United Kingdom VAT & Duties Tribunals Decisions

Enviroengineering Ltd v Revenue & Customs [2006] UKVAT V19756 (06 September 2006)

19756

Value added tax – invoices – whether value added tax invoice adequately described a supply of services

LONDON TRIBUNAL CENTRE

ENVIROENGINEERING LTD Appellant

- and -

HM COMMISSIONERS FOR REVENUE AND CUSTOMS Respondents

Tribunal: Dr David Williams (Chairman)

Paul F Adams FCA (Member)

Sitting in public in Cardiff on 7, 8 and 9 June 2006

The Appellant was represented by Mr W N Lewis, director

Richard Smith of counsel, instructed by the Acting Solicitor to Her Majesty's Revenue and Customs, for the Respondent.

© CROWN COPYRIGHT 2006

DECISION

1. This decision concerns a series of disputes between the Appellant company ("EE Ltd") and officers of the Respondents ("HMRC", which term includes also the former Commissioners of Customs and Excise) about the accuracy of value added tax returns made by EE Ltd in 1998, 1999 and 2000. None of the points raises any difficult issue of interpretation of value added tax law or of its application to unusual facts. Unfortunately, however, for reasons not directly connected with the issues in dispute in this case, a level of distrust amounting at times to animosity built up between various people involved. This had the effect that the final hearing of the appeal was much delayed.
2. The tribunal heard from Mr Lewis both as director representing EE Ltd and as witness to various aspects of the disputed matters. He called no other witnesses, but he gave evidence on oath and was cross-examined by Mr Smith as to his evidence. HMRC called three officers as witnesses: Richard Wiltshire, an officer of HMRC formerly involves in pre-credit investigations of value added tax repayment claims or returns ("pre-cred" for short); Philip Webb, then an officer involved in civil evasion investigations for HMRC; and Philip Owen Jones, now retired from the public services but then the officer in charge of the unit within which Mr Wiltshire worked. All three officers gave evidence on oath or affirmation and were subject to cross-examination. The tribunal records its gratitude to Mr Owen Jones in giving evidence after he had retired. HMRC also presented a witness statement from Mr Speechley, former director of EE Ltd. He was not called as a witness and EE Ltd did not object to his evidence. The tribunal was somewhat surprised that EE Ltd decided not to challenge some of the evidence given by Mr Speechley, but as his evidence is unchallenged the tribunal accepts it save as indicated otherwise in this decision.
3. The long period between the events that gave rise to this appeal and the hearing of the appeal, the initial failure by those involved to identify and preserve certain key documents, and an inability of both sides to agree a bundle of documents for the tribunal, left the documentation on which the tribunal had to decide the appeals in an unsatisfactory state. One of the points under appeal is simply that an invoice could not be produced. It remained under appeal although EE Ltd failed to make good that loss at any stage. The tribunal gave EE Ltd an opportunity to produce that invoice even after the appeal hearing had started but it was not produced nor was there any clear evidence as to its existence. That small part of the appeal must therefore fail. Other invoices were also not in the papers, although the parties had been arguing for six years about them. The tribunal had to rely on the memories of those involved on both sides in accepting that those documents had existed and as to their disputed and undisputed terms. Various other documents appeared at late stages from both parties, including during the hearing itself. As papers were being produced at the last minute from both sides, and with no one person or party to blame for this to the exclusion of any other, the tribunal took a pragmatic view about admitting documents late. It admitted most of the documents it was asked to admit. Neither party pressed for a formal ruling on the refusal to admit any specific document. The tribunal records that it waives any breach of the Value Added Tax Rules 1986, and of directions of the tribunal as to the production of documents, to the extent necessary to admit all the documents seen by the tribunal at the hearing. It also records some concern at points made for HMRC at various stages in the long discussion of these appeals about missing documents in a context where HMRC itself failed to produce relevant documents to the tribunal. This was particularly emphasised by documents produced at the last minute from the Respondent to the Appellant, and thence by the Appellant to the tribunal, of which the Respondent's own counsel was not aware.

