[2010] UKFTT 290 (TC)

TC00579
Appeal reference: MAN/2008/1270

VAT – input tax – Appellant’s failure to satisfy Commissioners of the validity of the refund claim – appeal dismissed

FIRST-TIER TRIBUNAL
TAX

					ONEBILL RESIDENTIAL LTD	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Lady Mitting (Judge)
		Mr M Farooq (Member)
			
Sitting in public in Birmingham on 18 May 2010

The Appellant did not attend and was not represented

Julian Winkley, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2010
DECISION

1.	The Appellant company appeals against two decisions of the Commissioners.  First, it appeals against a decision to amend the 09/07 return by disallowing credit for input tax in the sum of £12,848.38, the decision being notified by letter dated 3 March 2008.  Secondly the Appellant appeals an assessment in the sum of £106,453, representing disallowed input tax for VAT periods ending 12/05 to 06/07 inclusive, the assessment being notified on 8 December 2008.
2.	When the case was called on for hearing, there was no attendance on behalf of the Appellant.  We satisfied ourselves that notice of the hearing had been properly served, had not been returned, and nothing had been heard from the Appellant.  We therefore decided that reasonable steps had been taken to notify the Appellant of the hearing and that it was in the interests of justice to proceed in the Appellant’s absence.  We heard oral evidence from the decision-making officer, Mrs. Marion Smalley and we also had before us her unchallenged witness statement.
3.	On 24 January 2008, Mrs. Smalley undertook a pre-notified assurance visit at the Appellant’s premises and spoke with its director John Plant.  She examined the business records for period 09/07 for which period a net repayment claim had been made.  A large proportion of the input tax claim related to three purchase invoices from Door to Door Marketing Ltd.  The input tax on these three invoices, numbered 17, 18 and 19, totalled £8,595.98 out of a total input tax claim of £12,848.38.  The invoices were dated 27 October 2004, 2 November 2004 and 17 November 2004 respectively.  Mrs. Smalley saw photocopies only of these invoices and to confirm their validity Mrs. Smalley contacted Door to Door.  They emailed her confirming that the invoices had been issued and attaching copies.  The invoices numbered 18 and 19 were in different amounts from the copies which Mrs. Smalley had seen at the Appellant’s premises.  The email from Door to Door also informed Mrs. Smalley that the invoices had never been paid and that they had in fact been informed that Onebill had no intention of settling them.  Consequently Door to Door had not submitted them on its own VAT return as they were treated as a bad debt.
4.	As well as being concerned about the validity of the invoices, Mrs. Smalley wished to be certain that they had not already been claimed in an earlier period.  On 28 January she therefore wrote to the Appellant asking to see a full set of business records for the period 1 October 2004 to 30 September 2007.  She specifically asked for sight of the annual accounts, bank statements, sales and purchase daybooks, cash books, sales and purchase invoices and all supporting documents.  She requested sight of the original invoices rather than photocopies.  Nothing was heard from the Appellant and by letter dated 3 March 2008, Mrs. Smalley disallowed all the input tax on the 09/07 return (the first decision under appeal).
5.	Sporadic correspondence followed with Mr. Plant periodically promising sight of the records but never producing them.  As Mrs. Smalley had received no verification whatsoever of the input tax claimed for period 12/05 to 06/07, she issued her assessment, notified 8 December 2008, disallowing the input tax for all periods (the second decision under appeal).
6.	On 22 January 2009, the Appellant delivered three boxes of records to Mrs. Smalley.  The records only began on 1 January 2006 and contained no bank statements, cash books or chequebook stubs.  In short the Appellant had totally failed to produce any records for the earlier part of the period requested and for the latter part had not evidenced any purchases.  Mrs. Smalley wrote back to the Appellant explaining that what had been produced was not sufficient and asking to see annual accounts, bank statements, cash books and supporting documents, chequebook stubs, paying-in books, bank reconciliations and supplier statements.  These were never, and to date have never, been produced.
