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C J Anderson v Revenue & Customs [2007] UKVAT V20255 (13 July 2007)

20255

VAT – FLAT RATE SCHEME – Respondents refused to backdate the application to the inception date for the scheme – Respondents refusal unreasonable – applied the policy without regard to the individual circumstances of the application – the Respondents' decision would not inevitably have been the same if regard had to individual circumstances – Appeal allowed.

LONDON TRIBUNAL CENTRE

C J ANDERSON Appellant

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

DR MICHAEL JAMES (Member)

Sitting in public in Cardiff on 28 June 2007

Nayland Anderson for the Appellant

Mario Angiolini, counsel instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appeal

The Appellant was appealing against the Respondents' refusal dated 15 June 2006 to backdate authorisation of the use of the flat rate scheme by the Appellant to the VAT quarterly period ending August 2002.

The issue in dispute was whether the Respondents' refusal was reasonable in that they had regard to relevant matters and disregarded irrelevant matters.

We heard evidence from the Appellant who was represented by his father, Mr Nayland Anderson. The Respondents called no witnesses and relied upon their submissions. A bundle of documents was supplied in evidence by the Respondents.

The Facts

The Flat Rate Scheme

The scheme was introduced with effect from 25 April 2002. The scheme allowed taxpayers within specific turnover limits to pay VAT as a percentage of turnover instead of working out the VAT on sales and purchases (normal accounting). The taxpayer applies to join the scheme.

The law for the flat rate scheme is found in section 26B of VATA 1994 and Regulations 55A to 55V of the VAT Regulations 1995. Regulation 55B(1)(b) gives the Respondents a discretion to fix with agreement an earlier date to start the scheme than the beginning of the first VAT period after the taxpayer's application for authorisation to use the scheme. The Respondents have issued VAT Notice 733 to explain the operation of the scheme.

The Respondents used the following methods to ensure that eligible traders were aware of the scheme:

(1) A leaflet "VAT returns without the headache" was sent out with VAT returns for VAT periods falling between December 2002 and May 2003.

(2) A revised version of "VAT returns without the headache" accompanied VAT returns between June 2003 and August 2003.

(3) A leaflet "Simplifying VAT for Small Businesses – Flat Rate Scheme" was enclosed with VAT returns between December 2003 and June 2004.

(4) A flashing banner advertisement was placed on the HMRC website at the time of introduction of the flat rate scheme.

(5) The introduction of the flat rate scheme, a reference to the scheme in December 2003, and a change to the scheme in January 2004 were included in the VAT notes sent out to all traders with their VAT returns.

(6) The Respondents' business support team frequently raised and discussed the Flat Rate Scheme during the course of routine telephone conversations.

The Appellant's Evidence

The Appellant carried on business as a self employed lorry driver delivering goods for Dixon Stores Group Limited. He was registered for VAT from October 2001. The Appellant relied on his father, Mr Nayland Anderson, a qualified accountant, to look after his accounts and tax affairs including the submission of his VAT returns. The Appellant's VAT returns and payments have always been submitted on time. The Appellant would hand over correspondence from HM Revenue and Customs to his father to deal with.

In 2001 the Appellant experienced a breakdown in his marriage which resulted in him leaving the matrimonial home. Since 2001 the Appellant made considerable efforts to resolve the differences with his wife but to no avail with his divorce made final in May 2006. After leaving the matrimonial home the Appellant lived at five different addresses.

On 19 May 2006 Mr Nayland Anderson was dealing with his son's PAYE returns when he came across a leaflet explaining the VAT flat rate scheme ("Simplifying VAT for Small Businesses – Flat Rate Scheme"). This was the first time that Mr Nayland Anderson was aware of the scheme. He had been dealing with VAT since its inception in 1971 and was a member of a working group considering the implications of VAT for local authorities. Mr Nayland Anderson had always been under the impression that VAT was invoice based. He was taken by surprise with the fixed percentage of turnover regime for the flat rate scheme, particularly as a similar scheme had been muted in 1971 but ultimately rejected. Mr Nayland Anderson and the Appellant insisted that they had not seen the other leaflets and notes issued by the Respondents advertising the flat rate scheme. A member of the Respondents' business support team had been in contact with the Appellant once when no mention was made of the flat rate scheme. She declined the Appellant's invitation to speak with his father.

