[2010] UKFTT 281 (TC)

TC00570
Appeal ref: MAN/2009/0069
INPUT TAX — time limits for claiming — three year cap — what constitutes a claim — whether HMRC correct to reject claim — appeal allowed

FIRST-TIER TRIBUNAL
TAX

 	
					JOHN DIXON AND JULIE DIXON	Appellants

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	      John N. Dent (Judge)
		     Mrs E. Pollard (Member)		

Sitting in public in North Shields on Wednesday 17 March 2010

Barry Summers, Accountant, for the Appellant 
 
James Puzey, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	The decision against which the Appellants appeal is that contained in the Respondents’ undated letter received by the Appellants on or about 6 June 2008 reducing the Appellants’ claim for repayment of input tax on goods and services supplied before cancellation of their VAT registration from £22,275.00 to £7,466.96 on the ground that £14,808.04 of the claim was made out of time.  The letter giving the decision is marked “A” and annexed to the Respondents’ Statement of Case.
2.	The facts were not in dispute. We heard evidence from the Appellants and although the Respondents’ witness Kelly Unsworth was available to give evidence by video link her evidence was accepted and she was not called.  
The Legislative Framework

3.	Regulation 29 VAT Regulations 1995 (SI 1995 2518) (“the Regulations”) governs claims to input tax credit.  At the material time it provided as follows:
	“(1)	Subject to paragraphs (1A) and (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.”
	(1A)	The Commissioners shall not allow or direct a person to make any claim for deduction of input tax in terms such that the deduction would fall to be claimed more than 3 years after the date by which the return for the prescribed accounting period in which the VAT became chargeable is required to be made.”
	(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;
(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.
(3)     Where the Commissioners are satisfied that a person is not able to claim the exact amount of input tax to be deducted by him in any period, he may estimate a part of his input tax for that period, provided that any such estimated amount shall be adjusted and exactly accounted for as VAT deductible in the next prescribed accounting period or, if the exact amount is still not known and the Commissioners are satisfied that it could not with due diligence be ascertained, in the next but one prescribed accounting period.”
4.	Regulation 37 of the VAT Regulations 1995 provides in relation to overpaid VAT:-
Any claim under section 80 of the Act shall be made in writing to the Commissioners and shall, by reference to such documentary evidence as is in the possession of the claimant, state the amount of the claim and the method by which that amount was calculated.

The Facts

5.	The Appellants carried on business as publicans from the Public House known as “The Flintlock Inn” at 48 High Street West Cornforth County Durham. They registered for VAT from 01.04.2004. They traded until late 2005 and then applied to deregister for VAT on 15.03.2006. It appears that whilst registered they accounted for all output tax on a quarterly basis, but, because of lack of business experience and advice, they never claimed input tax during the period of trading, a period of some 19 months.
6.	On 25 May 2006, the Respondents received from Mr Dixon a letter dated 24 May 2005.  Mr Dixon wrote “As far as I know I have paid my VAT in full and was wondering if I was due to any kind of refund”. 
7.	The Respondents telephoned Mr Dixon on 30 May 2006 and sent him a claim form. On 29 June 2006 Mr Dixon telephoned the Respondents to ask for two VAT 427 forms, which are the forms necessary for claiming refunds of input tax. These forms were sent to Mr Dixon and returned duly completed on 10 October 2006. 
8.	The Respondents then appear to have taken no action until Mr Dixon rang on 11 April 2007, six months later. They promised to advise him of the outcome of the claim within the week. There were apparently 459 invoices. On 15 April 2007 the Respondents decided that the schedule accompanying the claim “was not clear enough to match invoices against.” The Respondents returned the schedule for the Appellants to put in “some order.” Despite the note on the file no copy appears to have been retained by the Respondents, and so the Tribunal were unable to inspect it.
9.	The next event appears to be a note from Mr Dixon dated 05 May 2007 and received by the Respondents on 10 May 2007. He wrote: “Tony, Still didn’t receive documents from you. Hope this (sic) are the right ones to solve the problem. Hope you don’t mind. Found a few more VAT receipts and popped them in for you. Any problem, call me on ...”
10.	By letter of 25 May 2007 the Respondents noted that the further folder of invoices had been checked, but considered the schedule was still not detailed enough to match up with invoices, so a letter was sent. The Respondents were unable to produce a copy of the schedule, or of the letter.
11.	Mr Dixon rang the Respondents on 05 July 2007. We do not know why. He told the Respondents that he had not received the letter of 25 May, and so a letter was sent to Mr Dixon on 11 July 2007. It stated “A payment schedule needs to be included to enable us to obtain dates of invoices and to determine the exact amount claimed on each invoice. Unfortunetly (sic) the schedule supllied (sic) does not allow us to do so. Upon receipt of a more detailed accurate payment schedule I shall ensure your claim is processed without further delay.” The invoices do not appear to have been returned with this letter to enable a more accurate schedule to be prepared, in view of the next recorded event.
12.	On 29 August 2007 the Respondents’ file was passed to someone who initialled a note on the Respondents’ file (P63) as Dave Mc. On the following day Mr Dixon rang the Respondents. He asked for the invoices to be returned to him so that he could arrange for a full schedule to be compiled. On 31 August 2007 all invoices were returned to Mr Dixon with a covering letter. This letter did not impose any time limit or state that the claim might be rejected. Indeed, it enclosed a copy of the earlier letter from Mr Rutherford which had indicated that upon receipt of a more accurate payment schedule, the claim would be processed without further delay.
13.	On 15 October 2007 the Respondents wrote to the Appellants stating that they had no alternative but to reject the claim. They did not send to the Appellants any information about their right to appeal the decision.
14.	On 31 March 2008, over 5 months later the Appellants’ accountant Mr Summers resubmitted the claim with an accompanying schedule and all relevant invoices. Mr Summers referred to the fact that some of the invoices may now be “out of your time limits” but that “Your colleagues have also confirmed that the resubmission of these invoices should not cause a problem.”
15.	The Respondents decided to disallow all invoices prior to 21 April 2005. Their note at P65 says that the date of the invoice must be taken from the date an acceptable claim is received. A refund of £7466.96 was allowed. The Appellants’ accountant was notified by an undated letter. The letter incorporated a paragraph informing the recipient of their right to request a reconsideration and to appeal to the tribunal.
16.	Mr Summers requested a reconsideration and referred to the decision letter having been received on 06 June 2008. The case was reviewed and Mr Summers was informed of the outcome on 13 November 2008. 
17.	The Respondents failed to take account of Regulation 29(3) in calculating the input tax due to the Appellants, so that they miscalculated it. 
18.	Mr Dixon had delayed in seeing his accountant to request preparation of a more detailed schedule. Having seen and heard him it was apparent to us that he was inexperienced in business, relying as he did on one of his customers for advice. He had never been given any indication that the provision of information was required urgently, nor had he been told, when a decision was taken to reject his claim, that he was able to appeal the decision
Case Law

