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Quintain Estate Develpoment Plc v Customs and Excise [2004] UKVAT V18877 (10 December 2004)

18877

Voluntary disclosure – claim for repayment of input tax – Form VAT 652 posted but no record of its receipt by the Commissioners – claim pursued after expiry of three year time limit – whether claim made at time of posting or only on receipt – appeal allowed

LONDON TRIBUNAL CENTRE

QUINTAIN ESTATES DEVELOPMENT PLC Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Malcolm Gammie Q.C. (Chairman)

Sitting in public in London on 28th May 2004

Mr D Anderson of KPMG for the Appellant

Mr A O'Connor of counsel, instructed by the Solicitor of Customs and Excise, for the Commissioners

© CROWN COPYRIGHT 2004

DECISION

Introduction

Quintain Estates Development plc ("the Appellant") is the representative member of its group and carries on business as a property holding and investment company. On 13 May 2003, the Appellant wrote to the Commissioners requesting payment of VAT from a voluntary disclosure allegedly submitted in June 2002. The voluntary disclosure related to a claim for input tax in the period 02/00.

The Commissioners responded on 9 June 2003 informing the Appellant that they were unable to find any record of a voluntary disclosure being received in June 2002. The Commissioners requested evidence of delivery of the voluntary disclosure, in the absence of which the claim would not be allowed as the three-year capping limit had been exceeded. Following the submission of certain evidence and after review, the Commissioners wrote on 23 September 2003 confirming their decision not to repay the VAT. The Appellant appeals against that decision.

In addition to the documentary evidence put before me I heard evidence from Mrs Jillian Jurgens, a financial accountant employed by the Appellant at the relevant time, Mr Michael Marshall, the Appellant's Chief Finance officer, Ms Tracey Sawford, Business Service Operational Manager responsible for managing support services at the Commissioners' offices at Thomas Paine House and Ms Elizabeth Synnott, one of the Commissioners' officers dealing with complaints. Mr Joseph Burke, one of the Commissioners' officer with knowledge of the electronic scanning and filing systems used by the Commissioners, also gave evidence as to the actions he had taken to trace certain letters from the Appellant that Mr Marshall indicated in his evidence had not been dealt with and which the Commissioners might therefore have received but then been misfiled or lost.

Based on the documents I received and the evidence I heard, I find the following facts in this case.

The Facts

The Appellant employed Mrs Jurgens as a financial accountant. Her duties at the relevant time included completing the Appellant's VAT returns and associated VAT compliance work. In the course of her work she would find errors for which it was appropriate to make a voluntary disclosure. The errors arose in particular from the nature of the Appellant's activities as a property holding and investment company because it would not always be clear in relation to a particular property whether input tax was attributable to exempt or taxable supplies.

On 19^th June 2002 Mrs Jurgens completed a voluntary disclosure form, VAT 652, in respect of an under-recovery of VAT of £143,169. This arose from a review that had been undertaken as to the status of particular land and whether it was exempt or subject to an election to waive exemption. The review identified that two routine manual adjustments to the Appellant's computer records had not been made for the months of December 1999 and January 2000. The effect of this omission was that the property had mistakenly been treated as exempt from VAT and consequently the Appellant had not reclaimed the input tax to which it was entitled.

Mrs Jurgens prepared a form VAT 652 to make a voluntary disclosure of an under-claim of VAT in the sum of £143,169. She signed the VAT 652 and photocopied it for her records. That copy was produced. She then put the completed form in an envelope addressed to the Commissioners and put the envelope in the internal post tray. She did not prepare a covering letter as this was not required. She also made the requisite entries in the Appellant's computer records showing that the VAT has been claimed.

The Appellant's offices are not large and there was a single post-tray in the centre of the office in which all mail was placed. Both Mrs Jurgens and Mr Marshall vouched for the fact that Mr Marshall's personal assistant in particular but also the other personal assistants working in the office were thoroughly conscientious in collecting the post and posting it in the post box that happened to be situated immediately outside the Appellant's offices.

There are obviously a number of things that might have gone wrong at the Appellant's end, as Mr O'Connor suggested in his cross-examination of Mrs Jurgens and Mr Marshall and in the submissions that he made. Mrs Jurgens might have mis-addressed the envelope; the letter might not have been stamped; the letter might never have been posted. Nevertheless, from the evidence that I heard the most likely conclusion seems to me (and I so find) that Mrs Jurgens completed the form as she described, stamped and put the envelope in the post-tray, the envelope was collected by one of the personal assistants and posted in the pillar box outside the Appellant's offices.

The scene shifts to the Commissioners' offices at Thomas Paine House. Mrs Jurgens said in evidence that she could not absolutely recall whether she had addressed the envelope to the Commissioners' offices at Thomas Paine House or to Southend. She knew that the envelope ought to have been addressed to Thomas Paine House but as a matter of recollection she felt unable to say with absolute certainty that this is what she had done. In my view nothing turns on this and I was told that if the form had arrived in Southend it would have been (or ought to have been) passed to Thomas Paine House.

Ms Sawford described how incoming post is dealt with at Thomas Paine House. The system is designed to ensure that all correspondence is recorded and dealt with by the appropriate division based at Thomas Paine House. Essentially the post is delivered and sorted in a locked room. No one is allowed out of the room while this is in process. Envelopes are opened three ways to ensure that there is nothing left inside. The first page of the material is stamped with the date of receipt and placed in an appropriate tray for the material concerned. Voluntary disclosure forms (without covering letter) would be placed in the forms in-tray.

Once all the letters have been opened, each member of the post opening team takes a tray and goes through the post to ensure that it has been placed in the appropriate tray, before walking the post down to the ground floor and placing it in trays that correspond to those in the post room. The post is then electronically scanned into the relevant taxpayer's file.

I have only summarised Ms Sawford's detailed evidence as I accept that the meticulous procedure is designed to ensure that nothing goes astray between its arrival and the point at which post is scanned into the taxpayer's file. This was supported by Ms Synott's evidence to the effect that she had identified only one definite example of a complaint about non-receipt of mail by the Commissioners in 2002, which concerned a repayment claim. Ms Synott admitted that her unit had not dealt with the entire London region. I accept, however, that Ms Synott's evidence demonstrated that lost mail was not among the more usual complaints that the Commissioners received.

For the Appellant, Mr Marshall stated that leading up to the date of the voluntary disclosure in June 2002 there had been a history of the Commissioners not replying to the Appellant's correspondence. On 7^th September 2001, for example, the Appellant wrote to the Commissioners at Thomas Paine House with a list of eight letters for which the Appellant could find no reply. From Mr Burke's evidence it appears that all but one of these letters had been traced. Mr Burke described the working of the electronic scanning and filing systems and was cross-examined by Mr Anderson as to whether letters might escape scanning or be scanned but to the wrong registration number. Mr Burke obviously could not say that this never happened but he maintained (and I accept) that the system was robust and tightly controlled.