Mr Nayland Anderson calculated his son's VAT liability under the flat rate scheme from April 2002 to the quarter ending February 2006. He concluded that his son's liability under the scheme was some £9,669 less than the total VAT accounted for during the said period. The Appellant's turnover for the four year period in question totalled £452,226, whilst his taxable profits during the same period approximated to £103,665. The net benefit to the Appellant from using the flat rate scheme after adjustment for income tax was in the region of £5,000. The Respondents originally disputed the Appellant's calculations but withdrew their objection at the hearing subject to further confirmation.

On 22 May 2006 Mr Nayland Anderson contacted the Respondents and explained the situation to a Mr Ebenezer. On the same day Mr Anderson submitted on behalf of the Appellant an application to use the flat rate scheme from the period ending August 2002. On 24 May 2006 the Respondents granted the necessary authorisation but with effect from 1 March 2006. Mr Nayland Anderson contacted the Respondents again on 14 June 2006 to enquire about the backdating. On 15 June 2006 the Respondents refused to backdate the Appellant's authorisation to use the flat rate scheme further than 1 March 2006.

The Respondents' Refusal

In the letter of refusal dated 15 June 2006 Mr Cloke for the Respondents explained the aim of the flat rate scheme which was to lessen the administrative burden for small businesses. Mr Cloke stated that the primary consideration for using the scheme was the time saved on the administration rather than any potential reduction in the amount of VAT paid. Mr Cloke accepted that an eligible business could start to use the scheme at any time including from its effective date of registration but retrospective applications had to be carefully considered so as to ensure that the decision did not unduly burden small businesses.

Mr Cloke had regard to the contents of Notice 733, The Flat Rate Scheme for small businesses, and VAT guidance V1 Schemes Chapter 6 FRS. He took account of the following points in considering the Appellant's application for backdating:

(1) Was the company/business ineligible under the flat rate scheme rules at the time of the proposed start date?

(2) Did the start date commence on or after the 25 April 2002 and have the VAT returns already been rendered?

(3) Was adequate advertising of the scheme carried out thus ensuring that traders were notified of the scheme at the time of implementation?

After having considered the above points and the Appellant's application in detail, the Respondents refused to backdate the flat rate scheme authorisation to the period ending August 2002. Mr Cloke, however, did not set out in his letter how he exercised his discretion with reference to the Appellant's individual circumstances.

Respondents' Policy

Respondents' Notice 733 Flat Rate Scheme for Small Businesses February 2004 Issue stated that authorisation to use the scheme normally took effect from the beginning of the VAT period after processing the application. Traders were urged to submit their applications early in the VAT period. The Notice did not give specific guidance about retrospective authorisations.

In March 2007 the Respondents issued a new Notice 733 which provided the following guidance about applications to backdate the authorisation at paragraph 5.5:

"When considering an earlier or later start date, we will consider all the facts including the timing of your application and your compliance record. We will not normally allow you to go back and use the scheme for periods for which you have already calculated your VAT liability".

The Respondents' VAT Guidance issued to its Officers at paragraph 2 chapter 6 sets out the policy and background of the flat rate scheme:

"The scheme is a simplification scheme under Article 24 of the Sixth VAT Directive. This means it has to be available only to "small undertakings" and be revenue neutral in its application across the board. Individual businesses may be winners or losers but the scheme remains valid because the flat rate percentages are set to provide tax neutrality across the eligible population" (paragraph 2.2).

Yes, the scheme should be encouraged (our italics). The scheme is an important part of the Department's response to the high level objective of reducing compliance costs. You should take the opportunity to discuss this and other schemes whenever contact is made with an eligible business" (paragraph 2.3).

Under paragraph 3.3 of chapter 6 specific advice is given for allowing a retrospective start date for the flat rate scheme:

""The Regulations contain a power to agree a start date earlier than the date of application so long as the business is not ineligible under the flat rate scheme rules at the time of the proposed start date. This discretion should be exercised in the applicant's favour to encourage take up of the scheme. The start date can be for any accounting period ending on or after 25 April 2002 for which a return has not been rendered.

After introduction of the scheme retrospection will most commonly arise where:

The business has belatedly notified its liability to register and needs to reconstruct VAT records to calculate a retrospective liability. You will have to distinguish those cases where the belated notification raises doubts about the business' compliance ( such that the use of flat rate scheme would be a revenue risk) from those cases where using flat rate scheme assists all parties to calculate the arrears more quickly and easily or

A business or its accountant performs checks at the year-end and establishes that the business would have paid less tax under the scheme. The fact that less tax would be paid is not in itself a strong ground for retrospection.