The issues under appeal

4. The tribunal had a series of separate issues before it for determination. Technically, they amounted to six or seven separate appeals but for convenience the tribunal, with the agreement of the parties, treated the appeals as raising two sets of issues:

(a) whether HMRC was correct in issuing a series of assessments against EE Ltd to reduce the level of input tax deductible from various value added returns,

and

(b) whether HMRC was correct in issuing a series of assessments against EE Ltd to alter the totals shown by the returns to take account of its view that EE Ltd had used an incorrect tax point and also an incorrect categorisation of sales of certain items.

5. Issue (a) is in reality a series of minor points that have some common factual background but are otherwise unrelated. With the agreement of the parties, the tribunal dealt with those together and then turned to issue (b). This decision reflects that approach.

The activities of EE Ltd

6. EE Ltd was established as a private limited company in July 1997 to take over and run a small engineering business in Monmouthshire. At that time it had one director, Mr Speechley, and a company secretary, Mr Lewis' daughter. It was registered for value added tax after establishment with effect from 1 October 1997 as a steel fabrication and welding business. The application for registration for value added tax was signed by the company secretary and the then office manager. Mr Speechley gave evidence that he had agreed with Mr Lewis about the formation of a company but left the formation of the company, registered as EE Ltd, to Mr Lewis.
7. Mr Lewis is a retired engineer. He was engaged, through a number of companies and other businesses, in high quality engineering work, and in particular in connection with pipes and pipelines. Much of this work was delivered, directly or through head contracts, to companies outside the United Kingdom. His companies, and later EE Ltd, were involved in a major contract for the then Hong Kong water supply company. It was clear from the evidence in the papers and from oral evidence that there was a history of dealings, investigations, and appeals, between some of Mr Lewis' companies and HMRC and in particular between Mr Lewis and Mr Wiltshire.
8. Mr Speechley is also a chartered engineer. He was director of a company known as Enviropower Ltd. This was established in 1992 and produced heat and power units. Enviropower Ltd sub-contracted some of its fabrication work to a small independent firm that was also a tenant of some of Enviropower's premises in Monmouthshire. That firm left the premises owing rent to, and also stopped supplying, Enviropower. The tribunal papers also contain papers directed to the small business showing that it owed significant sums in outstanding value added tax and penalties to HMRC in mid 1998. These suggest that that business was in trouble at that time. The business had also been supplying Mr Lewis' businesses. But it was independent of both Mr Speechley's businesses and those of Mr Lewis. Mr Speechley stated that it was at this stage Mr Lewis suggested that they join forces and create EE Ltd to take over the work previously done for both by the tenant company. Mr Lewis agreed with that account, adding that Mr Speechley also had his own financial problems and that his, Mr Lewis', family had agreed to bring their own funds into EE Ltd, which they did.
9. Mr Speechley's evidence was that EE Ltd undertook work for Enviropower from 1997 but during 1999 EE Ltd increasingly worked with and for others of Mr Lewis's companies.
10. EE Ltd's activities started slowly in UK domestic activities only. But by 1999 it was involved in major supplies of equipment destined for use in Hong Kong. One of the issues under appeal is whether EE Ltd was itself the exporter of specific equipment produced in connection with these contracts or was a British sub-contractor to the exporter. More generally, the tribunal finds that EE Ltd was involved directly or indirectly in the production of, and work on, equipment that was exported, and that the source of the relevant part of its income was directly or indirectly from foreign customers.
11. The tribunal was not informed of any value added tax issues between EE Ltd and HMRC until a "pre-cred" visit on 9 May 2000 to investigate the background to claims for repayment of value added tax in respect of invoices to EE Ltd for the periods 10/99 and 01/00. It also finds that the key reason for that visit at that time was that Mr Lewis was involved in the company.

