United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20175

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South Yorkshire Style Tile v Revenue & Customs [2007] UKVAT V20175 (22 May 2007)

20175

VALUE ADDED TAX — appeal against assessment — invoices stated "net plus VAT" — whether VAT recoverable from Appellant — Schedule 11 paragraph 5(2) Value Added Tax Act 1994 — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

SOUTH YORKSHIRE STYLE TILE Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Ian Vellins

Mary Ainsworth

Sitting in public in Manchester on 9 May 2007

David Shaw and Jonathan Radcliffe, the partners, for the Appellant

Bernard Haley, of the Solicitor's Office of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appeal

In this appeal, the Appellant is South Yorkshire Style Tile, a partnership business between Mr David Shaw and Mr Jonathan Radcliffe, which had operated as a business supplying and fitting tiles, from premises at Maltby, Rotherham, South Yorkshire, and who had commenced trading on 1 July 2002. Following correspondence with the Respondents, the Appellant, in 2004, agreed and became registered for VAT with effect from 1 July 2002. Eventually the partnership became dissolved and the registration for VAT was cancelled with effect from 18 October 2005. The Appellant appeals against the decision of the Respondents dated 27 October 2005 assessing the Appellant for VAT in the sum of £7,059 for the period from 1 July 2002 to 30 June 2004.

At the hearing of this appeal at Manchester on 9 May 2007, the Appellant was represented by its partners, Mr David Shaw and Mr Jonathan Radcliffe, and the Respondents were represented by Mr Bernard Haley, a senior officer.

Oral evidence was heard from Mr Shaw and Mr Radcliffe, and from an officer of the Respondents, Miss K Le Roux.

At the hearing of the appeal, the facts were not in dispute, nor was the amount of the assessment. The Appellant was disputing that it was liable for VAT on its invoices issued during the period of time covered by the Notice of Assessment.

The short issue in this appeal was whether the Respondents were entitled to insist that VAT was paid by the Appellant on the amounts representing VAT on the supplies shown on its invoices. The Respondents maintained that VAT was due from the Appellant on the amounts taken as representing VAT on the supplies shown on the Appellant's invoices.

The Legal Framework

The Value Added Tax Act 1994 ("VATA 1994") Schedule 11, paragraph 5 provides:

"1. VAT due from any person shall be recoverable as a debt due to the Crown.

2. Where an invoice shows a supply of goods or services as taking place with VAT chargeable on it, there shall be recoverable from the person who issued the invoice an amount equal to that which is shown on the invoice as VAT or, if VAT is not separately shown, to so much of the total amount shown as payable as is to be taken as representing VAT on the supply".

Facts and Conclusions

We make the following findings of fact and reach the following conclusions in this appeal.

Mr Shaw and Mr Radcliffe were friends. Prior to July 2002, Mr Radcliffe had been a student, and Mr Shaw had formally been a haulier, and a teacher of bricklaying overseas. They decided to set up business together as suppliers and fitters of tiles, and on 1 July 2002 started trading at premises in Maltby, Rotherham. At that time they did not register for VAT. At the beginning, they were mainly supplying and fitting tiles to domestic householders. They used Mr Radcliffe's sister, Mrs K Platts, as their book keeper. They ordered the stationery and invoices from a friend who was a printer. The printer printed the invoices for them, containing at the bottom the phrase "Net plus VAT. Total". The partners were shown a proof of the proposed invoice and approved it prior to the invoices being printed. As they were commencing business together for the first time, they did not know what the annual amount of their supplies would amount to, but considered that some time in the future these may exceed the threshold limit, which would require them to be registered for VAT. They decided to accept the printer's proposed wording on their invoices, on the consideration that this would save them from reprinting their invoices when they eventually exceeded the threshold.

The partners did not think at all of the implications of the wording of their invoices in respect of VAT.

During the early years of the business the Appellant was dealing with domestic house owners, and supplied and fitted tiles for such customers. They quoted their customers a total price, and inserted in their invoices the total price opposite the phrase "Net plus VAT. Total" without inserting or calculating any separate figure for VAT. Indeed, the evidence of Mr Radcliffe and Mr Shaw was that they were not intending to charge VAT to any of their domestic customers during this early period of trading.

In May 2003, Miss Le Roux, who was an officer of the Respondents, visited Maltby and discovered that the Appellant was not registered for VAT. She wrote to the Appellant requesting various details to ascertain if the Appellant was liable to be registered for VAT. On obtaining no reply, Miss Le Roux made an unannounced visit to the Appellant's premises, spoke to Mr Radcliffe and left him a questionnaire for completion. After further correspondence, the Appellant sent to the Respondents copies of the Appellant's invoices. Miss Le Roux noticed that the invoices all gave a total for the amount due from its customers opposite the phrase "Net plus VAT". None of the invoices showed a figure for VAT separately. All the invoices were in the same form.