The final evidence that I shall record, although I do not consider it relevant to what I must decide, relates to why the Appellant did not follow up until May 2003 the Commissioners failure to repay the VAT claimed under the voluntary disclosure. The straightforward answer is that this resulted from Mrs Jurgens leaving the Appellant's employment and responsibility for the Appellant's VAT affairs passing to its taxation manager, Hugh Thomson. Dealing with both its corporation tax and its VAT compliance proved more than Mr Thomson could reasonably handle and through oversight on his part, the repayment claim was not followed up even though Mrs Jurgens had drawn it to his attention as part of her handover of her VAT responsibilities. It was only when the Appellant's auditors drew the Appellant's attention to the oversight that the matter was pursued.

The legislation

A taxable person is entitled at the end of each prescribed accounting period to credit so much of his input tax as is allowable, and then to deduct that amount from any output tax that is due from him (s. 25(2) VATA 1994). Regulation 29 of the Value Added Tax Regulations 1995 (S.I. 1995/2518) provides as follows—

"(1) Subject to paragraphs (1A) and (2) below, save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25(2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT becomes chargeable.

(1A) The Commissioners shall not allow or direct a person to make any claim for deduction of input tax in terms such that the deduction would fall to be claimed more than 3 years after the date by which the return for the prescribed accounting period in which the VAT became chargeable."

Regulation 25(1) provides that—

"Every person who is registered or was or is required to be registered shall, in respect of every period of a quarter or in the case of a person who is registered, 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 ("Form 4") 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;"

If, by the last day on which a taxable person is required in accordance with the regulations to furnish a return for a prescribed accounting period, the Commissioners have not received that return and any VAT payable for the period, the taxable person is regarded as in default and may be liable to a default surcharge (s. 59(1) VATA 1994).

If a taxable person fails to submit a return (or if it appears to the Commissioners that his returns are incomplete or incorrect), the Commissioners may assess the amount of VAT due from him to the best of their judgment and notify it to him (s. 73(1) VATA 1994) Similarly, in any case where, for any prescribed accounting period, there has been paid or credited to any person a repayment or refund of VAT or any amount due as a VAT credit which ought not to have been so paid or credited, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly. Such assessments must, however, be made within the time limits prescribed by section 77 of the Act. Section 77(1) prescribes that such assessments shall not be made more than 3 years after the end of the prescribed accounting period.

In the present case I am not concerned with any assessment because the error concerned a failure to claim in full the input tax that the Appellant was entitled to claim for the prescribed period rather than its failure to make a return or an underpayment of VAT for a prescribed period. The provisions relating to assessments are, however, relevant to a consideration of what the Act requires for there to be a valid claim and for determining when a claim is made. Claims, like assessments, are "made". The Act specifically requires, however, that an assessment should be "notified" to the taxpayer. In this respect section 98 of the Act provides that—

"Any notice, notification, requirement or demand to be served on, given to or made of any person for the purposes of this Act may be served, given or made by sending it by post in a letter addressed to that person or his VAT representative at the last or usual residence or place of business of that person or representative."

The Act is silent regarding the notification of a claim but it hardly needs saying that while you may have a claim and remain silent about it, if you want to make a claim you must do something to tell the person against whom you want to make your claim – in this case the Commissioners – or otherwise do something to put your claim in motion. Returns are also "made" but the default surcharge depends upon the "furnishing" of a return and whether or not the Commissioners have received the return.

Having failed to make its claim for repayment of input tax in its return for the prescribed accounting period, as Regulation 29 required, the Appellant had to correct its error. Section 80 of the Act provides that the Commissioners shall repay to a person any amount of VAT that he has paid to that was not properly due to them. The Commissioners are only liable to repay any such amount on a claim being made and are not liable to repay any amount paid to them more than 3 years before the making of the claim. Although I was not referred to the decision, University of Sussex v Commissioners of Customs and Excise [2004] STC 1 establishes that a failure to claim input tax in a particular period does not lead to a claim under section 80 even though the natural result of that failure may have been that the taxpayer has paid more tax for the period than he otherwise would have done. The claim arises under Regulation 29(1), albeit made late. The question is whether it was made too late (and in this respect I have also noted the decision in Local Authorities Mutual Investment Trust v Commissioners of Customs and Excise [2004] STC 246 regarding the validity of Regulation 29(1A)).

Regulation 34 provides that—

"(1) Subject to paragraph (1A) below this regulation applies where a taxable person has made a return, or returns, to the Controller which overstated or understated his liability to VAT or his entitlement to a payment under section 25(3) of the Act.

(1A) ... any overstatement or understatement in a return where—

(a) a period of 3 years has elapsed since the end of the prescribed accounting period for which the return was made; and

(b) the taxable person has not (in relation to that overstatement or understatement) corrected his VAT account in accordance with this regulation before the end of the prescribed accounting period during which that period of 3 years has elapsed,

shall be disregarded for the purposes of this regulation; and in paragraphs (2) to (6) of this regulation "overstatement", "understatement" and related expressions shall be construed accordingly.

(2) In this regulation—

(a) "under-declarations of liability" means the aggregate of—

(i) the amount (if any) by which credit for input tax was overstated in any return, and

(ii) the amount (if any) by which output tax was understated in any return;

(b) "over-declarations of liability" means the aggregate of—

(i) the amount (if any) by which credit for input tax was understated in any return, and

(ii) the amount (if any) by which output tax was overstated in any return.

(3) Where, in relation to all such overstatements or understatements discovered by the taxable person during a prescribed accounting period, the difference between—

(a) under-declarations of liability, and

(b) over-declarations of liability,

does not exceed £2,000, the taxable person may correct his VAT account in accordance with this regulation.

(4) In the VAT payable portion—

(a) where the amount of any overstatements of output tax is greater than the amount of any understatements of output tax a negative entry shall be made for the amount of the excess; or

(b) where the amount of any understatements of output tax is greater than the amount of any overstatements of output tax a positive entry shall be made for the amount of the excess.

(5) In the VAT allowable portion—

(a) where the amount of any overstatements of credit for input tax is greater than the amount of any understatements of credit for input tax a negative entry shall be made for the amount of the excess; or

(b) where the amount of any understatements of credit for input tax is greater than the amount of any overstatements of credit for input tax a positive entry shall be made for the amount of the excess.

(6) Every entry required by this regulation shall—

(a) be made in that part of the VAT account which relates to the prescribed accounting period in which the overstatements or understatements in any earlier returns were discovered,

(b) make reference to the returns to which it applies, and

(c) make reference to any documentation relating to the overstatements or understatements.

(7) Where the conditions referred to in paragraph (3) above do not apply, the VAT account may not be corrected by virtue of this regulation."

Regulation 35 provides that—

"Where a taxable person has made an error—

(a) in accounting for VAT, or

(b) in any return made by him,

then, unless he corrects that error in accordance with regulation 34, he shall correct it in such manner and within such time as the Commissioners may require."

The Commissioners' guidance

VAT Notice 700/45 explains how to correct errors and make adjustments or claims. Section 4 deals with correcting VAT errors on a return that has already been submitted. It outlines two methods: Method 1 is practical guidance for implementing Regulation 34. Method 2 deals with other errors and the submission (as in the Appellant's case) of Form VAT 652 Voluntary disclosure of errors on VAT returns. I refer to this in more detail later. Sections 5 and 6 deal respectively with how to claim a refund and how to make a late claim for input tax.

