[2009] UKFTT 310 (TC)

	TC00254

		                                                  Appeal number: MAN/2008/0183			

VAT – Notice of Assessment – Appellant contractor – underdeclaration of output tax revealed upon investigation - Notice of Assessment – taxpayer claims use of sub-contractors to whom payments made – payments in cash – invoices produced – irregularities in form - absence of receipts – absence of other proofs of payment – Appellant claims entitlement to input tax – Whether or not assessment made to best judgment –Value Added Tax Act 1994 s 24[6] – VAT Regulations 1995 Regs 13, 14[1] and 29[2] – appeal dismissed

                                                       JOHN SLOAN 	                              Appellant                             

           -and –
THE COMMISSIONERS FOR HER MAJESTY’S
                                                REVENUE & CUSTOMS                        Respondents

Tribunal:      Alistair F W Devlin (Chairman)

Sitting in public in Belfast on 26th June 2009

Mr Joe Quinn of J. Quinn & Co., Accountants, for the Appellant

Mr Shields on the instructions of the Solicitor to H.M. Revenue and                                    Customs for the Respondents

                                          

  © CROWN COPYRIGHT 2009

                                                                  DECISION

Introduction

1. This is an appeal brought by John Sloan [“the Appellant”] against a decision taken to assess the Appellant for Value Added Tax [‘VAT’] in the sum of £127,241.00 for the periods June 2006 to 28 February 2007.

Factual background

2. The Appellant carries on in business as a provider of building contractors from premises at 50, Glenalina Park, Belfast. The Appellant has been registered for VAT as a sole proprietor with effect from 1st June 2006.

3. The Respondents identified that supplies made by the Appellant to three companies namely Abbey Flooring, Thornton Roofing and Hagan Brothers had not been declared by the Appellant on the relevant VAT returns. The Respondents then visited the three companies in question, and extracted details of all payments made by them to the Appellant. The Respondents established that all of the supplies in question had been standard rated, and also that all of the payments made had been made by cheque.

4. The Respondents then proceeded to compare details of the payments made to the Appellant by the three companies concerned with the declarations made by the Appellant on his VAT returns. This analysis covered each of the following periods: 08/06, 11/06, and 02/07. This analysis suggested that there had been an underdeclaration of output VAT by the Appellant in the total sum of £127,241.00.

5. The Respondents then wrote to the Appellant by letter dated 10 August 2007 requesting that he attend a meeting at Custom House Square, Belfast on 30 August 2007 and bring with him his purchase and sales ledgers, purchases and sales invoices, bank statements together with any annual accounts he hay have had prepared. The Appellant’s representative, Mr Quinn, contacted the Respondents, and requested a period of four weeks within which to bring the Appellant’s VAT records up to date.

6.  A meeting then took place on 26 September 2007 at which Mr Quinn attended on behalf of the Appellant. At the meeting, the Respondents for their part presented the figures and calculations which had resulted in the apparent underdeclaration in the sum of £127,241.00 having been arrived at. Also art the meeting Mr Quinn provided the Respondents with copies of invoices from two traders, namely Star Building and Maintenance Limited [“Star Building”] and MD Contracts. The Respondents advised Mr Quinn at the meeting that these two traders were missing traders, and also made it clear that proof of payments to the two traders concerned would be required.

7. On 26 September 2007, by means of veto letters, the Respondents informed the Appellant that Star Building had been deregistered with effect as and from 27 February 2007, and that any input tax claimed in relation to transactions involving this company which purported to have taken place after this deregistration date might fall to be verified. The Respondents also by a similar letter of the same date informed the Appellant that MD Contracts had been deregistered with effect as and from 24 April 2007, and that any input tax claimed in relation to transactions involving this company which purported to have taken place after this deregistration date might fall to be verified.

8. By letter dated 28 September 2007 the Respondents wrote to the Appellant’s representative and informed him that an assessment would be made in respect of the Appellant in the sum of £127,241.00.

9. Under cover of a letter dated 28 September 2007 the Appellant’s representative sent to the Respondents revised VAT returns for 08/06, 11/06, 02/07 together with a return for the period 05/07. In that letter, received by the Respondents on 1st October 2007, Mr Quinn indicated that he wished to make the following points, namely that the Respondents CIS had verified MD Contracts up to 5 September 2007, that in 2006 two Customs officers were aware that MD Contracts had a valid CIS6 card, that on 6th September 2007 a copy MD Contracts invoice was faxed to Custom House and Customs were aware that there was a problem on 7th September 2007, but that the Appellant was notified on 26 September 2007 of the problem and immediate action to cease dealing with MD Contracts was taken.

