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Nicholas Nehemiah Gayle v Her Majesty's Revenue & Customs [2009] UKVAT v 20982 (20 March 2009)

20982

VAT – deduction of input tax – whether input tax creditable in respect of supplies for which no invoices held – whether input tax claimed related to supplies to be used in the Appellant's business

VAT – cancellation of registration – jurisdiction of tribunal – conclusion: deregistration was warranted

LONDON TRIBUNAL CENTRE

NICHOLAS NEHEMIAH GAYLE

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS

Tribunal: CHARLES HELLIER (Chairman)

HELEN FOLORUNSON

Sitting in public in London on 16 December 2008

Mr Gayle in person

David Manknell, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

This appeal (or rather the two appeals made by Mr Gayle which have been consolidated and are heard together) concerns events in the period from April 2007 to October 2008. That much is fairly clear.

On 26 April 2007 Mr Gayle applied to be VAT registered. He made a second application on 8 June 2007. HMRC accepted both applications and gave him two VAT numbers. Mr Gayle submitted his first VAT return – that specified as being for the period ending on 30 September 2007 (the "09/07" period – we shall similarly describe other periods) on 9 September 2007, three weeks before the end of the period. That return bore the VAT registration number from (we think) the first application for registration. On 11 October 2007 Mr Gayle submitted a VAT return for the period to 31 October 2007 – again before the end of the period. That return bore the second registration number. Then further returns were submitted, under the first registration number, for the periods 12/07, 03/08, and 06/08. At some stage the second registration number was cancelled.

Thus far the picture is relatively uncomplicated.

Before us Mr Gayle explained his approach to the completion of VAT returns. He explained that he completed them on a cumulative basis. Thus if the VAT on his purchases and sales had been:

Sales Purchases

July – Sept 07 100 45

Oct – Dec 07 nil 70

Jan – Mar 08 10 80,

he would have made the following entries on his VAT returns:

09/07 100 45

12/07 100 115

03/08 110 195.

Mr Gayle explained that his first sale had been of a number of printed tee shirts. He had been given cheques for £9,000 and £45,000 in payment. The VAT on their sale, £9450, was declared as output tax on the 09/07 return, together with input tax of £4,497.50 (which Mr Gayle told us was an error: it should have been £6902). But the cheques he had been given bounced and Mr Gayle did not receive the money. He has made no further sales. Thus for each period after 09/07 he considered that his cumulative output VAT was – since the inception of his registration – nil.

Leaving aside Mr Gayle's return for 10/07 we now turn to the 12/07 return. This showed as indicated above, cumulative sales of nil. It also showed (after the correction of a manuscript error which we shall return to shortly) input VAT of £6902. On Mr Gayle's evidence that is the cumulative VAT since the inception of his business, and the same figure as that which should have been shown as input tax in his first return, since he made no further purchases in this period.

Mr Gayle's return for 03/08 reflects Mr Gayle's evidence that he made no further sales and made no further purchases. Thus it records output tax of nil, and input tax claimed of £6902.

Mr Gayle's 06/08 return again reflected no further sales in that period – so that his cumulative output tax was nil, but also reflected additional input VAT on purchases made by him (it appears mainly in March and April 2008). We assume that the early delivery of the 06/08 return precluded their inclusion on that return. These purchases we understood Mr Gayle to say included some £548 of VAT, and as a result his declared input VAT for that period was shown as £7450 (= 6902 + 548).

Mr Gayle's approach to the entries in his VAT returns was not that which HMRC were expecting, or that which they recommended. HMRC's expectation, where a trader has three-monthly returns, is that the entries for input and output VAT will reflect the VAT on sales and purchases for the three months ending with the return date rather than the cumulative figures. And that is indeed what the VAT Regulations contemplate since the prescribed form of return speaks of "VAT due in this period on sales and other outputs" and of "VAT claimed in this period on purchases and other inputs", and the natural interpretation of those words is that they refer only to what has been sold or purchased in that period rather than cumulatively since registration.