Section 5 explains that if the taxpayer has paid the Commissioners an amount of VAT that was not due, the taxpayer may make a voluntary disclosure. The reader is referred back to Section 4 for an explanation of how to do this.

Section 6 explains that input tax should be claimed in the VAT accounting period in which it became chargeable. It goes on to say that if the taxpayer is unable to claim input tax in that period because he does not hold proper evidence at that time (normally a VAT invoice), the input tax should be claimed once the taxpayer has that evidence, subject to the 3 year time limit. The claim can then be made either on a return for a later period or by making a voluntary disclosure. Paragraph 6.3 states that if the taxpayer has the necessary evidence to make a claim but fails to do so this is an error and the input tax cannot be claimed on a later return but must be dealt with through a voluntary disclosure. Paragraphs 6.4 and 6.5 are as follows—

"6.4 What's the time limit for making a claim?

You cannot claim the input tax if more than 3 years has passed since the due date of the return for the period in which it became chargeable.

6.5 How do I claim?

On a return – you should include the input tax in Box 4 of the VAT return for the later period.

By voluntary disclosure – go to Section 4. If you are within the time limit at paragraph 6.4 we will allow you to make a voluntary disclosure, even if you are technically out of time to correct the error."

I can imagine that how one can be within a time limit and yet technically out of time is something that may perplex some readers of this Notice but I take it to reflect the point that appears in University of Sussex regarding late claims for input tax. In short, the Commissioners will admit late claims but not so late as to extend beyond the 3 year cut off.

The Appellant's Submissions

Mr Anderson submitted for the Appellant that it had made a valid disclosure and had despatched it to the Commissioners. There was nothing more that the Appellant had to do. As regards the first issue – whether the claim had been posted – Mr Anderson said that the witnesses had given a full and frank account of the matter and had demonstrated their reliability. When she had been unable to recall a particular matter Mrs Jurgens had frankly admitted that.

She had followed her usual practice in dealing with these matters. 19 June 2002 had been the same as any other day. There had been nothing out of the ordinary and there was no indication to suggest that the letter had gone astray before being posted. The Appellant had the supporting documents to show that the claim had been made and the unique accounting entry to prove that nothing had been backdated or manipulated to cover up an earlier error. They had a copy of the original disclosure. To the extent that there was any evidence of errors or failure none of them went to the issue of whether the letter had been posted or not. This was not a sloppy organisation and it was only the later facts that Mrs Jurgens left and as a result Mr Thomson was overburdened that had meant that there had been a delay in identifying that the claim had not been dealt with and in following this up. That did not, however, matter because by that time the claim had been made.

Mr Anderson then turned to the question of when the claim had been made. He submitted that this was when the Form VAT 652 was despatched. Alternatively he said that the evidence should be taken as showing that on the balance of probabilities the form had been received by the Commissioners. Most of the evidence given on the Commissioners' behalf was neutral as to whether the letter might or might not have been received. On the other hand, the Commissioners witnesses had accepted that things can go missing and that inputting errors can occur. Mr Marshall's evidence had demonstrated a history of the Commissioners failing to deal with correspondence and while most of this had been traced there was at least one letter that had not. Mr Anderson noted that if the Commissioners must receive a claim for the claim to be validly made, how was the taxpayer supposed to check on this? Must he take it to the relevant office in person?

Mr Anderson then drew my attention to Regulation 29(1) and (1A). The emphasis was on whether the return or claim had been "made". He also drew attention to Regulation 35. This provided that where a taxable person has made an error in any return, he shall correct it in such manner and within such time as the Commissioners may require. In this respect Notice 700/45 "How to correct VAT errors and make adjustments or claims" in paragraph 4.3 instructed taxpayers to ask for Form VAT 652 or to write setting out full details of the errors. Paragraph 4.3 referred to "making" a voluntary disclosure. Mr Anderson also noted that section 80(2) also refers to the "making" of a claim. He said that throughout these provisions and the Commissioners' guidance there was a consistent use of language and an emphasis on the word "make" or "made".

Mr Anderson then noted that the same expression was used in relation to the Commissioners' power to assess VAT. The Commissioners would "make" an assessment. Mr Anderson submitted that the making of a voluntary disclosure was for taxpayers what the making of an assessment was for the Commissioners. In the taxpayer's case one was claiming money and in the Commissioners' case one was claiming tax. He drew my attention to Courts plc v Customs and Excise Commissioners [2004] STC 690, where in paragraph 53, where Mr Justice Blackburne had set out the principles of what an assessment is and when it is made. Mr Anderson accepted that to make a voluntary disclosure the taxpayer had to post the claim but it was unnecessary to prove that it had been received. In this respect there was a contrast between the making of a claim and the making of an assessment, where notification is a separate thing recognised by the Act. He noted, however, that assessments were limited to a three year time period by reference to when they were made and before they were notified. He said that fairness to both sides dictated that a similar approach should be adopted for the time limit on taxpayer's claims, so that claims could be made before they were received.

He said that the Commissioners were wrong to suggest that the answer in this case was dictated by CCE v W Timms & Son (Builders) Ltd [1992] STC 374. There were distinct reasons for the decision in Timms, notably that the repayment supplement was designed to act as an incentive for the Commissioners to make early payment and to operate as a penalty if they did not. The earlier cases referred to in Timms had been based on earlier provisions that referred to the 'furnishing' of a return and that applied at a time when non-compliance had involved a criminal penalty for failure to meet the time limit. In short, Timms was dealing with a different aspect of the VAT compliance regime and did not dictate what was required for a claim to be 'made' in the present context.

Mr Anderson then referred to section 59(1) and noted that it specifically referred to the need for the Commissioners to receive a return. The Tribunal decision in Halstead Motor Company (1995) Decision No. 13373 indicated that if a return is posted at least one working day prior to the due date it will be treated as received by the due date, even if in fact it is not. In that case, the Tribunal found that there had been no default when the return had been posted on Friday 29 July, so that the return could be treated as received on Saturday 30 July, even though it was only actually received on 5 August. The taxpayer in that case had not just a reasonable excuse but had complied with the statutory requirement to furnish a return that was not in fact received by the due date.

In this case, however, Mr Anderson said that the correct analogy was by reference to the making of an assessment not to the furnishing of a return. In support of his submissions on the correct interpretation of the VAT legislation he also drew my attention to the provisions of the Civil Procedure Rules dealing with service, in particular the provisions of CPR 6.7 indicating when a document is deemed to be served when it is sent by post, and to the decision in The Household Fire and Carriage Accident Insurance Company (Limited) v Grant (1879) 4 Ex D 216. This case is authority for the general rule that a posted acceptance of a contract takes effect even though it never reaches the offeror because it is lost through an accident in the post (see Chitty on Contracts, Volume 1 General Principles, Chapter 2, paragraph 2-053).

The Commissioners' Submissions

For the Commissioners Mr O'Connor replied to Mr Anderson's submissions by saying that even if the Appellant had satisfied me that the Form VAT 652 had been posted, the Appellant was unable to show that it had been received at the local VAT office. He submitted that I could not conclude on the balance of probabilities that the form had been received just because I was satisfied that it had been posted, so that it then fell to the Commissioners to show that it had not been received.