10. Under cover of a further letter dated 3 October 2007 the Appellant’s representative sent to the Respondents further documentation which it was claimed showed that MD Contracts were still acceptable to the Respondents. The letter went on to maintain that:

‘As VAT Returns for the relevant period are with you then there is no basis for the proposed £127,241 assessment and it should not be raised or if already raised then should be vacated.’

11. On 10 October 2007, the Respondents issued a Notice of Assessment in the sum of £127,241.00, together with interest in the sum of £6,863.18. The amounts specified on the face of the Notice of Assessment had been calculated by Mr Murray, the Respondents’ assessing officer on 26 September 2007, although the assessment did not finally issue until 10 October 2007. This delay was due to a backlog in the processing of such material by the Respondents.

12. By letter dated 18 October 2007 the Appellant’s representative wrote to the Respondents in the following terms:

‘This is an appeal of the Notice of Assessment dated 10.10.07 in the amount of £127,241.00 with interest of £6,683.18 on the grounds that the amended VAT returns submitted include the ‘underdeclared sales’ which are the basis for this assessment.

                   Also, postponement of the tax and interest is requested on the grounds of
                   financial hardship.’  
	
13. It appears that the letter dated 28 September 2007 from the Appellant’s representative was treated as a request for a local reconsideration of the decision to issue the assessment. That review was carried out by Mr Colin Stockman, a Review Officer. By letter dated 11 December 2007, Mr Stockman wrote to the Appellant’s representative in the following terms:
	
‘I have completed my review into this matter and can inform you of the following conclusions reached.

In order for a taxable person to exercise the right to deduct input tax the claim must be supported by the appropriate documentary evidence as set down in section 24[6] of the Value Added Tax Act 1994 which states –

Regulations may provide –
 [a] for VAT on the supply of goods or services to a taxable person, ……………..to be treated as his input tax only if and to the extent that the charge to VAT is evidenced and quantified by reference to such documents or other information as may be specified in the Regulations or the Commissioners may direct either generally or in particular cases or classes of cases.

              Reg 29[2] of the Value Added Tax Regulations 1995 states –

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;
[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 or provide such other documentary evidence of the charge to tax as the Commissioners may direct.

Your client has now provided information in respect of Subcontractors Certificates CIS vouchers – however, I must point out that these do not demonstrate that a taxable [VAT] supply has taken place.

For the reasons stated I must uphold the assessment notified by Mr Murray.

Should your client disagree with this decision they have the right to appeal it to an Independent VAT AND Duties Tribunal within 21 days of the date on this letter.’

The appeal

14. By Notice of Appeal dated 5 February 2008, the Appellant appealed to this Tribunal. The grounds of the Appeal were stated to be as follows:

‘The correct VAT returns have been submitted under voluntary disclosure but amounts have not been amended. The VAT returns and supporting documentation have been delivered to Customs House, Belfast, but to date no response’.

15. Mr Quinn, the Appellant’s representative subsequently attended a pre-trial review of the appeal on 3 July 2008 and was granted leave to amend the grounds of appeal. The Appellant subsequently served amended grounds of appeal by letter dated 11 July 2008. The amended grounds of appeal provided as follows:

‘[a] The correct VAT returns have been submitted under voluntary disclosure but amounts have not been amended. The VAT returns and supporting documentation have been delivered to Customs House, Belfast, but to date no response.

[b] The VAT returns for 08/06, 11/06, 02/07 and 05/07 were incorrect as the person that completed them did not treat payments to subcontractors as purchases but netted them off against the income from contractors. As a result the output tax figure was reduced but so also was the input tax claimed. In effect a contra and the net amounts declared as owed not very different from the actual position as per the correct returns.

[c] The further assessment raised addressed the output tax but not the input tax. Corrected VAT returns were submitted as voluntary disclosures but only the 05/07 return was treated as such. The others remained unprocessed and the input tax ignored. This input tax was paid to subcontractors, namely M C Contracts [sic] [M Sweeney] and Star Building and Maintenance Ltd, who held valid VAT Registrations and gave documentation to Mr Sloan to support this. Revenue & Customs have authorised Mr Sloan to treat M C Contracts [M Sweeney] as having CIS gross payment status right up to recent times. In effect Revenue & Customs permitted M C Contracts / Mr Sweeney to get paid without a deduction of CIS tax by Mr Sloan but will not allow VAT paid to him, and Star Maintenance Ltd, to be claimed by my client.

