United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2008] UKVAT V20639

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Mrs Elizabeth Williams (t/a Premier Flowers v Revenue & Customs [2008] UKVAT V20639 (01 April 2008)

INPUT TAX – assessment to reclaim overpaid input tax – appellant's claim that she did not own the business and it was not therefore her liability – did she own the business – yes – is the repayment due from her – yes – appeal dismissed

MANCHESTER TRIBUNAL CENTRE

MRS ELIZABETH WILLIAMS Appellants

T/A PREMIER FLOWERS

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: LADY MITTING (Chairman)

JOHN LAPTHORNE FCMA (Member)

Sitting in public in Birmingham on 19 and 20 February 2008

John Brennan, VAT Consultant, for the Appellant

Jonathan Cannan, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

DECISION

The Appellant appeals against an assessment dated 3 August 2005 in the sum of £50,979 plus interest, the said assessment covering periods 09/02 to 03/05 inclusive. The assessment was raised to recover input tax which the Commissioners believed to have been over-claimed during the assessment period.

On behalf of the Appellant we heard oral evidence from her husband, Peter Williams, and Mrs. Williams herself. On behalf of the Respondents, Mrs. Lesley Camm gave oral evidence and an unchallenged witness statement of Malcolm Reader was put into evidence. Mr. And Mrs Williams have a son, Simon, and with the agreement of Mr. And Mrs. Williams, throughout the hearing he was referred to as "Simon" to distinguish him from his father. We intend to adopt that nomenclature throughout this decision.

Mrs. Williams registered for VAT with effect from 1 March 2002. She declared her business activity to be that of a flower wholesaler. The business had been transferred to her as a going concern and the principal place of business was the Ladford Fields Industrial Park, Seighford, Stafford. The first VAT return for period 06/02 was a repayment return in the sum of £17,730. Before payment it was queried by Officer Beverley Plant. She was told that the repayment was due to the setting up costs, stock purchases, legal fees and the installation of a cold room. Ms. Plant reduced the repayment by £16,730 which was the input tax incorrectly reclaimed on the purchase of the business but, subject to that, authorised payment. On 2 May 2003, Mrs. Williams notified the Commissioners that the business had relocated from Seighford to 41 London Road, Chesterton, Newcastle, Staffs.

In January 2005, the business was selected for an assurance visit as every single return from commencement had been a repayment return which, in that nature of business, was considered unusual. An appointment was made for 24 February 2005 but on 22 February Mrs. Camm received a fax from Simon informing her that the premises had been broken into and the filing cabinet containing all the business records had been stolen. Mrs. Camm spoke on the telephone to Mr. Williams who informed her that the shop premises were owned by Simon and that the supplies made by the business were all standard rated. As the business records had been stolen, Mrs. Camm attempted to gather information from alternative sources and contacted the Inland Revenue for a copy of the annual accounts for the business and / or for Mrs. Williams' self assessment forms. She was told that no details were held for the business other than a PAYE record for Simon. Mrs. Camm then looked up the VAT records for Mr. and Mrs. Raphael who had sold the business to Mrs. Williams. She found that they had throughout been payment traders with a mark-up of approximately 100%

On 15 March 2005, Mrs. Camm visited the London Road business premises where she saw Mr. and Mrs. Williams and Simon. Produced into evidence was a copy of Mrs. Camm's manual contemporaneous note of the meeting. Mrs. Camm had made a further electronic note which was not before the tribunal. Mrs. Camm's standard first question on any assurance visit was to establish the legal entity of the business. In response to her questions to the Williams she was told, and this is recorded in her notes, that Mrs. Williams was the sole proprietor. There was one employee, Simon, who was paid £150 per week gross; Mrs. Williams took no wage; the premises were owned by Simon but he charged no rent to the business. The business activities had been the wholesale of flowers to retail outlets (Spar, Alldays and garage forecourts) on a sale or return basis; the retail of flowers and giftware from the shop premises and, finally, the preparation of wedding and funeral arrangements. Mrs. Camm was told by Simon that the business had supplied about 100 outlets originally but after this had dropped to about 50, the wholesale element was closed down. He had charged a mark-up of 40-50% on the wholesale supplies and there was a wastage of anything up to 50%. At the end of the meeting, Mrs. Camm asked Mrs. Williams to contact her when she had completed the 03/05 return and she also asked for copy bank statements for a full six-month period in order that she could assess income and expenditure.