But before we turn to the details (about which there is some greater confusion), we should note one other aspect of Mr Gayle's evidence. He told us that his understanding was that he was entitled to repayment from HMRC in each quarter of the figure shown as the difference between cumulative output and cumulative input VAT. Thus, taking into account relief for the bounced cheques, he was entitled to payments of £6902 in each of the quarters 09/07, 12/07,and 03/08, and of £7450 in respect of 06/08. Mr Gayle explained that these payments would enable him to run his business and to employ someone, and that his employee would assist in the business of claiming further VAT repayments.

Now, Mr Gayle's return for 09/07 showed £9450 of output tax (being the tax on the failed sale of £54,000), input tax of only £ 4,497.50 and EU acquisition VAT of £1,417.50. It thus indicated VAT due by Mr Gayle of £6370. On 10 December 2007 Mr Gayle submitted a form "Error on VAT Returns" on which he showed by reference to the 07/07 period (rather than 09/07) an amount repayable to him of £6902. On the form he explains:

"I had previously sent in a VAT for, but it was the first time I had ever sent a VAT form. I have now excepted my error and I am now positioning my purchases for my company which deals with printing and photography and music and cosmetics and telephone services using a server system – thank you."

And on 21 January 2008 Mr Gayle sent a second Error on VAT Returns form showing by reference to the period 12/07 VAT repayable to him of £6902. At about the same time he resubmitted his 12/07 VAT return with a correction. The original VAT return had shown input VAT of:

"6,0902"

which was a manuscript error for

"6902"

which was, as Mr Gayle had explained to us, the cumulative input VAT to December 2007. Thus HMRC had, by the end of January 2008, received two Error claim forms for £6902 each, a 12/07 VAT return with a claim for £6902, and the 09/07 return with an amount originally shown due from Mr Gayle of £6370.

We mentioned the 10/07 VAT return. This return did not follow the pattern of the other VAT returns in so far as disclosure was concerned although like them it was received in good time- some three weeks before the period end. In this return Mr Gayle showed:

"1. VAT due on Sales 8042

VAT due on acquisitions 8042

Total VAT due (the sum of 1 and 2) 8042

VAT reclaimed on purchases 8042

VAT to be paid or reclaimed 8042"

From HMRC's perspective all this was no doubt very confusing. They arranged a meeting with Mr Gayle on 18 February 2008. They learned from Mr Gayle of the bounced cheques and asked for documentary evidence of the inputs on which he claimed the £6902 input tax. Mr Gayle produced a number of petty cash slips but no invoices. HMRC were not satisfied with this evidence. They decided that the best course of action was to reduce both the input and output VAT in the 09/07 (and it appears the 12/07) returns to nil. In pursuit of this practical attempt at a solution various notices of assessment or of over declaration were issued to Mr Gayle.

On 22 February 2008 Mr Dowling from HMRC wrote to Mr Gayle explaining that this solution was not the correct one, and withdrawing the earlier notifications. He allowed and disallowed similar items with the same overall effect. On 8 April Mr Gayle was assessed with a misdeclaration penalty in respect of 12/07. On 14 April HMRC wrote effectively disallowing the £6902 input tax claim for 03/08. There was further correspondence.

On 23 July 2008 Alpa Adatia, one of HMRC's officers, met Mr Gayle by prior arrangement. He had been asked to bring documentation supporting the £7,450 input tax claim in his 06/08 return (the reader will remember that this comprised the brought forward £6902 and the extra £548). Mrs Adatia was not convinced by the evidence offered by Mr Gayle and wrote to Mr Gayle indicating that the £7450 would not be paid. During the meeting she also formed the impression that Mr Gayle was not trading nor had he any real intention to trade in the near future: he had indicated that he had lost focus in June 2007, that he was on Jobseekers' Allowance, and gave, she says in her witness statement, ambiguous replies to her questions about his business. She therefore notified HMRC's National Registrations Section on 23 July 2008 and procured his deregistration with effect from the earlier date of 30 June 2008.