[d] It is our contention that the input tax paid by Mr Sloan to M C Contract [M Sweeney] and Star Building and Maintenance Ltd should be allowed’.

Evidence adduced before the Tribunal

16. The Tribunal heard oral evidence from the Appellant himself, and from his representative Mr Quinn. The Tribunal also heard evidence adduced on behalf of the Respondents from Mr Ian Murray, the assessing officer responsible for the computation and issue of the disputed Notice of Assessment, and from Mr Colin Stockman, the Review Officer. Each of these witnesses had prepared and submitted witness statements in advance, but each also attended and gave evidence personally before the Tribunal. 

17. The Appellant’s evidence was that he had done a substantial amount of business with both MD Contracts and with Star Building. He said that he had not been aware of any problems with their VAT registration. He described the informal circumstances in which he said he had come into contact with these contractors: in the case of Star Building his contact with them had come about through both of them working on a job for Abbey Roofing. His contact was a man named ‘Loughie’ from whom he obtained a mobile phone number. MD Contracts, he said, gave him a CIS card; there the contact was a certain Michael Sweeney, who was from Scotland. The Appellant claimed that both of these firms had been sub-contracted by him: the contracts varied from the very small to the substantial, and whatever the Appellant himself was unable himself to do he needed to obtain manpower to enable the work to be undertaken, and these tow firms fulfilled that role for him. The Appellant said that he had paid these two firms on a weekly basis, always by cash since that was what they insisted upon. The Appellant accepted that he had never obtained any receipts. His case was that the invoices issued to him by the two firms of sub-contractors were believed by him at the time to amount to receipts. He said that he believed these two firms to have been legitimate sub-contractors. On 6 September 2007 he finally brought the invoices issued to him by the two firms in question to the offices of his representative, Mr Quinn.

18. In cross examination, the Appellant was referred to numerous invoices emanating from and on the face of it issued by his business. He accepted that the writing on the face of the invoices was his. When it was put to him that the invoices in question had been obtained by the Respondents from customers of his business, he did not dispute this, nor that his business had been duly paid by those customers on foot of the various invoices concerned. The Appellant was then referred to one of the VAT returns, which even on the Appellant’s case had been accepted as being inaccurate, namely that for the period 08/06. Although the Appellant said that a certain Norman Cunningham had assisted him in the preparation of the return, he accepted that the writing on the return was his. The Appellant was then referred to the remaining returns which had led to the issue of the Notice of Assessment, namely: 11/06, 02/07. He accepted that on foot of the three returns in total £127,241.00 of payments made to him had not been accounted for. His explanation was that he had filled it in wrong. He said that he had taken advice from his brother in law, and did the return the way that he had told him. The Appellant insisted that he had properly disclosed to the individual assisting him in the filling in of the return full and comprehensive details of all of the payments received by him during the relevant periods.

19. The Appellant accepted in cross examination that it was now clear that the £127,241.00 was due and owing from him to the Respondents. He also accepted that in essence his case was that as against that figure of £127,241.00 he for his part was entitled to offset as input tax the VAT paid by him to others.

20. The Appellant was then referred to the various invoices which he was saying had been issued to him by the sub-contractors in question. He said that he had been given these in the van. Then he said that he could not remember where he had got them. It was pointed out to him that the invoices gave no information about the site on which the work had been carried out, nor details of the people involved in the work, nor details of the rate or rates being charged. He accepted this, but claimed that every week he had been given a run down of how the monies being sought from him were made up.

21. The Appellant was then asked about proof of payment, and was referred to a copy bank statement provided in the bundle of documents made available to the Tribunal. The statement covered the period between September 2006 and March 2007. He accepted that the bank statement was the documentation which was being presented on his behalf to evidence proof of payment to the two sub-contractors concerned. He was referred to the payment out details appearing on the face of the bank statement and accepted that none of the payments out corresponded with any of the various amounts specified on any of the invoices presented.