Mr Lewis's role in EE Ltd

12. The relatively simple issues under appeal in this case have been complicated by a number of separate factors behind the appeals. One complication arises from a problem of identification of whom was and is responsible for running EE Ltd. The tribunal accepts that Mr Lewis is now a director and so can represent the Appellant in this appeal. He gave the tribunal oral evidence that he was not a director of EE Ltd during the periods in dispute in these appeals, and that this was a deliberate decision on his part. But other evidence suggests that this position was less clear to others and that, despite his formal status, he may have been in reality a shadow director at the time.
13. The main acting director of EE Ltd during the relevant periods when the returns were made, both on the official record and according to evidence from both Mr Speechley and Mr Lewis, was Mr Speechley. The second (and only other official) company officer, the company secretary, was Mr Lewis' daughter. The tribunal was also told that both Mr Lewis's daughter and his wife were shareholders in the company and invested funds in it. The tribunal was given no formal copies of the papers about the company, nor any documentary evidence of shareholding in, or loans to, the company. It was not therefore shown any official record that Mr Speechley was, and Mr Lewis was not, recorded at Companies House as a director. But the tribunal accepts the oral evidence that this was so.
14. Between the occurrences giving rise to these appeals and the hearing EE Ltd was struck off the register. It was later reactivated with Mr Lewis as its director. The evidence showed that Mr Speechley assumed that he was discharged from being a director by this, but that the papers at Companies House recorded that he resigned as a director, an event that Mr Speechley did not recall. He gave written evidence to the tribunal of this but he was not called as a witness by either party. Again, the tribunal saw none of the Companies House records and did not hear from Mr Speechley, so was unable to take that matter further.
15. The tribunal considers that evidence clearly showed both that Mr Lewis represented himself on occasions as a director of EE Ltd or as someone with authority to act for EE Ltd, and also that Mr Speechley thought, at least for a period, that Mr Lewis was a fellow director with him of the company. As HMRC put weight on this point, the tribunal considered in particular the significance of two formal documents dealing with the relationship between EE Ltd and Mr Speechley's company Enviropower Ltd.
16. Enviropower Ltd concluded a lease (technically a sublease) of part of its site in Caldicot to EE Ltd on September 30 1997. It was at a rent of £13,800 a year starting the following day. It was signed by Mr Speechley as director for Enviropower Ltd and by the company secretary for EE Ltd. The tribunal notes that no director signed for EE Ltd but otherwise notes nothing unusual about the agreement. Indeed, it suggests an arms length arrangement between the two companies.
17. The other document to which the tribunal's attention was drawn is an undated set of Heads of Agreement between the two companies. Although it bears no date, a note at the top suggests a date at about the end of January 1998. It was signed by Enviropower Ltd (for whom Mr Speechley signed as director) and EE Ltd (for whom Mr Lewis signed as director). That is clear evidence, in the view of the tribunal both that Mr Lewis was acting as a director of EE Ltd at that time and that the actual director, Mr Speechley was actively accepting that Mr Lewis had capacity to do so. That approach appears from other evidence also. Were the determination to be of importance, the tribunal would consider Mr Lewis to have been a shadow director or similar of EE Ltd for at least some of the period relevant to these appeals. His family clearly exercised, or could exercise, influence as shareholders and creditors and had full knowledge of the operations through the company secretary. The acceptance of that position by Mr Speechley, at least at that time, acts to remove, in the tribunal's opinion, any adverse conclusion that might otherwise be drawn from Mr Lewis's involvement in the company's affairs and in particular in its value added tax position. But the tribunal also considers that Mr Speechley may have been confused about the precise position so did not himself act consistently with regard to Mr Lewis's position.
