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Cite as: [2009] UKVAT V20973

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Zenith Publishing Ltd v Revenue & Customs [2009] UKVAT V20973 (13 March 2009)

20973

VALUE ADDED TAX – Input tax – Whether sums paid by Director of company defending a claim against him in his private capacity are properly incurred for the purposes of the business – s.24 Value Added Tax Act 1994 – Appeal dismissed

LONDON TRIBUNAL CENTRE

ZENITH PUBLISHING LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: MISS J C GORT (Chairman)

MR K GODDARD MBE

Sitting in public in Norwich on 26 February 2009

No appearance by or on behalf of the Appellant

Mr Jonathan Davey of counsel, instructed by the solicitors office, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

This is an appeal against a decision of the Commissioners to issue a Notice of Assessment for value added tax plus interest dated 1 June 2006 in the sum of £10,365 plus £602.02 interest. The assessment is in respect of input tax over-declared in the prescribed accounting periods ending November 2004 to November 2005. On or around 30 October 2006 an amended assessment was issued amending the amount of interest claimed to £923.73.

By its Notice of Appeal Zenith set out its grounds of appeal as follows:

"The nexus of reply in this action was that the legal fees upon which VAT was charged (although no VAT invoice has ever been produced) were as a result of defending an action for the recovery of moneys paid to and used for the business. Neither I [Paul Turner, director of the Appellant] nor my wife had any interest in the monies."

Prior to the hearing of the appeal Mr Turner, a director of the Appellant, had requested an adjournment of the hearing of the appeal on the basis that for a variety of reasons, including that he had not had sufficient time to deal with the appeal and that he did not have sufficient funds to obtain advice or to attend the hearing. The evidence in this case relates to events in 2004 and 2005, and in the circumstances we do not consider it to be in the interest of justice that this appeal should be adjourned. In the circumstances we proceeded to hear the appeal under the provisions of rule 26(2) of Value Added Tax Tribunal Rules 1986.

The facts

The Appellant ("Zenith") is a music publishing company based at Barhams, Bakers Lane, Linton, Cambridgeshire. It was registered for VAT with effect from 1 March 1999.

On 6 February 2006 a Mrs Jane Gough wrote to Zenith to arrange a visit appointment for 27 February 2006 in order to verify its VAT returns for the periods ending 31 May 2003 to 30 November 2005. At that meeting Mrs Gough met Paul Turner and in particular required to see six invoices in order to substantiate Zenith's input tax claims. Those invoices were unavailable both then and subsequently. Much correspondence ensued following that meeting in which Mrs Gough further requested copies of the invoices but at no stage were they produced, although invoices in respect of other input tax claims were produced to her.

The disallowed amounts of input tax are as follows:

Period Date Supplier Amount

11/04 23/11/04 Zenners £1,968

02/05 09/02/05 Farmer & Shirress £2,178

05/05 13/05/05 Farmer & Shirress £2.178

08/05 10/06/05 Farmer & Shirress £1,242

11/05 29/09/05 Hewitsons £1,042

11/05 17/11/05 A J Powell & Co. £1,757

£10,365 (Total)

All the invoices from Farmer & Shirress and the invoice from A J Powell, which is the successor firm to Farmer & Shirress, relate to legal services provided to the executors of Paul Turner's late father's estate in respect of their claim against Paul Turner himself. The VAT claimed relates to their fees for both services. Similarly the VAT claimed as input tax by Zenith in respect of Zenners' fees relates to instructions given by Mr Turner personally to Zenners' solicitors to defend the claim brought against him by the executors of his late father's estate.

In 2005 a Mr Christopher Maton (as claimant) brought a claim in the Cambridge County Court against Mr Turner (as first defendant) and Zenith (as second defendant). The claim against Zenith was dismissed. The claim against Mr Turner was upheld. By an order made at Cambridge County Court on 29 September 2005 Paul Turner was ordered to pay Christopher Maton's costs. The VAT claimed as input tax by Zenith is in respect of costs paid by Mr Turner pursuant to the Court Order of 29 September 2005.

