[2009] UKFTT 230 (TC)

                                                        

	                                                            	TC00180
Appeal number LON/07/0800

Repayment Supplement: section 79 VATA - whether a written instruction to make payment was issued by the Commissioners within the relevant period: meaning of “issued”, burden of proof – whether an instruction issued to pay to the Appellant at a closed bank account was an instruction to make payment within the section. Appeal dismissed. 

FIRST TIER TRIBUNAL 
TAX

Appellant

BEAST IN THE HEART FILMS (UK) LIMITED

         - and -

Respondents

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (VAT)	

		        Tribunal:CHARLES HELLIER (Tribunal Judge)

Sitting in public in Cardiff on 28 April 2009

Mr T Potter, director of the Appellant, for the Appellant 

Richard Smith instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION 
Introduction
1.	The Appellant appeals against the Commissioners’ refusal to make a repayment  supplement under section 79 VATA 1984. A supplement may be due if the Commissioners are slow in making repaymant of VAT. 
2.	In the Appellant’s circumstances, such a  supplement was payable only if the period from the receipt by HMRC of the Appellant’s return for the relevant period until the date that “ a written instruction directing the making of the payment or refund [was]…issued by the Commissioners” was greater than 30 days (after ignoring time spent dealing with reasonable queries) . 
3.	The Appellant made a VAT reclaim in April 2006 which was paid to it in July 2006. The sole issue debated before me at the hearing was the determination of the date on which such a written instruction had been issued. The hearing proceeded on the basis that a supplement was payable only if that date was after 4 July 2006. I deal with a later argument on, and detail of, the timing in the final section of this decision. 
4.	The Appellant said that the date was 31 July 2006, when a payable order was sent to it by the Commissioners, and therefore that a supplement was payable; the Respondents said that it was 27 June 2006, when inter alia a form of instruction was signed by one of its officers and sent to another officer, and therefore that no supplement was payable.
5.	This issue gave rise to three questions: 
(i)  what was the meaning of “issued” in this context: in particular could a document sent by one HMRC officer to another be the “issue” of such an instruction;
(ii)  on whom did the burden of proof in relation to the facts fall?
(iii) on the evidence, and in the light of the answers to the preceding questions, what was the relevant date?

The Hearing and Thereafter
6.	Following the hearing I concluded, for the reasons set out below, that the form of instruction referred to in paragraph 4 above was not a “written instruction…issued by the Commissioners”. I recorded the evidence I had received and my initial conclusions in an Interim Decision and directed that the Respondents have leave to adduce further evidence of what happened after that form was signed. The Respondents provided further evidence and I directed that the Appellant have an opportunity to make submissions in relation to it. The Respondents sought to adduce further evidence in relation to this issue and the Appellant’s comments were sought thereon. I decided to admit the further evidence. This decision takes into account the later evidence, but first I set out the position following the hearing and then consider the later evidence.  The Appelant provided further submissions dated 24 July 2009. these raised an issue in relation to the counting of the days: I address that issue in the final section of this decision.
The Statutory provisions
7.	Section 79 VATA 1994 provides so far as relevant (I have highlighted the phrases particularly at issue in this appeal) : 
“(1) In any case where– 
(a) a person is entitled to a VAT credit, or 
(b) ….
and the conditions mentioned in subsection (2) below are satisfied, the amount which, apart from this section, would be due by way of that payment or refund shall be increased by the addition of a supplement equal to 5 per cent. of that amount or £50, whichever is the greater.
(2) The said conditions are– 
(a) that the requisite return or claim is received by the Commissioners not later than the last day on which it is required to be furnished or made, and 
(b) that a written instruction directing the making of the payment or refund is not issued by the Commissioners within the relevant period, and 
(c) that the amount shown on that return or claim as due by way of payment or refund does not exceed the payment or refund which was in fact due by more than 5 per cent. of that payment or refund or £250, whichever is the greater. 
(2A) The relevant period in relation to a return or claim is the period of 30 days beginning with the later of— 
(a)the day after the last day of the prescribed accounting period to which the return or claim relates, and
(b)the date of the receipt by the Commissioners of the return or claim.

