United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2008] UKVAT V20591

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Gillamoor Ltd and Airdre Ltd v Revenue & Customs [2008] UKVAT V20591 (27 February 2008)

VALUE ADDED TAX — compulsory cancellation of registrations — conclusion that no taxable supplies being made and no genuine intention to make supplies — whether justified — yes — registrations properly cancelled — appeals dismissed

MANCHESTER TRIBUNAL CENTRE

GILLAMOOR LIMITED

and

AIRDRE LIMITED Appellants

- and -

THE TREASURY Respondents

Tribunal: Colin Bishopp (Chairman)

Heather Kelly

Sitting in public in Douglas on 30 January 2008

Philip Woolfe, counsel, instructed by Kramer & Co, for the Appellants

Ian Hutton, counsel, instructed by and for the Treasury

© CROWN COPYRIGHT 2008

DECISION

These are the appeals of Gillamoor Limited ("Gillamoor") and Airdre Limited ("Airdre") against the decisions of the Treasury, communicated in each case by letter of 27 February 2007, to cancel their VAT registrations with effect from that date. The appeals were heard together as the two Appellants are in common ownership and control and the appeals raise identical issues.

Before us, the Appellants were represented by Philip Woolfe and the Treasury by Ian Hutton, both of counsel. We heard the oral evidence of Cynthia Maguire, a director of each of the Appellants, and we had the statements of three Treasury officers—Norma Loundes, William Prescott and Charles Coué—and of one former officer, Grant Atchison, none of which was challenged.

Each of the Appellants was incorporated on 5 February 2002 and registered for VAT with effect from 1 March 2002. At the relevant time, as well as at the time of the hearing, the directors of each company were Mrs Maguire and Jean-Marc Royet, from whom we had no evidence. Mrs Maguire was also the owner of Interlex Trade Facilities LLC, which provides management services for companies. It provided such services for Gillamoor and Airdre, and Mrs Maguire told us that the terms of their contracts with Interlex included her serving as a director. She and other members of Interlex's staff undertook administrative tasks while Mr Royet dealt with the companies' trading. The business of the companies was the purchase and sale of mobile phones. They each made monthly VAT returns.

It was not disputed that in its returns for periods 2006/12 and 2007/01 Gillamoor indicated that it had made no supplies at all. Its 2006/12 return claimed credit for input tax of £280, but that was, we understand, the VAT incurred on Interlex's fees; no goods were purchased in the period. Airdre's returns for the same periods were similar, save that the credit claimed was of a slightly larger amount. In fact, Airdre last made a taxable supply in August 2006 and Gillamoor in November 2006.

On 16 February 2007 Mr Atchison wrote to each of the Appellants, in similar terms, pointing out that neither had made any recent taxable supplies and advising them that, if evidence of an intention to make such supplies was not provided to him within the next seven days, he would arrange to cancel their respective registrations. On 23 February, the last day of the seven-day period he had allowed, Mr Atchison received two letters, by fax, from the Appellants' solicitors, in materially identical terms. The letters indicated that the Appellants' director—by which we understand the solicitors intended to identify Mrs Maguire—had been unwell, and that their intention to trade had been frustrated by the Treasury's withholding of "a substantial amount of their VAT". The contention that VAT credits had been withheld was not pursued at the hearing and we did not learn whether, and if so to what value, credits had in fact been withheld. Each letter had attached to it a copy of what was described in the letter as "a pro forma invoice issued to our client", which the solicitors advanced as evidence of a continuing intention to trade.

The invoices were both issued by Lux Partenaires, a Luxembourg organisation, and were dated 23 February 2007. Each described itself as a "proforma invoice" and described Airdre or Gillamoor as "client". In Aidre's case the invoice described the goods as 150 MP3 players to be sold at £14 each, a total of £2100. Gillamoor's invoice was for 200 MP3 players at £14 each, a total of £2800. In neither case was the make of the product specified; nor does either invoice indicate when or where delivery was to be effected, nor which party was to bear the cost of freight and insurance.

On 27 February 2007 Mr Atchison and another officer called at the Appellants' registered office—which was at Interlex's address—in order to make further enquiries about the invoices, but they were unable to obtain any answer from an occupant and found that the premises were locked. On the same day Mr Atchison wrote to each of the Appellants to advise it that he had concluded that no activity was being carried on and that its VAT registration had been cancelled with immediate effect. Protests made by the Appellants' solicitors led to a review of Mr Atchison's decisions, but they were upheld.