Mr Gayle appealed. It appears that he submitted two tranches of appeal forms. The first were dated 5 April, 22 April, and 20 February 2008. The second was dated 30 July 2008. The second dealt among other things with the cancellation of his VAT registration.

After the first set of appeals, Mr Gayle's case was reviewed by Mr Priest of HMRC's compliance unit. He wrote a long and careful letter to Mr Gayle, and started by explaining that he was unsure as to exactly what he wished to appeal against and what his grounds of appeal were. At the end of his letter he asked Mr Gayle whether he intended contesting four matters. Mr Gayle replied to that letter by circling two of those matters;

"2. Do you wish to dispute the fact that Ms Mort has disallowed the input tax you have claimed on VAT returns?

Do you wish to dispute the fact that Ms Mort has rejected your voluntary disclosures?"

Following his review Mr Priest also made some amendments to the way in which the various disallowances had been processed. In particular he made adjustments so that bad debt relief was given in the 03/08 return for the bounced cheques rather than in the 09/07 return.

In our judgement, this appeal is to be taken as an appeal by Mr Gayle in relation to the following issues:

(i) against his deregistration; and

(ii)against the disallowance of input tax (by whatever administrative instrument it was in the end effectively disallowed) in respect of (a) the £6902 and (b) the extra £548.

The relevant law

(a) input tax recovery

(i) the intended use of a supply

Input tax forming part of the purchase price of a supply received by a taxable person may be credited or deducted only if that person intends at the time of receipt of the supply to use the supply for the purposes of his business, see Lennartz v Finanzamt Munchen III [1995] STC 524 and for example Independent Thinking Ltd [2008] UK VAT 20084.

The test of the determination of the intention of the taxpayer is a subjective one: we are required to determine what was in the taxpayer's mind at the time of the supply to him, see Ian Flockton Developments Ltd v C&E Comms [1987] STC 394.

(ii) the possession of a VAT invoice

Regulation 29 of the VAT Regulations deals with claims for input tax: —

"(1) Subject to paragraph (2) below, and save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25(2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT became chargeable.

(2) At the time of claiming deduction of input tax in accordance with paragraph (1) above, a person shall, if the claim is in respect of—

(a)a supply from another taxable person, hold the document which is required to be provided under regulation 13[that is to say a VAT invoice complying with that regulation];

(b)a supply under section 8(1) of the Act, hold the relative invoice from the supplier;…

provided that where the Commissioners so direct, either generally or in relation to particular cases or classes of cases, a claimant shall hold, instead of the document or invoice (as the case may require) specified in sub-paragraph (a), (b), (c), (d), (e) or (f) above, such other documentary evidence of the charge to VAT as the Commissioners may direct."

It seems to us that the proper interpretation of para (2) is to treat it as a condition for the making of a claim rather than as a freestanding obligation imposed upon a taxpayer. Article 16 of the Sixth Directive (the Directive applicable at the relevant time) provides authority for that approach. We note that the tribunal in MS Vaughan [1996] VATDR 95 (VATD 14050 held that the requirement was that invoices be held at the time of making the claim rather than subsequently, although a Member State has the power to legislate so as to require production of an invoice -see Reisdorf 1997 STC 180

We note the words in the tailpiece of para (2) – that the Commissioners might direct "generally" or in relation to particular cases. We therefore considered whether the Statement of Practice issued by the Commissioners in July 2003 and updated in 2007 contained anything which might be a general direction for these purposes. Para 1 of that statement provides:"This Statement of Practice explains and clarifies the Commissioners' policy in respect of claims for input tax supported by invalid VAT invoices"

The notice explains what "valid " and invalid VAT invoices are, and indicates that the Commissioners have a discretion to allow input tax recovery in the absence of a valid invoice. Para 11 provides that:"As long as the claimant provides satisfactory answers to the questions in Appendix 2 and to any additional questions that may be asked, input tax deduction will we permitted" [our italics].

Appendix 2 sets out questions as to other evidence of supply, payment, use, the agreement for the supply, and the existence of any assets supplied.