19.	We were referred by Mr Puzey to the following two cases:
I and CJ Van Colle (trading as GVC Optometrists) v Commissioners for Her Majesty’s Revenue and Customs [Decision Number 20332] [Case LON/06/0991] 
University of Liverpool v Commissioners of Customs and Excise [Decision Number 16769] [Case MAN/96/728]
The first case was accepted as not being relevant to the facts of this matter as it concerned whether the 3 year time limit could be disapplied.
Submissions

20.	Mr Puzey confirmed that the Respondents had disallowed invoices prior to 21 April 2005, but if invoices were dated within the relevant accounting period, they would be claimable.

21.	He confirmed that there is nothing in the Regulations defining when a claim starts or ends. However, he referred the Tribunal to Regulation 37 of the Regulations governing overpaid VAT.

22.	In their Statement of Case, the Respondents confirmed that they had assumed that the Appellants’ appeal had been made on the basis that resubmission of the form VAT 427 and supporting information under cover of the Appellants’ representative’s letter of 31 March 2008 did not constitute a de novo claim for repayment of input tax incurred while the Appellants was registered for VAT, and was in fact a continuation of the claim submitted in October 2006. If the claim were a continuing one, it was in time in its entirety and should have been paid in full, and the capping provisions of Regulation 29 (1A) of the Regulations would not have applied. We took the view that this was the basis of the Appellants’ appeal

23.	The Respondents contended that a person may reclaim credit for input tax in respect of supplies of goods or services made by him in the course of business at such time and only in such form and manner as the Respondents may direct. Where a taxable person has ceased to be registered for VAT, input tax incurred by him during registration may be reclaimed using form VAT 427.  Guidance on completion of this form including the time limits for making a claim and information required in support of such a claim is published in Public Notice 700/45 "How to correct VAT errors and make adjustments or claims".

24.	By virtue of Regulation 29 (1A) of the Regulations the Respondents shall not allow a person to make any claim for deduction of input tax if the deduction is claimed more than 3 years after the date by which the return for the prescribed accounting period in which the VAT became chargeable is required to be made.

25.	The Appellants submitted the form VAT 427 dated 9 October 2006 in October 2006 and reclaimed input tax said to have been incurred and previously unclaimed between 2004 and 2005. That claim was considered by the Respondents in accordance with the relevant provisions of the Value Added Tax Act and the Regulations, including the applicable time limits.

26.	The Appellants did not submit supporting information in a form or manner facilitating the proper verification of the claim such that the Respondents were unable to ascertain the dates of the supplies received and the exact amount claimed in respect of each invoice submitted.

27.	By letter dated 11 July 2007 the Respondents afforded the Appellants an opportunity to resubmit their supporting information in a proper format and returned form VAT 427 to them.  The invoices were returned on 31 August 2007 in response to a request from the Appellants, along with a copy of the previous letter.

