United Kingdom VAT & Duties Tribunals Decisions

Jabat Ltd v Customs and Excise [2004] UKVAT V18752 (03 September 2004)

REGISTRATION – voluntary – application for exception not dealt with timeously – effective date of registration – jurisdiction of tribunal – appeal dismissed – VAT Act 1994 s83(a) and Schedule 1 para 1(1) and para 3 and section 3(1) and (2)

LONDON TRIBUNAL CENTRE

JABAT LIMITED	Appellant
and
THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

Tribunal Chairman: Rodney P Huggins (Chairman)

Diana M Wilson

Sitting in public in London on 16 August 2004

Mrs Jean Chitty, Director, for the Appellant

Mr Phillip Webb, Advocate of the Solicitor's Office of H M Customs and Excise for the Respondents.

... CROWN COPYRIGHT 2004

DECISION

The appeal

1. This is an appeal by Jabat Limited (the Appellant) against a decision of the Commissioners dated 30 January 2004 refusing exception from a liability to be registered for the purposes of VAT.

The legislation

2. Registration for VAT is enforced by the provisions of paragraph 1(1) of Schedule 1 to the VAT Act 1994 (the 1994 Act) which provide :

" (1) Subject to sub-paragraphs (3) to (7) below, a person who makes

taxable supplies but is not registered under this Act becomes liable

to be registered under this Schedule –

(a) at the end of any month, if the value of his taxable supplies in

the period of one year then ending has exceeded £56,000 or;

(b) …"

If a person exceeds the registration threshold they are registered under Schedule 1 paragraph 3 of the above Act which states :

"(1) A person who becomes liable to be registered by virtue of paragraph

1(1)(a) above shall notify the Commissioners of the liability within 30

days of the end of the relevant month.

(2) The Commissioners shall register any such person (whether or not he

so notifies them) with effect from the end of the month following

the relevant month or from such earlier dates as may be agreed

between them and him."

The enabling provision for the foregoing is Section 3 of the 1994 Act which provides :

"(1) A person is a taxable person for the purposes of this Act while he is,

or is required to be registered under this Act.

(2) Schedules 1 to 3A shall have effect with respect to registration".

Public Notice 700/1

3. Paragraph 2.2 of Public Notice 700/1 which is relevant in this appeal reads as follows :

"2.2 Do I have to register if I have reached the limits but I expect the value of my taxable supplies to reduce ?

If at the end of any month the value of your taxable supplies for the last 12 months has gone over the registration threshold, but you can provide evidence and explain why the value of your taxable supplies will not go over the deregistration threshold in the next 12 months, then you may not have to register, unless you are otherwise required to do so because of the level of your distance sales or acquisitions. This is called exception from registration.

You must still tell our National Registration Service that you have reached the limit within 30 days of the end of that month, but you will not have to fill in any forms.

If you are granted exception from registration you do not become immune from a liability to register with regards to the supplies you continue to make. You should continue to monitor the value of your taxable supplies on a monthly basis to determine if further liability arises. You should still monitor your previous turnover even where you were previously granted exception, as this does not form a cut-off date for monitoring your turnover, if a further liability arises you will have to apply again for exception."

The issues

4. The Appellant's three grounds of appeal are as follows :

(1) there was an unacceptable length of time which it took the

Wolverhampton Office of Customs and Excise (Customs) to reply to its

request for exception from registration for VAT.

(2) refusal of the exception was unreasonable.

(3) the date of registration should have been later because of the

unacceptable delay.

5. The Commissioners contend that once the request for exception was refused the effective date of registration was a matter of fact and the statutory provision allows the Commissioners no discretion in the matter.
6. The Commissioners further contended that the refusal of the exception was based upon turnover figures supplied by the Appellant and was therefore reasonable.
7. It was also argued by the Commissioners that the tribunal had no jurisdiction to deal with the Appellant's complaint about the unacceptable delay in dealing with her request for the exception causing her monetary loss.

The evidence and representation

8. The tribunal heard Mr Sudesh Chandra (Mr Chandra) a Customs Officer from the Deansgate VAT Office at Wolverhampton give evidence. Mrs Jean Chitty (Mrs Chitty) a Director of the Appellant company presented her company's case and Mr Phillip Webb (Mr Webb) represented the Commissioners and put in a bundle of documents.

The facts

9. On the evidence before us we find the following facts.
10. Mrs Chitty commenced the Appellant's business in October 2002 providing pension funds with financial and accounting advice. Her company's financial year end is 31 March and for the year commencing 1 April 2003, the Appellant's income substantially exceeded the VAT registration threshold of £56,000.
11. On 13 October 2003 she wrote to the local VAT office in her home town of Maidenhead in the following terms :

"Jabat Limited was incorporated in October 2002. In the first year of trading the invoiced sales, excluding disbursements, have not reached £56,000, the VAT registration threshold, and are unlikely to reach this figure in the calendar year to December 2003.

