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United Kingdom VAT & Duties Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Sawyer v Customs and Excise [2004] UKVAT V18872 (13 December 2004)
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Cite as: [2004] UKVAT V18872
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John Sawyer v Customs and Excise [2004] UKVAT V18872 (13 December 2004)

    2. INPUT TAX – disallowed – Appellant registered in 2002 – only work done by him before April 2004 was repair and maintenance to his home which was owned jointly by himself and his wife –the Appellant did not render any invoices for these supplies but claimed input tax credit in respect of supplies made to him - whether supplies made to him were used for the purpose of any business carried on by him – no – appeal dismissed VATA 1994 S 24(1)

    LONDON TRIBUNAL CENTRE

    JOHN SAWYER
    Appellant
    - and -
    THE COMMISSIONERS OF CUSTOMS AND EXCISE

    Respondents

    Tribunal: DR NUALA BRICE (Chairman)

    DR MICHAEL JAMES
    Sitting in public in Bristol on 9 September 2004

    The Appellant in person

    Caroline Neenan of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

    © CROWN COPYRIGHT 2004

     

     
    DECISION
    The appeal
  2. Mr John Sawyer (the Appellant) appeals against a decision of Customs and Excise dated 21 March 2003. The decision was to refuse a claim for input tax of £2,264.24 on the grounds that the goods or services supplied to the Appellant were not used or to be used for the purpose of any business carried on by him. The Appellant appealed because he was of the view that he was in business because he made supplies to himself and to his wife in restoring their home which was a listed building.

    3. The legislation
  3. Section 24(1) of the Value Added Tax Act 1994 (the 1994 Act) provides :

    4. "24(1) Subject to the following provisions of this section, "input tax", in relation to a taxable person, means the following tax, that is to say-
    (a) VAT on the supply to him of any goods or services; …
    being … goods or services used or to be used for the purposes of any business carried on by him."
    The issue
  4. The Appellant was registered for value added tax and so was a taxable person. The issue for determination in the appeal was whether the goods or services supplied to the Appellant were used for the purposes of any business carried on by him.

    5. The evidence
  5. A bundle of documents was produced by Customs and Excise. Oral evidence was given by the Appellant on his own behalf. Oral evidence was given on behalf of Customs and Excise by Mr John MacDonald McCubbin, an Officer of HM Customs and Excise, who gave a review decision on 5 November 2003, and by Mr A P White, the Officer of HM Customs and Excise who made the original decision the subject of the appeal.

    6. The facts
  6. From the evidence before us we find the following facts.

    7. The Appellant
  7. The Appellant and his wife live in a listed building called Healey Court Farm. The Appellant wanted to repair and improve the building and applied for planning permission and listed building consent both of which he obtained. The improvement included repairs and an extension to provide a hall and bedroom above. The Appellant then asked builders to give estimates for the construction work. These came to about £150,000.

  8. At about that time the Appellant had a heart attack and in September 2001 he resigned from his employment as a senior executive of a car rental company. He thought that he could have the work done more cheaply than the estimates he had received and so he decided to manage the work himself. In or about January 2002 he received an invoice from his architect for his fees. Between January 2002 and November 2002 the Appellant researched the work to his house and obtained quotations.

    9. 2002 – registration
  9. The Appellant thought that the total cost would exceed the value added tax registration limits and so on 21 November 2002 he applied to be registered for value added tax. The application was for registration in his own name as sole proprietor as he did not then have a trading name. Question 6 on the form asked about his current and/or intended business activities and he replied that these were building/development, repairs, alterations and maintenance. Question 10 asked if he expected to receive regular repayments of tax and he answered yes. Question 13 asked if had he made any taxable supplies yet and he replied yes and stated that the date of his first taxable supply was 20 January 2002. Question 21 asked from which date he would like to be registered and he replied from 20 January 2002. Question 23 asked for an estimate of taxable supplies expected to be made in the next twelve months and the Appellant stated this to be £80,000.

