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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> McGreevy Construction Ltd v Revenue & Customs [2006] UKVAT V19877 (13 November 2006)
URL: http://www.bailii.org/uk/cases/UKVAT/2006/V19877.html
Cite as: [2006] UKVAT V19877
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19877
VAT – Appeal against the reversal of the payment of repayment supplement s.79 VATA 1994 – Appeal dismissed
LONDON TRIBUNAL CENTRE
MCGREEVY CONSTRUCTION LIMITED Appellant
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: I W HUDDLESTON (Chairman)
MRS J WHITESIDE
Sitting in public in Belfast on 24 March 2006
Glyn Edwards for the Appellant
Jonathan Cannon, Counsel for the Respondents
The Appeal
This is an Appeal by G. McGreevy Construction Limited (the Company) against the disputed decision of the Commissioners to seek recovery of a repayment supplement in the sum of £27,911.44 (Twenty seven thousand, nine hundred and eleven pounds and forty four pence) under Section 79 of the Value Added Tax Act 1994 ("the Act"). The decision which is in dispute was notified to the Appellant Company by a letter from HMRC dated 26th May 2004 and that decision was confirmed (following a reconsideration) by a letter dated the 19th July 2004.
Background
The Appellant Company provides building services from premises at 24 Main Street, Hilltown, County Down, BT34 5UH. Its quarterly VAT returns normally show it as a trader with a liability to pay VAT. The Appellant, however, made a VAT return for the period 02/04 claiming payment by way of input tax in the sum of £558,228.80 (Five hundred and fifty eight thousand, two hundred and twenty eight pounds and eighty pence). Chronologically the following occurred:
• on the 19th March 2004 the Appellant's VAT return on which the payment was claimed was received by HMRC at the VAT Central Unit, Southend-on-Sea;
• on the 24th March 2004 the payment claim failed the Commissioners' automatic credibility checks and was referred on that date to the Credibility Branch;
• on the 25th March – the Commissioners decided that payment could not be authorised without further inquiry, based on the fact that the repayment was considerably higher than any of the previous repayment returns during the previous twelve month period. On that date (ie. Thursday 25th March 2004) the matter was referred to the Belfast Local Office;
• on Monday 29th March 2004 the case was allocated to an Officer, Mr. Michael Livingstone, of the Belfast Office who decided, in turn, that a full premises visit was required before payment could be authorised. Before the Tribunal the Appellant indicated that it had forwarded a letter which was received in Belfast on the 24th March 2004 advising that there would be a large repayment during the relevant VAT period, but the Commissioners' contention was that only the initial header of the letter was received and that Mr. Livingstone did not, therefore, have the detail of that letter;
• on Monday 5th April 2004 a business support administrator within the Belfast Office, a Ms. McCusker, was instructed to arrange the site visit. Evidence was given that, having examined the available office schedules, Ms. McCusker had determined that the earliest available date upon which an inspection could be arranged was the 16th April 2004 and, having done so, she made a telephone call to the Appellant Company and arranged a visit on that date. That appointment was, on the same day, confirmed in writing;
• on the 16th April 2004 a visit was made to the Appellant's premises and the payment claim found to be wholly in order;
• on the 21st April, payment to the Appellant was authorised;
• on the 2nd April 2004 payment of £558,228.80 plus the disputed repayment supplement of £27,911.44 (calculated at 5% of the sum repaid) was processed by the Liverpool Office;
• following an internal check, HMRC wrote to the Appellant Company on the 26th May 2004 requesting repayment of the repayment supplement. This decision was then reviewed by the Liverpool Office resulting in the review letter of the 7th June 2004;
• subsequent to correspondence passing between the parties, a Notice to Appeal was issued by the Appellant's advisors on the 30th September 2004, which stated as follows:
"The repayment supplement was correctly paid as Customs failed to pay the Appellant within thirty days of a repayment return, Customs incorrectly interpreting Section 79(3) on days to be left out of account. The Appellant also believes that Customs have no power or have not exercised their power correctly in requesting return of a supplemental already awarded."
The Appeal Notice incorporated an application for an extension of time, on which no issue was taken before the Tribunal.