Your responsibility is to consider all the facts and come to a reasonable decision that can be defended if the business appeals. You will find guidance in V1-23 Chapter 10 helpful in considering requests for retrospection".

Chapter 10 of the VAT Guidance dealt with retail schemes. Paragraph 3.11 gave advice on how Officers should exercise their discretion in considering an application for changing a retail scheme retrospectively. The Respondents' policy was to allow retrospection in exceptional circumstances because some tax advisers have acquired clients on the basis that they can obtain a VAT refund for them through a retrospective change of scheme.

Paragraph 3.11.2 gave two examples of exceptional circumstances which were:

(1) Where the business has been misdirected (by omission or commission) by an officer of HMRC.

(2) Where the business can clearly demonstrate that the scheme, which it is proposed to use retrospectively would produce a more accurate liability and the difference in tax is an amount which represents a very high proportion of the business profit.

The second example was based on the Tribunal decision in AC Wadlewski [LON 94/1849] in which the Appellants were appealing against the Respondents' refusal to allow retrospectively a change in the retail scheme used by them. The tribunal allowed the appeal because the Respondents disregarded the overpayment (40 per cent of business profit) generated by one of the schemes. The Tribunal's reasoning was as follows:

"It is clear, of course, that different schemes will produce different results and the mere fact that they do will not in itself justify retrospective recalculation. But the point here is whether the Commissioners should have taken into account the size of the "overpayment" in reaching their discretionary decision. To say that the taxpayer chooses the scheme for his own reasons and that therefore the resulting amount of tax paid under one scheme or another is irrelevant is in the view of this Tribunal an over simplification. Common sense, as well as logic, lead to the conclusion that the amount of tax which a taxpayer pays is highly relevant. He may indeed select one scheme which is more convenient and accept that that scheme may cause him to pay more tax, and that a higher payment may be offset by the convenience of the scheme but one cannot from that come to the conclusion that the amount of tax paid or possibly overpaid is irrelevant. The Tribunal considers that the amount of tax paid under a scheme is relevant. The Appellants put it forward as a reason for retrospective recalculation. The Commissioners say that this is not a matter which they are required to take into account. There appears to the Tribunal to be a fundamental illogicality in saying that as a taxpayer chooses his scheme the fact that one scheme leads to more tax being paid than another is not an exceptional circumstance and concluding from those two premises that the amount of any "overpayment", using that word in the way described by Mr McIntyre, is not a relevant consideration when the taxpayer asks for a retrospective change.

The Tribunal concludes therefore, in the exercise of its supervisory jurisdiction, that in the process in which the Commissioners exercised their discretion there was a degree of confusion, and that without any fault being attributed to any person, there was an insufficient consideration of the fact that the Commissioners' policy and the criteria laid down in Public Notice. 727 were subject to an overriding discretion on the part of the Commissioners, in exceptional circumstances. Furthermore in exercising that discretion the Commissioners clearly disregarded the amount of the overpayment which the use of one scheme produced by comparison with another, because they considered the amount of that overpayment to be irrelevant, simply because that it was the taxpayer who chose the scheme and different schemes would produce different results. It was unreasonable for the Commissioners not to consider whether a very high proportion of "over-payment" might not be an exceptional circumstance justifying an exercise of their discretion beyond the criteria they had laid down".

Para 3.11.3 of Chapter 10 of the VAT Guidance sets out the principles that the Officers must have regard to in forming a judgment about whether to allow a retrospective use of a retail scheme:

Retail schemes are a compromise between accuracy and simplicity.

Retail schemes are a way of estimating tax and it is implicit in their operation that more or less tax will be payable.

Retail schemes are chosen by the business.

There is an administrative advantage in not having to process applications to allow retrospection.

There is a compliance advantage in having some certainty in declared liabilities.

The cost to the applicant must be balanced against the cost to the taxpayer generally.

The scheme that the business proposes to use retrospectively must be the same as that to be used prospectively. This means that the retailer must continue to be VAT registered and to trade.

One retrospective change of scheme cannot overlap another.

The business' records should be sufficient to allow the proposed scheme to be operated correctly.