18. It is also clear from the evidence that there were problems in, and later a breakdown of, the working relationship between Mr Speechley and Mr Lewis and that further complicates the picture.
19. Another complication was that officers of HMRC involved in checking the accuracy of EE Ltd's returns were the same officers as those who were investigating other companies in which Mr Lewis was involved. Mr Lewis volunteered some details of other disputes between his companies and HMRC that had involved officers giving evidence in this appeal. But neither party contended that there was any direct linkage between those disputes, some of which came before value added tax and duties tribunals, and these appeals.
20. Nonetheless, this was one reason why HMRC officers came on a visit to investigate EE Ltd, as they had noticed that Mr Lewis had signed some of EE Ltd's value added tax returns. At that stage, according to the evidence given to the tribunal, there was no specific reason to suspect that EE Ltd had any value added tax irregularities. It was simply that Mr Lewis had signed the returns for the company. It was then found that some invoices to the company were from companies involving Mr Lewis. Further, on the investigation that this triggered, it was found that some of Mr Lewis's companies of which they were aware had invoiced EE Ltd for supplies of services in a way that raised suspicions in the minds of those officers. The repayment of input tax on some of those invoices was refused. That forms one issue in this appeal. The tribunal records this because, in its view, some of the steps taken by officers of HMRC in connection with the affairs of EE Ltd suggest a hypercritical approach to the company's value added tax actions and this may be the explanation.
21. However, HMRC was not and is not accusing Mr Lewis or EE Ltd of fraud, either criminal or civil. Mr Webb, at that time working in one of the HMRC civil evasion units, gave evidence that he was asked to join a visit to EE Ltd. He did so, but saw nothing on that visit or in the papers that raised his suspicions of civil evasion, and he took no further part in the investigation of EE Ltd. The tribunal also finds that there was no accusation that Mr Lewis was masterminding any form of value shifting or transfer pricing between EE Ltd and any other company in which he was involved with a view to value added tax avoidance. Mr Lewis maintained throughout the appeals that HMRC could cross-check the various matters in dispute in this appeal with the relevant returns made by the companies submitting the invoices. No direct evidence was offered of this by either party, and the tribunal makes no further finding about this. Each of the matters raised are therefore matters of compliance or non-compliance with the usual value added tax rules.
22. The final background point is that Mr Lewis accepted that he had not sought any expert or professional advice about value added tax during the period in question. He had asked officers for advice at times, and he had asked to speak with them. The tribunal heard evidence that officers refused to speak with him on some occasions. Any such refusal can only have come from factors that did not arise directly from the affairs of EE Ltd. It was also clear to the tribunal that Mr Lewis had less of an understanding of value added tax law and practice, in particular with regard to exports, than was needed for a proper application of the law to the actual conduct of the business of EE Ltd. But there was no evidence of fraud or deliberate avoidance on his part put to the tribunal. On the contrary. As counsel for HMRC accepted in argument, EE Ltd could have avoided some of the value added tax which is being sought from it by steps that many advisers might have suggested. It took none of those steps. But it took steps that may have looked like avoidance measures, and initial suspicion by HMRC is understandable.