HMRC submitted that this statement was "created in order to clarify what steps HMRC would expect taxpayers to take to establish the bona fides of suppliers in the area of goods subject to widespread fraud, before entering into deals" and that it was not a direction but an indication of standard checks the Commissioners would expect.

It seems to us that the first paragraph of the statement and its later provisions make it clear that it was addressing the conditions which would be applied when a trader held something which might be an invoice but which did not meet all the criteria for a VAT invoice. It did not address the case where no invoice of any description was held. The italicised words noted above indicated to us that this statement was an indication of the way in which HMRC would exercise its discretion rather than a direction which would take effect under regulation 29 so that a taxpayer who fell within its terms would have by virtue of that direction a right, rather than an expectation, to input tax credit.

Mr Manknell told us that there was, and we could find, no other publication which took effect as a general direction under regulation 29(2).

We conclude that if a taxpayer does not hold a valid VAT invoice satisfying the relevant requirements of the Act, he may be entitled to input tax deduction only if HMRC exercise the discretion vested in them by para 29(2). There are other conditions for credit which also need to be fulfilled.

That is not an end of the matter: as Scheimann J held in R(Kuhanzad) v C&E Comms [1994] STC 967, an appeal may be made against an exercise of that discretion, but on such an appeal the tribunal's function is to consider whether HMRC exercised its discretion unreasonably rather than to exercise its own discretion afresh.

(b) Deregistration.

A person is liable to be registered for VAT if, broadly, he makes taxable supplies over a threshold amount. (see para 1 Sch 1 VAT Act 1994). That amount was £60,000 per annum for 2006/7. Mr Gayle was not liable to be registered at any relevant time.

A person who is not liable to be registered, is entitled to be registered if he satisfies HMRC that he makes taxable supplies or "he is carrying on a business and intends to make taxable supplies in the course or furtherance of that business"( see para 9 Sch 1 VATA).

Para 13 Sch 1 VATA 1994 provides that the Commissioners may, if they "are satisfied that registered person has ceased to be registrable [ie liable or entitled to be registered]…cancel his registration from the date when he so ceased" to be registrable but may not do so unless they are satisfied that at that time he would be required or entitled to be registered (see para 13(2)(5) and (18) Sch 1 VATA).

Mr Gayle was registered for VAT. He may in his circumstances be deregisteerd only if he ceased to be entitled to be registered. That is to say that he ceased to be someone who was carrying on a business and who intended to make taxable supplies in the course or furtherance of that business.

Section 83 (a) VATA 1994 provides that an appeal lies against "the registration or cancellation of the registration of any person under this Act".

The question arises as to whether that tribunal's jurisdiction in relation to an appeal against deregistration is supervisory only – that is to say that we may allow the appeal only if we are satisfied that the Commissioners' decision was one which they could not reasonably have reached, or fully appellate – that is to say that we may allow the appeal if we are satisfied that the conditions about which HMRC are in para (2) required to be satisfied are not satisfied. In Anne Brookes [1994] V&DR 35 the tribunal held that the jurisdiction was supervisory only. That decision has been followed by other tribunals – see for example Gillamoor Ltd and Airdre Ltd VATD 20591. As Mr Manknell noted this was also common ground in Innova Inc (UK) 188989. We note that in Gray (t/a William Cory & Son ) v C&E Comms [2000] STC 880, Ferris J held that the language in para 1(3) of schedule 1 concerning registration, which used the words "if the Commissioners are satisfied " meant that a tribunal could only interfere with the decision of the Commissioners if it is shown that the decision is one which no reasonable body of Commissioners could reach (see para[19]). The same phraseology appears in para 13(2) which strongly suggests that the same approach should be followed; we note however that in Banbury Visionplus v R&C Comms 1997 STC Etherton J, considering the tribunal's jurisdiction in relation to special methods took an approach whose logic might suggest a different approach to the tribunal's jurisdiction in the case of para 13. We therefore consider the issue on both bases.

