[2011] UKFTT 383 (TC)

TC01238

Appeal number: TC/2009/16960

Input tax disallowed – supplies received from businesses not registered for VAT – supplies not paid within time limit prescribed by section 26A VAT Act 1994 – appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	DAYTONA SURF LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: J. Blewitt (Judge)
						P. Jolly (Member)

Sitting in public at Manchester on 27 April 2011

Mr. A. Booth, Company Director, for the Appellant

Mr. R. Mansell, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

Background
1.	The Appellant trades as a wholesaler of optical wear and was registered as a limited company for VAT with effect from 19 August 2007.
2.	The Appellant submitted the VAT return for the period 10/07 which was received by HMRC on 22 November 2007. The return included a repayment claim in the sum of £15,260.18 in respect of the input tax declaration. No output tax was declared on the return.
3.	HMRC visited the Appellant on 1 July 2008 and following inspection of the Appellant’s business records relating to the VAT period 10/07 repayment claim disallowed input tax for the following:
(a)	Tax invoices dated after 31 October 2007 in the sum of £2,462.17;
(b)	Invoices from non VAT registered businesses in the sum of £7,074.03;
(c)	Invoice from Lemon Ice (an associated company) where no output tax had been declared in the sum of £525.00. 
4.	In a letter to the Appellant dated 3 July 2008, HMRC confirmed the disallowed input tax amounts as above and stated that the input tax claim had been reduced to £5,198.98, which was subsequently paid to the Appellant.
5.	On 24 May 2010 the Appellant wrote to HMRC to reclaim input tax in the sum of £2,462.00 for the period 01/08 which had been prematurely included in the 10/07 period. This was repaid to the Appellant; £1,682.00 on 2 August 2010 and £780.00 on 20 July 2010.
6.	HMRC also reviewed the decision to disallow the input tax claim in the sum of £525.00 in relation to Lemon Ice and subsequently repaid this amount; £146.00 on 30 June 2010 and £379.00 on 12 July 2010.
7.	By letter to the Appellant dated 28 September 2010 HMRC set out the adjustment to the 10/07 claim and confirmed that the adjustment in respect of £7,074.03 for invoices from non VAT registered businesses would be upheld on the basis that the suppliers were not taxable persons for the purposes of VAT, not entitled to charge VAT and therefore the VAT claim was not recoverable as input tax.
8.	Evidence of payment for supplies on which the input tax had been claimed was requested by HMRC by letter to the Appellant on 24 March 2009. The Appellant responded on 30 March 2009 providing copies of proof of cash payments.
9.	HMRC visited the Appellant on 7 April 2009 following which it was noted that the Appellant had not provided evidence of payment in respect of the input tax claim of £5,198.98 for the period 10/07 which had been repaid. Evidence of payment was requested. 
10.	On 23 April 2009 HMRC raised an assessment in the sum of £4,809.00 for the period 04/08 where no evidence had been provided in respect of receipts for a number of invoices totalling £2,196.49 and an unsigned document from A W Opal Limited which was not accepted by HMRC as evidence of payment. 
11.	On 15 May 2010 HMRC wrote to the Appellant to outline his right to request a review and any further evidence of payment was invited for consideration.
12.	On 21 May 2010 HMRC amended the assessment to the sum of £2,533.00.
13.	By Notice of Appeal dated 25 September 2009, the Appellant appealed on behalf of the following companies:
(a)	Snob Eyewear Ltd;
(b)	MCM Capital Ltd;
(c)	Daytona Surf Ltd;
(d)	H.D. Optical Ltd;
(e)	Style Factory Ltd and
(f)	Business 4 All Ltd
Against HMRC’s decisions to disallow input tax repayment claims. The Grounds of Appeal stated that “all of these companies are owed monies by the VAT, all the VAT returns are up to date as of now...we have had the same VAT officer now for some 6 years and we had many disagreements and we now find most of our VAT payments are suspended without any reason given...VAT is refused to be repaid on the ground that the supplier charging VAT is not VAT registered, however the supplier had applied for VAT registration and is therefore obliged to charge VAT which we paid. However our VAT office has refused to pay it back to us.”
14.	HMRC requested further and better particulars of the Appellant’s grounds of appeal in respect of the 6 associated companies by letter to the Appellant dated 9 November 2009. 
15.	At a pre hearing review on 29 June 2010 the Appellant withdrew the associated appeal. Judge Demack directed the Appellant to serve amended grounds of appeal for the periods 10/07, 04/08 and 07/09.
Preliminary Issues
16.	The Appellant served amended grounds of appeal by the date directed, together with a bundle of supporting documents.
17.	At the hearing, Mr Booth objected to HMRC’s bundle on the grounds that it had deliberately been provided on the morning of the hearing whereas the Appellant had served his bundle of documents in advance of the hearing.
18.	HMRC submitted that their Statement of Case had been served on 22 October 2010 and their bundle had been served on the Appellant the week prior to the hearing by TNT next day delivery.
19.	There was no explanation as to why the bundle had not reached the Appellant prior to the hearing; however we noted that there was no direction made by the Tribunal for service of the bundle and the content appeared to us to be designed to assist both the Appellant and the Tribunal during the hearing. The Appellant was invited to consider whether he wished to apply to adjourn the hearing or have time to consider the documents contained in HMRC’s bundle. Mr Booth invited us to proceed with the hearing and did not seek for the hearing to be stood down or an adjournment. It transpired during the hearing that documents contained within HMRC’s bundle were relied upon by the Appellant and consequently we found that there was no prejudice or unfairness to the Appellant in proceeding as he invited us to do.