Reasons for Our Decision

Section 26B of VATA 1994 empowers the Respondents to make regulations in respect of the operation of the flat rate scheme which includes the back dating of flat rate scheme authorisations. Under Regulation 55B(1)(b) of the VAT General Regulations 1995 as amended the Respondents are given the power to backdate authorisations to such date as may be agreed with the tax payer. Thus the Respondents have a discretion to agree an earlier start date than the beginning of the first period VAT period after taxpayer applies for authorisation to use the flat rate scheme. In this Appeal the Respondents exercised their discretion to apply an earlier date, namely, the beginning of the VAT period in which the application was made. However, they declined to backdate the authorisation to the period ending August 2002, as requested by the Appellant.

Under section 84(4ZA) of VATA 1994 our powers on Appeal are limited to considering the reasonableness of the Respondents' refusal to backdate to the period ending August 2002. We are not permitted to substitute our own judgment for that of the Respondents. The issue for the Tribunal was whether the Respondents' refusal was a decision which no reasonable body of Commissioners could have arrived at. In order for the decision to be reasonable the decision maker must have considered all relevant matters and must not have taken into consideration irrelevant matters.

When Mr Nayland Anderson applied on behalf of his son to backdate the flat rate scheme authorisation he anticipated that he would meet with the Respondents to explain the situation in more detail. In his letter of 22 May 2006 Mr Nayland Anderson stated that he would welcome a meeting to present the Appellant's records and accounts. Mr Nayland Anderson was taken aback that the next step in the process following the refusal was the Appeal direct to the Tribunal rather than a more detailed consideration of his son's position by the Respondents.

The Appellant's case was that he relied entirely on his father to look after his VAT affairs. The Appellant had no knowledge of VAT and would give any correspondence from the tax authorities sometimes unopened to his father to deal with. The Appellant's VAT compliance record was exemplary. In 2001 the Appellant experienced problems with his marriage which continued until his divorce in May 2006. During the period of his marital breakdown the Appellant lived at five different addresses, and experienced difficulties with the cash flow for his business, which was dependent upon a bank overdraft of £25,000 for its survival. The Appellant, however, did not rely on his changes of address as an excuse for not receiving correspondence from the tax authorities.

Mr Nayland Anderson, the Appellant's father, was a retired qualified accountant. His previous work experience was principally with local authorities and companies rather than in private practice. Mr Nayland Anderson fully accepted that it was his responsibility not HM Revenue and Customs, to advise the Appellant upon his tax affairs. Mr Nayland Anderson asserted that he only became aware of the flat rate scheme on 19 May 2006 when he came across the leaflet "Simplifying VAT for Small Businesses – Flat Rate Scheme" in the Appellant's papers. He took prompt action by contacting the Respondents on 22 May 2006, the first working day after the 19 May 2006, to discuss the scheme and make application on behalf of the Appellant. In his letter of 22 May 2006 Mr Anderson cited the telephone call from the Respondents' business support team with the Appellant when no mention was made of the flat rate scheme. Further Mr Nayland Anderson considered that a simple examination of the Appellant's VAT returns would have revealed a substantial overpayment when compared with the corresponding amount under the flat rate scheme.

Mr Nayland Anderson considered that his son's circumstances were distinguishable from those of a taxpayer adopting a "wait and see" approach, only applying to backdate the use of the scheme if a tax advantage was realised. With the "wait and see" approach, the taxpayer chose not to use the scheme at the start of the tax year, whereas his son made no conscious choice because he was unaware of the scheme. Further Mr Nayland Anderson submitted that the amount of tax involved was significant in the context of the Appellant's financial situation.

The Respondents submitted that Mr Cloke's refusal of 15 June 2006 was in line with the published guidance and could not be said to be Wednesbury unreasonable. The Respondents had gone to great lengths to publicise the flat rate scheme. The fact that Mr Nayland Anderson only became aware of the scheme on 19 May 2006 did not constitute an exceptional circumstance justifying retrospection. Further the Respondents were not at fault by their apparent failure to detect the VAT difference payable between the flat rate scheme and normal accounting in respect of the Appellant. VAT was a self assessed tax with the primary duty upon the tax payer to ensure that he was accounting for the correct amount of VAT due. Finally the primary purpose of the flat rate scheme was to ease the administrative burden upon small businesses rather than giving them a choice of methods for calculating VAT and selecting the scheme which gave the most favourable treatment. Retrospection should not be used in circumstances which permit tax payers to perform end of year calculations of their liability under normal accounting and the flat rate scheme, and choose the scheme which saves them the most tax. In any event the proposed tax saved by the Appellant under the flat rate scheme did not amount to a "very high proportion of the business's profit" in the context of the AC Wadlewski decision.