Issue (a): the disputed assessments to exclude rejected invoices from returns

23. EE Ltd has appealed against the rejection by HMRC of three invoices from suppliers to EE Ltd. HMRC refused to accept invoices from a business run by Mr Lewis (and called APSE for short) as follows:

Invoice 599 of 30 03 1998 for the period 02 – 04 1998

Invoice 724 of 30 07 1998 for the period 05 – 07 1998

Invoice 928 of 31 12 1998 for the period 10 – 12 1998.

Each of the invoices bore the description "for secretarial and administration services" or something similar. Each was for the supply of the services of Mr Lewis by APSE to EE Ltd. Another invoice in this series, 983 of 16 09 1998 was accepted by HMRC, although that was limited to travelling expenses.

24. There was no indication in the evidence that Mr Lewis was also being paid directly by EE Ltd for these or any other services. Although he may have been a shadow director, he was not formally a director and was not receiving any director's fees. Nor was there any evidence that he was an employee of EE Ltd. Nor was he personally a shareholder of, or creditor of, the company. So he was receiving no earnings or investment income from it directly. That being so, the tribunal can see no strong reason why, if that was the arrangement between all the parties, EE Ltd should not pay Mr Lewis through one of his companies for any work he had done.
25. HMRC was suspicious of the invoices. Abatement of their suspicions was not assisted by the view that appears to have been taken at the time that HMRC could speak to Mr Speechley about this but not Mr Lewis. The suspicions were compounded by the fact that Mr Speechley did not, on the evidence before the tribunal, appear to be as aware of all the actions of the company as might be expected of a single working director of a small specialist company. So far as the tribunal can judge on the evidence before it, Mr Speechley left Mr Lewis to deal with matters much as one director might leave matters to another director. But when asked about the arrangements somewhat later, Mr Speechley seems to have disavowed some of, and some of the effects of, his earlier acquiescence.
26. Many years later, the tribunal must return to the issue. There are two key questions for the tribunal at this stage: is the tribunal satisfied that APSE, through Mr Lewis, supplied services to EE Ltd such that it was appropriate for APSE to raise these invoices? If so, did APSE raise the invoices correctly?
27. The tribunal accepts Mr Lewis's evidence, consistently with all the evidence it heard and saw, that he had provided services for EE Ltd at the relevant times, and that he did so not as a director or employee, but through the medium of APSE. The tribunal therefore finds that APSE was entitled to raise invoices for supplies of services. HMRC gave no evidence at all about the value added tax status of APSE, and did not question the evidence for EE Ltd of its VAT registration. The tribunal therefore accepts that APSE was right to charge value added tax on its invoice. The tribunal also accepts that Mr Lewis repeatedly asked HMRC both before and at the hearing if it had checked that APSE had accounted for the value added tax on the invoices was properly collected, as he gave evidence that it was. HMRC failed to answer that question. HMRC expressly disavowed any accusation of fraud. The only evidence before the tribunal was therefore that APSE had accounted for the VAT on the invoices under challenge in these appeals.
28. HMRC rested its refusal to accept the invoices on a narrower ground. Regulations 13 and 14 of the Value Added Tax Regulations 1995 ("the VAT Regulations") require the issue of invoices and their contents. The part of regulation 14 relevant here provides:

