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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> National Galleries of Scotland v Revenue & Customs [2007] UKVAT V20253 (12 July 2007)
URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20253.html
Cite as: [2007] UKVAT V20253
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20253
Appeal – assessment – whether appeal on assessment or an underlying input tax claim under Regulation 29 – whether section 83 applies to facts – capping provision – VATA 1994 section 73(a), 80(1B), 83(c), VAT Regulations 1995 para 29(1A).
EDINBURGH TRIBUNAL CENTRE
NATIONAL GALLERIES OF SCOTLAND Appellant(s)
- and -
THE COMMISSIONERS FOR
HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: (Chairman): T Gordon Coutts, QC
(Members): Mr K Pritchard, OBE., BL., WS
I R Welch, CA, JP
for the Appellant(s) Charles Rumbles
for the Respondents Natasha Durkin, Shepherd & Wedderburn, WS
© CROWN COPYRIGHT 2007.
This appeal arose from a decision of the Respondents to refuse to pay in full a voluntary disclosure claim submitted on 22 July 2005 in the sum of £1,479,875.74. Following much discussion and correspondence parts of that claim were met and as at the date of the Hearing of the Tribunal the disputed balance amounted to £431,391.74. That outstanding sum comprised 2 separate issues one in relation to an assessment in the sum of £242,173 made in respect of the period 1 April 1999 to 30 June 2001 and paid and the other balance of £189,218.74 in relation to actual tax deducted and reclaimed subsequent to the assessment.
The Tribunal was provided with a file of correspondence and a witness statement from the Appellants Mr Davidson, who acted as Head of Finance at the Appellants National Galleries of Scotland between 22 April 2002 to 2 September 2005.
Prior to the Hearing, on a joint application it was agreed that the scope of the appeal be restricted to the following preliminary questions of law:
(a) whether the Appellant's claim is open to appeal under Section 83 of the Value Added Tax Act 1994; and
(b) whether the appeal is capped by virtue of Section 80 of the Value Added Tax Act 1994, or whether the claim is properly characterised as a claim for the deduction of input tax on the basis of Regulation 29 of the Value Added Tax Regulations 1995/2518.
At the Hearing, however, the matters put to the Tribunal were somewhat extended and the question of jurisdiction to hear the appeal was raised.
Background
It is of some importance to consider the background to this one of a number of claims made by the Appellants in the course of the past few years. The Appellants are a non-profit making organisation having a number of places where they operate. Between 1999 and August 2003 the Appellants were engaged in a very substantial project for the refurbishment its gallery at the foot of the Mound in Edinburgh this was known as the "Playfair Project" which at the present time is completed and has provided a first class facility for the Citizens of Scotland.
The Appellants recovered all input tax relative to the Playfair Project in full on the basis that it was anticipated at the time of the project that the galleries would be used fully for taxable purposes and all VAT would therefore be recoverable.
Between December 2001 and March 2002 there followed an exchange of correspondence between the Appellants' representative and the Respondents in relation to the recovery of input tax. The Appellants' representative had reviewed the proposed use of the gallery building and had determined that approximately 90-95% of the input tax was properly reclaimable, rather than the 100% that had in fact been reclaimed.
On 26 March 2002 a meeting was held between the Appellants' representatives and Officer Hannah of the Respondents at which the recovery rate of input tax was discussed. Officer Hannah noted that no calculations had been produced to support the contention that a 90/95% recovery rate was appropriate and indicated that in his view a recovery rate of 70% was appropriate.
On 24 April 2002, and following further exchange of correspondence, Officer Hannah issued an assessment to VAT pursuant to s73 of the Value Added Tax Act 1994 in the sum of £242,173.00 (exclusive of interest) in respect of the period 1 April 1999 to 30 June 2001. Said assessment was calculated on the basis that only 70% of the VAT charged on the refurbishment project was recoverable. No appeal was lodged against that assessment and the amount was paid in full by the Appellant on 16 May 2002.