22. The Appellant accepted that he did not keep a cash book. He also accepted that he had no receipts or other documentary evidence to show evidence of payments over. He repeated his assertion to the effect that he believed the invoices as issued to him by the sub-contractors were all the receipts he needed. The Appellant was reminded of the fact that the Notice of Assessment covered the period between Ist June 2006 and 28th February 2007, and it was pointed out to him that no bank statement at all appeared to have been produced covering the period between 1st June 2006 and 31st August 2006. The Appellant had no explanation to offer as to why a bank statement or statements covering this period had not been produced.

23. In re-examination, the Appellant told the Tribunal that he left school at the age of fifteen, and that he had considerable difficulty in writing, reading and spelling.

24. Mr Quinn in his evidence told the Tribunal that on 26 September 2007, in advance of the issue of the Notice of Assessment, he was visited at his offices by Mr Murray of the Respondents. Mr Quinn said that the various issues arising were discussed, and that as Mr Murray was leaving he handed him copies of the invoices issued to the Appellant from MD Contracts and Star Building. This was not accepted by the Respondents, who claimed that invoices had been waved at Mr Murray, but not handed or otherwise delivered to him.

25. Mr Murray in his evidence outlined the facts and circumstances in which his investigation into the Appellant’s returns had first arisen, and the substance and outcome of that investigation. He explained in details how the apparent discrepancy of £127,241.00 had been identified, and explained how the Notice of Assessment had been computed accordingly. Mr Murray detailed his various attempts to contact the Appellant. He gave evidence concerning the visit which he accepted he had made to Mr Quinn’s offices on 26 September 2007. His evidence was that at that meeting he had been told buy Mr Quinn that none of the Appellant’s records were available for inspection, and that he would contact Mr Murray whenever they were ready for inspection. He denied having received on that date via Mr Quinn any copy invoices from either MD Contracts or from Star Building, but went on to explain that even if he had received these on 26th September, it would not in all probability have made any difference to the course of action which he would have adopted, due to there being very serious deficiencies in the contents of the various invoices concerned, and to the fact that no proof of payment was being provided, or even now had been provided. His evidence was that he went straight from the meeting with Mr Quinn and prepared the assessment on 26 September 2007. He wrote to Mr Quinn two days later, on 28 September 2007 to inform him that the assessment had been raised in the sum of £127,241.00. Due to a backlog of work, the actual Notice of Assessment document was only finally issued on 10 October 2007.

26. Mr Murray’s evidence was that the copy invoices from MD Contracts and Star Building arrived at the Respondents offices on 1st October 2007, having been sent by Mr Quinn under cover of his letter to the Respondents dated 28 September. He sought to insist however that even if they had been obtained in advance of the preparation of the assessment, it would have made no difference to his approach because of the deficiencies in their contents, and the absence of any proof of payments having been made available.

27. Mr Stockman explained the basis for his finding upon review that the assessment should be upheld. He sought to assert that the entitlement for a taxable person to exercise the right to deduct input tax from the VAT which would be otherwise be payable by him to the Respondents was governed by statute. He placed reliance in particular upon the contents of section 24[6] VATA 1994. In the absence of the Appellant being able to satisfy the relevant statutory requirements, he stated that there was no sustainable basis upon which he could have other than to uphold the assessment in full. In cross examination, it was suggested to Mr Stockman that the copy invoices made available by the Appellant to the Respondents did fulfil the requirements of Regulation 14[1] of the VAT Regulations 1995. Mr Stockman disagreed. In his view, the copy invoices failed to comply with each of the following requirements of Regulation 14[1] of the 1995 Regulations, namely those requirements at [b], [g], [h] and [m].

Findings of fact

28. As a result of the evidence adduced before it, the Tribunal makes, in addition to the factual background outlined above, none of which was disputed, the following additional findings of fact.

29. On the balance of probabilities, the Tribunal does accept that the Appellant at some stage during the relevant periods did in connection with his business retain the services of MD Contracts and Star Building. However, the Tribunal is completely unable on the basis of the evidence adduced before it to determine over precisely what period those services were performed, nor the true factual basis of either or any of the retention or retentions involved. 

