United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2008] UKVAT V20765

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Company Registrations Online Ltd v Revenue & Customs [2008] UKVAT V20765 (07 August 2008)

ASSESSMENT – best judgment – correctness of assessments accepted – challenge to the reasonableness of commissioners in raising an assessment – appeal dismissed

MANCHESTER TRIBUNAL CENTRE

COMPANY REGISTRATIONS ONLINE LTD Appellants

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: LADY MITTING (Chairman)

CAROLE ROBERTS (Member)

Sitting in public in Manchester on 14 July 2008

Mr. J Grierson, counsel for the Appellant

Mr. J Puzey, counsel, instructed by the Solicitor for HM Revenue and Customs for the Respondents

DECISION

The Appellant appeals against two assessments to VAT, namely an assessment notified on 20 July 2006 in the sum of £23,130 and covering period 1 February 2005 to 30 April 2006 and secondly an assessment dated 17 October 2006 in the sum of £16,094 covering period 1 August 2004 to 30 April 2005.

The original grounds of appeal read as follows:

"That the Commissioners have unilaterally altered the VAT liability of supplies made by the Appellant, without seeking to ensure that the competitors of the Appellant are complying with the same liability ruling from the same date, in breach of the requirements of the Treaty of Rome and subsequent EC Directives relating to indirect taxation. The Commissioners ignored the comments made by Lady Mitting in the liability ruling decision released 20 February 2006 (paragraph 21)"

The Respondents applied for the appeal to be struck out on the grounds of res judicata and / or issue estoppel. The tribunal dismissed that application but directed the Appellant to serve new reasons for appealing.

The Appellant served amended grounds of appeal by letter dated 23 February 2007, the grounds being as follows:

"a. The Respondents in raising the assessment have not done so in accordance with the exercise of best judgement and / or have acted wholly unreasonably.

b. The Respondents have failed to have any regard to the comments made in the Decision of the Tribunal in MAN/05/0232, "The Respondents had not raised any assessment against the Appellant. Were they to do so, the guidelines, would, of course, be very much of greater importance. We should add that Mr Puzey (Counsel) accepted that Mr Vibrans (Appellant) had acted in good faith". In doing so they have acted contrary to judicial guidance, opinion and direction.

c. The Respondents having received a decision from the Tribunal as to the treatment of supplies by the Appellant have sought to enforce the direction upon the Appellants so as to have retrospective effect, a consequence of which is to implement unequal treatment and to be punitive to the Appellant.

d. The Respondents have failed to have any regard to their own published guidance and the issue of the disputed assessments have unilaterally and retrospectively sought to change the basis of tax treatment of the supplies made.

e. The Respondents have ignored relevant and material facts extant at the time of the assessment, including issued guidance and Business Brief 14/94, thereby acting unfairly and prejudicially to the implementation of a fair and proper system of tax collection.

f. Issue estoppel should act to preclude the Respondents assessments being raised."

The tribunal issued a direction that the parties lodge skeleton arguments. The Respondents lodged their skeleton argument dated 7 July 2008 but no skeleton argument was lodged on behalf of the Appellant. At the hearing, for the first time the Appellant sought to abandon as stand alone grounds of appeal all but (a) namely that the assessment had not been raised to best judgment, but the Appellant relied upon (b) to (e) to support that assertion. The Commissioners sought a preliminary ruling on whether or not the Appellant should be allowed to argue best judgment upon those grounds and this decision is concerned purely with that single issue. No oral evidence was heard.

The background to the raising of the assessments

The Appellant carries on business as an online company formation agent. On 21 March 2005 the Respondents issued a liability ruling stating that the Appellant was making one single supply of company formation services as opposed to separate supplies of a standard-rated formation service and a zero-rated supply of the Memorandum of Article of Association as the Appellant had previously been treating its supplies. The Appellant appealed the liability ruling and the tribunal dismissed the appeal by decision released on 20 February 2006. The tribunal was made up of Lady Mitting and Miss Roberts, as is the current tribunal. The finding of the tribunal was that the entire supply made by the Appellant should have been standard-rated. This decision was not appealed and for the purposes of the matter before us now it is accepted by both parties that that ruling was correct.