Mrs Maguire's evidence was that the invoices were not, as they appeared to be, evidence of intended sales by Lux Partenaires to Airdre and Gillamoor respectively, but of intended purchases by Lux Partenaires from the Appellants. She also said that the goods had not been supplied to Lux Partenaires because the Appellants' VAT registrations had been cancelled and in consequence they could not obtain the goods. We reject that evidence. It seems to us most unlikely that an intending purchaser would send a "proforma invoice" to its prospective supplier, but even if that were the case we agree with Dr Hutton that the appearance of these documents, one addressed to each Appellant but for the same goods even if in different quantities, on the last day allowed by Mr Atchison for the production of evidence, is too convenient to be true. Moreover, the Appellants' VAT registrations had not been cancelled on 23 February; evidence that the Appellants had attempted, even if unsuccessfully, to secure the goods from a supplier would have been the best possible indication of an intention to continue trade, but no such evidence was produced, either then or subsequently. Mrs Maguire's evidence on this point was vague and implausible and we are satisfied that the "proforma invoices" were produced for no purpose other than to back up a claim that trade was intended. In fact, as Mrs Maguire conceded, the Appellants' trade had virtually ceased by the end of 2006, to the extent that Interlex, which provided all the Appellants' administrative staff, had had to lay off several employees for lack of work. However, she said, both Appellants had been attempting to trade but had been frustrated by market conditions, including the pressure put on other traders in the sector, and the banks with which they held accounts, by the Treasury and by HM Revenue and Customs in the United Kingdom, in an attempt to reduce fraud.

Mrs Maguire also told us that Mr Atchison was unable to obtain any response when he called on 27 February because she, by then the only person working at Interlex's offices, was absent because of illness. We are willing to accept that she was absent for that reason.

The Treasury's power to cancel a trader's registration is contained in paragraph 13 of Schedule 2 to the Value Added Tax Act 1996, the relevant parts of which are in these terms:

" (1) Subject to sub-paragraph (4), where a registered person satisfies the Treasury that he is not liable to be registered under this Schedule, it shall, if he so requests, cancel his registration with effect from the day on which the request is made or from such later date as may be agreed between it and him.

(2) Subject to sub-paragraph (5), where the Treasury is satisfied that a registered person has ceased to be registrable, it may cancel his registration with effect from the day on which he so ceased or from such later date as may be agreed between it and him …

(4) The Treasury shall not under sub-paragraph (1) cancel a person's registration with effect from any time unless it is satisfied that it is not a time when that person would be subject to a requirement to be registered under this Act.

(5) The Treasury shall not under sub-paragraph (2) cancel a person's registration with effect from any time unless it is satisfied that it is not a time when that person would be subject to a requirement to be registered under this Act."

Mr Woolfe's argument was that the Treasury's actions were precipitate and premature. He pointed to the fact that it had already cancelled the Appellants' registrations on 17 November 2006, only to restore them on 22 November when representations were made by their solicitors. He relied too on the speed with which the decisions the subject of the appeal had been taken and put into effect. We observe that the returns for period 2006/12 were submitted at the end of January 2007 (those for 2007/01 were not submitted until late February, after the registrations had been cancelled), evidence of intention to trade was requested on 16 February with a seven-day deadline; evidence was produced within that period but, when it could not be checked by means of a visit which had not been pre-arranged, the registrations were summarily cancelled.

The legislation, he said, placed the burden on the Treasury: whereas sub-paragraph (1) clearly required the trader to satisfy the Treasury that he was not liable to be registered, the remaining sub-paragraphs set out above could be read only on the footing that it was for the Treasury to satisfy itself, on the strength of reliable objective evidence, that the trader was no longer registrable. That was as it should be, since the consequences for a trader could be serious and, in this case, were serious as it was impossible to trade in the Appellants' chosen sector without a valid VAT registration; moreover, they could not lawfully trade at all since the level of their historic turnover exceeded the registration threshold yet, without registration, they could not lawfully issue VAT invoices.

Here, it was clear from Mrs Maguire's evidence that the Appellants wanted to trade, and that they had been attempting to do so; lack of success could not be taken as an indication of lack of intention. Now, trade was prevented by the absence of a valid VAT registration, and not by the absence of intention.