As regards the emphasis that Mr Anderson had placed on the use of the word 'made', Mr O'Connor noted that it was a word without a clear meaning. He said it was fanciful to suggest that it should be taken to have the same meaning in relation to a claim as it did for an assessment. The expression 'claim' had a bilateral quality that involved the need for communication of a claim to another person. Section 73, in contrast, did not refer to making an assessment but just to the fact that the Commissioners "may assess". More relevantly, section 73 identified two distinct steps – the assessment and its notification. No such distinction was drawn in the case of a claim. In essence the making of a claim combined both the completion of the claim and its notification. He also made the point that there were important differences between an assessment and a claim. The Commissioners were a regulatory body that had to investigate, find out the facts and then take decisions based on their investigations. It was those decisions that would then lead to the formal step of assessment as the expression of those decisions. Taxpayers on the other hand are in possession of whatever facts that may lead to a claim and it is the communication of those facts in the form of the claim that matters.

Mr O'Connor drew my attention to section 59(7) which, in relation to the late delivery of returns, enables a taxpayer to avoid a default surcharge if he can show that the return was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the Commissioners within the appropriate time limit. He said that if receipt was to be implied from posting then it would be unnecessary to make this provision. The fact that Parliament had made this provision supported the Commissioners' view that the claim had to be received and that evidence of posting was not enough.

He also made the point that a VAT return was a regular and expected event, enabling the Commissioners to investigate and take action if it was not received on the due date. In contrast, a claim was a one-off unanticipated event that was solely in the knowledge of the taxpayer until it had been communicated to the Commissioners. Until they received a claim they were entitled to assume that what they had been told through the previous VAT returns was correct and act accordingly.

By reference his skeleton argument Mr O'Connor said that there were three possible answers to the question of when a deduction of input tax is claimed for the purposes of Regulation 29(1A)—

(a) The moment when the Form VAT 652 has been completed and the Declaration on it is signed and dated.

(b) The moment when the completed form VAT 652 is posted to the Commissioners.

(c) The moment when the completed Form VAT 652 is received by the Commissioners.

The Commissioners contended that the correct time must be the last of these – namely that a deduction of input tax is only claimed at the moment that the Form VAT 652 is received by the Commissioners.

Mr O'Connor said that this interpretation accorded with the natural meaning of the word 'claimed'. In a situation where a party wishes to make a claim against another party, it is not natural to think of that claim as having been made until it has been communicated to that other party, or perhaps to a third party responsible for resolving the dispute. Mr O'Connor referred to an analogy in the field of insurance, where a claim is only considered to have been made when the insurance company has notice of it, i.e. when it receives it.

In Mr O'Connor's view the Commissioners' interpretation accorded with the purpose of the provision. He said that the starting point was Regulation 29(1). The general rule is that deductions for input tax should be claimed at the end of the accounting period during which the input tax became chargeable. In other words, the claim for a deduction should be brought to the attention of the Commissioners as soon as possible. Regulation 29(1A) recognises that claims for deduction of input tax may be "made" after the relevant accounting period, but with a cut-off of three years. In interpreting the meaning of "making a claim" in this context, the underlying principle – viz that claims for deduction of input tax should be brought to the attention of the Commissioners as soon as possible – should be respected. Mr O'Connor relied in particular on CCE v W Timms & Son (Builders) Ltd [1992] STC 374. He acknowledged that the High Court in that case was construing a different provision but he said that it was of assistance in the present case in terms of approach and analogy.

By way of contrast, Mr O'Connor said that it could not possibly be correct that the deduction of input tax was claimed on completion of Form VAT 652. First, such a construction is inconsistent with the sense of the word 'claimed', which carries with it the idea that the claim is being communicated to its recipient. Second, if this were the correct construction, a trader would be within his rights to complete a Form VAT 652 and then withhold it from the Commissioners for many years before presenting it to them and requesting payment. Such a construction would wholly undermine the limiting purpose that this provision was intended to serve.

He said that it also could not be right that the deduction was claimed when the Form 652 was posted. While this could be said to respect the meaning of the word 'claimed', namely that a claim is being communicated to its recipient, it did add a layer of legal fiction – a 'deeming provision' – by which the claim is taken to have been communicated on, or perhaps shortly after, the date of posting.. Mr O'Connor said that there were, however, several objections to this construction—

(a) first, there is nothing in the wording of the provision to suggest (or support) this construction. It does not read, for example, "such that the deduction would fall to be claimed, or would be deemed to be claimed, more than 3 years (" (extra words underlined by Mr O'Connor in his skeleton).

(b) Second, a legal fiction such as deemed service requires rules to deal with problem cases:

Does the claim have to be posted via Royal Mail, or will any courier/delivery service suffice?

Does first class post have to be used, or does second class also count?

Is the claim deemed to be received the day after posting, two days after, three days after?

Mr O'Connor referred to the Appellant's submission regarding the CPR Part 6.7. He said that this provision demonstrated just how carefully rules need to be made in order for a system of deemed service to operate. No such rules are to be found within the VAT Act 1994 or its associated Regulations, nor are the relevant provisions of the CPR added by incorporation. The provisions of CPR 6.7 are of no direct relevance to this issue. They show only a system that might have been established to apply to claims for deduction of input tax, but which has not been. What they did indicate was the distinction between starting a claim and making it by serving the documents. The more appropriate analogy in this situation – the initiation of a claim – is with CPR Part 7.2. Mr O'Connor referred also to the Value Added Tax Tribunal Rules 1986 (S.I. 1986/590), which require service of notices of appeal, applications and documents by the same being handed to the proper officer or being received by post at the appropriate tribunal centre (see Rule 31).

Mr O'Connor noted that there was a line of old cases in which it had been held that taxpayers had "furnished" a return to the Commissioners simply by posting it. However, these cases were founded on the conclusion that the Commissioners had appointed the Post Office as their agent for the purpose of receiving the return by supplying the taxpayer with a pre-paid, pre-addressed envelope and instructing the taxpayer to use it (see Aikman v White [1986] STC 1; Hayman v Griffiths [1987] STC 649). This point obviously did not apply to the facts of a claim for the deduction of input tax.

The Appellant's reply

In reply Mr Anderson said that the important question was when did the time limit clock stop running? He said that this must be when the claim was 'made'. He said that the decision in Courts plc was very much in point in the present case. It illustrated that from the Commissioners' side there had to be a decision to assess and then the making of an assessment. It was at that point that the time limit clock stopped running. It was a clearly identified event.

In the same way he said that what mattered in the case of a claim was when the claim could be said to have been 'made'. This had to be a clearly defined point in time at which the clock could be said to stop running. VAT Notice 700/45 made it clear that the claim had to be despatched and this was the obvious point at which the clock should stop running. The Act nowhere referred to the need for 'receipt' in this context and there was no reason to think, taking the Commissioners' evidence of their procedures, that 'receipt' would provide a definite point at which the clock stops running. If the Commissioners were right taxpayers would always have to know when the claim was received to be sure that it had been made within the 3 year period. In this respect the specific provision in section 59(7)(a) indicated what was needed in this respect where the Act clearly focussed on receipt by the Commissioners.