14(1) … save as the Commissioners may otherwise allow, a registered person providing a VAT invoice in accordance with regulation 13 shall state thereon the following particulars –

…

(g) a description sufficient to identify the goods or services supplied …

29. HMRC contended that these invoices did not meet that requirement. Mr Lewis submitted and gave evidence that HMRC had accepted the description in other contexts of which he was aware, and that in any event it did meet the requirement.
30. The history of the appeal shows that HMRC first challenged these invoices with Mr Speechley. He was unable to give a satisfactory account (in the view of HMRC) of the invoice. The tribunal accepts that at that stage the replies were unsatisfactory and that further enquiries by HMRC were reasonable. It was not known at that time whether there had been any actual supplies. It appears that, for whatever reason, matters have not progressed from that point. The letter sent by HMRC to EE Ltd in May 2000 contended that EE Ltd had reclaimed input tax in relation to supplies which did not take place. Alternatively, or in addition, EE Ltd had not produced an adequate explanation of what those services actually were. The tribunal now finds that services had been supplied, that it was appropriate for APSE to invoice for those services, and that no issue of fraud or illegal activity is suggested. Having accepted that there were supplies of services between taxable persons, the only issue relevant to these appeals appears to be whether the invoices complied with regulation 14(1)(g) of the VAT Regulations.
31. The tribunal does not consider that this is a matter of law of any complexity, but of the application to these particular transactions of what is deliberately very general ordinary English wording. The tribunal resists any submission that it should add to the complexity of the many millions of value added tax invoices issued by embroidering or elaborating the requirements in regulation 14. The only point of law, in the view of the tribunal, is that any question about the adequacy of an invoice under this regulation is to be tested by reference to the invoice as a whole, and not by each individual part separately. And evaluation of adequacy is always subject to the saving in the opening words of the regulation.
32. Within that context, compliance with regulation 14 is essentially a question of fact. An omission of a key identifying number or the value added tax registration number of a supplier may of itself call the adequacy of an invoice into question. But the adequacy of other elements, such as the type of supply or the description, is to be evaluated by looking at the invoice as a whole. It is not something to be evaluated item by item by some objective standard in isolation from all else. It is to be tested as part of the invoice in its immediate context with questions such as: Was the invoice ambiguous, such that it might apply to more than one supply? Did it refer to an actual taxable supply of goods or services? Did the taxable person know for what the invoice was raised, or should it have known? Did the inadequacy of the invoice as a whole raise any question about the rate of value added tax on the supply or the time of supply?
33. In this case, while it was submitted that the description was inadequate, no other element was contended to be missing from these invoices. So the invoices must have stated the supplier, the taxable person supplied, the relevant dates and addresses, the type of supply, the extent of the services and the relevant rate of value added tax. The tribunal has to make that assumption because of the evidential difficulty that neither side could produce the invoices, although they clearly had existed. It is therefore required to evaluate a document it has not seen. It was assumed at the hearing that the evidence on this was common, but it was not. The papers show that the invoices may have said "for secretarial and administration services" or "for secretarial and administrative services" or perhaps something else. The only invoice of the series produced (one not in question) detailed only travel expenses.
34. On that indirect evidence, therefore, the invoices included a general description by reference to a defined period of time of services provided by the supplier to the taxable person of a kind attracting the full rate of value added tax. Those supplies were supplied, and the taxable person knew or should have known about the supply. There was no accusation of any breach of contract. And it is not contended that anything else supplied by that supplier during that time period could have been confused with these supplies. Nor is it contended that Mr Lewis was himself directly paid in any way for the services or that anyone else had raised an invoice for them. Whether or not APSE charged EE Ltd a low or high amount for those services may concern Mr Speechley, but it is of no relevance to HMRC if the transactions occurred, and no fraud, evasion or illegal avoidance is suggested. The tribunal finds that had the taxable person wished to query the invoice with the supplier, the description was sufficiently clear and unambiguous to identify the subject of the query to EE Ltd.
35. The tribunal therefore does not accept the contention by HMRC that the invoices were in breach of regulation 14. They clearly existed and HMRC has clearly seen them. There is no other outstanding issue as to the acceptance of these invoices, and therefore the tribunal takes the view that they should have been accepted, and that no correction is needed to any return to remove any calculation of input tax made with respect to those three invoices. The appeal must be allowed to that extent and the relevant adjustments to the returns for the quarters to 4/98, 7/98 and 10/98 discharged.
36. As noted briefly above, the adjustment to the return for the quarter to 4/99 reflected the failure of EE Ltd to produce a relevant invoice at any time. This adjustment was identified by HMRC in the letter to EE Ltd of 7 11 2000 as made because of a later invoice from Mr Lewis that had not been produced. The letter reserved the position of HMRC were it to be produced. It has still not been produced. In this case, however, there is no indirect evidence that theinvoice has at some past time been produced to HMRC of the kind accepted in the finding about the APSE invoices. This part of the appeal must therefore be dismissed as EE Ltd have failed to satisfy the evidential burden of proof on it that the invice did exist and that the adjustment was wrongly made.
37. Finally, the tribunal was asked to set aside an adjustment by HMRC to the tax return for the quarter to 1/98. The adjustment was made because the input tax claimed in that return exceeded the input tax in the records. Mr Lewis produced further records for EE Ltd at the hearing. But the tribunal indicated during the hearing that it did not accept the appellant's argument on this point. Put at its simplest, the figures put before the tribunal did not add up. Mr Lewis did not dispute this, and accepted that at this remove from events he was unable to explain why they did not add up. The tribunal confirms its view expressed at the hearing that the appellant had therefore failed to discharge the burden of proof on it to show the correct figure for that period. That part of the appeal is also dismissed.