For the Treasury, Dr Hutton pointed to the fact that neither Appellant had in fact traded for some time before the decisions were made. The Treasury was, he said, under a duty (because of the risk of abuse of VAT registrations) to cancel a trader's registration where it was not trading and could not convincingly demonstrate an intention to trade; here the evidence, in the shape of the "proforma invoices", was quite unconvincing. Even if it should be concluded that the Treasury had acted hastily, the conclusion would be immaterial since there was no evidence of an intention to trade: several months had elapsed since the decisions were made but nothing more had been produced. He did not agree that there was any burden on the Treasury; it could not be incumbent on it to demonstrate the absence of a necessarily subjective intention on a trader's part. Rather, it had to consider the evidence which was available to it and make a decision, in accordance with the legislation, based fairly on that evidence. Here, the Appellants' own evidence clearly showed that its trade had vanished.

The tribunal's jurisdiction, he continued, is supervisory—that is, we may allow the appeal only if we are satisfied that the Treasury could not reasonably have reached its decisions. So much was made clear by the London Tribunal in Anne Brookes v Customs and Excise Commissioners [1994] V & DR 35. It was not open to us to substitute our own decision, if it differed from that of the Treasury: Customs and Excise Commissioners v Peachtree Enterprises Ltd [1994] STC 747. All we could do was set aside the decisions, leaving the Treasury to reconsider. But we should not do that unless we were satisfied that the decision was unreasonable in the sense developed in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 and Customs and Excise Commissioners v J H Corbitt (Numismatists) Ltd [1980] STC 231. In considering reasonableness we should take into account the risk of fraud, and recognise that taxing authorities were right to exercise caution.

Mr Woolfe did not agree that we have a limited jurisdiction as Dr Hutton contended; we could, he said, substitute our own decision and restore the Appellants' registrations. We have, however, no real doubt that on this issue Dr Hutton is right. The Treasury, and not this tribunal, is charged with the duty of administering the tax and has discretionary powers about various matters, including the registration and cancellation of the registration of traders. The cases to which we have referred make it clear beyond serious argument that the tribunal may set aside discretionary decisions only if it is satisfied that they were unreasonable, that is, were decisions at which no reasonable tax administration, properly directing itself about the law, taking into account all relevant material and disregarding the irrelevant, could have arrived.

At first sight, the Treasury's actions do appear to have been hasty, even allowing for the cautious approach which, we accept, is justified. Had the Appellants been able to produce, outside the seven-day limit imposed by Mr Atchison, credible evidence of a genuine intention to trade we might possibly have accepted that the decisions were unreasonable because of excessive haste. But the fact is that the evidence produced to support the claim of a continuing intention to trade is not merely unconvincing, it was in our view quite obviously manufactured for no other purpose than to support that claim; its unconvincing character undermines any probative value it might otherwise have had. It is unbelievable that, after weeks of inactivity, each of the Appellants should have received, from one company, a request for the supply of goods presented, not as one might expect in the form of a purchase order, but in the form of a "proforma invoice", and that the two requests should have arrived on the very day by which evidence had been requested by the Treasury. It is also unbelievable that Lux Partenaires would require modest parcels of identical goods from each of the Appellants; Mrs Maguire's evidence that some suppliers would sell only to Gillamoor and others only to Airdre was equally unbelievable. She was able to produce nothing, by way of correspondence or notes of the telephone calls she told us took place, which might demonstrate that either Appellant had in fact attempted to obtain the goods supposedly ordered by Lux Partenaires. In our view the only proper conclusion which can be drawn is that, as Mrs Maguire accepted, the Appellants had both ceased to transact any business by the end of 2006, and (contrary to her evidence) that each had little or no prospect of transacting any genuine business in the future.

In those circumstances we are satisfied the Treasury came to the right conclusion, that the decisions to cancel the Appellants' VAT registrations were reasonably reached, and that the appeals must be dismissed. Even if it could be said that the decisions were hastily reached and unreasonable on that ground, we agree with Dr Hutton that, absent any better evidence of true intention to trade, decisions made at greater leisure would inevitably have been the same. For that reason too the appeals must be dismissed: see John Dee Ltd v Customs and Excise Commissioners [1995] STC 941.

Dr Hutton did not seek a direction in respect of the Treasury's costs.

COLIN BISHOPP

CHAIRMAN
Release Date: 27 February 2008

MAN/07/623, MAN/07/624