Can you please advise me what time periods have to be measured for crossing the threshold and what arrangements there are for companies who may cross the threshold for a short time and then fall below it ?"

12. This letter was replied to by Customs National Advice Service Newcastle on 27 October 2003 who wrote :

"At the end of each month, you should check your taxable turnover to see if you have exceeded the threshold of £56,000 in the last 12 months or less. Once you have exceeded the threshold you are required to register for VAT. Guidance on how to notify of your liability to register can be found in section 3 of the enclosed notice 700/1: Should I be registered for VAT.

However, if you find you have exceeded the threshold, but you can provide evidence and explain why the value of your taxable supplies will not go over the deregistration threshold, which is currently £54,000 in the next 12 months, then you may not have to register, this is called exception from registration. Full details can be found in section 2.2 of notice 200/1 …"

13. Mrs Chitty responded by a letter dated 19 November 2003 giving details of her Company's turnover. She stated that in the six months January to June 2003 the turnover, excluding disbursements, was £32,000 as that period included most pension fund accounting year ends and would usually be the busiest period.

She added :

"As I am the sole employee I usually only work on one project at a time, but, since July, I have been working on two projects for different clients simultaneously and this has increased my turnover for the last quarter so that I shall exceed the threshold of £56,000. Both projects are near completion and I should like to apply for an exemption from registration as I do not have any new projects to replace them and have not worked at all for the last month.

Any twelve month period that includes the June to September 2003 months could exceed the threshold, but I should like to monitor the turnover to the end of the current financial year as I believe that the value over the twelve months commencing October 2003 will not exceed £54,000."

15. On 3 December 2003, an officer from Customs telephoned Mrs Chitty and queried her expression in her letter that she "would like to apply for an exemption from registration" pointing out that it was considered that what the Appellant was seeking was "exception" rather than "exemption". Mrs Chitty agreed.

14. On 3 December 2003 Mr Chandra wrote to the Appellant seeking further information in order that the Company's application for "exception" from registration could be considered. Sixteen questions were raised, seven of which indicated a specific reply.
15. Mrs Chitty replied on behalf of her Company on 8 December 2003 giving details of the monthly turnover figures for the months from October 2002 to September 2003. This revealed that from October 2002 until August 2003 (both months inclusive) the total turnover was £57,936.22. A further sum of £9,177.80 had been invoiced for September 2003.

She added in her letter :

"It is difficult to forecast my level of turnover for the next twelve months as I do not have any regular contracts. I am asked to help on an ad hoc basis and have been working on projects for two clients since July, both of which I would expect to continue to March 2004. My estimate turnover, based on my current knowledge, for the calendar year 2004 is £52.000.

I do not have any formal contracts which have specified start and finish dates and my estimate above is based ion planning conversations that I have had with both clients.

The work I am asked to complete usually covers specific projects which are additional to the normal work load of a department and where they require extra skills. Such as the installation of a new computer system or the analysis of a risk analysis survey of the their procedures to detect fraud and error. The project is completed once it has been reported to the respective

management committee that requested it.

The exceptionally high turnover figure in June and July 2003 was due to the fact that I was working on projects for four clients simultaneously. The extra two projects accounted for turnover of £3482. These are unlikely to be repeated in the future.

As mentioned above, I am currently not invoicing my work, so would appreciate an early reply to my application from registration."

16. The letter of 8 December 1003 was received in the VAT Office at Deansgate, Wolverhampton on 10 December 2003 but unfortunately was erroneously sent to the wrong department. This letter did not arrive at the desk of Mr Chandra (who deals specifically with exception applications) until 23 December 2003. In the meantime, he had sent a duplicate of his letter dated 3 December 2003 to the Appellant on 19 December 2003 as he thought there had not been any response.
17. Mr Chandra went on leave on 24 December 2003 and the matter remained on his desk until he returned from holiday sometime after 5 January 2004.
18. In the meantime, Mrs Chitty wrote to Customs on 30 December 2003 as follows :

"I tried to contact you today t see if my letter of 8 December had been received subsequent to your letter dated 19 December as the Christmas post is obviously disrupting the delivery times but understand that you are on leave until Monday, 5 January.

Given this unfortunate delay I am invoicing my work for October and December without VAT and would request that, should you decide that I should be registered for VAT, that my registration be effective from 2 January 2004. This will allow me time to add the VAT registration number to subsequent invoices …"

19. Mr Chandra on behalf of the Commissioners notified the Appellant on 12 January 2003 that the application for exception had been rejected and the liability to be registered for VAT would be 1 October 2003.

The reasons for the refusal of the application for exception were given as follows :

"Exception is based on consideration of evidence which indicates that the accumulative value of the taxable turnover in the 12 months following the breech of the VAT registration threshold would not go above the deregistration threshold current at the time (the primary legislation governing exception is contained in paragraph 1(3) of Schedule 1 to the VAT Act 1994). Only evidence available at the time of the breech can be used.