On 20 May 2005, Mr. And Mrs. Williams attended at Mrs. Camm's office and produced a selection of bank statements, paying in books and various account books. The account books detailed the daily gross takings for February, March and April plus purchases and expenses for the same period. Mrs. Camm was able to establish that the totals columns had been correctly transferred to the VAT return. The bank statements provided were not consecutive and she therefore asked Mrs. Williams to obtain the missing ones. By 27 June, the missing bank statements had still not been produced and Mrs. Camm therefore prepared a schedule of assessment, the effect of which was to disallow the net repayments for periods 09/02 to 12/04 and to assess under-declared output tax in period 03/05. The reasoning behind Mrs. Camm's assessment was that the returns for periods 09/02 to 12/04 showed business expenditure, including VAT, of £522,301 whereas declared income was £185,524, an unexplained and unsubstantiated difference of £336,777. As far as 03/05 was concerned the records produced to Mrs. Camm disclosed an income of £7,196.08 on which output tax should have been £1,071.76. As only £819.32 had been declared, Mrs. Camm assessed for the balance of £254.44.

On 30 June, having crossed in the post, Mrs. Camm received from Mrs. Williams the remaining bank statements giving her a complete run of six months ending 30 September 2004. Mrs. Camm carried out an analysis of the statements. She treated all withdrawals as business expenditure and as subject to standard rate VAT, both in themselves being unlikely but favourable to Mrs. Williams. The analysis did not support the declared expenditure. In letters dated 27 June 2005 and 1 July 2005, Mrs. Williams explained that a major part of their business was cash. They were paid in cash and rather than incur banking charges, they paid cash for their flowers and other purchases. The bank statements would not therefore provide a complete record of purchases. In response to this, Mrs. Camm carried out an analysis for period 06/04 and 09/04 which she was now able to do against the bank statements. In 06/04, the VAT return declared gross income of £15,600. The bank statements showed income of £14,473. Mrs. Camm, for the purposes of her exercise, treated the difference of £1,127 as cash sales. Gross expenditure as per the VAT return was £61,349. Expenditure per the bank statements was £22,025 to which she added the assumed cash sales making a total expenditure of £23,152. This exercise produced an unexplained difference in expenditure of £38,197. A similar exercise for 09/04 produced an unexplained difference in expenditure of £16,140.

Mrs. Camm had asked for year-end accounts but never received any. Nothing which she had seen did anything to persuade her that her assessment was incorrect and it was therefore issued on 3 August 2005. Mrs. Camm did however advise Mrs. Williams that the Commissioners would reconsider the assessment in the light of any further evidence which she could produce, in particular reconstructed accounts.

Mrs. Camm confirmed in her oral evidence that at no time was it ever suggested to her, either personally in interview or in correspondence, that it was Simon rather than Mrs. Williams who owned the business.

Mr. Brennan cross-examined Mrs. Camm at some length. The main thrust of his questioning was aimed at why Mrs. Camm had not asked Simon further questions about the business on the preliminary interview. He put it to her that she should have asked Simon whose the business was and that she should have asked him to explain much more fully how the business operated. She could have asked for more information about purchases and how they were paid for. She could have asked about future bookings and she could have investigated with him the cash side of the business, asking him about takings. He put it to her that in the absence of any physical records it was her duty to obtain as much information as she could verbally. This she had failed to do.