In paragraph 20 of the original decision the tribunal formally dismissed the appeal. The tribunal went on to add in paragraph 21 the following:

"21. We should make just one point which we mention at the conclusion of our decision because it was not a point which was relevant to our deliberations. It might at first sight appear illogical that the company should seek to zero-rate only the Memorandum & Articles but to include within standard rated formation service all the remaining paperwork. In fact it is not as illogical as it might appear as the Appellant company was at all times following the then guidance of the Respondents which allowed the zero rating of copies of the Memorandum & Articles provided that they were itemised separately on the invoice and the preparation of them had been standard rated. We understand that it was as late as the end of last year that this guidance was actually changed. This guidance is not central to the decision which we have to make because we are considering only a point of principle on the law as it currently stands. The Respondents had not raised any assessment against the Appellant. Were they to do so, the guidelines would, of course, be of very much greater importance. We should add that Mr Puzey accepted that Mr Vibrans had acted in good faith."

The background to that addendum contained in paragraph 21 was that it was mentioned during the course of the original hearing that the Commissioners' Public Notices were misleading and that the Commissioners were slow to amend the Public Notice in the light of case law. That argument was not relevant to the tribunal's decision as to the correct liability of the supply and that is why it was added as an addendum and not incorporated into the decision itself.

The decision having been released, the Respondents then sought from the Appellant financial and accounting information sufficient to enable them to raise an assessment for under-declared VAT. Using that information the assessments were raised and the quantum of the assessments are not now in dispute.

Submissions

In his skeleton argument, Mr. Puzey, on the understanding that the appeal was still on all grounds referred to above, argued that the tribunal had discharged its function by determining the liability of the supplies and that as the tribunal's jurisdiction was conferred by statute it did not possess an inherent jurisdiction to rule on matters other than whether the tax was lawfully due under the terms of VAT legislation. Particularly the tribunal could not consider allegations of unfairness, inequality of treatment, prejudice, misdirection or issue estoppel.

In the light of the Appellant's movement on the grounds of appeal, Mr. Puzey referred the tribunal to Pegasus Birds Limited v. HMRC (2004 EW CA Civ 1015). We were referred to paragraph 16 which drew on Rahman No. 1 in which Woolf J in explaining the effect of the "best of their judgment" requirement stated that to find that an assessment was invalid a tribunal should be satisfied that, for example, the assessment had been reached dishonestly, vindictively or capriciously or was a spurious estimate or guess in which all elements of judgment were missing or was wholly unreasonable. The Court of Appeal clarified this in paragraph 22 of Pegasus as follows:

"Another phrase (used by Woolf J in Van Boeckel) referred to the obligation of the commissioners "fairly (to) consider all material placed before them". As a general proposition that is uncontroversial. However, it should not be seen as providing a separate and sufficient test of the invalidity of the assessment, not as justifying lengthy cross-examination to establish whether the relevant officers have in fact looked at all the available material. Even the term "wholly unreasonable" (also used in Van Boeckel) may be misleading if it is treated as a separate test, rather than as simply an indication that there has been no "honest and genuine attempt" to make a reasoned assessment."

Mr. Grierson in his submission accepted that the Appellant did not seek to rely on misdirection or estoppel as he accepted these issues were outside the jurisdiction of the tribunal. He also confirmed that the amount of the assessment was not challenged. It was Mr. Grierson's case that the decision to raise the assessment was unreasonable as it failed to take into account objective material available to the assessing officer, namely paragraph 21 of the tribunal's earlier decision and the fact that the Commissioners' Public Notices were misleading and confusing. Mr. Grierson's challenge was to the basis on which the Commissioners decided to raise the assessment and it was, Mr. Grierson argued, within the jurisdiction of the tribunal to make a determination on the basis of which any assessment was raised, taking into account the material available to the Commissioners and the tribunal was also empowered, he said, to have regard to the effect which the raising of the assessments would have. It was open to the tribunal to look at the fairness of the decision to raise the assessment and the effect on the Appellant which it would have. Mr. Grierson referred us to paragraph 50 of Pegasus in which Carnwath LJ referred to his own judgment in Rahman 1 in which he reiterated the Van Boeckel view that the Commissioners were required to fairly consider all material placed before them and, on that material, to come to a decision which was reasonable and that the standard of what was reasonable would be anything that was not wholly unreasonable. As Mr. Grierson put it, the assessing officer should have considered the guidance notes and paragraph 21 of the tribunal's decision and in failing to do so he had been acting unreasonably.

