United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2005] UKVAT V18958

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RC Internarional Ltd v Customs and Excise [2004] UKVAT V18958 (24 February 2005)

18958

EXEMPTION — leaseholds — Value Added Tax Act 1994 Schedule 9, Group 1, Item 1 — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

R C INTERNATIONAL LIMITED Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Jean Warburton (Chairman)

Carole A Roberts

Sitting in public in Manchester on 20 January 2005

The Appellant did not appear and was not represented

Richard Mansell of the Solicitor's Office of HM Customs and Excise for the Respondents

© CROWN COPYRIGHT 2005


 


DECISION
1. This is an appeal by R C International Limited against an assessment to tax in the sum of £7,732.00. The assessment was issued on 18 June 2003 in the sum of £8,789.00 but only £7,732.00 is in dispute.

2. The Commissioners were represented by Mr R Mansell of the Solicitor's Office of HM Customs and Excise, who put in a bundle of copy documents. No-one appearing on behalf of the Appellant, the tribunal determined to proceed under Rule 26(2) of the Value Added Tax Tribunal Rules 1986.

3. The assessment relates to the deduction by the Appellant of sums in respect of input tax on rent paid for premises for the period 29 August 2000 to 28 February 2003. The question at issue is whether the supplies were exempt.

4. We heard evidence on oath from Michael James Fetherstone, an officer of HM Customs and Excise at the VAT Doncaster office. From the oral evidence and documents submitted we find the facts as follows.

5. The Appellant rented premises at Unit 9 Fall Bank Estate, Dodworth, Barnsley. The Landlord, F Booker Builders & Contractors Limited, did not elect to waive exemption from VAT in respect of Unit 9. The Landlord invoiced the Appellant for rent quarterly, the invoices making no reference to VAT.

6. The Appellant treated the amount on the invoice as a VAT inclusive figure and, as an example, in respect of a quarters rent of £6475 claimed input tax of £964.36. In October 2001 this deduction was queried by the Appellant's auditors.

7. On 28 May 2003, Mr Fetherstone carried out a normal VAT assurance visit to the Appellant. He noted that the invoices for rent had been annotated and input tax claimed. He was aware that the Landlord had not elected to waive exemption on all its premises. The Landlord confirmed by telephone that no election had been made in respect of Unit 9. Mr Fetherstone informed Mr R Calcutt, managing director of the Appellant, that the rent was in respect of an exempt supply and that no input tax deduction could be claimed.

8. On 18 July 2003 the Appellant sought a review of the assessment. The review was carried out by Raghbir Dhillon on 10 November 2003 who upheld the assessment. In his decision letter of 10 November 2003 Mr Dhillon set out clearly that the supply was exempt.

9. In the letter of 18 July 2003 the Appellant submitted that they had always been under the impression that the lease included VAT and at no time did the Landlord inform them that the rent was zero-rated. They further submitted that their auditors raised the matter with the Landlord in 2001 which is why the auditors had not picked up later on the reclaim. The Appellant contended that the 'error' only arose because Mr Fetherstone was aware the Landlord had opted out of charging on some Units. Had the Commissioners visited earlier, the matter would have been sorted out earlier. In the Notice of Appeal, the Appellant states that the amount is such that it could put the company into receivership. The Appellant does not consider the reasons for appeal were taken into account on the review.

10. Mr Mansell for the Commissioners submitted that the rent supplies received by the Appellant were exempt as the Landlord had not elected to waive exemption. The invoices did not include a VAT amount and there was no obligation on the Landlord to provide a formal VAT invoice. The VAT claimed by the Appellant was not input tax as defined by Section 24(1) of the Value Added Tax Act 1994 (the 1994 Act) and accordingly the assessment should be upheld. The assessment was to best judgment as it was based on the Appellant's records.

11. By Item 1 of Group 1 of Schedule 9 to the 1994 Act a grant of a lease over land is an exempt supply. Rent under a lease of business premises can become subject to VAT if the Landlord makes an election under paragraph 2 of Schedule 10 to the 1994 Act to waive exemption. By section 24 of the 1994 Act, a sum only amounts to input tax if it is VAT on the supply of goods and services.

12. The Landlord had not made an election under Schedule 10 in respect of Unit 9. Accordingly, any supply made under a lease of Unit 9 was an exempt supply on which no VAT could be, or was, charged. Thus the payment of rent include no sum in respect of VAT and no deductible input tax. The appeal against the assessment in the sum of £7,732 is therefore dismissed.

13. At the conclusion of the hearing, Mr Mansell made application that the Appellant pay a contribution in respect of the Respondents' costs on the grounds that the appeal was vexatious and frivolous, the law was clear that the supply under the lease was exempt and the Appellant had been so informed on several occasions. The Appellant had not attended the hearing.

14. In view of the nature of the supply in dispute and the Appellant's non-attendance, we direct that the sum of £150 be paid by the Appellant in respect of costs.

    JEAN WARBURTON

    CHAIRMAN
    Release Date: 24 February 2005