Conclusion on the facts

I am satisfied on the evidence that I heard that Mrs Jurgens completed the Form VAT 652 and put the envelope containing the form in the post tray. It is not impossible that some slip then occurred but on the balance of probabilities I am also satisfied from the evidence that I heard that the envelope was placed in the pillar box immediately outside the Appellant's offices. I do not think, however, I should infer from this that the form was received by the Commissioners but then misfiled or lost. Just as the Appellant cannot prove absolutely that nothing went awry at its end so that the repayment claim was never posted, so the Commissioners cannot prove with absolute certainty that the repayment claim was never received. But if I am to decide for the Appellant on the basis of its evidence that the claim was posted, I ought on the basis of the Commissioners' evidence to decide that the claim was never received.

That then leads to the question of when Parliament envisaged that a claim should be taken to have been made for these purposes, having regard to the statutory language used and the scheme of the Act to which it is designed to give effect. This issue has been previously addressed by the Tribunal in very similar circumstances to these in Richard Costain Ltd v Customs and Excise Commissioners [1988] VATTR 111. Judge Medd's decision in Costain, however, was doubted by Mr Justice Macpherson in Customs and Excise Commissioners v W Timms & Son (Builders) Ltd [1992] STC 374 at 379 and I therefore start with the line of cases that lead to Timms to see to what extent they are relevant to what I have to decide in this case, as Mr O'Connor suggested they were not following Timms .

The relevant case law

The line of cases begins with Aikman v White [1986] STC 1. There, the Commissioners sent the taxpayer his VAT return together with the instruction to complete and return the return in the pre-paid and pre-addressed envelope. The taxpayer duly did so but the return was never delivered. Regulation 51 of the VAT (General) Regulations 1980 required every registered person to "furnish" a return in the prescribed form no later than the specified date. The taxpayer was charged (it being a criminal offence at the time) with failing to furnish a return but was acquitted on the basis that posting sufficed. Nevertheless, Lord Wheatley was of the opinion that the ordinary meaning of the word "furnish" involved putting the return into the possession of the Commissioners.

He said this (at page 5)—

"In my opinion the word 'furnish' in the regulation means putting the return into the possession of the controller. Under the scheme of the 1983 Act and the regulations this is the method whereby the taxpayer's liability to tax can be checked and assessed. That is why the taxpayers shall provide the controller with the requisite information and the regulation is framed as it is. The word 'shall' is used, not the phrase 'shall take all reasonable steps'. However imperative and draconian this may seem to be it is a common feature of tax legislation.

It was argued by the respondent's counsel that if the appellant's submission was well founded, the only secure way of furnishing the return was to hand it personally to the controller at Southend-on-Sea, no matter where in the United Kingdom the taxpayer might be. That may be so, but, in general, if the taxpayer remits the delivery to an agent, in this case the Post Office, and the agent fails to effect delivery, the principal has to accept responsibility for non-delivery and his consequential failure to effect his statutory duty."

Lord Wheatley nevertheless concluded that the taxpayer had complied with his statutory duty because the instruction on the return meant that, "the commissioners were directing the taxpayer on how to meet the requirements of the regulation in regard to furnishing the return to the controller, and were thus using the Post Office as their agents."

Although he arrived at the same conclusion, namely that it was the controller who was using the Post Office as agent rather than the taxpayer, Lord Robertson does not appear to take as strict a view as to what amounts to 'furnishing a return' within the scheme of the Act. He says (at pages 6-7)—

"Although the word 'furnish' in its primary meaning appears to embrace the supply or provision of something to another party (thereby including receipt), it seems to me to have a wider meaning than simply 'deliver'. It connotes two stages: the positive act of sending on the part of the furnisher, and the receipt by the recipient of what is furnished. Once the sender has completed his part of the necessary operation, receipt by the recipient is not in the control of the sender. As soon as the sender has completed the form, put it in an envelope, and duly posted it, the sender has in my view completed his part of the act of furnishing. If this were not so, the requisite act by the sender would be to all intents and purposes incapable of performance, as the controller who is to receive the return is at Southend-on-Sea in Essex. It would be absurd to suggest that the senders of the form in all parts of the United Kingdom can only carry out effectively their duty under the regulation by travelling to Southend-on-Sea and handing it personally to the controller."

Of course, the sender may have "completed his part of the act of furnishing" only in the sense that he has completed that part of the act in the manner he has chosen. In that case "receipt by the recipient is not in the control of the sender" because the sender has chosen to entrust the act of delivery to another, viz. the Post Office, rather than deliver it himself. The determinative factor leading to the taxpayer's acquittal in Aikman was that it was the Commissioners who had chosen to specify the Post Office, not the taxpayer.

While it was the Commissioners who had chosen to specify the Post Office in Aikman, I nevertheless think that Lord Robertson was reflecting a broader point. If all that mattered was whether it was the taxpayer's choice to post his return or that he did so following the Commissioners' instructions, it could hardly be relevant whether the pre-paid and pre-addressed envelope had directed the taxpayer's return to Southend-on-Sea in Essex or to her local VAT office in Edinburgh. To my mind, what Lord Robertson was recognising is that a word such as 'furnish' and the specific act that it envisages – what amounts to 'furnishing' – have to be construed in their statutory context. It may be that the ordinary meaning of the word 'furnish' may encompass receipt but in the particular statutory context actual receipt – which would otherwise have to be proved – as contrasted with despatch need not be shown.

Lord Dunpark makes this point at page 8—

"While equity appears to be on the side of the Commissioners, we are called upon to construe the word 'furnish' in the context of the 1983 Act and relevant regulations. We were not referred to any judicial construction of the word 'furnish'. I do not find this surprising as I know of no statute other than this Act in which 'furnish' is used. The relevant definition of 'furnish' in the Oxford English Dictionary is 'to provide or supply with (something)', which indicates that nothing is 'furnished' until it is received. The use of the word 'made' in para 11(1)(b) of Sch 7 of the Act is ambiguous. On the one hand, a certificate that a return has not been 'made' prima facie relates to non-receipt, because the completion and posting of a return are matters outwith the knowledge of the commissioners. On the other hand, the certificate permits the contrary being proved, and I do not understand how the taxpayer can prove the non-receipt of a return by the commissioners. All that he can prove is that he completed the form and posted it to the commissioners. That is what has been proved in this case. Moreover that is exactly what the commissioners invited the Commissioners to do."

Lord Dunpark went on to decide that the Commissioners had appointed the Post Office their agent to receive returns. Nevertheless, as he recognises, the real issue is one of proof. In enacting provisions that require some action by one party the object of which is to communicate or deliver something to another party, Parliament must inevitably have in mind that in the ordinary course of daily life the two parties may well not be at the same place at the same time but are likely to communicate or to deliver the thing through the intermediation of some other person. In such cases it may be unavoidable that one party can prove that he instigated the communication or delivery but cannot prove that the other party heard or received it, while the other party can neither prove that the first party instigated the communication or delivery nor prove that the communication was not heard and not received. In those circumstances, what does Parliament envisage should be the construction to be put on the statutory language that it has used in the context of the overall scheme of the Act that that language implements?