In April 2004, Miss Le Roux pointed out to the Appellant that VAT was due to the Respondents in respect of such invoices, and she requested information as to the monthly totals of sales so that she could find out the correct date that the Appellant should be registered for VAT. She also pointed out to the Appellant that it had an option to register for VAT from the start of trading which would give it the opportunity to reclaim input tax. Mrs Platts telephoned the Respondents to the effect that the Appellant was going to register for VAT from the start of trading once the application forms were signed by the partners, and in July 2004, the Respondents received the VAT 1 and VAT 2 forms from the Appellant requesting the registration for VAT with effect from 1 July 2002. By error, the Respondents initially dated the registration from 1 July 2004, but then rectified this by registering the Appellant for VAT from the correct date, 1 July 2002.

Miss Le Roux had pointed out to the partners that VAT was due on the invoices of the Appellant. By October 2004 the Appellant's supplies exceeded the threshold. The Appellant also had expanded the business of the Appellant to supply and fit tiles not only to domestic householders but to businesses. Once the Appellant had registered for VAT, the Respondents calculated the input tax on purchases that had been made by the Appellant, for the purchase of vehicles. Although the VAT due on the invoices issued by the Appellant totalled over £11,000, the Respondents allowed the deduction of the input tax on those purchases that had been notified to the Respondents and they then issued a Notice of Assessment of VAT on 27 October 2005 in the sum of £7,059. The Notice covered the period from 1 July 2002 to 30 June 2004.

The partners pleaded that they did not have the funds to pay the VAT and asked for a reconsideration. An officer of the Respondents visited the Appellant, but whilst the Respondents were prepared to withdraw a late notification penalty, they were not prepared to withdraw or amend the Notice of Assessment, on the basis that VAT was due from the Appellant on its invoices, the Respondents having permitted the Appellant to claim input tax on the Appellant's purchases.

In correspondence, the Appellant had argued that the wording on the invoices of the Appellant was a clerical error, and in fact it had not charged VAT to any customers during the period in question. The Appellant argues that the total amount showed on the invoices was the amount that the customers paid and VAT had not been charged by the Appellant in respect of those invoices during that particular period of time. In correspondence, the Respondents had pointed out to the Appellant the fact that the sales invoices stated that VAT had been charged, even though the Appellant at the material time had not been registered for VAT, meant that there had been an unauthorised issue of tax invoices and VAT was due from the Appellant under paragraph 5(2) of Schedule 11 to VATA 1994. The Respondents pointed out that this meant that even if the Appellant was not registered for VAT but had stated on an invoice that VAT was included in the sale, whether or not it was, then that VAT became due to the Crown. The Respondents pointed out that therefore VAT was due on all the sales invoices that stated "Net plus VAT. Total" and as the Appellant had not been registered for VAT at that time, the debt should be collected via a demand note for immediate payment, but should the Appellant register for VAT then the debt would be collected via the normal route of VAT returns, less any VAT to be reclaimed on purchases, or upon an assessment being issued if VAT returns were not made. The Appellant had chosen the option to complete the VAT registration form and had been duly registered with effect from 1 July 2002 and the assessment had been properly made to that.

In correspondence, the Appellant argued that when the partners had ordered the business invoices, they did not realise the consequences of the printing error and the Appellant argued that the invoices were not tax invoices, that VAT had not been charged to the customers who were private individuals, and the Appellant argued that there had been no loss to the Crown. The Respondents however maintained that VAT was properly owing by the Appellant in respect of the invoices and the invoices were tax invoices.

We have sympathy with the partners. We accept that it had not been their intention to charge VAT to its domestic customers, and that the partners had innocently not appreciated the legal implications of the wording on the Appellant's invoices. However, the Appellant is liable to VAT on its invoices under paragraph 5(2) of Schedule 11 VATA 1994. We find that the Appellant's invoices showed a supply of goods or services taking place with VAT chargeable on it, and we find that the Respondents were entitled to recover from the Appellant who issued the invoices, an amount equal to so much of the total amounts shown as payable as are to be taken as representing VAT on the supply. The Appellant has taken the benefit of the option which was allowed by the Respondents, to apply for and agree a date for registration of VAT from the date when the Appellant commenced trading. This has enabled the Appellant to reclaim input tax on supplies. There was no dispute in this appeal that the amount of the assessment was correct, the Respondents having given the Appellant the allowance for the relevant input tax on its purchases during that period.

We find that the assessment made by the Respondents was reasonable, and to best judgment, and within the provisions of Schedule 11 paragraph 5(2) VATA 1994. Accordingly, we must dismiss the Appellant's appeal.

The partnership ceased in October 2005. Mr Radcliffe and his sister had been badly injured in a car accident. Mr Radcliffe and Mr Shaw both claim that they have no funds to pay the VAT. We have expressed sympathy to the partners, but we informed them that we have no power to cancel the assessment merely for sympathetic reasons. The VAT is properly due and payable by the Appellant in accordance with the provisions of the VATA 1994. The appeal is dismissed.

The Respondents did not ask for an order for costs and we make no order for costs against the Appellant.

IAN VELLINS

CHAIRMAN
Release Date: 22 May 2007