(3) Regulations may provide that, in computing the period of 30 days referred to in subsection (2A) above, there shall be left out of account periods determined in accordance with the regulations and referable to– 
(a) the raising and answering of any reasonable inquiry relating to the requisite return or claim, 
(b) the correction by the Commissioners of any errors or omissions in that return or claim, and 
(c) in the case of a payment, the following matters… 
(4) In determining for the purposes of regulations under subsection (3) above whether any period is referable to the raising and answering of such an inquiry as is mentioned in that subsection, there shall be taken to be so referable any period which– 
(a) begins with the date on which the Commissioners first consider it necessary to make such an inquiry, and 
(b) ends with the date on which the Commissioners– 
(i) satisfy themselves that they have received a complete answer to the inquiry, or 
(ii) determine not to make the inquiry or, if they have made it, not to pursue it further, 
but excluding so much of that period as may be prescribed; and it is immaterial whether any inquiry is in fact made or whether it is or might have been made of the person or body making the requisite return or claim or of an authorised person or of some other person.
(5) …
(6) In this section "requisite return or claim" means– 
(a) in relation to a payment, the return for the prescribed accounting period concerned which is required to be furnished in accordance with regulations under this Act, and 
(b) in relation to a refund, the claim for that refund which is required to be made in accordance with the Commissioners' determination under section 33. 
(7) If the Treasury by order so direct, any period specified in the order shall be disregarded for the purpose of calculating the period of 30 days referred to in subsection (2A) above.”

8.	The Value Added Tax Regulations 1995 provide:
“Computation of period

198.    In computing the period of 30 days referred to in section 79(2)(b) of the Act, periods referable to the following matters shall be left out of account— 
 (a) the raising and answering of any reasonable inquiry relating to the requisite return or claim,
 (b) the correction by the Commissioners of any errors or omissions in that requisite return or claim, and
 (c) in any case to which section 79(1)(a) of the Act applies, the following matters, namely— 
 (i) any such continuing failure to submit returns as is referred to in section 25(5) of the Act, and
 (ii) compliance with any such condition as is referred to in paragraph 4(1) of Schedule 11 to the Act.

“Duration of period

 199.    For the purpose of determining the duration of the periods referred to in regulation 198, the following rules shall apply— 
 (a) in the case of the period mentioned in regulation 198(a), it shall be taken to have begun on the date when the Commissioners first raised the inquiry and it shall be taken to have ended on the date when they received a complete answer to their inquiry;
 (b) in the case of the period mentioned in regulation 198(b), it shall be taken to have begun on the date when the error or omission first came to the notice of the Commissioners and it shall be taken to have ended on the date when the error or omission was corrected by them;…”

The Evidence and the Facts
9.	At the hearing I had before me witness statement from Helen Carus-McDonald, Ian McGinnigle, Graham Sheldon and Ann Reading, all of whom were HMRC officers. Miss Reading was the officer who had been involved in examining that Appellant’s repayment claim. None of the statements had been objected to. There was also a bundle of correspondence and other documents. I heard oral evidence from Mr Potter and from Karen Murphy who had been responsible for some of the administration of the Appellant. I deal with the additional evidence adduced by the Respondents later. I find the following facts by way of background. There was no dispute about them
(1)	The Appellant’s business was the making of a film. The production of the film was completed by April 2006.
(2)	On 25 April the Commissioners received a VAT return in which the Appellant claimed repayment of £117,340.97. Miss Reading wrote to the Appellant on the day the return was received requesting various documents to assist in the verification of the return.
(3)	The Appellant replied to that letter on 11 May 2006. A hard copy of that reply was received by the Respondents on 15 May 2006 (although an electronic copy was received earlier). On 31 May (which is 17 days after 15 May if one counts both 15 May and 31 May)  Miss Reading wrote again to the Appellant setting out her concerns with the information and documents provided, and explaining that the Commissioners were considering disallowing the Appellant’s claim. 
(4)	An appointment was made for Miss Reading to visit the Appellant on 8 June 2006. That appointment was postponed, at the Appellant’s request, to 20 June. On that day Miss Reading visited the Appellant and satisfied herself that the claim should be paid. 
(5)	On 26 June 2006 Miss Reading made, electronically, a recommendation for the repayment to be made. That recommendation was electronically approved by a senior officer, Mr Sheldon,  who forwarded the approved recommendation to the Credibility team in Liverpool at about 4pm on 26 April.  

