United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2006] UKVAT V19590

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ERS(Haulage)Ltd & Ors v Revenue & Customs [2006] UKVAT V19590 (23 May 2006)

19590

Claim to recover input VAT – companies previously making taxable supplies but deregistered on cessation of business – subsequent re-registration but no supplies made – whether entitled to deduct input tax – no - appeal dismissed

LONDON TRIBUNAL CENTRE

ERS (HAULAGE) LIMITED
ERS (TRANSPORT) LIMITED
RADICON LIMITED

Appellants

- and -

THE COMMISSIONERS FOR HER MAJESTY'S
REVENUE AND CUSTOMS
Respondents

Tribunal: Malcolm Gammie C.B.E. Q.C. (Chairman)

Mrs Elizabeth Macleod

Sitting in public in London on 29th March 2006

Mr Gordon Tullett, Director, for the Appellant

Shaheen Rahman, Counsel, instructed by the Solicitor of Her Majesty's Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006


 


DECISION

1. This case concerns the consolidated appeals of ERS (Haulage) Limited, ERS (Transport) Limited and Radicon Limited. ERS (Haulage) Limited appeals against an assessment of 1^st May 2003 for £8,731.00 plus interest in relation to three VAT periods of 11/01, 05/02 and 11/02. The appeal relates to the second and third of these periods in the sums of £2,489.00 and £5,207.00 respectively. ERS (Transport) Limited appeals against an assessment of 15^th December 2003 for £596.00 plus interest in respect of VAT period 06/03 and a decision of 8^th December 2003 to disallow the sum of £1061.14 reclaimed in VAT period 09/03. Radicon Limited appeals against an assessment of 15^th December 2003 for £966.00 plus interest in relation to VAT period 06/03 and the decision of 8^th December 2003 to disallow the sum of £571.20 reclaimed as input tax in VAT period 09/03.
2. The Appellants were represented by Mr Gordon Tullett, the sole director of each company. The Respondents were represented by Ms Shaheen Rahman of Counsel. Both parties produced a bundle of documents and we heard evidence from Mrs Jane Erskine and Mr Michael Triebwasser, two officers of Her Majesty's Revenue and Customs. Mr Tullett gave an account of the matter in presenting his case and Ms Rahman did not seek to dispute his account.
3. Mrs Erkine and Mr Triebwasser recounted their dealings with the companies and explained the basis upon which decisions had been taken leading to the raising of assessments and the refusal to repay input tax. As there was no dispute on the facts their evidence added nothing to the matter that we need record, beyond noting that their evidence demonstrated the proper and conscientious manner in which the case had been dealt with by the Department in the face of a confusion of companies and claims for input tax that appeared to have no real foundation.

The Facts

4. ERS (Haulage) Limited applied on 15 April 1999 to be registered for VAT with effect from 1^st July 1999. It had been incorporated on 28^th July 1997 as Radicon Limited under company registration no 3408870. It changed its name to ERS (Haulage) Limited on 11^th November 1997. The application for VAT registration stated that the main business activity was to be haulage: It was registered under VAT Registration no 732 0599 40.
5. Radicon Limited applied on 29^th May 2003 to be registered for VAT with effect from 1^st June 2003. It had been incorporated on 3^rd October 1996 under company registration no 3258830 as European Road Services Limited. It changed its name to Radicon Limited on 11^th November 1997. The application for registration stated that the main business activity was to be haulage. It was registered under VAT Registration no 813 1267 60.
6. ERS (Transport) Limited applied on 29^th May 2003 to be registered for VAT with effect from 1^st June 2003. It had been incorporated on 30^th August 1989 under company registration no 2418025 as Gordon Tullett Limited. Gordon Tullett Limited changed its name to ERS (Haulage) Limited on 21^st February 1997 and on 11^th November 1997 changed again to ERS (Transport) Limited. The application for VAT registration stated that the main business activity was to be haulage. It was registered under VAT Registration no 813 1266 62.
7. None of the companies has made any supplies since they were registered for VAT and no supplies were in prospect.
8. The companies VAT affairs were dealt with at the time by Mrs Sue Witt, the then company secretary, but she had subsequently become ill. Mr Tullett, however, had a longstanding association with the companies and was able to explain the background to the companies and the various name changes. Gordon Tullett Limited ("GTL") conducted business up to the mid-1990s. At that point it was the victim of fraud by the in-house accountant. It ceased to trade on 1^st February 1995 and was placed into receivership and its assets sold. Evidently, the partner concerned at the firm of accountants who handled its affairs while in receivership was guilty of defrauding GTL and, as a result, was convicted and sent to prison. This gave rise to litigation and necessitated GTL remaining in existence. GTL was deregistered for VAT at the time of its receivership and had never traded in its later incarnations of ERS (Haulage) Limited and ERS (Transport) Limited.
9. In 1996 Mr Tullett set up European Road Services Limited as a new company through which to conduct his haulage business. This had outside financial support using asset funding provided by a venture capital firm. It initially proved successful. In 1997, however, the venture capital firm decided to withdraw its capital and European Road Services Ltd ceased to trade in about September of that year. The circumstances surrounding the withdrawal of capital led to litigation between the company and the providers of the venture capital. The company was owed a substantial sum of money by its main customer, P&O Ferries, who paid the money into court pending resolution of the dispute as to which of the company and the venture capital firm was entitled to the money.
10. In summary, therefore, ERS (Transport) Limited (the original Gordon Tullett Limited) had traded in the past, had ceased to trade and been deregistered and had never traded in its current incarnation. It had been kept 'alive' to pursue litigation against the firm of accountants as a result of its partner's fraud when GTL went into receivership. Radicon Limited had traded in the past but had ceased to trade and been deregistered and had never traded in its current incarnation. It had been kept 'alive' to pursue litigation involving the venture capital firm.
11. ERS (Haulage) Limited had never traded. It had taken a yard at Great Blackenham on a rent free basis from the Ministry of Defence. Some work had been done to improve the facilities and make the yard ready to receive vehicles. The Ministry, however, had eventually taken back the land and sold it. The company had had no premises since then.