Discussion

(a) Cancellation of registration

The issue for our determination under this heading is whether the provisions of Schedule 1 VATA in relation to deregistration are satisfied. Those requirements turn on whether Mr Gayle had, at the date he was deregistered, ceased to be someone who was carrying on a business and who intended to make taxable supplies in the course or furtherance of that business.

We should note two matters at this stage.

First Mr Gayle told us that he objected to the withdrawal of his registration because it gave him security and the protection of the law. It protected him against losses and ensured his business was professional. We indicated to Mr Gayle that the VAT Act does not confer particular protection on those who have VAT registrations. Neither does any other part of our law confer protection against loss, or additional security on those who have VAT registrations which is not conferred on those without such a registration.

Second, Mr Gayle indicated to us that in July 2008 he intended to make money by selling photographs and materials. If everything had gone well he said that his expectation would have been that he may have earned about £20,000 in the following year. But he had not received the income he had expected from HMRC in the form of the quarterly VAT repayments, and he had not really been able to settle down to do it. He was still he said trying to clear up loose ends. The situation was the same, he said, at the date of the hearing on 16 December 2008.

Mr Gayle was deregistered from 30 June 2008.

Mr Gayle's only declared supply while he was registered was that of the tee shirts in the 09/07 period. Since then he had made no supplies. There was no indication that he had made supplies of photography or of his musical services. He told us that as at July 2008 he intended to make money by selling photographs and materials. He said however that he had not really been able to settle down and was still trying to clear up loose ends. He did not indicate that he had earned any money working as a self-employed musician, or that he intended so to do.

In C&E Comms v Lord Fischer [1981] STC 238 Gibson J provided some indicia of whether or not activities constituted a business. We test Mr Gayle's activities against those indicia.

Was Mr Gayle's activity a serious undertaking earnestly pursued? We do not think that it was. Mr Gayle no doubt wanted to trade, but there was no evidence before us that he was seriously pursuing that aspiration, or that there was anything which could be called a serious undertaking; our impression was that Mr Gayle was not organised to conduct a serious business: as he said, he lacked focus.

Was the activity something which is pursued with any reasonable or recognisable continuity? There was one supply, of tee shirts; Mr Gayle's aspiration related to photographs and materials but he had sold no photographs or anything else, nor was there any evidence that he had taken any actions in pursuit of his intended activity. There was nothing suggestive of continuity of endeavour. There was no indication that he had attempted to make or made supplies of musical services as a self-employed person.

Did the activity have a measure of substance? Mr Gayle's first sale was not insubstantial, but there had been no other sale since then. There was no indication of any continuing substance to Mr Gayle's commercial activity other than that he had rented office accommodation and bought furniture and fittings. But whilst those might equip him to do business there was no evidence that anything had been done with them to pursue a substantive activity.

Was the activity conducted in a regular manner on sound and recognisable business principles? Mr Gayle explained his various purchases and his hopes that he might put some of them to use in a business, but his approach seemed to us confused and almost wholly uncommercial to us: there was no evidence that he had identified clearly what he wanted to sell or provide, or to whom he intended to sell it, he was not purchasing goods with any clear commercial end in sight but acquiring things he hoped to be able to use once he had identified his business.

Was the activity predominantly concerned with making supplies for consideration? This criterion did seem partially satisfied: Mr Gayle had sold something and hoped to make other supplies. Were those supplies the kind commonly made by those who seek to profit? This too seemed to be the case.

Putting these together the factors which suggested that Mr Gayle was not, on the date he was deregistered, conducting a business, outweighed those suggesting the contrary.

We conclude that on the evidence before us we would be satisfied that Mr Gayle was not on 30 June 2008 registrable, or subject to a requirement or an entitlement to be registered under the Act , and accordingly that if our jurisdiction in relation to this issue is a full appellate jurisdiction we would dismiss this part of the appeal.