  10. The Appellant told us in evidence that, in making the application for registration, he was under the impression that the value added tax element of the cost of repairs to listed buildings could be re-claimed from Customs and Excise. (This explains his reply to Question 10.) The Appellant also stated in evidence that, when answering Questions 13 and 21 he had in mind that he wanted to claim the tax on his architect's fees. From this we conclude that he had some difficulty in distinguishing between supplies made to him and supplies he made to others.

  11. The Appellant was registered with an effective date of registration of 20 January 2002.

  12. After November 2002 the Appellant instructed stonemasons, plumbers, electricians and others to do the professional building work. He supervised them, monitored progress, undertook labouring work and generally acted as project manager for the improvements and repairs.

    13. 2003 - the return and the visit
  13. The Appellant's first accounting period ended on 31 January 2003. His return for that period claimed a repayment of input tax of £2,264.24. This was in respect of the value added tax included in his architect's invoice and also tax in respect of materials purchased for the purpose of the improvements and repairs.

  14. On 4 March 2003 the Appellant received a visit from Mr White who wanted to verify the claim for input tax made in the Appellant's return. Mr White looked at the relevant papers and on 10 March 2003 wrote to the Appellant to say that repayment was dependent upon whether a proper business was shown to exist. Mr White asked to be supplied with further information about the business and, in particular, he asked what attempts had been made to find other work. The Appellant replied on 17 March 2003 and supplied some information. He said that he possessed a public liability insurance but that his sub-contractors were self-employed and covered their own insurances. No other taxable supplies had been made. In answer to the question about obtaining other work he stated "Other work as in Bay Tree Cottage is in hand." In oral evidence the Appellant told us that Bay Tree Cottage was owned by his mother and that in the end he had done no work there although he had had an opportunity to quote. The Appellant's letter of 17 March 2003 also stated that his business did not have a designated charge or credit card; that any Inland Revenue matters would be processed at the end of the year; that the business did not own, repair or maintain any vehicles; that there were no employees; and that the business was financed through himself.

    15. 2003 – the disputed decision
  15. On 21 March 2003 Mr White completed a VAT audit report about his visit on 4 March 2003 and the subsequent correspondence. The audit report recorded that Mr White was then of the view that there were insufficient grounds to refuse the repayment claimed in the return. The Appellant had insurance; he had produced evidence of seeking other work at Bay Tree Cottage; and he had taken out credit arrangements. However, after reflection and consulting with his colleagues, Mr White's realised that there was no evidence of the Appellant making any supplies for consideration; that there were no sales invoices; and that there were no money transactions through the bank.

  16. Accordingly, on 21 March 2003 Mr White wrote to the Appellant to say that there was no evidence that the Appellant was making any supplies and input tax was not available for private property. The claim in the first return for input tax was, therefore, disallowed. That is the decision against which the Appellant appeals. Mr White's letter of 21 March 2003 also stated that Customs and Excise were considering whether to de-register the Appellant.

    17. The first review
  17. On 1 April 2003 the Appellant requested a re-consideration of the decision. This was carried out by Mr Priest who wrote on 21 July 2003 to say that work done at the private residence of the Appellant and his wife was a private matter and not done in the course or furtherance of any business carried on by the Appellant. Further, as the Appellant had not conducted any business activity all input tax claimed had been disallowed. The original decision was therefore upheld.

  18. The Appellant rendered returns for the accounting periods ending on 30 April 2003 and 31 July 2003. The relevant details of those returns are:

    19. Period Output tax Input tax Net Outputs Inputs

    O4/03 Nil £289.85 (289.85) £5,206 £5,206

    07/03 Nil £230.75 (230.75) £3,766 £3,766
  19. In evidence the Appellant explained that the figures for input tax represented the value added tax element of the materials and services he received; he purchased materials and his contactors charged him for the work they did. We note that, although outputs were declared, no output tax was accounted for. We also note that the figures for outputs were the same as the figures for inputs. The Appellant explained that the figure for outputs represented the value of the work done although no invoices had been delivered.