With reference to your letter dated 08/Dec/03 in which you confirm that the contracts you have been involved are not formalised (i.e. the duration is not specified at the start). With regard to your letter dated 19/Nov/03 which confirms the contracts were near to completion. The VAT registration breech took place in Aug/03. Therefore, at the time of the breech there was uncertainty as to when the contracts would end and hence what the final value would be.

Moreover, with reference to both of your letters measures have not been taken to prevent the circumstances that caused the breech in the first place, from occurring again …"

20. The Appellant responded by letter dated 21 January 2004 arguing that the effective date for registration should be 1 January 2004 as she had already invoiced her work for the months of October and December without imposing VAT at the standard rate. She blamed the tardiness of Customs for the delay and was unable to wait any longer to send out her invoices. The amount of VAT involved was £2,777.
21. This letter was treated by Customs as an application for reconsideration of the decision. Mrs Susan Howard ,another Officer of Customs from the Appeals and Reconsiderations section at Wolverhamptom carried out a reconsideration and wrote to the Appellant on 30 January 2004. After quoting appropriate extracts from the 1994 Act, she continued :

"This is a point of law and the Commissioners have no discretion to negotiate the effective date of registration.

It is unfortunate and inexplicable that Officer Chandra did not receive your original letter of 8 December 2003 until 23 December 2003 another copy of which was received on 31 December 2003 with your letter dated 30 December 2003.

However I would add that you may issue 'VAT only' invoices to your customers, for any taxable supplies made since 1 October 2003 on which you have not charged output tax.

Your VAT registration will now be processed and the certificate will be sent to you shortly. I not that Notice 732 'Annual Accounting' has already been requested from the National Advice Service and will be issued directly to you from there."

22. Eventually, the Appellant was issued with a VAT Registration Number on 24 March 2004 nearly two months later.

Reasons

23. We will deal with each of the Appellant's arguments as set out in paragraph 4 of this decision separately.

The delay of Customs

24. It was accepted by Mr Webb that there was inexcusable delay by Customs in processing the Appellant's application for an exception to registration. He apologied profusely for this delay.
25. Section 83 of the 1994 Act provides that as a tribunal, we can only consider matters set out in paragraphs (a) – (33) inclusive these are 2 + 3 of that section. We regret that an appeal for compensation for delay by Customs however harmful to an Appellant is not one of those grounds. Therefore, we cannot entertain an appeal in this connection.
26. Although we sympathise with Mrs Chitty's predicament, the Appellant will have to seek redress elsewhere, if such is available.

The refusal of the exception

27. The refusal of the exception to registration was based upon turnover figures supplied by the Appellant in Mrs Chitty's letters dated 8 December 2004.
28. The Commissioners have argued that only evidence available at the time the VAT registration threshold was breeched can be used. This was 30 September 2003. We agree with that argument. In the case of J G Gray (t/a Williams Gray & Son) v Commissioners of Customs and Excise Ch.D [2000] STC 880 Ferris J held that the effect of Schedule I paragraph 1(3) was that "a VAT tribunal, or this court itself, can only interfere with the decision if it is shown that the decision is one which no reasonable body of Commissioners must give effect to paragraph 1(3) by considering the case as at the date from which registration would otherwise take effect and, by looking forward, asking themselves whether they are or are not satisfied that turnover will not exceed the threshold amount."
29. Mr Chandra in his letter of 12 January 2004 has, in our view, set out valid and reasonable reasons why exception was not applicable in the Appellant's case. At the tribunal he gave examples of exceptional circumstances which could give weight to permission being granted to an exception. There were no such circumstances arising in this case. Indeed, Mrs Chitty admitted at the hearing that her Company's turnover exceeded the registration threshold substantially for the twelve months ending 31 March 2004.

The date of registration

30. The Appellant has pleaded that because of the delay she has incurred VAT of £2,777 which she has been unable to recover from her clients as they are credible, essential to her business and, as pension funds, not liable to VAT which they therefore could not recover as inputs. She feels she cannot raise further invoices for the VAT because she could lose clients.
31. Unfortunately the Commissioners are correct in arguing that once the request for exception was refused the effective date of registration was a matter of fact and the 1994 Act gives us no discretion in this connection. We are therefore unable to consider a later registration date.
32. Schedule 1 paragraph 1(1) (a) of the 1994 Act is applicable coupled with the provisions of Schedule 1 paragraph 3. Section 3(1) of the 1994 Act provides "a person is a taxable person for the purposes of this Act while he is, or is required to be registered under this Act."

Conclusion

33. The Appeal is dismissed.
34. There is no order as to costs.

Rodney P Huggins

Chairman

Release Date: 3 September 2004

LON/2004/0133