30. The Tribunal found the Appellant generally to be an exceptionally vague and unconvincing witness, and found it difficult to comprehend how he appeared to know so little about his own business, and how it operated. There was absolutely no evidence whatsoever to sustain the averments set out at [b] of the amended grounds of appeal. There it had been claimed that The VAT returns for 08/06, 11/06, 02/07 and 05/07 were incorrect as the person who completed them did not treat payments to subcontractors as purchases but instead netted them off against the income from contractors. As a result, so it was claimed, the output tax figure was reduced but so also was the input tax claimed. In effect, so it was claimed, a contra had been applied with the net amounts declared as owed being not very different from the actual position, as per the corrected returns. Whatever may have appeared in the amended grounds of appeal, the Tribunal heard nothing of any of this in the evidence. Mr Norman Cunningham, the gentleman identified by the Appellant in his evidence as being the person who assisted him in the filling in of the inaccurate returns did not attend to give evidence. Nor was their any such evidence adduced by the Appellant himself, nor by any other witness on his behalf. There was accordingly no evidence whatsoever available to enable the Tribunal to properly understand how or on what basis the VAT returns for 08/06, 11/06, 02/07 and 05/07 had come to be prepared in such a way as to incorporate an apparent underdeclaration of £127,241.00 received by the Appellant by way of output tax.

31. The Tribunal makes no findings of fact as to the true circumstances in which the various invoices produced before the Tribunal by the Appellant, and on their face emanating from MD Contracts and Star Building came to be produced, or by whom. Suffice it to say that the Tribunal found the explanation given by the Appellant as to the manner and course of his dealings with MD Contracts and Star Building, and the issue of invoices wholly unconvincing. If, as the Appellant had claimed, his dealings with these sub-contractors had been exclusively on a cash only basis, at their request, the Tribunal simply finds it incomprehensible that the Appellant would not in such circumstances have insisted on the proper issue of receipts, enabling him in due course to produce proper proof of payment. The Tribunal rejects the Appellant’s assertion as made by him to the effect that he believed the invoice documents themselves to amount to and constitute receipts. This assertion the Tribunal found to be wholly implausible and completely unconvincing.

32. On balance, the Tribunal finds that Mr Quinn is probably mistaken whenever he says that he handed over the invoices from MD Contracts and Star Building to Mr Murray on 26 September 2007. The Tribunal is satisfied that Mr Quinn informed Mr Murray on that date that as yet the Appellant’s records were still not available for inspection. While the existence of putative invoices from MD Contracts and Star Building may well have been mentioned by Mr Quinn, the Tribunal does not find that these were actually supplied to the Respondents until 1st October 2007. However, even if the invoices in question had been physically handed over on 26 September 2007, the Tribunal does not believe it would have made any difference to the matter, due to the patent deficiencies and inadequacies which appear on the face of those invoices.

Submissions of the parties

33. For the Respondents, Mr Shields argued that there was in reality no challenge to the £127,241 specified in the Notice of Assessment by way of underdeclared output tax. The real issue at stake, it was submitted, was the ability or otherwise of the Appellant to deduct from that figure any figure by way of input tax. The interest figure, it was claimed, stood or fell alongside the Notice of Assessment.

34. The Respondents argued that where, as here, the input tax claimed was being claimed on foot of invoices which manifestly failed to comply with several of the relevant requirements of the VAT Regulations 1995, the claim to input tax entitlement was bound to fail. It was submitted that in order for input tax to be properly claimed by a taxable person, a valid VAT invoice was required, and in particular one satisfying the requirements appearing at Regulation 14[1] of the 1995 Regulations. In the absence of such requirements being satisfied, the Respondents it was argued had a discretion to seek further proof that the payments claimed in respect of had indeed been duly made. That was the procedure adopted here, and the proof of payments had not been forthcoming.

35. The Respondents referred the Tribunal to section 29[2] of the VAT Regulations 1995. This provision, it was argued, gave the Respondents the right, where a valid VAT invoice could not be produced, to seek to require the person seeking to establish the right to input tax to produce inter alia proof of payment. Here, that discretion had been properly exercised. The Appellant, it was submitted, was clearly failed to establish that any such payments had been made. No other documentary records had been provided; no receipts had been produced; no cash book had been kept or produced.

36. For the Appellant, Mr Quinn sought to criticise the Respondents for, as he suggested, knowing that MD Contracts and Star Building were still in operation, and yet failing to act in respect of their activities. He claimed that the Appellant would not be in the ordeal of a situation he was in had it not been for the activities of MD Contracts and Star Building, and the inactivity of the Respondents. He also sought to argue that the invoices issued to the Appellant by MD Contracts and Star Building, and relied upon in good faith by the Appellant did satisfy the essential requirements of Regulation 14[1] of the VAT Regulations 1995.