10.	Mr Smith indicated that the Respondents accepted that the delay of 17 days referred to at (3) above was unreasonable and should count against them. In my view that was a somewhat generous concession. The issues raised in Miss Reading’s letter were complex and it would not have been reasonable to expect the Respondents to “raise” their inquiry – to consider the documentation, and articulate and explain their concerns by return of post. It was not unreasonable to take a day in raising the inquiry. I do not however consider that it is open to me to upset the Respondents’ concession since the facts were not debated before me.
11.	Thus far no argument before me at the hearing turned on the specific facts. There had been a delay of 63 days between the receipt of the claim (25 April) and Mr Sheldon’s action (26 June), of which at the hearing it was not disputed  that 40 days had been spent on dealing with reasonable queries so that the “net” delay was at that stage 23 days. 
12.	I now turn to the period after 26 June 2005. Here I must discuss the evidence and the conclusions I draw from it. 
13.	Mr Smith showed me copies of three forms. The first was a Prepayment Credibility Report dated 3 May 2006 which had separately been generated by the Commissioners’ Credibility team, and which inhibited the payment of the claim. This bore a reference number 20693.
14.	The second was a copy of a form entitled “Repayment Authority”. The form plainly originally had 10 or more single line entries on it of which 9 had been redacted. It was not clear whether anything else had been redacted.  The remaining entry bore the Appellant’s VAT number, the period in respect of which the repayment was sought, the dates “24/4” and “26/6” (which reflect the date of the receipt of the VAT return and the date of Mr Sheldon’s action), the reference 20963 from the Credibility report, and an unexplained number.  The form was signed by Mr Manson and stamped 27 June 2006. It seemed likely to me that this form authorised the making of the repayment to the Appellant of its claim for £117k odd.
15.	The third was a form headed “Instruction to Make VAT Repayments”. I call this the “Instruction form”. This form had been faxed on 27 June 2006 by the Liverpool Authorising Officer in the Credibility team to the VAT shift leader at the Commissioners’ Shoebury Computer Complex, and faxed back on the same day confirming receipt. The Credibility Team Authoring Officer had signed under the following legend:
“In accordance with section 79(2)(b) of the VAT Act 1994, you are hereby directed to make payment of all sums due under section 25(3) of that Act, and of all refunds due under section 33 or 33A of that Act which are authorised by the computer processing system scheduled for 27 June 2006. ”R” Date for run is 27th June 2006”
16.	There was nothing else on this Instruction form to link it to the Repayment Authority, but I think that it is likely that the earlier form gave rise to a computer input and the recording of its contents on the computer system, so that at some time the entries on the Repayment Authority form would become “scheduled for” particular dates and thus payment of them would have been directed by the Instruction form. That left the question of whether the payment which appeared to me to be authorised to be made to the Appellant on the Repayment Authority form was “scheduled” for payment on 27 June 2006 rather than on some other day. Mr Smith told me that he was instructed to say that it was scheduled for payment on 27 June. 
17.	Given that for the reasons I set out below the burden of proof in this matter must be on the Respondents I ask myself, assuming at this stage that the answer is relevant, whether the Respondents have provided evidence sufficient to enable me to conclude that the payment due to the Appellant was indeed directed to be paid by the Instruction Form. The only other evidence before me at the hearing was
 (i)a statement in Helen Carus-McDonald’s statement that Mr Manson had “arranged the necessary documentation forms to be input and repayment…was authorised to the trader’s Bank Account on the same date”. Helen Carus-McDonald does not state how she knew this and she was not part of the Credibility Team or the Shoebury Team. I was therefore unwilling to place much weight on that evidence; and 