Statutory Provisions
The relevant statutory provisions are as follows:
Section 79 of the Act
(1) In any case where:
(a) a person is entitled to VAT credit
[provided that conditions are met]
the amount shall be increased by the addition of a supplement equal to 5 per cent of that amount or £50, whichever is the greater ….
(2) The said conditions are ………
(b) that a written instruction, directing the making of the payment or refund is not issued by the Commissioners within the relevant period ……
(2A) The relevant period …… is the period of 30 days beginning with ……
(b) the date of receipt by the Commissioners of the return or claim [or with the last day of the prescribed accounting period, if later].
(3) Regulations may provide, that in computing the period of 30 days, referred to in subsection (2A) above, there shall be left out of account periods …… referable to -
(a) the raising and answering of any reasonable inquiry relating to the requisite return or claim ………
(4) [The period under subsection (3)]
(a) begins on the date on which the Commissioners first consider it necessary to make such an inquiry, and
(b) ends on the date on which the Commissioners -
(i) satisfy themselves that they have received a complete answer to the inquiry …….
but excluding so much of the period as may be prescribed ……….
Value Added Tax Regulations 1995 – SI 1995/2518 ("the 1995 Regulations")
198. In computing the period of 30 days referred to in section 79(2)(b) of the Act, periods referable to the following matters shall be left out of account -
(a) the raising and answering of any reasonable inquiry relating to the requisite return or claim ………
199. For the purpose of determining the duration of the periods referred to in regulation 198, the following rules shall apply -
(a) in the case of the period mentioned in regulation 198(a), it shall be taken to have begun on the date on which the Commissioners first raised the inquiry and it shall be taken to have ended on the date on which they received a complete answer to their inquiry ……………
The Appellant's Case
The Notice of Appeal (quoted above) raises two questions.
Question 1 – the Period of Deduction under s.79(4)
The Appellant contended that the Return had been made by the 19th March 2004, therefore HMRC had until 17th April to authorise repayment of the sums due to the Appellant Company, but that the written authorisation only happened on the 22nd April 2005 (ie. a total of 35 days) therefore that the Appellant Company was entitled to the Repayment Supplement pursuant to Section 79 and that where (as in this case) the Commissioners suggested that certain periods were to be left out of account to qualify for such a deduction:
(a) the inquiry had to be reasonable;
(b) in that context "reasonable" meant both as to the nature of the inquiry and the manner in which it was conducted, and that it was not reasonable if there were unreasonable internal delays on the part of the Commissioners.
Mr. Edwards, for the Appellant Company, cited two periods of delay, namely:
• from the 22nd March to the 5th April (eleven days) being the period which it took Customs to determine whether or not to visit the Appellant's premises;
• the period between the 6th and 16th April, being the period which it took the Commissioners to arrange the site visit;
and then referred to the case of C&E v Watford Timber Company Limited VTD 14756. Both delays, he contended, constituted unreasonable delay in the circumstances of this case and, therefore, an unreasonable inquiry (applying Watford).
Evidence was given by both Mr. Livingstone and Ms. McCusker in relation to the processing of the case through the Belfast Office. From that evidence it did appear to the Tribunal that there had been some internal delay in initially deciding to investigate the repayment application and its subsequent transferral from Liverpool to Belfast, which did not appear to be satisfactorily explained. The Respondent's case, however, was not that it sought to rely on those initial internal delays, but that the period between the 6th and 16th April 2004 should be excluded from the calculation on the basis that, for the purposes of s.79(3)(a) of the Act and Regulation 199(a) of the 1995 Regulations:
• the date upon which the Commissioners first raised the inquiry was the 6th April 2004, when contact was made with the Appellant.
• the date upon which the Commissioners received a full answer to their inquiry was on 16th April 2004 - when the site visit was undertaken;
• that it was not possible to satisfy their query before the site visit;
• that the 11 day period between 6 to 16th April 2004 was a reasonable period and was the period to be discounted under s.79(4).
