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United Kingdom VAT & Duties Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Cox's Cars Ltd v Revenue & Customs [2006] UKVAT V19855 (30 October 2006)
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Cite as: [2006] UKVAT V19855
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Cox's Cars Ltd v Revenue & Customs [2006] UKVAT V19855 (30 October 2006)

    19855

    Assessment – time limit – date when Respondents had sufficient knowledge to raise assessment – Section 73(6)(b) VAT Act 1994 – appeal dismissed

    MANCHESTER TRIBUNAL CENTRE

    COX'S CARS LIMITED Appellant

    - and -

    THE COMMISSIONERS FOR

    HER MAJESTY'S REVENUE AND CUSTOMS Respondents

    Tribunal: Lady Mitting (Chairman)

    Miss Christine Owen (Member)

    Sitting in public in Birmingham on 9 October 2006

    Mr Peter Dann, Accountant for the Appellant

    Mr Bernard Haley instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

    © CROWN COPYRIGHT 2006

     
    DECISION
  1. The Appellant appeals against an amended assessment dated 14 April 2005 in the sum of £8,456 and covering periods 12/02 and 03/03. The amount in dispute is £8,181.

  2. The issue before the Tribunal is whether the assessment was raised within the statutory time limits set out in Section 73(6) VAT Act 1994 and in particular Section 73 (6) (b):

    3. "An assessment under subsection (1) (2) or (3) above of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in Section 77 and shall not be made after the later of the following –
    (a) 2 years after the end of the prescribed accounting period; or
    (b) 1 year after evidence of the facts, sufficient in the opinion of the Commissioners to justify the making of the assessment comes to their knowledge"
  3. The Appellant called no oral evidence and on behalf of the Respondents we heard oral evidence from Mrs Janis Stark and Mrs Diane Palmer. We were also referred to an unchallenged witness statement from Mrs Jill Turner.

  4. Cox's Cars Limited, the Appellant, carries on business as a garage selling new and used cars, forecourt sales, servicing and repairs from premises at Three Springs Garage, Three Springs Road, Pershore, Worcestershire. On 25 April 2001, Mrs Janis Stark carried out a routine assurance visit to the Appellant's premises. She met Mrs Angela Ellis, a director and bookkeeper of the company. During the course of the visit Mrs Stark noted that a number of items being sold were being standard rated whereas they were in fact eligible for zero or reduced rating. Mrs Stark pointed this out as it would have resulted in an over-declaration and over-payment of VAT. Mrs Ellis told Mrs Stark that she was already aware of the over-declaration and was already in discussion about it with the company's accountants, Messrs Meredith Thomas. Mrs Ellis said that sorting it out would take some time but that it would be dealt with by way of a voluntary disclosure. Mrs Stark ended her visit report with the comment :

    5. "Mrs Ellis is very keen to keep all records as best as possible and is very aware of VAT requirements. Hence her over-payments – rather than 'getting it wrong'. No reason to doubt credibility."
  5. Mrs Stark was asked by Mr Haley whether, during the course of that visit, she told Mrs Ellis that the three year cap could run from the date of the visit. Mrs Stark replied that she would certainly never have said that because it was not within her remit to make any such allowance. She could not remember if there had been any discussion of time limits or capping provisions but was certain that had there been she would have included it within her visit report. There is no mention of any such matter in the report. Mrs Stark said that on her visit the overpayment was not capable of immediate quantification.

  6. By letter dated 28 April 2003, Messrs Meredith Thomas wrote to the Respondents in the following terms:

    7. "We refer to your Inspection of our client company's records attended by Mrs Angela Ellis, a director, on 25th April 2001. At that meeting you were advised that the company had over-declared output tax on zero and 5% rated sales for a number of years. These over-declarations have been quantified and adjustments made on the company's VAT Returns for the quarters ended 31st December 2002 and 31st March 2003 respectively i.e. –

    31st December 2002 £ 4659.23

    31st March 2003 £ 18942.92 "

