United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2009] UKVAT V20909

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Jonathan Fryer v Revenue & Customs [2009] UKVAT V20909 (07 January 2009)

20909

INPUT TAX – right to deduct – taxpayer unable to produce invoices to show input tax had been incurred –Commissioners' right to exercise discretion in trader's favour – no other evidence of supply produced – discretion properly exercised – appeal dismissed

LONDON TRIBUNAL CENTRE

JONATHAN FRYER Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: Nicholas Aleksander (Chairman)

Mr J G Robinson

Sitting in public in London on 2 December 2008

R Basi instructed by the Solicitor for HM Revenue and Customs, for the Respondents

and no one appearing for the Appellant but the tribunal having before it an e-mail from the Appellant this tribunal determined to proceed under rule 26(2) of the Value Added Tax Tribunals Rules 1986 (as amended)

© CROWN COPYRIGHT 2008

DECISION

The Appellant, Mr Fryer, is a sole trader trading as MGL Agency. He is a business development consultant.

On 6 April 2006, Officer Janette McKinnon carried out a VAT assurance visit. She noted that an input VAT credit had been claimed in the period 04/05 for £4095.74 in respect of the purchase of a rigid inflatable boat. Officer McKinnon sought verification of the purchase, but none was given. On 10 January 2007, Officer Tracey Marsh wrote to Mr Fryer seeking further information in respect of the boat purchase. On 20 February 2007, not having received a response to her earlier letter, Officer Marsh wrote again to Mr Fryer asking for details of the boat purchase, and in particular the identity of the seller and requesting a response by 6 March 2007. No reply having been received, Officer Marsh wrote on 1 May stating that as there was no evidence of the VAT registration of the seller, the input tax of £4095.74 would be disallowed and an assessment for this amount would be issued. An assessment for £4095.00 and £236.21 interest was issued on 8 May 2007.

Following the issue of the assessment, Mr Fryer wrote to Officer Marsh on 14 May 2007 to appeal against the assessment. The basis of his appeal were:

(a) That the seller of the boat appeared to be professional and reliable, he appeared to have done nothing wrong and the boat was presented well and as described

(b) That the purchase price was agreed, the full amount (including VAT) was paid and a written paper invoice was issued. The invoice remained on the boat in a folder and the folder was blown overboard in strong winds shortly after the boat was purchased

(c) That exhaustive efforts were made to locate the seller, and investigations lead Mr Fryer to believe that the seller was actually an agent for the real owner, and that both the seller and the real owner live and/or work in the Middle East.

On 23 May 2007 Officer Peter Jennings wrote to Mr Fryer stating that his letter had been passed to him, and that he would be conducting a review. On 25 May 2007, Officer Jennings wrote again to Mr Fryer requesting information about the boat purchase. No reply was received, and Officer Jennings wrote further letters seeking information on 23 July 2007 and 31 August 2007. On 19 September 2007 Officer Jennings wrote to Mr Fryer stating that in view of the lack of any response from Mr Fryer, the assessment for £4095.00 would be upheld.

On 20 September 2007, Customs received a letter from Mr Fryer dated 5 September. Mr Fryer repeated his assertion that he had no reason to doubt the seller, that the transaction had been conducted legally, and that he had lost the receipt/invoice. On 21 September 2007, Officer Jennings wrote to Mr Fryer stating that without any evidence he was unable to allow any credit for input tax in respect of the boat purchase. Mr Fryer replied on 25 September 2007 enclosing a letter from his bank confirming that a bankers draft had been issued on 15 April 2005 for £17,500.00 in connection with the boat purchase, but without giving any details of the addressee of the draft. In his letter, Mr Fryer stated that the balance of the purchase price had been paid in cash. Mr Fryer reiterated the points made in his previous correspondence.

On 2 October 2007 Officer Jennings wrote to confirm his decision that the assessment should stand. On 9 January 2008 Mr Fryer submitted his Notice of Appeal to this tribunal.