Mrs. Williams requested a reconsideration which fell to be carried out by Mr. Reader. By letter dated 13 February 2006, Mrs. Williams submitted what she described as "reconstructed records for 2004" which she said she had prepared from memory. These consisted of a set of handwritten weekly sales sheets for weeks commencing 5/1/04 to 29/3/04 together with four quarterly summary sheets for the four VAT quarters. Of note in the quarterly summaries are the precision of the figures, bearing in mind that Mrs. Williams claimed to have reconstructed them from memory and the very close match between the reconstructed sales figures and the declared sales in the VAT returns in periods 03/04 and 12/04. For 03/04, Mrs. Williams' record gives a sales figure of £26,214 as against the VAT return of £26,213. For 12/04, the comparative figures are £21,000 and £20,908. For 06/04 and 09/04, the figures are several thousand pounds apart. The quarterly summaries record cash flower purchases from just three or four major regional wholesalers of £37,300 in 03/04; £38,500 in 06/04; £24,250 in 09/04 and £22,150 in 12/04. Mrs. Williams had produced no supporting or substantiating documentation to back up the figures and Mr. Reader wrote to her on 20 February 2006 advising her that without such evidence he could not rely on the figures she had supplied. He pointed out the inbalance between the declared levels of income and expenditure which could not have been sustained by the business over any extended period on the basis of declared sources of funding. He therefore requested evidence of any external source of funding such as loans, and he also asked for copies of the annual accounts and Mrs. Williams' self assessment details.

Mrs. Williams responded by submitting a "statement of loans and financial input". This listed cash from building society accounts of £18,962 and from credit cards of £14,227 and the following loans, totalling £135,500:

National Westminster Bank £55,000

Direct Line £10,000

Barclay Loan £15,000

Royal Bank Of Scotland £25,000

Loan from Mrs. Williams' £30,000

mother for building works

The Direct Line loan was evidenced by an agreement in the name of Simon Williams, the purpose of the loan being for home improvements. The Barclay loan was evidenced by a letter from Barclays Direct Loan Services to Mr. Williams Senior and recorded the loan to him (not to the business) for the purchase of a car. The National Westminster Bank loan was evidenced by a letter from Beswicks solicitors dated 20 November 2003 to Mr. Williams Senior and Mrs. Williams and confirmed a charge over their home to secure a loan for Mrs. Williams, the borrower.

Mr. Reader was of the view that nothing provided by Mrs. Williams established the credibility of the business. The reconstructed profit and loss account had not been prepared independently and there was no indication of the provenance of the figures. Additionally there was no balance sheet or indication of year end date. The evidence in support of the loans all showed purposes other than the financing of the business and he felt unable to do anything other than uphold the assessment.

Throughout this entire period, when Mrs. Camm and Mr. Reader were looking at the business, Mrs. Williams at no time gave any indication that the business belonged to anyone other than herself. The correspondence all came from her and she wrote that she had prepared all the figures which had been submitted for consideration. The hearing of Mrs. Williams' appeal was originally listed for mid-2007 and immediately beforehand a written submission was put in to the tribunal by Mr. Brennan in which, for the first time, he stated that the business was not Mrs. Williams' at all, but Simon's. It is against this background that Mr. and Mrs. Williams gave their oral evidence to the tribunal. Simon did not attend the tribunal. In the robbery which took place in February 2005, Simon had been badly hurt and was, we were told, not well enough to attend to give evidence.

Having picked up a viral infection, some years previously, Mr. Williams was clearly a seriously ill man. He was registered blind and was also losing his hearing and the use of his limbs. He had had to give up his job as a teacher and was looked after by his wife. Mrs. Williams also had to care for her elderly mother. When Mr. Williams gave up work, they needed an income to support themselves and Mrs. Williams set herself up in a florist's business called Pot Pourri. She was the sole proprietor of the business and was self employed and, as such, she complied fully with her VAT and income tax commitments.

Mr. Williams told us that in early 2002, Simon approached them saying that he had seen a business called "Premier Flowers" for sale for £40,000/50,000. He himself had no capital or business experience but, wanting to be independent and with the ambition of youth, he asked his parents for help in purchasing it. Wanting to do their best for him they agreed and took out a £45,000 loan secured on their home. Mr. Williams explained that his wife was the named borrower rather than it being a loan to them jointly because of his poor health. He was adamant throughout his evidence that the business was Simon's and not his wife's as she had more than enough to do looking after him and her mother.