(ii) a statement in Mr McGinningle’s witness statement that “repayment documents were input on 27 June 2006 by Credibility to release the claim to the Appellant via payable order”. That statement  is seemingly at odds with that of Helen Carus-McDonald. 
However, taking into account the later evidence provided by the Respondents, I find that it is likely that the Instruction form of 27 June 2005 directed that payment be made to the Appellant.
18.	That of course is not an end of the matter. The question is whether (or when) a written instruction was “issued” by the Commissioners. I now turn to the circumstances surrounding the eventual receipt of the repayment by the Appellant. 
19.	Mr Potter showed me a remittance advice from the Commissioners dated 31 July 2006 – some 34 days after the date of the Instruction form.  I accept that a payable order repaying the VAT due to the Appellant had been sent with that advice and find that it is likely that it had been created on the same date. The order, I find, was banked by the Appellant on about 7 August.
20.	The only other relevant document before me at the hearing to which I should refer was an email dated 7 July 2006 (7days after the Instruction form)  from Kimberley Murphy to the Commissioners setting out the “current bank account details” of the Appellant. Miss Murphy said that this email was possibly sent in response to a telephone enquiry from the Respondents.  I was told by Mr Potter and Miss Murphy, and I accept, that the Appellant had operated two bank accounts. In the production phase of its activity (which finished before 5 April 2005) one account (the Production Account) was used, and that this would have been closed at some stage. Neither Mr Potter nor Miss Murphy could say when it was closed. The other bank account was that whose details Miss Murphy had notified to the Commissioners on 7 July, and I believe was that mainly used after the end of the production phase. VAT repayments had been made to the Appellant in respect of periods before that to which this appeal relates. I find it likely that they were made to the Production Account.
The Parties’ contentions at the hearing
21.	Mr Potter said that:
(1)	Section 79(2)(b) requires an instruction to pay a specified amount to a specified person. The Instruction form did not satisfy that test.
(2)	Even if the Instruction form were an instruction directing the payment it had not been “issued” by the Commissioners. “Issued”, he says connotes something more than one arm of the Commissioners asking another to do something: it must involve a third party who is directed to make a payment.
(3)	There was no evidence that payment had in fact been made as a result of the Instruction form; it should not be assumed that it had.
(4)	It was clear that payment had been instructed on 31 July when the payable order had been issued. There may have been some other instruction which gave rise to that order. It had not been produced by the Commissioners. But on what was available to the tribunal, the most likely relevant instruction issued by the Commissioners was that incorporated in  the 31 July payable order. 
(5)	The only evidence of an instruction “issued” by the Commissioners was thus something done on 31 July. Thus the period of delay exceeded 30 days and a repayment supplement was due.
22.	Mr Smith said that :
(1)	The Instruction form was  “a written instruction directing the making of the payment …issued by the Commissioners”.
(2)	It was issued on 27 June.
(3)	The period of delay is thus 24 days and no supplement is due.
(4)	Although the payable order and the remittance advice were not  produced until 31 July, that payment was likely to have been made in accordance with the Instruction of 27 June. On the evidence it was likely that that Instruction led to an attempt to make payment to the Production Bank account of the Appellant which must by then have been closed, and after some confusion (including the 7 July email information about the other bank account) the result of the Instruction form must have been the provision of the payable order. 