  7. The 12/02 return had been received and processed by the Respondents without query but the return for 03/03 was selected for verification and returned to Droitwich local office. The Droitwich office wrote to Mr Meredith of Messrs Meredith Thomas asking him to contact them which he did on 22 May 2003. The Respondents' note of this call reads:

    8. "Traders Accountant called office re repayment. He had sent in early evidence to support claim. This letter had been treated as a VD".
    Mr Meredith's letter of 28 April was therefore being treated as a voluntary disclosure. Mrs Warner was dealing with the matter at the Droitwich office and she realised that there was a possibility of duplication because the repayment had been sought by way of returns which had been submitted for processing in the usual way but in addition the letter of 28 April was being dealt with as a voluntary disclosure. On 23 May therefore Mrs Warner spoke to the voluntary disclosure section who advised her that the letter of 28 April was "stuck in a back-log". After consultation, Mrs Warner and the voluntary disclosure section agreed that the voluntary disclosure would not be processed and the claim on the returns would be allowed. A number of reasons have been referred to in correspondence and affidavit for this decision. First, the trader had already made adjustments to the VAT returns so there was a risk of duplication: secondly, there was a significant backlog at Nottingham in relation to voluntary declarations: thirdly, no interest was due to the Respondents: fourthly, the process adopted would be the quickest way for the trader to receive his money. Most importantly, however, it was apparently noted that the Appellant had a good credibility record, repayment returns were not unusual and Meredith Thomas were long-established accountants and there was no reason to believe that there would be anything amiss with the returns or that the accountants were not fully aware of the 3 year capping rule. For all these reasons the repayment was allowed without further investigation and there matters lay until 13 January 2005 when Mrs Palmer made a further routine assurance visit.
  8. On her visit on 13 January 2005, Mrs Palmer looked at the calculations supporting the adjustments made in the VAT returns for periods 12/02 and 03/03 in respect of the output tax over-declared on zero and reduced rate sales. Mrs Palmer found that the adjustment in the 12/02 return covered output tax over-declared in the 12 months ending 31 December 1999 and the adjustments in the 03/03 return covered the period 1 January 1998 to 31 December 2002. The 03/03 adjustment therefore included two years which were out of time and one further error in that this return also included VAT which had already been included in the adjustment on the 12/02 return. Mrs Palmer discussed these anomalies with Mrs Cox of the Appellant company who informed her that their accountant had made the adjustments and that she was not personally aware of the capping regulations. Mrs Palmer raised an assessment to recover the repayment made by the Respondents insofar as it related to the duplicated period and the capped period.

  9. There followed extensive correspondence between Mr Dann, the Appellant's new accountant and Mrs Palmer, Mr Dann asserting initially that the Respondents had verified the adjustments and approved repayment at the time of the returns thus leading the Appellant to believe that the adjustments were acceptable to the Respondents. He forwarded to Mrs Palmer a letter from Mr Meredith dated 10 February 2005 in which Mr Meredith said that he had not been present at the inspection on 25 April 2001 but he had understood that it had been agreed that the composite adjustment could be made for all returns dating back to the quarter ended 31 March 1998, i.e. within three years of the date of the inspection. Mr Meredith, in his letter, went on to refer to the telephone conversation he had with the Droitwich office on 22 May in the following terms:

    10. "I then telephoned Mrs Turner at Droitwich VAT Office and sent to her by fax on 22nd May 2003 at 14.31 hours 2 pages to 01905 855757 – one of these would be my letter addressed to Customs at Droitwich dated 28 April 2003 as it contains this firm's stamp in the top right hand corner together with Mrs Turner's fax number. I recall a telephone conversation with Mrs Turner explaining how the VAT repayment claims has arisen; she appeared satisfied with my explanation and I anticipate that the repayment claimed was subsequently issued to the company. At the moment I cannot recall what was contained on the second page which I faxed to Customs at Droitwich."