The vendor of the business was a Mrs. Linda Raphael and a sales price was agreed of £55,600 plus VAT. This was evidenced by two documents. First we were shown what was described as an invoice for the payment of stock. It was on Premier Flowers' letterheaded paper; was dated 9 March 2002 and was addressed to Mr. and Mrs. P Williams. It referred to "stock as agreed between Simon Williams and John Raphael for the total sum at cost of £40,000 plus VAT £7,000". Secondly, we were shown a letter dated 8 March 2002 from Beswicks, Solicitors, to Mr. Peter Williams and was in effect a completion statement for the purchase of the business. Mr. Williams was asked by Mr. Cannan why both of these documents should have been addressed to, in the one case Mr. and Mrs. Williams and in the other case Mr. Peter Williams if in fact the business was being purchased by Simon. Why did Beswicks and Mrs. Raphael think that they were dealing with the Williams Senior? Mr. Williams described this as just semantics but also said that because of Simon's inexperience he and / or his wife accompanied him on all his appointments to make sure he wasn't being ripped off and that he was getting the correct advice. He and his wife were also, of course, paying the bills.

The VAT documentation surrounding the transfer of the business from Mrs. Raphael was contradictory. Mrs. Raphael's application to cancel her registration named Mrs. Williams as the new owner whereas a further form which Mrs. Raphael completed detailing the transfer of the stock named Simon as the new owner.

Mrs. Williams told us that when Simon took over Premier Flowers, she gave up her own business because he needed her help. She accompanied him to the bank (National Westminster) but because Simon was under 25 and had no collateral they refused to make him a loan and insisted that because of Simon's age, the business account had to be in her name; hence the designation on the account is "Mrs. E M Williams trading as Premier Flowers". Mrs. Williams produced to us a letter from a Nova Wallis of the National Westminster Bank dated 16 May 2007; she describes herself as the Business Manager and writes that since August 2002 she had dealt with Simon Williams regarding the business; the account was opened in Mrs. Williams' name on behalf of her son and Mrs. Williams had given her authority to deal with Simon regarding the running of the business.

Mrs. Williams also dealt with the VAT registration. She phoned the VAT office but was told that because Simon was under 25, he could not be the registered proprietor and because the borrowings were in Mrs. Williams' name, the registration had to be in her name. She took this advice on trust and thus applied for registration in her own name.

Mrs. Williams described herself as being on the periphery of the business. She helped when Simon asked for it, mainly with the accounting although she always worked to his figures. It should be noted that at no time did the business account correctly for income tax. No annual accounts or self assessment returns were submitted but Simon accounted for himself throughout on a PAYE basis. Mrs. Williams told us that Simon had asked the Tax Office how he should deal with his tax affairs. He had told them he owned the business and asked if he should complete a self assessment return but they had told him to account on PAYE basis.

Mrs. Williams was asked in cross-examination about the contract for the purchase of the business and the lease of the premises, neither document being before the tribunal. Mrs. Williams did not know in whose name either document was. She initially denied saying that she had told Mrs. Camm that she was the sole proprietor of the business, saying that she would have told her that it was Simon's but she later accepted that she could not recall what she had said. She was asked to explain the apparent deficit between the income and expenditure in the business but replied that as it was not her business she didn't know. She was asked how she had reconstructed the records which she produced to Mr. Reader. She said that the figures had come from Simon but did not know where Simon got them from.

Mrs. Williams put before the tribunal an undated letter from Simon which, as it stands as the best evidence we have from him, we set it out in full below:

"I am writing to inform you that the business known as Premier Flowers was my own business.

I was able to purchase the business with the aid of my parents who refinanced their home and liquidized their savings to raise the funds which enabled me to buy Premier Flowers.

It was never a fact or intention for this to be anything other than a sole venture into business on my own behalf. Premier Flowers was supposed to provide me with an income to live off and assist in paying back my parents. Any parental advice and assistance they provided went unremunerated but not unappreciated.

All references to my mother and father on the various papers, provided to the Revenue & Customs was based on advice given by the various financial bodies because of my age at that time.

I hope this letter clarifies that Premier Flowers was my sole business and not in any way my mothers."