Discussion
23.	The date on which the Appellant received the payable order is not relevant save to the extent that it may be evidence of when the relevant instruction was issued by the Commissioners. 
(i) the meaning of “issued”
24.	It is clear to me that for a written instruction directing payment to be issued by the Commissioners some act is required by which the instruction goes forth from the Commissioners: something which happens between officers of the Commissioners is not enough. 
25.	The section is intended to provide a spur to the Commissioners to get on with making proper repayments (see Auld J C&E Comms v Rowland [1992] STC 647 at 655: “a provision designed to achieve prompt repayment by the Commissioners of overpaid tax and a ready marker of failure to do so”). To construe “issued” as encompassing an internal communication which would not necessarily result in payment would be contrary to that intention and deprive “issued” of meaning. If the Commissioners merely wrote out a cheque (a direction by one person to another to pay a sum of money) and put it in a bottom drawer, that should not be treated as the issue of instructions to pay. 
26.	I therefore conclude that the Instruction form of 27 June 2006 was not “issued” by the Commissioners. The Instruction form was I believe intended by its language to be something in writing which directed payment, but its language cannot make it something which is issued by the Commissioners if it has not been issued. 
(ii) the burden of proof
27.	It seems clear to me, as Mr Smith accepted, that the burden of proving whether and when an instruction directing payment was issued must lie on the Commissioners. They are the only persons in possession of the relevant information. Even if I were wrong about this, on the facts of this case, the production by the Appellant of the dated remittance advice and payable order raise a case (which would need to be rebutted by the Commissioners) that the date the instruction was issued was 31 July 2006.  
(iii) when, on the evidence was the instruction to pay issued?
28.	My conclusion that the Instruction form was not the issue of written instruction directing payment is not the end of the matter. I have concluded above that the Instruction was an instruction directing the making of the repayment to the Appellant but that it was an instruction by one arm of the Commissioners to another and thus was not “issued”. 
The Additional Evidence
29.	The additional evidence provided by the Respondents consisted of: 
(1)	A fax from the Appellant dated 11 February 2005 giving details of the Barclays Bank branch and account number for the Production Account;
(2)	A BACS trace information print indicating the processing of a payment of £117,340.97 by HMRC to that Barclays Bank account for the Appellant on 29 June 2006;
(3)	An advice from Barclays bank dated 30 June 2006 indicating that a direct credit of £117,340.97 had been received for the credit of the Appellant at that bank account , but that the credit could not be applied because the account had been closed;
(4)	A cheque from Barclays bank to the Bank of England dated 30 June 2006  for £117,340.97.
30.	From this evidence I conclude that the Instruction Form resulted in the giving  of an instruction to the Respondents’ bankers on or before 29 June 2006 to make payment to Barclays Bank for the credit of the Appellant at its Production Bank account . (The Appellants later submissions confirmed that the account was its Production Bank account)
31.	Section 79(2)(b) does not speak of a document being created; it merely requires a written instruction - rather than an instruction given orally or by conduct. A written instruction may be given in a number of ways. In my judgement a written instruction could be given to a bank to make such a payment by the sending of an email, or by the transmission of data encoded (written) in an electronic tape, or by some other form of internet or computer assisted communication. So long as it involves the transmission of symbols conveying a message it will, in my view, be written for these purposes, and so long as its import (either in its content or as a result of its circumstances) contains an adequate direction to pay, it will be a written instruction within section 79(2). A more limited construction is not required by the purpose of the section.
32.	It seems to me to be very likely that the instruction that I conclude in paragraph 32 above was given, was a written instruction for the purposes of the section and that it was given to the Respondents’ bankers. I thus conclude that a written instruction to make payment was issued by the Commissioners  on or before  29 June 2006. 
33.	Was that instruction one “directing the making of the payment” within section 79(2)(b)? Does it matter that the instruction had been issued to make payment to a bank account which had been closed?
34.	There seemed to me to be two aspects of the statutory words which were relevant in this context. First, the section imposes an objective test. The issue is whether payment to the taxpayer is directed, not whether the Commissioners thought or intended such payment. Second, the “payment” with which section 79(2)(b) is concerned is the payment of the VAT credit referred to in section 25(3), and  that is an amount payable to a taxpayer. Thus the “payment” must mean a payment to or for the benefit of the taxpayer. 
35.	The evidence referred to in paragraph 29 above clearly indicated that the payment directed was for the benefit of the Appellant. This was not the case of a direction to pay X but to pay Y’s bank account; it was a direction to pay the Appellant at a bank account which had been closed. That seems to me to be a direction to pay the Appellant for the purposes of the section.
I conclude that a written instruction to make payment was issued by the Commissioners on or before 29 June 2006. 
Timing: Counting the days
36.	At the hearing we all worked on the basis of a helpful chronology provided by Mr Smith which set out in tabular form the main events, their dates, and the total number of elapsed days divided into days spent answering inquiries and Net days of unexcused delay (ie the delay after deducting time spent on inquiries). That schedule was the basis for the date of 4 July 2009 in paragraph 3 at the start of this decision.
37.	In its later submissions the Appellant provided a revised table suggesting an unexcused delay of 31 days if the relevant instruction was issued on 29 June 2009.  That calculation was made on the basis that there had been, in addition to the admitted unexcused delay of 17 days between 15 May and 31 May, been a further delay of 4 days because the letter received in hard copy on 15 May had been sent by fax and by post and thus had been received on 11 May. 
38.	On closer examination of the parties tabulations I noted:
(1)	The Respondents’ table appeared to overstate the delay between 15 May and 31 May because that number included both days, and 31 May had been spent writing an inquiry letter to the Appellant. The delay is 16 rather than 17 days. This mistake also gave rise to an arithmetical inconsistency if one cross cast the Respondents’ table against the date 31/15/06 which disappeared thereafter. 
(2)	The Appellant’s table treated the period between 20/06/2006 and 29/06/2006 as being 9 days for the purpose of its Total number of days column but 10 days for the purpose of it Net Days (unexcused delay days) column. 10 days seemed to me to double count 20 June.