In Aikman it was undoubtedly convenient in arriving at a conclusion that the Commissioners had instructed taxpayers to post their returns and had provided a pre-paid, pre-addressed envelope to facilitate this. Nevertheless, the real issue is what Parliament intended when it directed that regulations may require the making of returns in such form and manner as may be specified and the regulation required taxpayers to furnish their return by a specified date. The natural meaning of "furnish" may certainly contemplate receipt but under the scheme of the Act was this what had to be shown by the taxpayer – effectively an impossible task and therefore imposing strict liability on the taxpayer for any failure – or would it suffice that the taxpayer demonstrate that he had despatched his return? A word such as 'furnish' in some respects takes its colour depending upon whose perspective – the sender or the receiver – the matter ought properly to be considered. In the context of the submission of a return, the burden of showing that it had been made was clearly placed on the taxpayer by the statutory certificate that the Commissioners could give to say that the return had not been made unless the contrary was shown. As Lord Dunpark recognises, however, that shifts the burden to the taxpayer, not to prove its receipt, but to show what he has done and therefore whether that suffices to meet his statutory obligation.

Aikman v White was followed in England in Hayman v Griffiths and other, Walker v Hanby [1987] STC 649, to which I need refer only briefly. Mr Justice Mann accepted that the meaning of the word 'furnish' involves a receipt of a thing before it can be said that the thing has been furnished and that—

The apparent consequence for present purposes is that if a taxable person posts a form 4 in accord with what is printed on the form then he is guilty of a criminal offence if the form is not received by the addressee. Such a consequence seems surprising but is not impossible should primary and secondary legislation combine to secure its achievement."

Nevertheless, he rejected the Commissioners' argument that Aikman was wrongly decided and concluded that—

"The obligation to 'furnish' derives from reg 58(1) and is an obligation to furnish a return on the form numbered 4. Form number 4 informs the taxable person what he is to do. ... The Regulation by its own adoption of form 4 has effected a refined meaning of 'furnish'."

As often happens, the Commissioners responded to these decisions by altering the instructions that accompanied the VAT return. This appears from Richard Costain Ltd v Commissioners of Customs and Excise [1988] VATTR 111. Costain submitted monthly VAT returns because it was entitled to reclaim input tax in most periods. The return for January 1987, however, showed an amount due to the Commissioners. The situation in Costain was to all intents and purposes the same as in the present appeal. Those concerned at Costain gave evidence, which the Tribunal accepted, that they had completed the January 1987 return, had drawn a cheque for the VAT due and had placed the envelope containing the return and the cheque in the post bag provided in Costain's post room, whence it was taken to the reception area and collected by the Post Office. The Tribunal accepted that while it was not impossible for the letter to have been mislaid before the post bag was delivered to the postman, on the balance of probabilities, the envelope had been delivered to the postal authorities.

Witnesses for the Commissioners then gave evidence of the systems adopted by the VAT Central Unit at Southend where returns and cheques from all parts of the country were processed. In relation to this the Tribunal concluded that—

"It is not necessary for me to set out this evidence in detail, it suffices to say that the evidence ... satisfies me that a very carefully thought out system operates at the VAT Central Unit designed to ensure that none of the many thousands of returns and cheques that are processed there each month go astray. ( It was apparent ( that it was possible, though extremely unlikely, that returns or cheques, having been received might get lost. ( In the light of this evidence I am satisfied that, though it is not absolutely impossible that Costain's January return and cheque were received at the Unit and somehow got mislaid after receipt, nevertheless the strong probability is that they were not received at the VAT Central Unit."

Had the January return been in the same form as that in Aikman and Hayman, there would have been no doubt that Costain had furnished the return. The Commissioners, however, had altered the wording of the form so that it read "You must ensure that the completed form and any VAT payable are received no later than the due date by the Controller". His Honour Judge Medd QC nevertheless concluded that Costain had done all that it needed to do to furnish its January return. Having considered the previous cases, he was of the view that the new wording merely told the taxpayer when he must ensure that the completed form was received by the Controller in the ordinary course (i.e. when it must be posted to arrive by that date in the ordinary course). The effect of the new form could not be taken to indicate expressly that the Commissioners were not using the Post Office as their agent.

These three decisions were considered by Mr Justice Macpherson in Customs and Excise Commissioners v W Timms & Son (Builders) Limited [1992] STC 374. In that case the company's return was posted on 15 September 1987 but was not actually received by the Commissioners until 31 March 1988 (although a duplicate return had been posted on 2 December 1987). The return for the period showed that the company was entitled to a VAT repayment for the period. The Commissioners repaid the VAT on 17 December 1987 but refused to pay repayment supplement on the basis that they had not received the return within the time prescribed. This was laid down by section 20(1) VATA 1985 in the following terms—

"(1) In any case where—

(a) a person is entitled to a payment under section 14(5) of the principal Act in respect of a prescribed accounting period, and

(b) the return for that period which is required in accordance with regulations under the principal Act is received by the Commissioners not later than one month after the last day on which, in accordance with those regulations, it is required to be furnished, ...

the amount which, apart from this section, would be due by way of that payment shall be increased by the addition of a supplement equal to 5 per cent. of that amount of £30, whichever is the greater."

His Honour Judge Medd QC, in reliance upon the earlier case law including his previous decision in Costain, concluded that the posting of the return sufficed and that repayment supplement should be paid. Mr Justice Macpherson allowed the Commissioners' appeal. In the process he expressed some doubt as to whether Costain had been correctly decided and also explained why the decisions in Aikman and Hayman had been overtaken by changes in VAT law, in particular its decriminalisation and the introduction of the new regime for default surcharge and repayment supplement.

I think it unnecessary in the present context to set out in full the reasons given by Mr Justice Macpherson for arriving at his conclusion. The salient aspect of the matter was that the statutory provisions in question did not depend upon the return being furnished or made but upon it being received by the Commissioners by a specified date. When the evidence was that the return had not been received by that date it was obviously an optimistic argument by the taxpayer (even though it bore fruit in the Tribunal) to rely on the fact that the return had been posted and therefore should be deemed to have been received by the requisite date even though it had not. Whatever else is the case, I do not think that in the field with which I am concerned you can claim that something has happened (namely, receipt) when the evidence is that it has not, unless the statute contains an appropriate deeming provision to that effect.

Accordingly, in my view the decision in Timms does not render the earlier decisions in Aikman, Griffiths and Costain irrelevant to my decision given that they involved the same issue as that with which I am confronted, namely a case in which posting can be provide but receipt can neither be proved nor disproved. Similarly, I do not regard Timms as concluding the matter in the Commissioners' favour given that it concerned the use of the word 'received' in the relevant statutory provision and that it was a case in which it was proved that the relevant return was not received by the specified time. Mr O'Connor did not suggest that Timms did conclude the matter in his favour but said that it was of assistance in terms of approach and by analogy. I disagree.

When are claims 'made'?

I turn then to the particular statutory provisions with which I am concerned. Although I have set these out earlier in my decision I set them out in what follows to the extent that will help to explain my conclusion.

Regulation 29(1) and (1A) provide that,

"(1) Subject to paragraphs (1A) and (2) below, save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25(2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT became chargeable".

"(1A) The Commissioners shall not allow or direct a person to make any claim for deduction of input tax in terms such that the deduction would fall to be claimed more than 3 years after the date by which the return for the prescribed accounting period in which the VAT became chargeable is required to be made."