    20. The second review
  20. On 3 October 2003 the Appellant requested a further review of the decision to refuse his claim for input tax. In a letter to Mr McCubbin on 22 October 2003 the Appellant stated that the cost of works to that date amounted to approximately £33,000 and the project was about 65% completed. The second review was carried out by Mr McCubbin who wrote to the Appellant on 5 November 2003. He upheld the original decision on the ground that goods or services supplied to the Appellant had not been used for the purposes of a business carried on by the Appellant. Mr McCubbin's letter concluded:

    21. "I am also referring these papers to my colleagues at the Regional Registration Centre, to consider the cancellation of the registration. In the meantime you will appreciate, from the above decision, that no further claims to input tax in respect of Healey Court Farm should be made on any future value added tax return which you may receive."
    April 2004 – the invoices
  21. Between January 2002 and April 2004 the Appellant did no work other than at Healey Court Farm. We saw copy invoices delivered by the Appellant after April 2004. These were in the name of "J R Sawyer, Building and Maintenance Co" at the Healey Court Farm address. Details were:

    22. 17 April 2004 - to a married couple in Luckington, Gloucestershire for work as per quotation Q400 - £4,250. [We did not see quotation Q400.] The Appellant explained that the customer was a friend of his who wanted an extension to his house. Part of the invoice was for materials for the extension; part was for other contractors; and part was payment for his work.
    28 April 2004 – to a business in Bristol for maintenance and management for January, February, March and April 2004 and labour for clearing a unit for drillers - £896.66. The Appellant explained that the customer was a friend of his.
    28 April 2004 – to the same business – for plastering and re-decoration of rooms at a stated property and shuttering at the address of the business - £1,970.66.
    18 May 2004- to the same business - for maintenance and management until the end of May and labour for clearing a unit £246.17.
    15 June 2004 - to the same business - for maintenance and management until the end of June - £179.17.
    15 June 2004 – to the same business –for labour and materials in making premises secure - £130.
    19 June 2004 – to the same business – fee on rent collected for June 2004 - £65.00.
    2 July 2004 to the same married couple as the first invoice – for building work at their address £1,145.78.
  22. None of these invoices included value added tax.

    23. Generally
  23. The Appellant has not notified the Inland Revenue that he is in business (although he said in evidence that he will notify them in his next tax return). He has not submitted any trading accounts to the Inland Revenue and has not claimed any payment from the business for the work he has done. The work on his house is not yet finished. He pays the stonemasons, plumbers, electricians and other contractors himself from funds in his personal bank account; some payments are made in cash and some by cheque. He personally purchases the materials. The Appellant found it difficult to say whether there would be any profit and said that he was doing it for himself. He thought he would declare some profit but he would assess the amount at the end of the job.

  24. At the date of the hearing the Appellant's registration had not been cancelled.

    25. The arguments
  25. In his Notice of Appeal dated 6 December 2003 the Appellant gave his grounds of appeal as:

    26. "As a result of unemployment I established a building company registered for VAT as my estimate of annual turnover would exceed £100.000. The first project was work on a house owned by my wife and I. As the property is listed the building work would be zero-rated for VAT as listed building consent was obtained. Customs and Excise refused payment of the VAT on the ground that a case was not established that I have a business for VAT purposes and an entitlement to be registered for VAT in spite of other works in progress (for actual customers)."
  26. At the hearing the Appellant argued that he was in business as a builder and he did work for others and he had rendered invoices to others. He had not added value added tax to his invoices because he had been told not to so by Mr McCubbin as he was to be de-registered. If another builder had done the improvement and repair work at his house the builder would not have charged value added tax because his house was listed..

  27. For Customs and Excise Ms Neenan argued that the Appellant was not in business in January 2003 at the date of the claim for input tax which was the subject of the appeal. He was merely instructing contractors to carry out works to his own home and buying materials for them to use. He could not, therefore, reclaim input tax in relation to the works at Healey Court Farm. There was no evidence that, at least before April 2004, the Appellant made any taxable supplies. He had not notified the Inland Revenue that he was carrying on a business. There was no business bank account. No invoices had been delivered by the business and no payments received. (Although invoices had been delivered after April 2004 there was no evidence of payments being received after that date.) No profit had been made and there had been no commercial dealings at arm's length. In any event an architect sent his invoice to the consumer, not to the builder. The client engaged the architect; the builder did not.