The Appellants' representative then conducted a review of the use of the gallery buildings following the opening of the buildings in August 2003 from which they concluded that the Appellants had a right to full and immediate deduction of the VAT incurred on the Playfair Project. The claim was in the total sum of £1,479,835.74 and in respect of the period from April 1999 to March 2005. The claim comprised (a) the sum of £242,173 disallowed in respect of the periods 6/99 to 12/01 and (b) the sum of £1,237,662.74 under claimed by the Appellants in respect of the periods 3/02 to 3/05 during which time the Appellants had, in line with the approach taken by Officer Hannah, reclaimed at the rate of 70%.
It requires to be noted that on 1 March 2002 Mr Rumbles on behalf of the Appellants wrote to the Respondent's Mr Hannah, enclosing plans of the Gallery and Buildings the Playfair Project both as existing and as proposed. On 10 April 2002 in a further letter Mr Hannah was told that the Appellants were to calculate an apportionment based on use of each part of the building and promising a reply by 7 May. However despite that Mr Hannah wrote directly to Ms Welsh at the National Galleries of Scotland enclosing his calculations of input tax he alleged was over claimed intimating that he had estimated that only 70% of the VAT charge should have been recovered intimating that if he got any further relevant information he would be happy to take it into consideration and also intimating the issue under separate cover of a notice of assessment in the amount of £242,173. He said that if that assessment was disagreed with it could be reconsidered by another officer or there was a right to appeal to a VAT Tribunal.
That notice of assessment was received by the Appellants and a copy thereof was produced which had on it the following handwritten message:
"discussed with Chairman, agreed we would pay, I would do letter to VAT saying we would pay now without prejudice and review the situation in the light of section 33 or "use" at a later date 16/5/02".
No such letter was sent. The situation as a result was that the assessment had been paid without qualification and without appeal. No challenge was made to the 70% figure but instead that figure was adopted in the subsequent payment made until the present challenge. The Appellants had had 30 days within which to appeal the decision letter as to assessment and calculation in terms of paragraph 4 of the Value Added Tax Tribunals Rules 1986. It is highly unfortunate that that was not done since subsequent events and discoveries have made it clear that the assessment and calculation of the figure of 70%, alleged to be to "best judgement" was no more than a guess and that the officer had not considered the plans he had been sent before submitting his decision. He then compounded the matter by not sending the assessment to the Appellants' known representative. Additionally he did not intimate the time limit for an appeal in the letter he did send.
Is the assessment appealable?
The first question which arose for the Tribunal's consideration was whether it should permit the appeal to be presented i.e. whether they should grant leave to appeal out of time. Were it to do so it could consider the matter as an appeal against the assessment. Support was sought from the Advanced Medical Solutions Group (2007) (19925) and W.Y. Wan (1997) (14829). Neither of these cases were truly in point depending as they did on their own peculiar facts.
The Tribunal was of the view that the situation was not one in which they should exercise a discretion to allow an appeal over 3 years after the decision in question. Although in some cases it might possibly be appropriate to disregard such a lapse of time we did not consider that this was one. We bore in mind the unsatisfactory nature of the communication from the Respondents at the time of the decision letter; noted the absence of intimation of a time limit and the discourtesy, to put it at its lowest, of not communicating a decision letter on a matter which was contentious to the Appellants' known representative. Had the lapse of time which ensued been measured in months rather than years leave to appeal late could well have been granted. However in the present case where the Appellant had in fact available the services of an expert representative, but, it would seem, instead elected to make and continue to make payment on a particular basis and fail to communicate any reservation to the Respondent they must take the consequences of their failure to comply with the rules.
Characterisation of the claim
The Appellant contended also that its entire claim was one related to input tax and therefore governed by the terms of Regulation 29.
It is necessary in relation to that contention that consideration has to be given to the different circumstances arising before and after the said assessment.