Although paragraph (1) refers to a claim for deduction of input tax and to the return for a prescribed accounting period, I think it plain that issues of posting and receipt are not relevant considerations for the claim to deduct input tax under Regulation 29(1). The claim is validly made for the period even if the return is late. Certainly Regulation 25 requires the making of the return in which the deduction is claimed by a specified date and section 59 imposes a default surcharge if the return is not received by that date, subject to the defences (including that relating to posting) provided by section 59(7). Nevertheless, what matters is that the claim is made in the relevant return, not when the return is despatched or received.

The Commissioners' basic guidance on claiming input tax is contained in VAT Notice 700 section 10. This repeats that a taxpayer reclaims input tax by deducting it in the VAT return. As regards the timescale for doing so, it makes the point that input tax should normally be claimed for the period in which the supplier's tax point occurred or, for imported goods, the date of importation. The guide makes the point, however, that valid evidence must be held of the supply giving rise to the input tax and where this is not the case, the claim must be made on the return for a later period when the evidence is available provided that return is within 3 years of the date for which the return for the proper period was due to be made.

Again this does not seem to me to suggest absolutely that the dates on which the later return is despatched and received are fundamental to the validity of a claim made through a return. If the claim is made through a return one asks in which return period the input tax in question ought to have been claimed by entry on the return and answers that by reference to the time at which the input tax became chargeable. The claim must then be made by entry on a return for that period or for a period within the following three years and the obvious question on a later return is whether it is for a period falling within that three year period. When the return is despatched or received by the Commissioners does not seem to me to dictate the answer of whether the claim is in time and to my mind Regulation 34 also conveys this impression.

In the Appellant's case, the input tax in question ought to have been claimed in an earlier period but was overlooked. As I have previously noted, VAT Notice 700/45 makes clear that in that instance the error must be corrected by following the procedures in Section 4 of the Notice. Section 4 describes two methods, known as voluntary disclosures, for correcting errors. Method 1 deals with errors of a net value of £2,000 or less and Method 2 deals with errors of any size. With Method 1, taxpayers are instructed that—

"At the end of the current period, if the net value of VAT errors you've found on previous VAT returns is £2,000 or less, you can adjust your VAT account and include the value of that adjustment in your current VAT return."

The Notice makes clear that the net value of VAT errors on previous returns is the difference between the total tax due to the Commissioners and the total tax due to the taxpayer. The absolute amounts involved may therefore be somewhat greater than £2,000. The Notice states that taxpayers can only correct errors in accounting periods that ended 3 years ago or less. Here again it seems to me that the Commissioners are directing that the time limit operates by reference to the end of the period of error and the return period in which the error is being corrected and that, as such, when the corrective return is despatch or received is not determinative. At the very least, it suggests that if the return is despatched in time, the corrective claim will have been made even if the return is shown to have been delayed in the post and only received after the expiry of the three year period. And this is notwithstanding the fact that, in relation to returns, what matters for the purposes of the default surcharge is when the return is received. The claim for input tax is nevertheless made by completion of the requisite return.

I note that where the net value of errors amounts to £2,000 or less, the taxpayer is entitled to use either Method 1 or Method 2 without being charged interest. Where the net value of the error amounts to more than £2,000, however, the taxpayer must use Method 2 (and the Commissioners may charge interest on any under-declarations disclosed in this way). Method 2 is described in the following terms—

"Inform your local VAT Business Advice Centre in writing of the errors. If you use this method, you must not make adjustment for the same errors on a later VAT return.

Ask our National Advice Service for Form VAT 652 Voluntary disclosure of errors on VAT returns to use when making a voluntary disclosure. You may save time by using this form, but if you prefer, you can simply write to us.

In either case, you should set out full details of the errors including:

how each error arose

the VAT accounting period in which it occurred;

if it was an input tax or output tax error;

the VAT underdeclared or overdeclared in each VAT period;

how you calculated the VAT underdeclared or overdeclared;

whether any of the errors resulted in you paying us an amount that wasn't due (if this has happened see Section 5); and

the total amount to be adjusted."

In this case the Appellant used Form 652 to make its voluntary disclosure. This directs the taxpayer, "when you have completed and signed this disclosure form", to "send it directly to your local VAT office (not the VAT Central Unit)."

A voluntary disclosure on Form 652 or by separate letter is not, of course, tied to any particular return period. On the other hand, if it is correct that the time limit operates by reference to return periods when the requisite evidence is not available until a later period or in the case of errors corrected via Method 1, and in neither case depends upon the receipt of the return within the three year period, it raises the question whether receipt within the three year period needs to be shown when Form VAT 652 is used or if the taxpayer chooses to send a separate disclosure letter, or whether it suffices to show that the form or letter was despatched to the requisite office (as Form 652 directs).

It is also clear from VAT Notice 700/45 that the Methods being described for correcting errors works in both directions, i.e. in favour of the taxpayer to correct for input tax not previously claimed or for VAT wrongly paid and in favour of the Commissioners to deal with under-declarations of output tax and VAT underpaid in previous periods. In this respect, one would expect some consistency in the application of the time limits in terms of errors that the taxpayer can correct and the action that it is open to the Commissioners to take to correct past errors.

The principal instrument available to the Commissioners for correcting matters is an assessment to VAT. The issue of when an assessment is made has been considered in a number of cases but Mr Anderson relied in particular on the decision of Mr Justice Blackburne in Courts plc v Customs and Excise Commissioners [2004] STC 690. That decision has now been overtaken by the Court of Appeal's decision at [2004] EWCA Civ 1527. I do not need to explain in any detail the background to that decision. The essential point in Courts plc that is relevant here is when is an assessment made and how does that relate to the time limit imposed on assessments by section 77, which corresponds to the time limit imposed on claims by section 80(4) and Regulation 29(1A)?

Mr Justice Blackburne took the view that—

"The form devised for making assessments is VAT 641. The form is headed 'Officer's Assessment'. In my judgment an assessment is made when that form has been completed and signed off. That means when the assessing officer has made his calculation of what is due for each period of account, inserted the calculation on the relevant line of the form, inserted, where appropriate, the other coded information relating to the type, nature and reason for the assessment and signed the form, when the check officer has checked and signed the form and when, if the practice requires it, the countersignatory has also signed the form. What follows after the form has been completed and signed off is the processing of the assessment and is not a part of the assessment itself.

Lord Justice Jonathan Parker, in delivering the Court of Appeal's decision, was unable to go as far as the Judge in advancing the seemingly absolute proposition that "an assessment is made when [the VAT 641] has been completed and signed off". In the majority of cases this may well be so but, in the Court of Appeal's view, there can be no absolute rule to that effect. In relation to the making of an assessment, Lord Justice Jonathan Parker said this—

"The statutory requirement for notification of an assessment to the taxpayer demonstrates that in enacting section 73 Parliament regarded the process of making an assessment itself as an internal matter for the Commissioners. However, given that the time limits in section 73(6) apply to the making of an assessment, as opposed to the notification of the assessment, it is clearly important that the Commissioners' internal processes and procedures in relation to the making of assessments should, so far as practical, be standardised; and that in relation to any particular assessment the process which has been followed, and the date or dates on which the various steps comprised in that process were taken, should be readily verifiable by contemporary evidence. ... The absence of any statutory time limit within which an assessment, once made, must be notified to the taxpayer means that, in theory at least, it is open to the Commissioners to delay notification for some considerable time ( However, it is clearly undesirable that that should occur, and the Commissioners' policy of not relying on any earlier date for the making of an assessment than the date on which the assessment was notified to the taxpayer ensures that no unfairness will be caused to the taxpayer in this respect."