We now turn to consider whether the decision to deregister Mr Gayle was one which could reasonably have been taken by HMRC at the relevant time. The decision was taken by Mrs Adatia on 23 July 2008. As we noted above Mrs Adatia met Mr Gayle on that day. She was accompanied by another officer. They asked him about his trading activities. Mrs Adatia's visit report indicated that Mr Gayle referred to what was known by another officer Mrs Mort, but also indicated that his activities were photography, printing, music and entertainment, tee shirts and graphics. When asked about his customers the report notes Mr Gayle as saying that he was on Jobseekers' Allowance and had lost his focus after June 2007. Mrs Adatia described his replies as ambiguous; we tend, for reasons described below, to think that they were confused.

Mr Gayle had had previous correspondence with HMRC and Mrs Mort. In a letter of 30 June 2008 Mr Gayle explained that he started his self employed career on 25 March 2003. He explains that while he was awaiting rehousing his possessions were stolen and that this set back his business. He says he is a musician and vocalist, and does various work. He says:

"During this time I have worked very hard to rebuild my business that was ruined by no fault of my own….I have Decided …[to] use my business to help only those who have learning difficulties…needs in society but cannot help themselves due to lack of funds, disability, emotional stress, Religious problems, some who cannot afford the price to sing – I will be offering these persons a chance to work with my company to enable them to gain experience and while they work they can use the time spent to pay for their job plan. We have improved our company since the last break down, we are now printing T.shirts, we use a server to communicate by telephone, we will also be using photography for magazine issues…we are to introduce a new job concerning work agenda that will help you pay for your weddings…"

We found Mr Gayle to be confused about the VAT system: at one stage he indicated that he thought that the purpose of registering with HMRC was so that he could receive payments from them to finance the employment of other people. In fact that is not the purpose of HMRC. It seems likely to us that Mr Gayle's confusion encompassed a lack of a clear business aim (as reflected to some extent in the passage quoted above), and that these aspects were apparent to Mrs Adatia at her meeting with him. We therefore find that it was reasonable for Mrs Adatia to conclude, on the basis of Mr Gayle's admission of his lack of focus and his confused attitude to his activity, that he was not pursuing a business, and accordingly to be satisfied as is mentioned in para 13(2).

We therefore conclude that in relation to the deregistration question Mr Gayle's appeal should be dismissed: if our jurisdiction is supervisory we conclude that HMRC used their discretion "reasonably", and if our jurisdiction is fully appellate that we would have reached the same conclusion on the evidence before us.

(b)The Input tax claim.

(i) the £6902

Mr Gayle explained to us that the £6902 he was claiming in input tax derived from purchases he had made privately. He had not originally intended the items to be used for his business. Later they became a great support. Effectively he appropriated them to his business. Since they had been bought privately, and not "on the counter", he had little documentation for their purchase, although at least some of them had been bought from traders in the course of their businesses. He said that he had been charged VAT on the purchases.

At the end of the hearing we made a direction that Mr Gayle should set out each purchase whose VAT makes up the £6902, provide what evidence he has of such purchases, and indicate how the purchase was used or to be used in his business.

Mr Gayle responded to this direction with a schedule listing the items or categories of items which had been purchased and indicating in round figures (generally thousands of pounds) the value of each category. He explained how the items were used by him. The following extracts give an impression of his responses:

"(1)firstly I use Guerlain cosmetics for make up and for other needs in beauty fashion meaning I can provide all needs in facial and beauty cosmetics = this is valued at (5,000) pounds)"

"(8)I use a sony projector with a value of (1000) pounds to show videos with a screen"

Mr Gayle used 16 categories. Of these one was cosmetics, seven related to photography or printing, six related to sound or music production, and the remaining two were a generator and computer software. He provided no invoice or other documentation relating to the existence, use or purchase of the equipment.

It seems to us that Mr Gayle's statement that he had not originally intended these items for his business suggests that the input VAT would not be allowable on the principles set out at para 5 above. However we are unwilling to take that statement wholly literally: Mr Gayle had a melodious voice, he may well have intended to provide music as a business (rather than as an employee) and it is not inconceivable that many of the items listed could be used or intended to be used in such a business.