The Commissioners contention was that insofar as the claim amounted to a revisiting of the pre-assessment period it was inappropriate to regard that as a claim in relation to input tax. Once the payment was made the situation changed and the Appellant required to seek repayment. Such repayment requires to be considered in the light of Section 73(9) VATA 1994 which provides:
"Where an amount has been assessed and notified to any person…. It shall, subject to the provisions of this Act as to appeals, be deemed to be an amount of VAT due from him and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced".
Accordingly, when the assessment was notified to the Appellants, the Appellants were being notified, in terms of Section 73(9) of an amount of VAT that was due. The Appellants then paid the amount of VAT that was due. If that payment of VAT should not have been made then section 80(1B) applies:-
"Where a person has for a prescribed accounting period (whenever ended) paid to the Commissioners an amount by way of VAT that was not VAT due to them, otherwise than as a result of-
(a) an amount that was not output tax due being brought into account as output tax, or
(b) an amount of input tax allowable under section 26 not being brought into account,
the Commissioners shall be liable to repay to that person the amount so paid".
The only remedy the Appellant has in respect of this period – having not appealed the assessment – is to make a claim for repayment. Those amounts, having been assessed, are "deemed to be an amount of VAT due" (Section 73(9)); having paid VAT the legislation provides that VAT not due which has been paid can be reclaimed. Section 80(1B) applies to those periods. If the amount of VAT paid was not VAT due, the Commissioners are liable to repay that amount. However, there is no liability to repay if the claim is made more than three years after the relevant date, thus as section 80(4) provides:-
"The Commissioners shall not be liable on a claim under this section-
(a) to credit an amount to a person under subsection (1) or (1A) above, or
(b) to repay an amount to a person under subsection (1B) above,
if the claim is made more than 3 years after the relevant date".
Although there is no actual claim made by the Appellants in this case for a reclaim of VAT under Section 80 any claim in respect of those amounts already paid for the period 06/99 – 12/01 are outwith the statutory three year period. It is not possible for the Appellants to argue that these payments should be re-characterised as claims for deduction of input tax – those claims have been made, assessed and paid. There are no outstanding claims involving Regulation 29 for the periods covered by the assessment.
For the Appellants successfully to obtain repayment of this VAT – because that is in fact what the Appellant here needs to do – the Appellant must be in a position to disapply the provisions of Section 73(9). The Commissioners' contention is that once Section 73(9) is engaged (by virtue of an actual payment having been made), then the capping provisions in Section 80 must apply.
On a true construction of the Appellants' position, the Appellants seek repayment of the sums already paid by the Appellant. On that basis any claim for repayment is – by virtue of section 80(1B) – capped.
We accept the argument of HMRC. We consider that once payment of the assessment had been made matters altered and different statutory provisions apply. We answer the first preliminary question by finding that this part of the appeal is not open under Section 83. Any valid capping provisions would thus apply.
Claims in respect of periods 03/02 and 06/02
It was agreed that the Tribunal will only be concerned with the period 03/02. It was accepted that that claim related to a situation covered by Regulation 29(1) Value Added Tax Regulations 1995. The Respondent said it was capped by virtue of the amending provisions in Regulation 29. Since this Tribunal in Scottish Equitable v Commissioners for HMRC EDN/02/161 has held that a limitation or cap purported to be introduced without a transitional provision cannot be applied, that would result in the appeal being allowed. However Scottish Equitable has been referred by the Inner House to the ECJ. In those circumstance, in order to save wasted expense, they adopt the course of sisting that part of the appeal pending the ECJ decision. If however parties wish to present argument on the capping provision after the decision of the House of Lords in Fleming and Conde Nast they may apply to do so.
Decision
The appeal so far as relating to periods prior to 03/02 is that the appeal is refused, being out of time but the remainder is sisted pending the decision of the European Court of Justice in the reference Scottish Equitable v Commissioners for HMRC EDN/02/161.
EDN/06/64