[2010] UKFTT 206 (TC)

	TC00508

					         Appeal Number: TC/2009/11529

FIRST TIER TRIBUNAL
TAX

VAT – REPAYMENT CLAIM – Voluntary disclosure to recover output tax on supplies of golfing tuition – the proportion of the Appellant’s turnover attributed to tuition supplies in the voluntary disclosure was considerably higher than that in an earlier claim in respect of the same supplies – HMRC limited the repayment  claim to the amount represented by the proportion of tuition supplies  declared in the earlier claim – No satisfactory explanation for the variation in proportions – No evidence to substantiate the figures in the voluntary disclosure – No rationale provided for the computation – Appeal dismissed.     

	PAUL JOHNSON	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

Tribunal:	Michael Tildesley OBE (Judge)
		Richard Crosland (Member)                 	  

Sitting in public in Leeds on 14 April 2010

John Martin of Prince Martin & Co, VAT Consultants for the Appellants 

Nigel Bird counsel instructed by the Solicitor’s office of HM Revenue & Customs, for HMRC

© CROWN COPYRIGHT 2010

DECISION

The Appeal
1.	.The Appellant was appealing against HMRC’s refusal dated 16 June 2009 to make full repayment of output tax overpaid in relation to supplies of golf tuition. The Appellant’s claim was detailed in a voluntary disclosure submitted by his representative on 10 June 2008. The amount claimed was ₤33,019 covering VAT periods 12/81 to 03/06. 
2.	The claim related to net output tax on supplies of golfing tuition which should have been exempted from VAT, in period 12/81 to 03/06. On 20 February 2008 HMRC published Revenue & Customs Brief 07/08 inviting claims for output tax overpaid or over-declared in accounting periods ending before 4 December 1996. 
3.	On 19 June 2009 HMRC repaid the Appellant ₤12,963 instead of ₤33,019 claimed plus statutory interest of ₤14,583.40. HMRC offset an outstanding VAT debt of ₤3,201.54 against the payment.
The Dispute
4.	HMRC conceded that the Appellant’s supplies of golfing tuition in the periods in question were exempt supplies in accordance with item 2, group 6, schedule 9 to the VAT Act 1994.
5.	HMRC further conceded that the Appellant was entitled to repayment of output tax overpaid in respect of golfing tuition supplies in the periods in issue.
6.	The dispute concerned the quantum of the repayment claim. HMRC contended that the claim was unsubstantiated by prime commercial evidence. In those circumstances HMRC settled the claim on the same basis of an earlier claim in 2000 made by the Appellant in respect of overpaid output tax on supplies of golfing tuition. In the earlier claim golfing tuition supplies formed 7.14 per cent of the Appellant’s total income.
The Facts Found
7.	The Tribunal heard evidence from the Appellant and Mrs Jennifer Addis, a VAT Assurance Higher Officer, who dealt with the Appellant’s repayment claim. A bundle of documents was received in evidence.
8.	The Appellant was a golf professional who was registered for VAT with effect from 13 September 1982. In 1982 he was the Club Professional at Halifax Golf Club. In about 1985 he moved to Harrogate Golf Club as Club Professional and remained in that position throughout the period of the claim. As Club Professional he had various sources of income including a percentage of green fees (5 per cent), sales from the golf shop, a retainer of ₤850 per month from the golf club and tuition fees. The Appellant occasionally won prize monies from tournaments, but this did not constitute a significant part of his income. 
9.	During the period in question the Appellant undertook himself the private golfing tuition at Halifax and Harrogate Golf Clubs. The tuition was supplied to individuals and groups. He charged an hourly rate for tuition of ₤11 in 1982 - 1984 which rose by ₤1 every three years with an hourly rate of ₤15 for 1994 -1996.  The group tuition was the most remunerative enabling the Appellant to charge a multiple of his hourly rate dependent upon the number of individuals in the group. The Appellant believed that in any one week during the relevant period the number of individual tuition sessions exceeded that for group sessions.
10.	Mr Prince of Prince-Martin & Co compiled the voluntary disclosure in respect of the Appellant’s claim for overpaid output tax. The claim consisted of a series of figures for each month in question starting October 1981 and ending March 1996. The figures consisted of amounts for exempt tuition and overpaid output VAT. The value of the output tax was derived from the value for exempt tuition.  The Appellant was unable to explain how the figures were arrived at for exempt tuition. He believed they were derived from the figures used in the earlier repayment claim in 2000 which HMRC had met. His representative, Mr Martin, was also unable to assist the Tribunal with the origin of the amounts specified for exempt tuition. Mr Prince, the author of the claim, had now retired and living in the Scottish Highlands.
11.	Mr Martin stated that the earlier 2000 claim for output VAT on tuition fees was based on information gained from an interview conducted with the Appellant on 20 May 1999. The information consisted of the number of golfing lessons given by the Appellant listed in his diary from January 1999 to May 1999, and his hourly tuition rate. The numbers recorded were 29 (January), 63 (February), 51 (March), 78 (April) and 92 (May up to 20th). The Appellant estimated that he would be doing in excess of 100 lessons per month during June to September, 75 lessons in October, 50 lessons in November, and 30 lessons in December. The Appellant was unable to establish any correlation between the information given in May 1999, and the figures cited in the voluntary disclosure.
12.	The voluntary disclosure showed that the Appellant’s income from golfing tuition constituted on average 18.15 per cent of the value of his outputs in the period 09/82 to  09/87, and 16.73 per cent for the remaining period. This percentage rate for the value of the tuition supplies was significantly higher than the average rate of 7.14 per cent for the same supplies in the Appellant’s previous claim for the years 1996 to 1999.  Also the rate of 16 to 18 per cent bore no comparison with an indicative rate of 5 per cent for tuition fees given by the Appellant’s representative to HMRC in a letter dated 10 August 2009 regarding a claim from another golfer. In that letter the representative stated that tuition fees represented a small proportion of total turnover, usually no more than 5 per cent.