The assessments and disputed decisions

12. The assessment on ERS (Haulage) Limited in relation to VAT period 05/02 relates to credit notes raised by P&O Ferries for the previously registered company European Road Services Ltd (now Radicon Ltd). The assessment in relation to VAT period 11/02 related to invoices for court costs. These input tax claims were evidently submitted on the understanding that ERS (Haulage) Ltd could in some way use its VAT registration as an 'umbrella' through which to reclaim input tax for all three companies. It was after being advised that this was not possible, that Radicon Ltd and ERS (Transport) Ltd were registered for VAT. An attempt was also made to correct matters through voluntary disclosures.
13. Following its registration, ERS (Transport) Ltd reclaimed input tax of £596.29 in VAT period 06/03. The input tax claimed related to (a) Mr Tullett's membership fee for the British International Freight Association, (b) certain expenses for vehicles that evidently were not used by the company (the company had no business or vehicles) and (c) legal costs in respect of which there was no proper VAT invoice. The disallowed input tax for VAT period 09/03 also involved a variety of legal costs, none of which were supported by proper VAT invoices or appeared to be related to any supply by the company or, indeed, supplied to the company. One item was a costs estimate only and another was addressed to Mrs Tullett at her residential address and referred to legal services supplied to her.
14. The assessment of £966 on Radicon Limited was to recover input tax claimed for work done by a firm of solicitors for European Road Services between 18.06.01 and 21.05.01. These evidently related to bankruptcy proceedings involving Mrs Witt, the former company secretary. The input tax of £521.20 claimed by Radicon Limited but not allowed also represented legal costs in the form of estimated costs schedules and an invoice in respect of services relating to Mrs Witt.

The Law

15. Article 17(2) of the Sixth VAT Directive (77/88) provides that—

"In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid within the territory of the country in respect of goods and services supplied or to be supplied to him by another taxable person..."

16. Article 17(2) is implemented in UK legislation by sections 24 to 26 of the Value Added Tax Act 1994. Section 24(1) provides that:

"Input tax, in relation to a taxable person, means the following...

(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 businesses carried on or to be carried on by him."

17. Section 25 provides that:

"(2) Subject to the provisions of this section, [a taxable person] is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him."

18. Section 26 provides that:

"(1) The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies, acquisitions and importations in the period) as is allowable by or under regulations as being attributable to taxable supplies.

19. Article 18 of the Sixth VAT Directive provides that for a taxable person to exercise his right of deduction, he must hold a proper tax invoice. Regulation 13 of the Value Added Tax Regulations 1995 (SI 1995/2518) imposes the obligation on a registered person to provide a VAT invoice and Regulation 14 describes the content of the invoice.

Submissions and conclusions

20. For the Respondent Ms Rahman submitted that the Appellant companies were not entitled to recover the disputed sums. The Appellants had made no supplies. Furthermore, many of the items for which input tax was claimed were unrelated to any activity of the Appellants. To the extent that ERS (Transport) Ltd and Radicon Ltd had been registered and made taxable supplies in the past, they had been deregistered on ceasing to carry on those activities and had only re-registered in order to submit claims for input tax and not for the purpose of making taxable supplies. Even if those two companies had remained registered for VAT throughout, they would not be entitled to claim the input tax now and they were in any event unable to support their claim as they did not hold proper tax invoices in respect of the items claimed.
21. Mr Tullett conceded that ERS (Haulage) Ltd had never made any taxable supplies. What he did say was that ERS (Transport) Ltd and Radicon Ltd had made supplies before their businesses folded (in 1995 and 1997). He conceded that they had never made supplies since being deregistered and certainly not since they were registered again for VAT in 2003. He said, however, that the items claimed did represent proper expenses of the companies and that they should therefore be entitled to claim repayment of the input tax. He sought to rely on certain statements in VAT Notice 700, although it was unclear what support they provided for his contentions.
22. We can state our conclusion relatively briefly. To reclaim input tax it must be shown that the items in question were part of the cost components of some supply. Leaving aside the question whether particular items were proper expenses of the companies at all, no supplies were made. The most that can be said to justify the claims that were made is that some of the items appear to relate to the litigation arising out of the demise of Gordon Tullett Ltd (now ERS (Transport) Ltd) and European Road Services Ltd (now Radicon Ltd), which occurred some 11 and 9 years ago respectively. That does not, however, provide a basis for re-registering the companies in effect to enable repayment claims to be made. Whether those expenses could have given rise to deductible input tax all those years ago is at best unclear. At this distance, however, the input tax cannot be said to be in any way a cost component of those earlier supplies. The lack of appropriate VAT invoices to support the claims is but a further reason why these appeals must fail.
23. These appeals are accordingly dismissed.

MALCOLM GAMMIE QC
CHAIRMAN

RELEASED: 23 May 2006

LON/04/960/961/962