Conclusions and reasons

37. It is clear to the Tribunal that the only live issue in effect before the Tribunal is the question as to the ability and entitlement, if any, of the Appellant in the circumstances to seek to deduct from the £127,241.00 otherwise payable by him input tax, whether as alleged by and on behalf of the Appellant or at all. No real dispute was raised before the Tribunal to the effect that the £127,241.00 is anything other than properly payable by the Appellant by way of underdeclared output tax. As outlined above, the Tribunal rejects the putative explanation as set out in the amended Notice of Appeal as to how this substantial underdeclaration of output tax came about, No evidence at all was adduced before the Tribunal in support of the explanation set forward in the amended grounds of appeal.

38. Since the underdeclaration by the Appellant of output tax in the sum of £127,241.00 has been effectively accepted by the Appellant, the issue in the appeal is as to whether the Notice of Assessment was or was not made by the Respondents to best judgment. The Appellant says that it was not so made, because of the fact that the Respondents knew in advance of the computation and issue of the Assessment that there were invoices in existence issued to the Appellant by MD Contracts and by Star Building covering the relevant periods, that almost inevitably these invoices and the payments made by the Appellant to MD Contracts and Star Building on foot thereof would include VAT, that such VAT was going to be deductible by the  Appellant against the sum or sums otherwise due from him by way of underdeclared output tax, and that the Respondents failed to take any of the same into account in the computation and issue of the Notice of Assessment.

39. The difficulty with this line of argument is that it fails to take account of the relevant statutory provisions governing the entitlement to claim input tax. In particular, section 24[6]of the Value Added Tax Act 1994 provides as follows:  –

                 ‘Regulations may provide –

                  [a] for VAT on the supply of goods or services to a taxable person,
                   ……………..to be treated as his input tax only if and to the extent that
                   the charge to VAT is evidenced and quantified by reference to such
                  documents [or other information] as may be specified in the Regulations
                  or the Commissioners may direct either generally or in particular cases or
                  classes of cases.’

The Regulations in question are the VAT Regulations 1995. Regulation 29[2] of those Regulations provides:  –

‘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;

[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 [or provide] such other evidence of the charge to VAT as the Commissioners may direct.’

The document required to be provided under Regulation 13 is a VAT invoice, the characteristics of which are to be found at Regulation 14[1] [a] to [o]. The Tribunal has closely examined the selection of putative invoices from MD Contracts and Star Building as relied upon by the Appellant. These are clearly defective and deficient in a number of salient respects. The Tribunal accepts the submission advanced before it to the fact that the following requirements of Regulation 14 [1] were not satisfied by the form and contents of the invoices in question.

‘……………..a registered person providing a VAT invoice in accordance with regulation 13 shall state thereon the following particulars –

…….

 [b] the time of the supply

…………

[g] a description sufficient to identify the goods or services supplied

…………

[h] for each description, the quantity of the goods or the extent of the services, and the rate of VAT and the amount payable, excluding VAT, expressed in [any currency]

…………

[m] the unit price.’

Whilst the invoices in question were dated, all that they specified in terms of the nature and extent of the services supposedly supplied were vague and wholly unquantifiable phrases such as, for example: ‘Roofers labour’ or ‘Roofers and labourers’ or ‘Labourers work Bricklayers Groundsmen’. A total price was then provided, but no details at all provided as to how or on what basis that total price had been computed or otherwise arrived at. It is clear that no details at all were provided as to the time of any of the supplies, scant and in the Tribunal’s view wholly inadequate information was provided in terms of a proper description sufficient to identify the goods or services supplied. No details were provided as to the hours of work undertaken, the number of workers involved, hourly rates, nor indeed any other unit prices. The Tribunal’s finding is that the invoices relied upon by the Appellant did not satisfy the requirements of Regulation 14[1] of the 1995 Regulations.

40. On that basis, and having regard to the contents of Regulation 29[2] of the 1995 Regulations, it is in the Tribunal’s view not remotely surprising that the Respondents, before accepting any claim by way of offset for input tax purposes, call upon the Appellant to provide some other evidence of the charge to VAT. Here, the alleged proofs relied upon by the Appellant are singularly defective, and in the assessment of the Tribunal wholly inadequate.

41. The Appellant by his own admission made all of his supposed payments to the two sub-contractors by cash, and only by cash. Surprisingly however, he did not seek or obtain any receipts whatsoever for even one such cash payment. The explanation which he sought to put forward for this was that he said he believed the invoices to constitute receipts for payment, and explanation which the Tribunal rejects as implausible and unconvincing. The Appellant kept no cash book. The Appellant accepted that he could produce no other evidence of payment. The Appellant sought to place reliance upon a copy bank statement provided. The statement however only covered the period between September 2006 and March 2007. 