Further documents put into evidence by the Appellant consisted of utility bills for the business premises, all addressed to Simon, and a letter from a Mr. A M Turner, Senior Investigation Officer for HMRC. The letter was dated 24 May 2006 and was addressed to Mrs. E Williams. It was in the following terms:

"Reference the conversation I had with you and your husband last week.

I accept that 'Premier Flowers' was a business funded by you for your son (Simon) to operate. From the information I hold it is clear that the Pay As You Earn has been correctly operated, however there has been a failure to submit Self Assessment Returns for the years of trading.

It is imperative that Simon Williams contacts the local office, Blackburn house, Old Hall Street, Hanley to bring his tax affairs up to date.

As discussed, you will be required to furnish information to complete the outstanding years Returns and it may be that you feel that the services of an Accountant are required."

The Legislation

All references are to the Value Added Tax Act 1994. Section 3(1) defines a taxable person as a person who is, or is required to be, registered under the Act. Section 4(1) provides that VAT shall be charged on any supply of goods or services made by a taxable person in the course or furtherance of the business carried on by him. Section 73(2) provides as follows:

"In any case where, for any prescribed accounting period, there has been paid or credited to any person –

(a) as being a repayment or refund of VAT, or

(b) as being due to him as a VAT credit,

an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly."

Sections 25 and 26 provide for the repayment of input tax to a taxable person, subject to regulations. The applicable Regulations are the Value Added Tax Regulations 1995 and Regulation 29(2)(a) provides that in order to claim deduction of input tax a taxable person should hold documentary evidence of the claim

The Commissioners accept that where a tax payer does not have the original invoices in support of his claim, they do have a discretion to accept secondary or alternative evidence.

Submissions

Mr. Brennan submitted that Mr. And Mrs. Williams were honourable and truthful people and that their evidence, given on oath, should be accepted. It was their case that the business was owned and operated by Simon, their input having been limited to the funding of it – something they did because it was natural for parents to help and protect their children. The VAT registration and the operation of a PAYE scheme for Simon might indicate to the contrary, but both were based on incorrect and misleading advice from the Authorities. It was part of the family ethos to keep in mind their public duty which is why Simon accounted for PAYE even though the business was loss-making. Mr. Brennan contended that Mrs. Williams should not have been the registered person because she made no taxable supplies and was not therefore required to be registered (paragraph 3(1) VAT Act 1994). Mrs. Williams received no money out of the business as was recorded by Mrs. Camm in her note of the March 2005 meeting. Mr. Brennan accepted that input tax repayments had been paid into the business account but Mrs. Williams received no benefit from the account. Withdrawals went to Simon and it was only he who had the benefit of the VAT repayments. Mrs. Williams could not fall within Section 73(2)(a) because she personally had received no VAT credit. Mr. And Mrs. Williams were physically incapable of running the business and it was operated by Simon alone on whom all assessments should have been raised. Mr. Brennan accepted that it was the duty of a trader to provide documentary evidence in support of a claim for input tax, but the records having been destroyed, the only course of action would have been to approach the suppliers. No such approach was made because it was Mr. Brennan's experience that cash traders were averse to supplying duplicate invoices. Finally Mr. Brennan was highly critical of Mrs. Camm. He highlighted failures in her note-keeping, in that she had failed to identify who had said what. She failed to produce her more detailed electronic note. She had been selective and had missed the opportunity to obtain from Simon vital evidence of the operation of the business. She could have asked more questions but failed to. In essence, the Commissioners' case was based on 47 lines of poor quality, inaccurate and incomplete notes. In summary, he concluded that the assessments were incorrect in law because the wrong person had been assessed and in that case the entire assessment must fall. Mrs. Camm's blanket refusal to allow any input tax repayments was incorrect and unjustified. (This, of course was an incorrect interpretation of what Mrs. Camm had done as she had allowed certain input tax up to the level of the output tax accounted for. It was the excess input tax which she disallowed.)