The legislation

The Value Added Tax Act 1994 provides:

Input tax and output tax

(1) Subject to the following provisions of this section, "input tax" in relation to a taxable person, means the following tax, that is to say –

(a) VAT on the supply to him of any goods or services;

(b) …

(c) …

being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him."

The Respondents' case

It was submitted by Mr Davey that the Tribunal had to examine three questions namely:

(i) To whom were the services provided;

(ii) If they were provided to the taxpayer, were they for the purposes of the taxpayer's business?

(iii) Even if prima facie the services were provided to the taxpayer, and were provided for the purposes of the taxpayer's business, was there appropriate evidence of the expenditure?

Because the supplies were not made to Zenith itself, and self-evidently were not for the purposes of Zenith's business, then it was the Respondents' case that the Appellant must fail. Furthermore as no invoices had been provided, and as there has been no proof of payment produced to HMRC, it was not a circumstance in which HMRC could exercise its discretion in favour of the Appellant.

We were referred to the case of Customs and Excise Commissioners v Rosner [1994] STC 228 (the case dealing with the predecessor provision to section 24 of the Value Added Tax Act 1994, namely section 14 of the Value Added Tax Act 1983, which, so far as is relevant, is in identical terms), Layton J (as he then was) provided the following guidance on the meaning of the phrase "to be used for the purpose of any business carried on" by the taxpayer:

"… the thread … which allows one to keep control of a phrase ["to be used for the purpose of any business carried on" by the taxpayer] which could otherwise be used to cover a wide variety of circumstances is that there must be a clear nexus between the matter in relation to which the expenditure has been incurred and the business itself. The nexus cannot merely be the fact that the business will benefit from the expenditure. That seems to me to be abundantly clear …

"Benefit … cannot be the test. There must be a real connection, a nexus, between the expenditure and the business. It seems to me that the nexus, if it is not to be benefit, must be directly referable for the purpose of the business. By the purpose of the business in this context I mean by reference to an analysis of what the business is in fact doing. It is only by identifying what the nature of the business is in that way that one can determine the extent to which any given expenditure can be said to be for the purposes of that business."

The rule that in order for an input tax claim to be valid, the claim must be supported by a VAT invoice is derived from the Value Added Tax Regulations 1995, regulation 13 and 29(2)(a). (SI 1995/2518).

Reasons for decision

Sums claimed as input tax by Zenith were in fact in respect of fees paid to Zenners by Mr Turner in his personal capacity to defend a claim brought against him by the executors of his late father's estate, they were not sums incurred by him acting on behalf of Zenith. Similarly the VAT claimed as input tax by Zenith in respect of Farmer & Shirress's and A J Powell's fees were not in respect of services to Zenith, but were in respect of legal services provided to the executors of Mr Turner's late father's estate, and again cannot therefore be said to be in respect of Zenith's business, which is a publishing business.

We have seen a Court Order made by the Cambridge County Court in respect of the claims brought by Christopher Maton against both Mr Turner and Zenith. Whilst the claim against Zenith was dismissed, the claim against Mr Turner was upheld. Mr Turner was ordered to pay Mr Maton's cost, and the VAT claimed as input tax by Zenith is in respect of those costs paid by Mr Turner pursuant to that Court Order of 29 September 2005, and therefore again are not costs properly incurred by Zenith in pursuit of its business. In any event the costs themselves were cost incurred by Mr Maton and not by Zenith, or anyone acting on behalf of Zenith.

We note that Mr Turner and Mrs Nicolette Bernice Turner (who we assume to be Mr Turner's wife) are separately registered as a VAT partnership as a 'Business and Management Consultancy'. The sums claimed as input tax on behalf of Zenith were at no time claimed on behalf of that separate business.

For all the above reasons this appeal is dismissed. There is no order for costs.

MISS J C GORT

CHAIRMAN

RELEASED: 13 March 2009

LON 2006/1349