United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20300

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Eventful Management Ltd v Revenue & Customs [2007] UKVAT V20300 (10 August 2007)

20300

INPUT TAX — appellant operating Flat Rate Scheme — claim for recovery of input tax on purchase of building materials for a business extension — whether capital expenditure goods — no — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

EVENTFUL MANAGEMENT LIMITED Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Chairman)

Marjorie Kostick BA FCA CTA

Sitting in public in Birmingham on Monday 16 July 2007

Grahame Hurst, accountant, for the Appellant

Nigel Poole, of counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The decision under appeal is that of the Commissioners to assess for recovery of input tax in the sum of £1,338 for the period 03/05. The Commissioners raised the assessment because they took the view that the input tax claimed was excluded from deduction in accordance with Regulation 55E of the VAT Regulations 1995.

The Law

Part VIIA, VAT Regulations 1995, regulations 55A to 55V details the Flat Rate Scheme:

(i) Regulation 55A(1) defines capital expenditure goods as:

"any goods of a capital nature but does not include any goods acquired by a flat rate trader (whether before he was a flat rate trader or not) –

(a) for the purpose of resale or incorporation into goods supplied by him,

(b) for consumption by him within one year, or

(c) to generate income by being leased, let or hired."

(ii) Regulation 55E(1) provides the requirements which need to be met for VAT to be reclaimed on capital expenditure goods

"For any prescribed accounting period of a flat-rate trader, he is entitled to credit for input tax in respect of a relevant purchase of his of capital expenditure goods with a value, together with VAT chargeable of more than £2,000".

The Facts

We heard no oral evidence and the facts, which were not in dispute, we find to be as follows. The Appellant provides administrative services to a charity called "Arts Alive" and other consultancy services. The company registered for VAT with effect from 6 April 1997 and has operated the Flat Rate Scheme since 1^st April 2003. The managing director of the Appellant company is a Mr Kerry. In 2004, the company had an extension to its office built. The extension was a two-storey timber framed building which provided additional toilet and storage facilities. In the interests of economy, Mr Kerry purchased the building materials from various suppliers and the company then used a non-registered trader to carry out the actual construction work. We were shown a schedule of the invoices for the building materials. The invoices ran from May to October 2004, numbered approximately 50, were from a number of different suppliers and covered every conceivable item which could have been used in the construction. The amounts of the invoices varied from just a few pounds to the largest one which was for just under £1,000. It was not in dispute that the extension was for a business purpose and the Appellant sought to claim back the input tax incurred on the materials.

Submissions

Mr Hurst, for the Appellant, accepted that at the time the materials were purchased they were not in themselves capital expenditure goods but when they were put together they formed a building, that building being one single capital asset worth considerably more than £2,000. Mr Hurst pointed out that for all other accounting and corporation tax purposes, the expenditure would be deemed to be capital expenditure. The purpose of the Flat Rate Scheme was to encourage traders to join it and secondly, having joined, they should not be discouraged from making capital expenditure to grow their businesses. To police the Scheme in this way was unreasonable.

Mr Poole referred us to the Commissioners' Notice 733 which sets out how the Flat Rate Scheme operates. The edition produced to us was March 2007 and goes into a considerable amount more detail than did the earlier edition on what constitutes capital expenditure goods. Throughout the Notice, stress is laid on how there has to be one single purchase of more than £2,000 and we were referred specifically to Section 15.5 which we set out below:

"15.5 What counts as capital or non-capital goods?

A shopkeeper buys bricks, cement and fittings from his local builder's merchant intending to employ a builder to convert them into an extension of the business premises. No VAT is reclaimable as bricks etc. are not capital expenditure goods.

A shop is bought freehold for a retail business to operate from. If a former owner has opted to tax the property, VAT will be payable on the purchase of these capital expenditure goods and input tax can be claimed."

Mr Poole's contention was two fold. First, for the Appellant to succeed, he would have had to have made one single purchase of the requisite value and not a multitude of smaller ones and secondly, the goods purchased had to be of a capital nature in themselves, which these goods were not.

Conclusions

As readily agreed by Mr Poole, the Commissioners' Notice is not determinative, based as it is upon the Commissioners' own interpretation of the legislation. Regulation 55E(1) requires there to be a purchase of capital expenditure goods with a value, inclusive of VAT, of more than £2,000. The Appellant can satisfy neither of these criteria. By Mr Hurst's own concession, the building materials purchased were not capital expenditure goods. Mr Hurst argues that the materials were then applied in the construction of a capital asset. In other words, it was the purpose to which the purchases were put which brings them within Regulation 55E(1). This, however, is not the question. The question to ask must be "What did the Appellant purchase?". He purchased building materials which it is accepted by the Appellant were not themselves capital expenditure goods. The Appellant did not purchase a finished building, but only the materials used to construct it.

As the goods purchased were not capital expenditure goods, the second limb, relating to value, does not really arise but we will address it for the sake of completeness. The Regulation quite clearly refers to "a relevant purchase". The purchase is in the singular, although we accept that goods are in the plural and there can be occasions when there is a single purchase of a number of goods. That is not the case here. There are a multitude of separate invoices from separate suppliers for separate items on separate dates. No one single purchase reached the mandatory value and there can be no reason or justification in lumping them all together or in attempting to construe them as one single purchase of building materials. They were not. It follows therefore that the Appellant cannot be entitled to recover its input tax on the purchase of the materials and the assessment raised by the Commissioners was properly raised.

The appeal therefore has to fail and is dismissed. Mr Poole made no application for costs and we make no order.

LADY MITTING

CHAIRMAN
Release Date: 10 August 2007

MAN/005/0797