Issue (b): the disputed tax points and categorisations

38. EE Ltd started activities in a purely domestic market. As its business developed, it became involved in the international market. Goods that it had produced or on which it performed services were exported from the United Kingdom to locations outside the European Union.
39. The question raised here is whether the invoices raised by EE Ltd for some of those goods and services were raised at the right time. Somewhat as an afterthought, it was also contended for EE Ltd that it had exported the goods so was entitled to have them zero-rated in any event.
40. The tribunal heard from Mr Lewis about his involvement and that of EE Ltd in the design, creation and modification of the goods. It also examined the available documentation.
41. Having reviewed the evidence, the tribunal had little difficulty in agreeing with Mr Smith that it pointed to EE Ltd producing goods for export, and providing services on goods for export, but that EE Ltd did not itself export anything. It made all its supplies to other United Kingdom taxable persons. The fact that it did, or may have, received payment directly from some third party source for those goods or services, and that the third party was, or might have been, based outside the United Kingdom, does not alter that conclusion. Nor does the combination of the payment from overseas with the fact that the goods were produced for foreign use. The key issue is to whom the goods and services were supplied by EE Ltd. The tribunal summarises it simply by concluding that there was no significant evidence suggesting that the goods supplied by EE Ltd in the transactions in question were exported by EE Ltd, or that any of the services supplied were international services. They were supplied to companies associated with Mr Lewis, and in his evidence Mr Lewis accepted that. The tribunal therefore rejects EE Ltd's argument that any of the supplies should have been zero-rated as exports or international services.
42. The other point is one of timing. Were the taxpoints, or times of supply, used in the relevant invoices and returns correct, or was HMRC right to adjust the returns for the quarters 1/00 and 4/00 to give effect to earlier taxpoints for the supplies of the goods that were in due course exported? The question arose because EE Ltd had cancelled certain invoices and then reinvoiced the supplies. EE Ltd included the relevant amounts in its returns at the dates of the new invoices. HMRC took the view that the goods had been made available to customers at earlier dates than the dates of the new invoices and that therefore the times of supply were earlier than those on which EE Ltd had relied in making its returns. The effect was to shift those sums from the quarter 7/00 to the earlier quarters.
43. Time of supply is defined by section 6 of the Value Added Tax Act 1994 and Part 11 of the VAT Regulations. No detailed point arose on those provisions in this case. It is sufficient to note that the basic rules for supplies of goods are clearly set out in the legislation and in HMRC literature, and may be summarised for present purposes as the earlier of the delivery or removal of goods or the performance of services, or payment for the goods or services. If a value added tax invoice is issued within 14 days of the earlier of either event, then the date of issue of the invoice will be the time of supply. As the operative invoices were of supplies entirely within the United Kingdom, the tribunal is not concerned with the special rules dealing with international transactions.
44. The view was taken for HMRC that because the goods to which these invoices related were moved from the place of manufacture to locations linked to customers they were, in the section 6(2) sense, also removed at that time. This was therefore the taxpoint, or the time when the supplies should have been entered into the relevant quarterly returns.
45. The appellant's submission and evidence were that it was standard practice in that industry for the supplier to move goods to the intended destination before title or possession passed, and that happened here. It was only later, after the goods had been inspected, that they were contractually accepted and made available to the customer. Consequently they were not removed at the time contended by HMRC but at the later time when the supplies were accepted. The original returns were therefore correct and, it was contended, the adjustments were not properly made.
46. As the argument developed before the tribunal, it started to emerge that neither side was taking what appeared to be the correct approach on all the evidence. There was clearly some weight in the argument that the goods had been moved and not removed at the time suggested by HMRC, though the tribunal only had oral evidence on this. But, equally, the appellant's argument that the time of supply was at the later time when the goods were made available also did not match the full facts. This is because it became clear that payment had been made at the earlier stage of the movement of goods. Payment was made by a third party as agent for EE Ltd's United Kingdom customers. Mr Lewis submitted, and gave evidence that, there were particular reasons why payment had been made that way. But the nature of those reasons is irrelevant for present purposes. It is the fact of the timing of the receipts by EE Ltd of the funds relating to the supplies that alone is relevant.
47. It was not disputed by EE Ltd that the timing of the payments came before the removal (in the section 6(2) sense) of the goods. That being so, and the timing of the payments not being in dispute, the tribunal formed the view that the true position was that, under section 6(4), EE Ltd received payment in respect of the supply before removal. So the time of supply was the time of receipt of payment. As a result, the tribunal finds that the appellant was correct in a narrow sense in challenging the assessments as raised by HMRC on this ground, but that a fuller analysis of the facts nonetheless establishes that the alternative arguments of EE Ltd were also open to challenge. Neither party had rested its case on the issue of payment and receipt, but it appeared on the evidence before the tribunal that the effect of the adjustments made to the quarters 1/00 and 4/00 were correct in principle in that the taxpoints had occurred before the removal of the goods and in those previous quarters, and that the tribunal was not shown that the actual adjustments were wrong when considered on that basis.
48. The tribunal therefore confirms those adjustments and dismisses the appeals by EE Ltd to that extent.

Summary

49. The conclusion is that the Appellant is successful on some of the appeals (those affecting the quarters 4/98, 7/98, and 10/98), but not on the others. Further, although the Appellant failed in the result in the appeals relating to the quarters 01/00 and 04/00 it nonetheless was justified in challenging the basis of the adjustments made by HMRC to those quarters.
50. HMRC asked for costs. When asked if he also applied for costs, Mr Lewis said he did not have any costs. The usual rule is that costs follow the event. That rule gives no clear answer in this appeal regarded as a whole, as some elements of the appeals were allowed and others dismissed. The tribunal takes the view that it would not be a useful exercise to unpick the appeals as heard into separate elements for the purposes of a costs order, as the matters were closely intermeshed on both sides throughout, as they were at the hearing itself. It considers it also ought to take into account the final element in the appeals on which the tribunal took the view that both parties had approached the issue on a wrong basis on the facts. Taking all those factors into account, the tribunal considers that the balance of arguments between the two parties was not such as to indicate that either party could be regarded as having won the appeals. It considers that the fairest approach is to make no order for costs. The application is rejected.

David Williams

CHAIRMAN

6 September 2006

LON/01/71