13.	The Appellant’s explanation for the variation in the rate between his earlier and present claim was two-fold. First his teaching commitments from 1996 reduced following the respective appointments of a leading self employed professional, and an assistant. Second, sales from the golf shop increased markedly coming out of the recession in early 1990’s which  had a  significant impact on the Appellant’s pattern of trade and  resulting in  sales forming a rising proportion of his outputs, whilst the proportion represented by tuition declined.  The Appellant’s representative pointed out that the 5 per cent rate mentioned in respect of another golfer was not intended as an accurate guide, but a rough estimate in the context of partial exemption.  The Appellant spent more time on tuition than other golfing professionals because of his good reputation as a teacher.
14.	The Appellant adduced no documentary evidence at all to corroborate his income from golfing tuition. He had not retained any records including his diaries for the period claimed. Equally there was no documentary evidence to back up his assertions regarding the changing pattern of trade, and the decline in his time spent on tuition from 1996 following the appointments of an assistant and a self employed professional.  The Appellant’s testimony on the impact of the new appointees was also contradictory. The Tribunal formed the impression that as the self employed professional was connected with high profile golfers, he brought in new tuition business for the Appellant, which would have happened in the period covered by his earlier claim when tuition constituted 7.14 per cent of his income.   .
15.	The only reliable evidence adduced by the Appellant was the yearly outputs declared on his VAT returns from 1988 to 1996, which showed a dip in turnover in 1991 and 1992  with a steady increase in turnover until 1995 followed by a steep rise in 1996. The Appellant relied on these figures to demonstrate the impact of the 1991/1992 recession on his business.  The Appellant then applied the value of outputs apportioned to tuition supplies in his voluntary disclosure, and expressed them as a percentage of the total outputs declared in his VAT returns. He used the percentage to demonstrate his assertion that during the recession the value of his tuition supplies formed a greater proportion of his total outputs, which also explained why the percentage rate for tuition supplies was higher in the voluntary disclosure than in his earlier claim. The flaw in the Appellant’s analysis was that he did not know the basis upon which the value of the tuition supplies in the voluntary disclosure had been determined, in which case the resulting percentages were meaningless.  
16.	 After giving the Appellant opportunities to provide evidence to substantiate his claim, HMRC rejected the voluntary disclosure in so far as it exceeded a rate of claim consistent with the earlier claim.  HMRC took the view that the Appellant had not given a satisfactory explanation for the significant increase in the percentage of his total supplies attributed to tuition from that given in his earlier claim. Further the Appellant had not supplied prime commercial evidence to back up his claim. Finally HMRC disallowed that part of the claim which related to the period prior to the 13 September 1982 when the Appellant was not registered for VAT.
17.	The Appellant’s representative considered that it was unreasonable for HMRC to expect the Appellant to have kept prime commercial records for a trading period which took place a considerable number of years prior to the claim. The representative also questioned whether the figure of 7.14 per cent applied by HMRC provided a realistic view of the number of hours spent on tuition by the Appellant particularly in the busy months. HMRC counsel pointed out that the 7.14 percentage was an average which was applied equally across quiet and busy periods. 
Consideration
18.	The obligation was upon the Appellant to prove on the balance of his probabilities the quantum of his repayment claim. The Appellant’s representative submitted that it was unreasonable to expect the Appellant to provide prime commercial evidence to substantiate his claim after the elapse of such a long period of time. The representative contended that his partner used best judgment to arrive at the figures included in the voluntary disclosure. The difficulty with the representative’s proposition on best judgment was that the Appellant and his representative did not know the rationale for the values attributed to tuition supplies in the voluntary disclosure. 
19.	The Tribunal finds that the voluntary disclosure submitted by the Appellant was an arithmetical exercise without a rational and evidential foundation. The Appellant did not provide a satisfactory explanation for why the proportion of his total outputs attributed to tuition supplies was significantly higher in his voluntary disclosure than that in his earlier claim. This was not a case where HMRC rejected the Appellant’s claim in its entirety. HMRC acknowledged that the Appellant was entitled to a repayment but not to the extent claimed in the voluntary disclosure. HMRC gave the Appellant several opportunities to substantiate his claim which he did not do to a satisfactory standard.  HMRC disallowed the amount claimed for the period when the Appellant was not registered for VAT. HMRC adjusted the value claimed in the period 06/91 to 03/92 in the Appellant’s favour so as to reflect an increase in the VAT rate to 17.5 per cent. Finally HMRC applied the rate of 7.14 per cent to the outputs declared for each quarter of the voluntary disclosure to calculate the value of the tuition supplies from which the overpaid VAT was calculated. The 7.14 per cent rate was chosen because it  represented the average  rate for the proportion of tuition supplies  to outputs in the period covered by the earlier claim submitted by the Appellant which was met by HMRC. The Tribunal is satisfied that the approach adopted by HMRC was reasonable and consistent with previous claims made by the Appellant.
20.	For the reasons given above the Tribunal dismisses the Appeal.

MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE   
RELEASE DATE: 6 May 2010
Notes
21.	A party wishing to Appeal this decision to the Upper Tribunal must seek permission by making   an application in writing to the Tribunal within 56 days of being provided with full written reasons for the decision. An application for permission must identify the alleged error(s) in the decision and state the result the party making the application is seeking.