    In later correspondence, Mr Dann went on to argue that full evidence of the facts was available to the Respondents at the time of the returns but they had chosen not to verify them and further had not insisted on full voluntary disclosure. Either course would have revealed the period covered by the adjustments and any irregularity could have been identified and corrected. These failures by the Respondents to follow correct procedures amounted, in Mr Dann's contention in correspondence, to a misdirection by omission.

  10. To the Tribunal, Mr Dann expressly stated that the Appellant's position was limited. It was his contention that the Respondents did have or should have had actual knowledge of the period covered by the adjustments in May 2003 and any assessment should therefore have been raised within 12 months of that date. Mr Dann put forward two sources for the Respondents' knowledge. First, if one dissected the language of Mr Meredith's letter of 28 April 2003, his reference to the over-declaration being "for a number of years" would have indicated that the claim must stretch back beyond three years. Secondly, the discussion which Mr Meredith had with the Droitwich office on 22 May clearly indicated reference to the letter of 28 April 2003 and the conversation must therefore have clarified the situation. It would be inconceivable that the capped periods would not have been discussed.

  11. Mr Haley submitted that it was not until Mrs Palmer's visit on 13 January 2005 that the Respondents became aware that a claim for the capped period had been included and the assessment raised by her would therefore have been raised within the prescribed time limit contained in Section 73(6)(b).

    12. Conclusions
  12. The first point we should make is that we are unable to accept that at the meeting of 25 April 2001, Mrs Stark agreed that repayment could be claimed running back for three years from the date of the inspection. There is no evidence whatsoever to support this suggestion which is made by Mr Meredith in his letter of 10 February 2005. The only people present at that discussion were Mrs Stark and Mrs Ellis. We heard no evidence in any form from Mrs Ellis. We heard no evidence from Mr Meredith as to how he came to believe that this agreement had been made. We did hear evidence from Mrs Stark who was adamant she would not have entered into any such agreement because she quite simply had no such authority. Her evidence is backed up by the visit report which is silent on the point, a point of such importance that it would surely have been noted. Whether Mrs Ellis or Mr Meredith misunderstood the situation we know not but we find as a fact that there was no agreement by the Respondents that normal capping procedures should not apply.

  13. The Respondents must raise an assessment at latest one year after sufficient facts to justify the making of the assessment come to their knowledge. The critical fact in this case is that the Appellant was including in the adjustments to its returns in 12/02 and 03/03 capped periods. If the Respondents had knowledge of this fact in May 2003, as contended by Mr Dann, the assessment under appeal is out of time.

  14. Knowledge must be actual, not constructive. It is not sufficient for Mr Dann to argue that the Respondents could have acquired the knowledge had they sought it out. The letter of 28 April 2003, in our view, gives no indication whatsoever of the capped period. The Respondents should not have to "dissect the language" to come by their knowledge but even if they had done we cannot see that it would necessarily lead to the knowledge that capped periods were included. There is no evidence to support the submission that the issue was discussed in the telephone conversation of 22 May. The Respondents' note makes no mention of it. Mr Meredith has not given any such evidence and even his letter of 10 February 2005, upon which Mr Dann seeks to rely, does not expressly say that dates were discussed. They merely discussed "how the ….. claim had arisen".

  15. It is our finding that at no time before 13 January 2005 were the Respondents made aware that the Appellant was reclaiming for a capped period. The returns themselves would make no reference to this and they contained no breakdown or explanatory note. The letter of 28 April 2003 does no more than inform the Respondents that adjustments have been made in the returns. The Respondents could have acquired the knowledge if they had verified the returns or insisted on the proper voluntary disclosure procedure being followed but for all the reasons referred to above, they did neither. These reasons were in our view perfectly proper and, of course, the decision did enable the Appellant to be repaid promptly. It follows from this that the Respondents would have had one year from the 13 January 2005 in which to raise the assessment. The amended assessment being dated 14 April 2005, was raised within the statutory time limit and, the basis of the assessment not being in dispute, the appeal is dismissed.

    16. The Respondents made no application for costs and no order is made

    LADY MITTING
    CHAIRMAN
    Release Date: 30 October 2006
    MAN/06/137

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