We accept the Respondents' submissions about the wide publication of the flat rate scheme, and that the responsibility for calculating the correct amount of VAT rested upon the Appellant. However, we consider that the Respondents have over-simplified the Appellant's case. We make the following findings of fact in respect of the Appellant's reasons for requesting retrospective authorisation:

(1) The Appellant relied entirely upon his father, Mr Nayland Anderson, to look after his VAT affairs.

(2) The Appellant had an unblemished VAT compliance record.

(3) Although Mr Nayland Anderson considered that the Respondents had some responsibility for not pointing out the difference in VAT payable under both schemes, he fully accepted responsibility as his son's accountant for advising his son on tax affairs. Mr Nayland Anderson did not expect the tax authorities to give his son advice.

(4) Despite the wide publication of the flat rate scheme, Mr Nayland Anderson first became aware of the scheme on 19 May 2006, and took immediate action once apprised of its consequences for his son by contacting the Respondents the next working day after 19 May 2006.

(5) Once aware of the scheme Mr Nayland Anderson performed the VAT computations under normal accounting and the flat rate scheme, so as to advise his son appropriately. This was not the same as an accountant who adopted a "wait and see" approach, namely, an accountant who was fully aware of the scheme but advising his client to wait and see if a tax advantage was realised at the year end before applying for retrospective use of the scheme.

(6) The potential savings of £9,000 in VAT, and £5,000 in overall tax liability over four years was a significant amount for the Appellant, particularly having regard to the profitability and the indebtedness of his business.

Under our limited jurisdiction of section 84(4ZA) of VATA 1994 we are required to examine anew the relevant facts and circumstances of the Appeal in order to decide the reasonableness of the Respondent's decision about the weight given to relevant and irrelevant considerations. Mr Cloke's refusal letter of 15 June 2006, however, did not set out his consideration of the facts put forward by the Appellant. Respondents' counsel submitted that the Tribunal was entitled to infer from Mr Cloke's reference in his letter to considering your application in detail that he had examined the Appellant's circumstances. Even if we are entitled to make the inference, we have no knowledge of what weight Mr Cloke attached to the individual circumstances of the Appeal, particularly as Mr Cloke was not called to give evidence to elaborate upon his reasoning in the letter. Respondents' counsel conceded that Mr Cloke did not set out in his written decision how he applied the Respondents' guidance on the flat rate scheme to the individual circumstances of the Appeal, and that the letter required more detailed reasoning. We find on the evidence before us that Mr Cloke applied the Respondents' policy on backdating flat rate scheme applications without regard to the individual circumstances of the Appeal when refusing the Appellant's application. In that respect the Respondents' decision was unreasonable.

Our finding about the unreasonableness of Mr Cloke's decision is not the end of the matter. Respondents' counsel relied on the proposition that a tribunal could nevertheless dismiss an appeal if the decision would inevitably have been the same had account been taken of the individual circumstances, as approved in John Dee Limited v Customs and Excise Commissioners [1995] STC 941. In order for us to decide the Appeal on the basis of the proposition we need to make findings on the Respondents' policy on the flat rate scheme, and more particularly their policy stance on retrospective authorisations.

Respondents' counsel identified three key principles from their guidance on the flat rate scheme which underpinned the Respondents' policy on backdating flat rate scheme applications:

(1) The Respondents would not normally allow a taxpayer to use the flat rate scheme for periods which he had already calculated his VAT liability using normal accounting.

(2) Where a taxpayer has already calculated his VAT liability using normal accounting, retrospective use of the flat rate scheme would be authorised only where justified by exceptional circumstances.

(3) The fact that the taxpayer may have accounted for less VAT had it applied for and received, authorisation to use the flat rate scheme at some prior point in time was not in itself an exceptional circumstance. It was intrinsic in the nature of the flat rate schemes and retail schemes that tax was calculated in a way which represents an approximation, rather than an exact replication, of liability as calculated using normal accounting.