Mr O'Connor pointed out, correctly in my view, that there is a difference between the making of an assessment and the making of a claim. But the conclusion that he drew from that, namely that the Commissioners must have received the claim for it to have been made, does not in my view follow from that difference. The Commissioners as a statutory body performing statutory functions must act in accordance with the requirements of the Act, including devising and following the requisite internal procedures that those statutory obligations impose. Taxpayers must equally comply with the requirements of the Act but they have far greater flexibility as natural persons than do the Commissioners representing a statutory body in how they establish and conduct their internal organisation and procedures. One would therefore expect the internal procedures by which a public body formulates and makes an assessment to be more closely regulated than the procedures by which a taxpayer formulates his claims. What is common to both, as both Mr Anderson accepted, is that both require notification, in the one case of the tax demanded and in the other case of the tax claimed.

In this respect the Act draws a distinction in the case of assessment between the making of the assessment and its notification to the taxpayer. There is no such distinction drawn by the Act in relation to the making of a claim and it is reasonable to assume that the making of a claim necessarily includes taking steps to notify the Commissioners of the claim that is being made. Nobody would say that the taxpayer has made a claim if he were to complete Form 652, sign it and put it in his drawer for production as and when it suits him. The Commissioners, on the other hand, have the luxury, in theory at least, of being able to make an assessment and put it in their drawer for future use. If there is a reason for this difference it is because the Commissioners act under statutory powers and it is therefore a matter that is susceptible of proof that an assessment has been made and when it was made. No such independent verification is possible in the case of a taxpayer unless and until he has done something to put his claim in motion and thereby facilitate such independent verification.

This does not, however, answer the question in issue in this case, whether under the scheme of the statutory provisions that Parliament has put in place, despatch suffices or receipt must be proved. I have no doubt that the Commissioners would regard the taxpayer as having been notified when it despatches the assessment and not by reference to whether and when it is shown to have been received by the taxpayer. The fact therefore that "making a claim" may encompass both the completion of a claim – as in the case of the formal step of making the assessment – and the requirement that the claim be notified to the Commissioners – being the separately identified step of notification in the case of an assessment – recognises the need in the case of a claim for both completion and despatch – or in terms of Form VAT 652, "sending it directly to your local VAT office". That does not, however, mean that the claim is only made on receipt or if the taxpayer can prove receipt, any more than notification of an assessment involves the receipt of that assessment by the taxpayer (or proof of it).

In the case of the notification of an assessment there is the specific statutory provision of section 98 which envisages notification by posting. To my mind, however, it is obvious that the principal purpose of this provision is to state where the assessment should be sent rather than to authorise the use by the Commissioners of the Post Office or to ensure that assessments are deemed to have been notified on despatch rather than receipt. There is no corresponding provision for the notification of claims by taxpayers because there is no need. Taxpayers can always find out where the Commissioners are if they need to write to them.

It is of course true that the Commissioners can only act on a claim once they have received it. Section 7 of Notice VAT 700/45 deals with what happens after a voluntary disclosure using Method 2 has been made. As you would expect, "each voluntary disclosure is subject to checks to protect both the revenue and the interests of taxpayers generally." The checks and other procedures may obviously extend beyond the three year time limit but I do not see that the three year time limit is fundamental to these processes. In other words, it is not critical to what follows the voluntary disclosure that the claim should have been received by the Commissioners within the three year time limit. In that respect, I do not believe that the Commissioners can claim that they will be prejudiced because the claim only comes to their notice after the expiry of the 3 year period in a case such as this, when the claim is shown to have been despatched before the end of the time limit but only comes to the notice of the Commissioners after its expiry.

Conclusion

Having regard to the scheme of the Act and to the language used by Parliament, I accordingly conclude that the Appellant made its claim for input tax once it had completed the Form VAT 652 and had notified that claim to the Commissioners. In this respect all that the Appellant need show is that it did all that was required to notify its claim. It may be that the form was received and lost or misfiled; it may never have been received. Neither party can prove this beyond doubt but in my view the Act does not require such enquiry or answer. The Appellant has done sufficient by proving that it posted the letter to the Commissioners on 19 June 2002. It is unnecessary for it to prove that the Commissioners received the letter in the ordinary course of post.

In arriving at my decision I do not rely specifically on the instruction on Form VAT 652 that the taxpayers should send the form to their local VAT office. Common sense would suggest that the Commissioners expect to receive mail through the usual channels (which is why they have such an elaborate operation for dealing with it) rather than by delivery from a large number of personal callers or in the form of mail that must be individually signed for as evidence of its receipt. By the same token Parliament in enacting the provisions that it has must have in mind the use by taxpayers and the Commissioners of the Post Office. The scheme of the Act and the statutory language used explains why Parliament envisaged that VAT returns must be received and how, in cases such as Aikman and Hayman, a particular construction could be given to the word "furnish".

In those cases it was no doubt convenient to think of the Commissioners designating the Post Office its agent for the receipt of returns but this is obviously not agency in the usual sense. As the cases in the field of contract law illustrate, it is necessary to have a number of rules of convenience for dealing with situations to recognise the difficulties of proof that may otherwise arise. Thus, while the general rule is that an acceptance has no legal effect until it is communicated to the offeror, this is not an absolute rule in circumstances in which the acceptor has acted to communicate acceptance but the offeror denies that any acceptance has been received.

Such rules of convenience cannot be imported into a statutory field such as VAT and instead the resolution of the issue has to proceed on the basis of the statutory language and the scheme of the Act. In this respect I do not believe that Parliament could have envisaged that whether a taxpayer could get under the wire of this particular time limit would depend upon showing when the claim was received, with all the inconsistencies that might entail between different taxpayers in different parts of the country, quite apart from any vagaries of postal delivery. In this respect I do not think it right to conclude that provided the claim is received at some time it should be treated as made when it was signed or posted. Why should it matter whether what was posted in June 2002 was only delivered in May 2003 as compared to a follow-up letter despatched in May 2003?

It seems to me that the essence of entrusting a claim to the Post Office is that once the letter is in the hands of the Post Office it is, so far as the taxpayer is concerned, beyond recall and in that sense has been made. As Lord Robertson noted it would be absurd to think that Parliament intends that to be sure of such matter that senders of such forms should be required in every case to travel to their local VAT office (presumably during normal working hours so that a receipt can be obtained rather than at the weekend or in the evening) to be certain that their claim has been made.

I therefore allow this appeal. Mr Anderson asked that the Appellant be awarded its costs if successful. I accordingly order that the Commissioners should pay the Appellant's costs of and incidental to and consequent upon the appeal, to be taxed on the standard basis in default of agreement.

MALCOLM GAMMIE QC
CHAIRMAN

RELEASED: 10 December 2004

LON/03/0994