In that regard, the evidence of Ms. Brigid J. McCusker was most helpful to the Tribunal. Ms. McCusker gave evidence that the case was assigned to her on the 6th April 2004, and that on that day she consulted the office schedules to establish the level of capacity within the Belfast Office to undertake a site visit to the Appellant Company's premises. The result of that research was that she established the 16th April 2004 as the first date on which the visit might be arranged. That was the date that she subsequently communicated to Ms. Mairead Hamill, being the person charged with conducting the actual inspection. Through Ms. McCusker's evidence, it became apparent that the period in question fell over the Easter holidays, and she gave evidence to the fact that public holidays for the Belfast Office generally constituted a half day on Thursday (in this case Thursday the 8th April), Good Friday (9th April) and Easter Monday (12th April) but that on certain occasions some members of staff would work a full day on the Thursday before Easter and take Easter Tuesday (in this case 13th April) in lieu.
In cross examination it became clear that when the 16th April 2004 was suggested to Ms. Hamill, no issue was made of the potential delay or effect on the repayment application which had been made by the Appellant Company. Had an issue been taken at that stage, Miss. McCusker indicated to the Tribunal that she would have tried to arrange an earlier date by asking one of the other Officers to do the site visit. Because no such issue was raised in her conversation with Ms. Hamill, she proceeded to telephone the Appellant Company and arrange the meeting for the 16th April 2004. The point was made, however, by Miss. McCusker that in attempting to arrange a meeting on the 6th April 2004 she did not envisage that she would be able to arrange it prior to the Easter Vacation which, on her own evidence, would have started on the 8th April (ie. two days after her receipt of the initial instruction) and, clearly, the period to the 13th April was out of the issue due to the Easter Holidays.
On the first question before the Tribunal, the Tribunal found as follows:
• that for the purposes of Section 79(2A), the "relevant period" of thirty days began on the date of the Return, ie. 19th March 2004;
• in the normal course, therefore, the relevant period would have ended on the 17th April 2004;
• contrary to the interpretation however put forward by Customs, the Tribunal found that applying the natural meaning of s.79(4) the clock stopped on the date that "the Commissioners first consider[ed] it necessary to make [the] inquiry" – in this case 25th March 2004. In coming to this view, the Tribunal took into consideration and applied the decision of the Tribunal in the case of C&E v Refrigeration Spares (Manchester) Limited VTD 1760 (particularly paragraph 19 onwards);
• the Commissioners' inquiries were satisfied within the meaning of s.79(4) on 16th April 2004 when the visit was undertaken;
• that period is a total of 23 days of which 10 days appeared to the Tribunal to represent either weekends or public holidays;
• that whilst the period of 23 days in itself was too long to constitute a reasonable inquiry in the sense set down in the case of Watford, given the fact that it occurred over a holiday period had to be borne in mind;
• that on the facts of this case the inquiry was a reasonable one and that, in the context of a holiday period, it had been reasonably carried out
• that based on those findings of fact the repayment supplement had been wrongly paid to the Appellant Company , although clearly the reasoning of the Tribunal as to the period of this deduction differed from the view of HMRC as to the discount period to be applied.
Having so found, that led to consideration of the second question.
Question 2 - Repayment of the disputed Repayment Surcharge
The Appellant argued before the Tribunal that there was nothing within the Act which entitled the Commissioners to demand refund of the repayment supplement where it had been paid in error and, further, that the Tribunal was not empowered pursuant to Section 83 of the Act to order repayment of the sum in question.
The Respondent countered that argument by reference to Section 79(5)(a) of the Act which, in the context of the processing of repayment supplements, indicated that where a supplement was paid it would be treated as "an amount due to [the taxpayer] by way of credit" under Section 25(3) and that whilst not expressly dealt with in Section 79 (presumably because of its rarity) it would seem logical that where a repayment supplement had been paid in error that an appropriate adjustment (and then by way of debit) would be made to a taxpayer's running account with the Commissioners. This Tribunal finds that that approach accords with both logic and reason and, if treated as a VAT credit / debit, then it would fall within one of the matters over which the Tribunal would have jurisdiction under Section 83 of the Act. Recovery of the incorrect overpayment could then be dealt with simply by the normal payments due by a taxpayer on foot of its VAT returns and as such the Tribunal did not feel any order for restitution of this amount was required.
Conclusion
For those reasons the Appeal is dismissed. No order as to costs.
LON/2004/1572