28.	The Respondents did not receive an amended claim from the Appellants and, therefore, by letter dated 15 October 2007 informed them that the claim for repayment of input tax in form VAT 427 of 9 October 2006 was rejected.

29.	 In their letter dated 15 October 2007 the Respondents finally determined the Appellants’ claim dated 9 October 2006 for input tax incurred while they were registered for VAT.

30.	 In those circumstances we hold that the Respondents were correct and reasonable in treating the Appellants' representative’s letter of 31 March 2008 and the enclosed form VAT 427 dated 9 October 2006 as a new claim for repayment of input tax. Thus they considered it in accordance with the relevant provisions of the Act and the Regulations including the prescribed limits for such claims.

31.	Mr Puzey referred us to the Liverpool University case set out above. In that case there had been a claim for input tax made and met by the Commissioners. The claim was reviewed by new accountants, and resulted in a further claim. The issue was whether the further claim should be treated as an amendment to the earlier claim or as an original claim. The Judge in that case found that each claim made by the University in its original form or as adjusted by agreement between the parties was processed by the Commissioners and was the subject of repayment in what the original accountants considered to be the University’s full entitlement to input tax recovery, and that on the Commissioners making payment of each claim, it was treated as a completed claim by the University and its advisers. The Judge distinguished between claims made under s. 80 which are outstanding, and those which have been completed. By completed, inter alia he included a claim which 

“...d) has been rejected in full by the Commissioners and the time limit for appealing against that rejection prescribed by rule 4(1) of the VAT Tribunals Rules 1986, as amended, has expired.”

32.	The Tribunal considered that if they had been asked by the Appellants to consider an appeal out of time by the Appellants with regard to the decision of 15 October 2007, they would in all likelihood have allowed that application. No notification of the right of appeal had been given to the Appellants. In those circumstances, and bearing in mind the conclusions reached by the Tribunal which are set out below, the Tribunal felt able to distinguish this case from the Liverpool University case. The Tribunal bore in mind the overriding objective of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, which is to enable the Tribunal to deal with cases fairly and justly. This includes avoiding unnecessary formality and seeking flexibility in the proceedings

Conclusions 

33.	The Appellants’ case raises two issues for determination by the tribunal.  First, is the claim submitted under cover of the representative’s letter of 31 March 2008 a new claim for repayment of input tax, or a continuation of the claim submitted in October 2006? Secondly, if the decision on 15 October 2007 was a valid decision, was it appealable, and should the Appellants be allowed to appeal it out of time?
34.	The Tribunal concluded that the claim submitted under cover of the representative’s letter of 31 March 2008 was a continuation of the claim submitted in October 2006. In the judgment of the Tribunal the Appellants have been treated entirely unreasonably by the Respondents. Mr Dixon was a man obviously unused to operating a business. He paid his VAT output tax on a regular basis, but failed to claim any input tax. After cessation of registration, he wrote to enquire whether he could claim back his input tax. He submitted a claim form, which was not dealt with expeditiously by the Respondents, and was only actioned when he rang to enquire what was happening. He was promised that if he submitted a more accurate payment schedule, the claim would be processed without further delay. But the invoices were not returned to him, nor was a copy of the original schedule retained by the Respondents. The Respondents did not warn the Appellants that they were considering rejecting the claim, nor did they impose any time limit upon them. When they made their decision to reject the claim, they did not give them an opportunity to ask for a review, nor did they give them any information of their right to appeal the decision.
35.	In the view of the Tribunal the Respondents acted wholly unreasonably in acting in this manner, and the decision of 15 October 2007 was, in the judgment of the Tribunal, quite unacceptable and oppressive. When the claim was resubmitted, it resulted in some of the invoices being out of time. There was some fault on the part of the Appellants in delaying obtaining advice from Mr Summers, but in our view this was wholly outweighed by the delays on the part of the Respondents.
36.	We looked at the question of whether the Appellants had a right of appeal against the decision of 15 October 2007. We considered that they did have such a right, and we would have been prepared to allow them to appeal that decision out of time. If that had happened, we should have allowed that appeal, as the Respondents were unable to produce a copy of the schedule prepared by the Appellants, and were unable to explain in what manner it was defective. Regulation 29 contains only a requirement that the claimant shall hold or provide such other evidence of the charge to VAT as the Commissioners may direct. The Respondents were unable to give any detail as to the manner in which the schedule provided by the Appellants was defective, and the extent to which they were unable to ascertain whether the claim was proper.
37.	In summary, therefore, the Appellants’ claim for recovery of input tax on both the purchase invoices was in time and the Appellants is therefore entitled to recover in full the input tax claimed.  The appeal therefore succeeds.  No order for costs is made.

JOHN N. DENT
TRIBUNAL JUDGE
Release Date: 16 June 2010