39.	I resolve the issues thus. 
40.	On the basis that the Commissioners issued their instruction on 29 June 2006, the period between the receipt of the return and that issue of the instruction to pay was 66 days (including as the statute requires) both of those days).  
41.	The unexcused days were at most:
(1)	4 days between 11 May and 14 May relating to the fax;
(2)	 17 days, 15 May to 31 May inclusive accepted by HMRC;
(3)	9 days, from 21 to 29 June , being the days after (and therefore excluding)  20 June on which  Miss Reading had become satisfied, up to and including 29 June. 
42.	Thus taking each variable to be fixed in a manner against HMRC, the unexcused delay is 30 days.
43.	The days spent in inquiries were at least:
(1)	1 day: namely 25 April;
(2)	15 days: from 26 April to 10 May inclusive, awaiting the Appellant’s reply;
(3)	20 days: from 1 June to 20 June inclusive(by section 79(4) the inquiry period clearly includes the day on which Miss Reading became satisfied that a complete answer to the inquiry had been received).
44.	That is a total of 36 days. (Making together with the 30 a total of 66 days).
45.	Thus the “relevant period” for the purposes of section 79(2A) begins on 25 April 2006 when the return was received, and continues for 30 days plus (the effect of the “leaving out of account language in section 79(3) is clearly effectively to add the inquiry days) the days spent on enquiries, namely  at least 36 days. That takes us to 29 June 2006 at the earliest. That is the last day by which an instruction was given. Thus the  instruction was issued in the relevant period.

Conclusion
46.	I dismiss the appeal. 
47.	The appeal was decided mainly on the additional evidence adduced by the Respondents after the hearing. It seemed to me that had the matter fallen to be decided on what was available at the hearing, the Respondents would not have discharged the burden of proof. In these circumstances I direct that the Respondents shall pay £100 towards the Appellant’s costs. 

CHARLES HELLIER
TRIBUNAL JUDGE
RELEASE DATE: 7 September 2009