7.	For completeness we should say that, in his list of documents for the tribunal, Mr. Plant listed purchase invoices, sales invoices, remittance advices, bank statements and Sage accounting records for each of the financial years ending December 2005 and December 2006.  There were two directions from the Tribunal directing production of these records to the Commissioners, the second such direction being an unless order.   Neither direction was complied with.
8.	In respect of the first appeal (09/07) the Appellant’s grounds of appeal refer to a letter dated 10 March 2008 setting out the following:
		Extracts from letter dated 10 March 2008 addressed to Mrs Smalley
“…you did not point out any invoices at the time of your inspection that were unacceptable.  I am sure you should have highlighted them at the time
I am not aware of any photocopies that were presented to you.  In your letter of 28th January you did point out that photo copies were not acceptable but I took that in the context of the additional records you wanted to inspect.  You did point out that some purchase invoices were photo copies for the abode return but you did not clarify which invoices were in your opinion copies and that for the purpose of calculating the validity of that return they were not acceptable and if we did not provide you with the originals (which we can) you would re-assess the return and demand money.”
Extracts from letter dated 10 March 2008 addressed to Mrs Smalley:
“Mrs Smalley is aware that we have been unable to supply supporting documentation (accounts records) because our account records are being held as security against a debt to our auditors.  We will be able to provide these records by the third week of January 2008.  (Funds will be available).  We ask that this assessment be set aside pending the records being available.”
9.	In relation to the assessment appealed against, the grounds of appeal given repeat the second paragraph of the letter of 10 March.
10.	Section 25 VAT Act 1994 entitles a taxable person to claim a refund of so much of his input tax as is allowable at the end of each accounting period.  Section 26 provides that the amount of credit to which a taxable person is entitled is so much as is allowable under regulations, and the same section gives the Commissioners the power to make such regulations as are necessary for securing a fair and reasonable attribution of input tax to supplies.  Regulation 29 Value Added Tax Regulations 1995 stipulate that a valid invoice is to be held before a claim to input tax can be made and Regulation 31 sets out the business and accounting records which every taxable person shall keep for the purpose of accounting for VAT. 
11.	In relation to the appeal for 09/07, the Appellant has been unable to provide the Commissioners with sufficient evidence to verify the claim.  The three invoices seen by Mrs. Smalley were photocopies and not originals and the originals have not been produced.  The copy invoices emailed to her by Door to Door differed from those copies which Mrs. Smalley had seen.  Mrs. Smalley sought such supporting evidence of payment as the Appellant was obliged to keep within his accounting records but none has been produced.  Mrs. Smalley was therefore perfectly entitled to disallow the input tax and the appeal in relation to this period is dismissed.
12.	Section 73 of the VAT Act 1994 empowers the Commissioners to assess a taxable person for tax arising from disallowed input tax credit.  For the periods 12/05 to 06/07, again Mrs. Smalley saw no credible evidence that the Appellant was entitled to the refunds claimed.  She did not see original supporting invoices and her requests for verifying records of payment were not met.  Mrs. Smalley was not satisfied as to the existence and extent of the supplies made and she had no way of cross checking the copy invoices she had seen.  The assessment has to be raised to best judgment and as all Mrs. Smalley has done is to assess in the exact sum as the amount of input tax which is being disallowed, we find that her assessment was to best judgment and was correctly made.  The appeal in respect of this assessment is also dismissed.
13.	In summary therefore, the appeals against both decisions are dismissed.  Mr. Winkley made no application for costs and I make no order.
The Appellant did not appear and was not represented but the tribunal was satisfied that the requirements of rule 33 of the Tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules 2009 were met and decided to proceed in its absence 

The Appellant has a right to apply for permission to appeal against this decision in accordance with rule 39 of the Rules.  The parties are referred to “Guidance to accompany a decision from the First-Tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

LADY MITTING
JUDGE
Release Date:  28 June 2010