Mr. Cannan identified three issues for the tribunal to address, First, who was carrying on or owned the business? Secondly, if the tribunal found it to be Simon, then what would the effect of that be on the Commissioners' decision to assess Mrs. Williams? Thirdly, was the decision to disallow the input tax claim unreasonable? It was Mr. Cannan's contention that the weight of the evidence adduced, which he analysed in some detail, pointed clearly to the business being that of Mrs. Williams but even if that were not so and the tribunal accepted her contention that it was being carried on by Simon, it would not affect the assessment. Mr. Cannan referred to the precise wording of Section 73(2) which referred to a repayment or refund of VAT having been paid or credited to any person. This wording was intended to cover the situation where the repayment was made to a person other than a taxable person. This interpretation was consistent with what the position would have been if the circumstances had come to light earlier. If for example it had been realised that Mrs. Williams had been registered in error and she had applied to de-register, her de-registration would have been back-dated to the commencement of the business but Section 73(3) allows an assessment to be made under Subsection(2) even after cancellation of the registration.

On the question of quantum, it was Mr. Cannan's contention that Mrs. Camm and Mr. Reader had acted perfectly reasonably. There was no firsthand or prime documentation in front of them to justify the input tax credit. They looked at reconstructed accounts but were never told the provenance of the figures and no explanation of the basis of the estimated figures was given to them. In Mr. Cannan's words, the figures could have been plucked out of the air. The Officers looked at the schedule of loans submitted but, once analysed, these could not explain the difference between expenditure and income. All the figures put in by the Appellant, were in Mr. Cannan's view, wholly unreliable and unexplained and it was his submission that the claim for input tax credit, being wholly unsubstantiated, was rightly rejected by the Commissioners.

Conclusions

In reaching our conclusions, we bear in mind first, the onus is on Mrs. Williams to satisfy the tribunal on the strength of the evidence adduced that this was not her business and that the Commissioners' decision to disallow the input tax was unreasonable. Secondly, we are dealing not with an assessment to output tax but with the Commissioners' claim for recovery of input tax already paid out.

The Commissioners accept that Simon ran the business. The question before us though is who owned it, or in other words who was carrying it on. Mr. and Mrs. Williams in their oral evidence and Simon in his letter all maintain that this was Simon's business but the assertion is not backed up by any hard evidence. We were shown utility bills addressed to Simon and the letter from Nova Wallace but these are all equally consistent with Simon managing the business. The evidence from Mrs. Raphael in the two VAT documents is contradictory and the two documents to which we were referred point in two different directions. Without the benefit of hearing oral evidence from her and with no knowledge of what she was told or on what information she based the answers to the questionnaires, we feel that her evidence is not helpful and is possibly best put to one side. We also feel it safer to put to one side the invoice from Mrs. Raphael for the payment of stock and the completion statement for the purchase of the business from Beswicks. The Commissioners claim that these documents, being made out as they are to Mr. and Mrs. Williams, point to the business being theirs. But again we do not know why they were made out to the Williams. Mr. and Mrs. Williams accompanied Simon on all his professional appointments and due to his inexperience it is quite possible that they took the lead in negotiations and they of course were providing the funding so it is perhaps not strange that invoices and completion statements should be made out to them. The letter from Mr. Turner is also not over helpful to us. Mrs. Williams put it in as evidence that Mr. Turner believed the business to be Simon's. However, the concluding paragraph indicates quite the contrary, asking Mrs. Williams to submit the self assessment returns, something she would only do, as owner.