However, the absence of any evidence that Mr Gayle had at the time of his claim any invoices means that the input VAT claimed of £6902 is not creditable unless HMRC exercise a discretion to allow it. HMRC have declined to exercise that discretion. Is that decision one which no reasonable body could have made? In our view it is not: the absence of VAT invoices was not made good by any evidence other than Mr Gayle's assertions and the petty cash book slips referred to above . In the circumstances it is in our view reasonable to consider that there was no adequate indication that the items were supplied by a supplier who was registrable for VAT in respect of that supply.

We therefore conclude that Mr Gayle is not entitled to the £6902 input tax claimed.

(ii) The £548

So far as the £548 was concerned the invoices for this amount (or part of it) had been photocopied and sent to HMRC. Copies of those invoices were in the bundle before us. But HMRC wrote on 8 July 2008 to Mr Gayle rejecting his claim. That letter assumed that the invoices were intended to back a claim to £7450, rather than £548 but rejected the claim on a number of grounds including concerns about restaurant expenses, the inability to determine what an invoice was for because of its photocopying, and uncertainty as to the business purpose of the expense. These grounds did not include, nor did Mr Manknell assert before us, that the supplies received were not intended to be used in the making of taxable supplies by Mr Gayle.

At the end of the hearing we therefore directed that Mr Gayle should produce a schedule which would indicate in relation to each invoice, what the item was, who supplied it, when, what was the VAT on it, what paperwork was available, and what it was used or to be used for.

The copy invoices indicated supplies to Mr Gayle of some £3350, on which, had they all been VATable supplies the VAT would have been about £540 – close to the VAT at issue. However £1360 or so related to rent charges which had been exempt supplies.

Mr Gayle provided the tribunal with a schedule in response to this direction and HMRC provided their comments thereon. Mr Gayle listed the invoices under 14 headings:

(i) three headings related to items purchased in connection with music making: a guitar, sound equipment and a stereo ( and also a keyboard for which there was an invoice which was not a VAT invoice). Although Mr Gayle mentioned his musical activities we had no indication that he provided music as a business. However HMRC indicated that they were satisified that the input tax in relation to these items was creditable. We therefore treated these items as not being in contention in the appeal and the input VAT as allowable.. The attributable VAT was £94.12.

(ii) two headings related to rent on his premises. These supplies were exempt . There would be no input tax on them. There is no VAT to credit.

(iii)one heading related to a tripod and a screen. Mr Gayle did not explain directly how these would be used in making supplies but it seemed clear to us that they could be used to take and exhibit the photographs, and that the provision of photographs was part of his intended business (there being no contention by HMRC that he was not at the time of their acquisition not conducting a business. The input VAT (of £26.80)on these items therefore seems to us to be allowable.

(iv) one related to food production equipment. We could not see how this would be used in the making of the supplies by Mr Gayle of photos, printing or even music: we believe that it was more likely that they were to be sued to sustain Mr Gayle than his business.

(v) five related to the provision of equipment for his office (fax machine, message board, filing cabinet, office chairs, a door lock). It seems to us that these would be used in whatever business Mr Gayle was conducting, and the input VAT( of £98.46) would therefore be allowable.

(vi)two related to food and cabs. Mr Gayle says that the food was food he was eating when he was working. We find that the supply of food was not used by Mr Gayle for the making of taxable supplies, but for his own sustenance. There was no evidence that VAT had been charged on the cab fares.

We conclude that the input VAT under headings (iii) and (v) is creditable. This amounted to £125.26. Together with the input tax noted in heading (i) this means that the total input tax creditable is £219.38. We allow the appeal to that extent only.

We found Mr Gayle confused but well intentioned. We hope that in due course he will be able to sort out his ideas, seize on a profitable venture and become a payer of VAT to HMRC.

CHARLES HELLIER

CHAIRMAN

RELEASE DATE: 20 March 2009

LON/2008/1012 and 1678