We consider that counsel's three key principles did not give sufficient regard to the Respondents' policy objective to encourage use of the flat rate scheme because it realised benefits not only for small businesses but also for the Respondents. Further, we query whether the transposition of the phrase exceptional circumstances from retail schemes to flat rate schemes was justified. The term exceptional circumstances did not appear in the Respondents' guidance on allowing a retrospective start date for the flat rate scheme in paragraph 3.3, chapter 6 of the VAT Guidance. Paragraph 3.3 simply referred VAT Officers to the guidance for retail schemes, which would be helpful in considering requests for retrospection. The term helpful should not be confused with a direction requiring VAT Officers to follow the guidance for retail schemes, which in any event did not share the same policy objectives as flat rate schemes.

We found the Respondents' guidance in paragraph 3.3 chapter 6 VAT Guidance for permitting retrospective authorisation of flat rate schemes straightforward and unambiguous, which casts further doubt on the relevance of the three key principles. The advice stated that the discretion should normally be exercised in the applicant's favour to encourage take up of the scheme. The advice then identified two situations which required more attention when considering retrospective authorisations. The first concerned belated notifications following the reconstruction of VAT records which was not relevant to this Appeal. The second which was relevant concerned the situation of the business performing checks at the year end which resulted in the payment of less tax. The advice stated that the payment of less tax was not in itself a strong ground for retrospection. The guidance on backdating in Respondents' Notice 733 issued in March 2007 which was not in force at the time of Mr Cloke's decision emphasised that they would consider all the facts including the timing of the application and compliance record but would not normally allow retrospection of the scheme for periods for which VAT liability has been calculated. Essentially the Respondents' policy on backdating in relation to this Appeal can be summed up by stating that the discretion should be exercised in favour of the applicant except for periods where VAT liability has been calculated when it would not normally be granted.

Having identified the relevant facts of this Appeal in paragraph 29 and clarified the Respondents' policy in the above paragraph, we are required to decide whether the Respondents' refusal to backdate would inevitably have been the same had account been taken of the individual circumstances of this Appeal. The test is would inevitably have been the same as laid down by the Court of Appeal in John Dee Limited:

"Where it was shown that the commissioners' decision was erroneous because of their failure to take relevant material into account, a tribunal could nevertheless dismiss an appeal if the decision would inevitably have been the same had account been taken of the additional material. In the instant case, however, the crucial words in the tribunal's decision were that it was most likely that, if the commissioners had had regard to the additional material, their concern for the protection of the revenue would probably have been fortified. A finding that it was 'most likely' could not be equated with a finding of inevitability. On that narrow ground the appeal would be dismissed".

In assessing whether the decision would inevitably have been the same, we are not permitted to substitute our own decision but to consider it from the Respondents' perspective of applying their policy to the individual circumstances. In this case we consider that the Respondents would give weight to the Appellant's unblemished VAT compliance record but disregard the Appellant's reliance on his father. The Respondents would have assessed the Appellant's reasons for his late application against the wide publication of the scheme and that under VAT the responsibility rested on the tax payer. The Respondents may have placed weight on the fact that this was not a case where the Appellant waited to see whether he derived a tax advantage from the use of the scheme. The Appellant took immediate action once he became aware of the scheme. The tax advantage gained by the Appellant, although not a strong reason on its own, may have had some influence on the eventual decision. We consider that the Respondents' decision about retrospection in this case would not have been a foregone conclusion. In our view it was likely that the Respondents may have concluded that the Appellant's individual circumstances justified a departure from the policy of not normally granting retrospection for periods where VAT liability has been calculated. We are, therefore, satisfied that the Respondents' decision after consideration of the Appellant's individual circumstances would not inevitably have been the same as Mr Cloke's refusal of 15 June 2006.

Decision

We find that

(1) Mr Cloke applied the Respondents' policy on retrospective authorisation of flat rate schemes without regard to the individual circumstances of the Appellant when he refused the Appellant's application to use the scheme from the period ending August 2002.

(2) The Respondents' decision would not inevitably have been the same as Mr Cloke's refusal on 15 June 2006 had account been taken of the individual circumstances of the Appellant.

We hold for the reasons advanced above that the Respondents decision to refuse the Appellant's application to use retrospectively the flat rate scheme from the period ending August 2002 was unreasonable within the meaning of section 84(4ZA) of VATA 1994. We, therefore, allow the Appeal. We make no order for costs.

We give leave to either party to apply to the Tribunal for directions in the event of failure to agree the quantum of VAT in dispute.

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 13 July 2007

LON 2006/0826