There is however abundant evidence pointing to no other conclusion but that it was Mrs. Williams who was carrying on the business. It was Mrs. Williams who registered for VAT, naming herself as the registered proprietor. The bank facility was in the name of Mrs. Williams. In each case the explanation we were given was that because Simon was under 25 Mrs. Williams had been told by both the Commissioners and the Bank that Simon could not either be registered or hold a bank account in his own name. Both these explanations, even individually, are difficult to believe but taken together totally lack credibility. Mrs. Camm was told that Mrs. Williams was the proprietor. We totally accept Mr. Brennan's assertion that Mrs. Camm did not note who gave this answer but as Mr. and Mrs. Williams and Simon were all present, this is hardly material. That she was told this is supported by her follow up notes that Simon, as the owner of the premises, did not charge the business rent. If Mrs. Camm had been told that Simon was the proprietor, there would be no question of him paying himself rent. There is the fact that Mrs. Camm was told that Simon was an employee and this is supported by the fact that he accounted for PAYE and did not complete self assessment returns. The explanation for this is again that he was misadvised. It is even more strange that he should account for tax in this way given that the business was loss-making. There would have been a vast saving of tax if Simon was genuinely the owner and had accounted on that basis. Equally important however is the evidence which could have been put before us but was not. We were never shown the lease for the Seighford premises. We were not shown the contract for the purchase of the business. We were not shown the loan agreements or indeed the application for the loans which would reveal their stated purpose. Even if Mrs. Williams does not still hold the originals of these documents, we would have thought it relatively straightforward to obtain photocopies.

Weighing up all the evidence before us, both oral and documentary, we cannot accept that this was a business carried on by Simon but hold that it was Mrs. Williams' business. It follows that the decision of the Commissioners to raise an assessment against her for the recovery of the input tax was a perfectly correct course of action and the liability is hers. However even if the business had been carried on by Simon, we accept Mr. Cannan's submission that Section 73(2) would apply and that recovery would still be sought against Mrs. Williams as the recipient of the overpaid input tax. And indeed this can only be right. The registration is in the name of Mrs. Williams. It was this registration which submitted the VAT returns and made a claim for repayment. It was to this registration that the repayments were made. It was this registration which accepted the repayments and banked them. It is of no avail to Mrs. Williams to say that she personally had no benefit from the repayments. That matters not, the fact is the repayments were made to her and it is thus from her that they should be reclaimed. What happened to the funds once they had been paid into the bank account in her name is immaterial.

The Commissioners accept that it is within their discretion to allow input tax deduction even when a trader does not have an original invoice. They have a discretion to accept alternative or secondary evidence such as duplicate invoices. As this is a matter of discretion, the jurisdiction of the tribunal is supervisory and our role therefore is to assess the reasonableness of the Commissioners' decision to reclaim the input tax. We accept that, as Mr. Brennan asserted, sometimes cash traders are reluctant to provide duplicate invoices, especially if they are trading in a very small way but from the reconstructed records put in for 2004, it appears that Mrs. Williams was dealing with just three or four nationally-known and very large suppliers. In that year flower purchases were recorded as being well in excess of £100,000. It would, we would have thought, have been very straightforward for the suppliers to be approached for, if not duplicate invoices, then copy statements of account but this was not done and Mrs. Camm and Mr. Reader had no evidence before them of any description whether prime, secondary or alternative. Mrs. Camm had established at the outset the gulf that existed on the VAT returns alone between income and expenditure. For periods 09/02 to 12/04, the gulf between the two was £336,777. She sought bank statements and once these were received she was able to test the position against periods 06/04 and 09/04. Her analysis revealed that the gross income declared on the VAT returns did not match the income recorded on the bank statements and as she had been told that this was a cash business, she allotted the difference to cash but even then there was a difference of £38,197 in 06/04 and £16,140 in 09/04. She looked to see if any alternative funding was being put into the business and sought details of loans. When these were provided, even if taken at face value, they fail to fill the deficit. Mrs. Camm just did not have any evidence on which she could allow the input tax and she took the only decision she felt she could and that was to disallow a major part of the claim for input tax. Even here, Mrs. Camm acted with complete fairness. She gave maximum credit for all the payments going out of the bank account and even assumed that every item would have been standard rated, which is in itself unlikely. She allowed the claim for input tax, even though unsubstantiated, up to the level of output tax declared and only assessed to recover the balance. This was in our view a reasonable decision.

In summary therefore, we find that the business was carried on by Mrs. Williams; the decision that any assessment should be raised against her was correct and the decision to disallow the input tax was perfectly reasonable. The appeal therefore fails in its entirety and is dismissed. The Commissioners made no application for costs and we make no order.

MAN/2006/0416

Lady Mitting

CHAIRMAN
Release Date: 1 April 2008