42. The Appellant accepted that the September 2006 to March 2007 bank statement was the only documentation which was being presented on his behalf to evidence proof of payments to the two sub-contractors concerned, or either of them. He was referred specifically in cross examination to the payment out details appearing on the face of the bank statement and he readily accepted that none of the payments out could be seen to correspond with any of the various amounts specified on any of the invoices presented. All that the copy bank statement showed was that on a number of specific occasions during the period between September 2006 and March 2007 substantial cash withdrawals were being made from the account in question by the Appellant or someone on his behalf. None of these various cash withdrawals could however be shown either by the Appellant or his representative to correspond to any of the invoices present, nor indeed to any combination of invoices.

43. The Appellant accepted that he did not keep any cash book. He also accepted that he had no receipts or other documentary evidence to show evidence of any of the payments over claimed in respect of by way of input tax. He repeated his assertion to the effect that he believed the invoices as issued to him by the sub-contractors were all the receipts he needed. The Appellant was reminded of the fact that the Notice of Assessment covered the period between Ist June 2006 and 28th February 2007, and it was pointed out to him that no bank statement at all appeared to have been produced covering the period between 1st June 2006 and 31st August 2006. The Appellant had no explanation to offer as to why a bank statement or statements covering this period had not been produced. 

44. The burden of showing that a given assessment has not been made to the best of the Commissioners judgment falls upon the Appellant in this case as the taxpayer. As already outlined above, there is effectively no challenge to the correctness of the computation of the £127,241.00 as it appears in the Notice of Assessment by way of underdeclared output tax. The interest figure of £6,863.18, it seems to the Tribunal stands or falls alongside the figure of £127,241.00. The central issue for the Tribunal to determine is as to whether the Respondents did or did not act to best judgment in computing the Notice of Assessment in that figure, or as to whether in the alternative they ought in the exercise of best judgment to have allowed by way of an offset from that figure a figure in respect of input tax as claimed by the Appellant. 

45.  The Court of Appeal in Rahman v Commissioners of Customs and Excise [2002] EWCA Civ 1881 [‘Rahman No. 2’] accepted the tests of whether an assessment has been made by the Commissioners to the best of their judgement which had previously been set out by Carnwath J, as he then was, in Rahman v Commissioners of Customs and Excise [1998] STC 825, and also by Dyson J as he then was in McNicholas Construction Co Limited v Commissioners of Customs and Excise [2000] STC 553. In Rahman No 2 Collins J in the High Court held:

                “………to show, on an appeal to the tribunal, that an assessment
               has not been made to best judgment the taxpayer must show that the
               assessment is wrong in a material respect, and that the mistake was
               such that the only inference was that the assessment was arbitrary…
               ….or……is dishonest, vindictive, or capricious, or is based on a
               spurious estimate or guess, or is wholly unreasonable.”

46. Subsequently, in Customs and Excise Commissioners v Pegasus Birds [2004] STC 1509, the Court of Appeal applying the decision in Rahman No 2 observed as follows:

               “ In such cases – of which the present is one – the relevant question
                  is whether the mistake is consistent with an honest and genuine
                  attempt to make a reasoned assessment of the VAT payable; or is of
                  such a nature that it compels the conclusion that no officer seeking
                  to exercise best judgment could have made it. Or there may be no
                  explanation; in which case the proper inference may be that the
                  assessment was indeed arbitrary.”

47. On that basis, and with reference to the tests set out above, the Tribunal has little difficulty in concluding that this Notice of Assessment was indeed made by the Respondents by means of an exercise of best judgment, and that it is not to be criticised as a result. The Appellant whether as at 26 September 2007 when the computations for the assessment were carried out, or as at 1st October when the Tribunal finds as fact the invoices from MD Contracts and Star Building were provided to the Respondents, or whether indeed even as at the date of this hearing nine months on, has in the assessment of the Tribunal singularly failed to establish that any figure at all ought properly to have been allowed to him or ought now to be properly to be allowed to him by way of an offset for input tax.

48. For the reasons set out above, this appeal must fail and is dismissed. There will be no order as to costs.

                                                          ALISTAIR F W DEVLIN
                       JUDGE18 November 2009