United Kingdom VAT & Duties Tribunals Decisions

Ham Enterprises Ltd v Revenue & Customs [2006] UKVAT V19908 (24 November 2006)

19908

Assessment – Input tax paid by HMRC on a claim relating to goods never supplied, whether any relevant appeal against an assessment for that sum – No. Misdeclaration Penalty – reasonable excuse found in the whole circumstances..

EDINBURGH TRIBUNAL CENTRE

HAM ENTERPRISES LTD Appellants

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: (Chairman): T GORDON COUTTS, QC

Sitting in Aberdeen on 20 November 2006.

for the Appellant(s) Mr Hamish Milne

for the Respondents Mr Andrew Scott, Shepherd & Wedderburn, WS

© CROWN COPYRIGHT 2006.

DECISION

INTRODUCTORY

This appeal is against both an assessment for £2,978, part of a larger sum assessed in respect of various matters, issued on 20 March 2006 and against a misdeclaration penalty in the restricted sum of £134 issued on 6 July 2006. The sum of £2978 was in respect of the VAT which would have been appropriate on a supply under a contract between the Appellant and a firm Codyne Ltd dated 21 March 2005. Codyne that day issued an invoice which bore to charge output tax in the said sum. The Appellant claimed input tax in its return for the period ending 31 March 2005. The contract was for certain water purifying equipment. It was not fulfilled. The equipment was never supplied to the Appellant and, at the hearing, it was conceded that accordingly input tax was not appropriately claimed.

The Appellant was represented by Mr Milne a Director of the Company, who was also a Director of Codyne Ltd. The Appellant operated as a provider of executive and management services, in essence in the capacity of facilitator.

Mr Milne gave evidence referring to many documents which were produced consisting mainly of correspondence. The Respondents led Mr Souden, their Officer who was in charge of the investigation hereafter referred to.

Despite conceding the fact that there had been no supply to the Appellant of goods it was argued that the assessment and penalty should be set aside for the reasons undernoted.

FACTUAL BACKGROUND

The Appellant had placed two orders with Codyne Ltd. The first in 2004 was invoiced. Codyne charged output tax and the Appellant claimed input tax on the relevant sum. In 2005 the Appellant wished a further water purifying system. It was explained to the Tribunal that Codyne had difficulties in financing the purchase of the equipment and it was arranged that they invoice the Appellant for the equipment. That invoice contained a sum charged as output tax.

The sum invoiced, in the round figure of £20,000, tax included, was said to have been paid to Codyne Ltd. At all events the assertion that payment was made, although no vouching was produced, was not disputed by the Respondents.

Codyne Ltd were liquidated on 30 May 2005. Despite that and in the knowledge that no goods had been delivered to them the Appellant took no steps to correct the sum they had claimed as input tax received from the Respondents.

Mr Souden visited the Appellant's premises to inspect their records. He was not satisfied about their completeness. He subsequently ascertained, however, by letter from the Appellant of 17 March 2006 that the unit had never been supplied to it. Mr Souden, correctly, took the view that since there had been no supply the amount claimed could not be input tax and issued an assessment for that amount on 27 March 2006.

Thereafter it was argued on behalf of the Appellant that since, as was the fact, Codyne had declared the amount of £2978 in a VAT return but sent, it appeared from the documentation, by the liquidator and the Respondents had made a claim in the liquidation they were thus precluded from claiming the sum they had assessed from the Appellant. The liquidator took no steps to correct his records and accounting for output tax, although that tax was never due since there had been no supply. Matters remained thus until shortly prior to the hearing. The Respondents confirmed that they had now restricted their claim in the liquidation. In the meantime the liquidator had been discharged there being no funds to pay any dividend to any creditor let alone the Respondents.

It appeared to be argued, as I understood matters, that such a correction could not be made the liquidator having been discharged and in the event the Respondents were claiming the same sum twice.

That argument sought support from what in the Tribunal's view was a sensible and sympathetic approach by Mr Souden in a letter dated 28 April 2006 in which he said "although the amount claimed by HAM Enterprises Ltd is clearly not input tax I am prepared to consider the position in the light of whether or not Codyne Ltd accounted for and paid to Customs the amount described on their invoice as VAT. That is why I asked the question in my letter of 4 April 2006. If I can be satisfied that Codyne Ltd did account for the amount in question and pay this over to Customs I will allow HAM Enterprises Ltd to recover it as if it were input tax. This is allowed under care and management of the Revenue, to avoid unnecessary bureaucracy where no tax is at risk. If therefore your client can provide the required information I will be able to look again at the assessment.

If however I am unable to be satisfied, with or without your client's assistance as the former Financial Director of Codyne Ltd, that the amount was accounted for and paid to Customs by Codyne Ltd then my assessment will stand. I have to tell you that the information currently available to me does not conclusively prove that the amount was paid to Customs by Codyne Ltd."

DECISION ON ASSESSMENT

It is the Tribunal's view that on a proper analysis there is no substance whatsoever in any defence produced. In the result money was paid by the Respondents to the Appellant in a situation where there had been no supply and therefore no tax. This might not have mattered if the goods had indeed been supplied, although the tax might have been claimed earlier than it should have been, but in the events which happened the proper analysis is that the Appellant has paid a sum of money to Codyne for which they have received nothing and are therefore due to be refunded by Codyne. The liquidation does not alter that fundamental situation. The Appellant has not paid out any sum as tax properly exigible and the argument that because of invoices for an incomplete transaction the Respondents should refund the money the Appellant sent to Codyne is, to say the least, optimistic.

The position of Codyne is not relevant to the Appellant's tax position. VAT being a self-assessed tax HMRC were at first blush entitled to claim that from Codyne because Codyne said they were was due a sum as output tax. HMRC were entitled to proceed on the self-assessment. When the events were fully explored however, and when no sum was actually paid, the Respondents were perfectly entitled to insist upon recovering the funds that they had made available to the Appellant on the Appellant's claim.

The Appellant sought comfort in the decision of this Tribunal in Technip Coflexip Offshore Ltd v HMRC No 19298 where this Tribunal held that in circumstances where tax had been accounted for to the Respondents in relation to a transaction that was not subject to VAT an assessment was inappropriate. That case provides no assistance whatsoever in the present circumstances which are the converse to those in Technip. In the present case the Respondents are not holding on to money to which they were not entitled. It is the Appellant who is doing that.

The appeal against the assessment is refused.

PENALTY

A misdeclaration penalty arose as a result of the above events. That there was, as matters turned out, a misdeclaration cannot be argued against. The question for the Tribunal was therefore whether there was a reasonable excuse for the Appellant in the events which occurred. Statutorily acting in good faith has to be disregarded but otherwise reasonable excuse can encompass any of the appropriate circumstances in the transaction.

Strictly the misdeclaration was made when the input tax claim was sent in the absence of delivery of the goods but the Tribunal finds that in the circumstances it was reasonable, in the absence of knowledge that the sum had not in fact been paid to the Respondents for the Misdeclaration to have been made when it was. Subsequent events in a confused and confusing situation did not involve any further Misdeclaration. Looking at the matter at the time the misdeclaration was made leads albeit with some hesitation, to the conclusion that there was a reasonable excuse for the eventual outcome and the penalty will be quashed. The Respondents have interest as a substitute for a penalty on money wrongfully withheld.

SUMMARY

The appeal so far as relating to the assessment is refused and the sum assessed plus interest requires to be paid. So far as relating to the misdeclaration penalty, on balance, the appeal is allowed.

T GORDON COUTTS, QC

CHAIRMAN

RELEASE: 24 NOVEMBER 2006.

EDN/06/66