Conclusions

Our starting point was in fact paragraph 10 of Pegasus Birds:

"10. The term "best of their judgment" is derived from section 73(1) of the 1994 Act:

"Where a person has failed to make any returns required under this Act… or to keep any documents and afford the facilities necessary to verify such returns, or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgement and notify it to him (emphasis added)"

It should be noted that the shorthand "best judgment", as used in some of the cases, may be misleading, if it is taken to imply a higher standard than usual. The statutory words "to the best of their judgment" are used in a context where the taxpayers' records may be incomplete, so that a fully informed assessment is unlikely to be possible. Thus the word "best", rather than implying a higher than normal standard, is a recognition that the result may necessarily involve an element of guesswork. It means simply "to the best of (their) judgment on the information available" (Argosy Co v IRC [1971] 1 WLR 514, 517 per Lord Donovan)."

The Appellant was appealing against the two assessments, the only remaining ground of appeal being that they were not raised to best judgment. It appeared to us, beyond any doubt, that the officer had assessed the amount of VAT due from the Appellant to the best of his judgment. That the Appellant made a standard–rated supply, as found by the tribunal, was accepted and the tribunal's determination of the liability was not in dispute. Equally the quantum of the assessment had been reached on the basis of figures supplied by the Appellant and again was not in dispute. In view of the fact that the assessment was raised on the basis of an un-appealed liability finding and that it was based on figures supplied by the Appellant which were not in dispute, the assessment itself cannot be faulted. It was not the Appellant's case that the officer had acted dishonestly or vindictively, but merely that he had not taken certain matters into account. Mr. Grierson is in effect not arguing that the assessment itself is flawed but that the decision to raise the assessment was flawed. The implication is not that the assessment was not raised to best judgment but that it should not have been raised at all for the reasons set out in the amended grounds of appeal. Having accepted that the tribunal is unable to consider estoppel or misdirection, Mr. Grierson seeks to bring them in in any event as the basis of a best judgment challenge. It was, argued Mr. Grierson, in effect an unreasonable decision to raise the assessment. This is not in our view something that relates to best judgment at all but is a completely separate issue and is an issue over which this tribunal has no jurisdiction.

We therefore rule that the Appellant should not be allowed to argue that the assessment had not been raised to best judgment as there were no reasonable grounds upon which the argument could be based. As all other grounds of appeal had been abandoned, the appeal was dismissed. Mr. Puzey made an application for costs on the basis that the Appellant was ordered in January 2007 to file its amended grounds of appeal. Those grounds of appeal remained as stated until the day of the hearing. The grounds were accepted by the Appellant to be grounds which we could not consider, with the exception of best judgment which we have ruled out. Mr. Puzey argued that the appeal was therefore frivolous and as such a costs order was appropriate. Mr. Grierson objected, saying that the Appellant was seeking to review the circumstances arising out of the result of the tribunal's original finding. It was recorded in the original decision that the Appellant had acted in good faith and the Appellant was in effect inviting the tribunal to consider the only remaining circumstances in which the Appellant could challenge the assessment, as the original liability had already been decided. We accept Mr. Puzey's application for costs on the grounds as he argued it. We therefore direct that, having dismissed the appeal, the Appellant should pay the Commissioners' reasonable costs to be determined by a chairman sitting alone if incapable of agreement.

MAN/2006/0585

Lady Mitting

CHAIRMAN

Release Date: 7 August 2008