Sections 25 and 26, Value Added Tax Act 1994 provide for the credit of input tax subject to regulations. The regulations are the Value Added Tax Regulations 1995, and Regulation 29(2)(a) provides that in order to claim deduction of input tax, the taxpayer should hold a VAT invoice evidencing the input tax claimed. Regulation 29(2) goes on to give Customs discretion to allow claims for input tax where the taxpayer has other evidence of the VAT charged on the supply to him.

As no VAT invoice could be produced by Mr Fryer for the purchase of the boat, the issue in this case is whether Customs acted properly in not exercising their discretion to allow the claim for input tax credit in the absence of a VAT invoice.

The role of the Tribunal in cases such as this was set out by the High Court in the case of Kohanzad v Customs & Excise Commissioners [1994] STC 96:

"It is established that the tribunal, when it is considering a case where the commissioners have a discretion, exercises a supervisory jurisdiction over the exercise by the commissioners of that discretion."

The High Court went on to state:

"The Tribunal asked itself whether the Commissioners, in refusing to allow the appellant to deduct input tax, had acted in such a manner that no reasonable commissioners could have acted … and it seems to me that in substance it was the right question."

In other words, the Tribunal's role is to consider whether the decision reached by Customs was a reasonable one. In reaching their decision, did they take into account all relevant facts, and disregard all irrelevant matters? Was their decision consistent with the requirements of the applicable law? If Customs acted reasonably, then the Tribunal must uphold their decision – even if the Tribunal (were it making the decision) would have come to a different conclusion.

We have no hesitation in determining that the decision of Customs to deny a credit for input tax on the purchase of the boat was reasonable, and should be upheld. Not only was Mr Fryer unable to produce a VAT invoice, he was also unable to provide any details of the seller, and so Customs were unable to examine the records of the seller to verify whether VAT was charged on the sale. Mr Fryer stated that the VAT invoice had been kept in a folder on the boat with other papers, and blew overboard in high winds. We agree with Mr Basi's submission that this story has to be considered with a degree of scepticism. Mr Fryer stated in correspondence that the person with whom he dealt was probably an agent for the true owner, and both the agent and the owner were based in the middle east. Again, we agree with the submissions of Mr Basi that this indicates that the sellers (being based outside the UK) may not be VAT registered, and VAT may not have been charged on the sale. Mr Fryer was given a considerable period of time to provide details of the purchase or the seller. We note that Mr Fryer repeatedly did not reply to correspondence, and the only substantive information that he produced in relation to the purchase was a letter from his bank about the draft issued in connection with the purchase and some photographs of the boat.

As regards the letter from the bank, it merely confirms that they issued a bankers draft for part of the purchase price of the boat. However the letter did not give the name of the person to whom the draft was addressed. Mr Fryer also produced some photographs of the boat. Although the letter shows that Mr Fryer paid for the boat, and the photographs show the boat in use, neither provide any help in determining either the identity of the seller, nor whether any VAT was charged on the purchase.

As Mr Fryer could not produce a VAT invoice, nor could he provide any details of any sort whatsoever of the seller (or his agent), we consider that it was reasonable for Customs to deny a credit for input VAT. We therefore uphold Customs assessment to recover the input tax.

Mr Fryer was not present at the hearing, He e-mailed the Tribunal office on the morning of the hearing stating that he was unwell and unable to attend. Given the full bundles of documents before the Tribunal and the fact that Mr Fryer's contentions were set out in the documents, we decided to proceed in his absence. If Mr Fryer disagrees with the decision of the Tribunal, under Rule 26(3) of the VAT Tribunal Rules 1986, he has the right to apply to the Tribunal to have this decision set aside on such terms as the Tribunal thinks just. Any such application must be made within 14 days after the date of release of this decision.

Nicholas Aleksander

CHAIRMAN

RELEASE DATE: 7 January 2009

LON/2008/0353