed to amend her assessment to give additional credit. She clearly could not allow the claim in respect of the remaining discrepancy because there was just no evidence in any form or of any description upon which the claim could be justified. It was unfortunate that neither Mr Coulthurst nor Mr Hamilton saw fit to go back to original suppliers for duplicate invoices or to produce bank statements which could have gone some way towards corroboration but it remains the case that this was not done. We believe that not only did she act reasonably in refusing the claim for input tax on all unverified items but she clearly acted to best judgement in raising the assessment. We therefore uphold the assessment in the amended figures referred to above, this again being subject to verification of the two large items referred to.

At the very conclusion of the hearing, Mr Coulthurst volunteered that he imagined that he probably in fact had further invoices at home, although there had never at any time been any indication that further source documents existed. Mr Haley immediately said that if any further documentary evidence came to light which could justify any so far disallowed claim then the Commissioners would look favourably on it. We very strongly advise Mr Coulthurst, if any such documentation does exist, to produce it forthwith to the Commissioners but this will not affect the decision which we now make.

The appeal is therefore dismissed, subject to the minor amendments made to the assessment in the light of the production of the transaction lists and we uphold the assessments in the above amended sums.

Mr Haley made no application for costs and no order is made.

LADY MITTING

CHAIRMAN

Release date:16/07/2004

MAN/02/0635