  28. Ms Neenan cited Ronald Donald Elton v Commissioners of Customs and Excise (1993) VAT Decision 11590 as authority for the principle that works done to private property were not in the course of business; she cited Customs and Excise Commissioners v Lord Fisher [1981] STC 238 at pages 101 and 103 as authority for the criteria for determining whether an activity is a business; she cited Institute of Chartered Accountants in England and Wales v Commissioners of Customs and Excise[1999] 1 WLR 701 at 705. 706G and 707 A-F for the principle that there had to be an economic activity; and she cited Enkler v Finanzampt Homburg [1996] STC 1316 at paragraphs 7 and 20 for the principle that activities carried out on an occasional basis do not constitute an economic activity.

    29. Reasons for decision
  29. We first consider three matters arising out of the Appellant's grounds of appeal. First, the Appellant confirmed to us that there was no limited company. Secondly, there was no evidence before us of any supplies (other then the disputed supplies at Healey Court Farm) made before April 2004. Finally, we consider the Appellant's point that, as his house was listed, and as listed building consent had been obtained, the building works should be zero-rated. The relevant provisions are in Group 6 of Schedule 8 of the 1994 Act. Items 2 and 3 of Group 6 zero-rate:

    30. "2. The supply in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity.
    3. The supply of building materials to a person to whom the supplier is supplying services within item 2 of this Group which include the incorporation of the material into the building (or its site) in question."
  30. The effect of making a zero-rated supply is that input tax can be claimed but output tax is charged at the zero-rate. This does not amount to a free-standing right to input tax because the provision only applies when a taxable person makes a supply in the course of his business. (We also note that there is no entitlement to zero-rate the supplies of an architect.)

  31. That then brings us to the issue in the appeal which is whether the goods or services supplied to the Appellant were used for the purposes of any business carried on by him. The criteria for determining whether an activity is a business were established in Lord Fisher at page 245 and are six in number.

  32. The first is whether the activity is a "serious undertaking earnestly pursued". We find that in 2002 and 2003 the Appellant was solely concerned with the repairs and improvements to his own house and did not make any taxable supplies to any customers. In our view he did not at that time seriously pursue a business which consisted of the supply of building services.

  33. The second criterion is whether the activity is an occupation or function actively pursued with reasonable or recognisable continuity. In 2002 and 2003 the Appellant had no other project apart from the works to his own house. Whatever happened after April 2004, at the time of the refusal of the claim for input tax there was no occupation actively pursued with any continuity.

  34. The third criterion is whether the activity has a measure of substance as measured by the quarterly or annual value of taxable supplies made. In this appeal the Appellant did not send any invoices for any taxable supplies before April 2004.

  35. The fourth criterion is whether the activity is conducted in a regular manner on sound and recognised business principles. In 2002 and 2003 any activity conducted by the Appellant was not conducted on recognised business principles. The Appellant did not make any taxable supplies. He did not notify the Inland Revenue that he was carrying on a business. There was no business bank account. No invoices were delivered by the business and no payments received. There were no commercial dealings at arm's length.

  36. The fifth criterion is whether the activity is predominantly concerned with the making of taxable supplies to consumers for a consideration. In 2002 and 2003 the Appellant made no taxable supplies to consumers for a consideration.

  37. The final criterion is whether the taxable supplies are of a kind commonly made by those seeking to profit from them. The Appellant invoiced no taxable supplies. He made no profit. The work done to his own home was not a supply of a kind commonly made by those seeking to make a profit from them.

  38. At page 103 of Lord Fisher Gibson J also said that the primary meaning of the word "business" was an occupation by which a person earns a living. In 2002 and 2003 the building work undertaken by the Appellant was not an occupation by which he earned a living.

  39. Accordingly, we conclude that the Appellant was not in business in 2002 and 2003 and so the goods and services supplied to him in those years were not used for the purposes of any business carried on by him.

    40. Decision
  40. Our decision on the issue for determination in the appeal is that in 2002 and 2003 the goods and services supplied to the Appellant were not used for the purposes of any business carried on by him

  41. The appeal is, therefore, dismissed.

    42. DR NUALA BRICE
    CHAIRMAN
    RELEASE DATE: 13 December 2004

    LON/2003/1199

  42. 10.04

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