20.	As a preliminary point, we were invited to consider which matters were before the Tribunal on appeal.
21.	The Appellant’s amended grounds of appeal covered a number of periods; in summary the Appellant contended:
(a)	10/07: The repayment claim was reduced to £5,198.89 on various spurious grounds which have since been found illegal by the VAT complaints section. Instead of paying the money due to the Appellant, two assessments have been issued dated 01/08 in the sum of £2,391.00 and 04/08 in the sum of £2,276.00
(b)	01/08: The Appellant was informed that the assessments for the periods 01/08 and 04/08 had been cancelled but the assessments were not removed from the Appellant’s account. There is confusion as to whether the monies owed by HMRC have been repaid to the Appellant.
(c)	10/08: The repayment claim of £16,909.57 has not been repaid to the Appellant.
(d)	01/09: The repayment claim of £1,187.25 has not been repaid to the Appellant.
(e)	Assessment dated 28 April 2009: An assessment was received in the sum of £5,060.87 despite signed receipts being provided to HMRC.
(f)	Misdeclaration penalty dated 28 May 2009: This was received as a consequence of the assessment dated 28 April 2009. It is not accepted by the Appellant that there was a misdeclaration simply as a result of the VAT Officer disputing a receipt (signed or not).
(g)	07/09: A repayment claim was approved in the sum of £14,932.35 however only £8,044.00 was paid by HMRC. The Appellant was advised that monies were withheld due to the assessments for the periods 01/08 and 04/08 not being removed from the Appellant’s file.
(h)	01/10: HMRC only repaid £4,450.00 of a £8,137.70 repayment claim as the Blackburn VAT officer had missed a credit note in the sales daybook. The credit note has now been coped and provided to HMRC.
(i)	04/10: The Appellant has not received repayment of £10,985.17 as HMRC required the Appellant’s records to inspect. To date the repayment has not been made.
(j)	Voluntary Declaration: On 14 May 2010 the Appellant submitted a voluntary declaration reclaiming £2,462.00 relating to monies withheld by HMRC for the period 10/07 which to date, have not been paid.
(k)	Assessment dated 11 June 2010: The Appellant received an assessment in the sum of £2,696.54 which he was subsequently told via telephone by an HMRC officer to ignore. The Appellant requested this in writing but has yet to receive this confirmation. Subsequently the Appellant was advised that he had been credited £2,422.98 however no information was given by HMRC as to what this credit relates to.
(l)	Removal of Penalty: On 14 June 2010 the Appellant was advised of the removal of a penalty in the sum of £721.00 however HMRC did not detail what this penalty was for. 
22.	In order to clarify the matters raised in the Appellant’s amended grounds of appeal we heard submissions from HMRC on each issue.
23.	HMRC contended that:
(a)	Period 10/07: This is a matter validly under appeal.
(b)	Period 01/08: HMRC submitted that this was not a valid appeal matter as it related to whether or not monies had been repaid by HMRC.
(c)	Period 10/08: HMRC submitted that this was not a valid appeal matter as it related to whether or not monies had been repaid by HMRC.
(d)	Period 01/09: HMRC submitted that this was not a valid appeal matter as it related to whether or not monies had been repaid by HMRC.
(e)	Assessment of 28 April 2009: HMRC submitted that this was not a valid appeal matter as it related to whether or not an assessment had been removed.
(f)	Misdeclaration penalty: HMRC submitted that the receipt referred to by the Appellant is relevant in that it relates to the matters validly under appeal, however no penalty has been imposed.
(g)	Period 07/09: HMRC submitted that this was not a valid appeal matter as it related to whether or not monies had been repaid by HMRC.
(h)	Period 01/10: HMRC submitted that this should be a matter of complaint and does not form part of the decision appealed.
(i)	Period 04/10: HMRC submitted that this should be a matter of complaint and does not form part of the decision appealed. 
(j)	Voluntary Declaration: There is no issue appealed by the Appellant; the contentions of the Appellant are comment only.
(k)	Assessment 11 June 2010: The issues raised by the Appellant form part of the appeal.
(l)	Removal of penalty: HMRC contend there is no issue under appeal here.
24.	We carefully considered the points raised by both parties and were mindful of the order made by Judge Demack at the pre hearing review. We found that the Appellant was bound by the decision of the Tribunal on 29 June 2010 and that the matters under appeal were those involving the periods10/07, 04/08 and 07/09. We found that in any event, the issues raised in respect of other periods related to whether or not monies had been paid to the Appellant by HMRC, which was not an appealable decision upon which we could adjudicate.
Law
25.	The following legislation and Regulations were referred to in the course of the hearing:
VAT Act 1994 s6 (5)
If, within 14 days after the time applicable under subsection (2) or (3) above, the person making the supply issues a VAT invoice in respect of it, then, unless he has notified the Commissioners in writing that he elects not to avail himself of this subsection, the supply shall (to the extent that it is not treated as taking place at the time mentioned in subsection (4) above) be treated as taking place at the time the invoice is issued.
Section 24 Input tax and output tax.
(1)Subject to the following provisions of this section, “input tax”, in relation to a taxable person, means the following tax, that is to say—
(a)VAT on the supply to him of any goods or services;
(b)VAT on the acquisition by him from another member State of any goods; and
(c)VAT paid or payable by him on the importation of any goods from a place outside the member States,
being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him

Section 25 Payment by reference to accounting periods and credit for input tax against output tax.
(1)A taxable person shall—
(a)in respect of supplies made by him, and
(b)in respect of the acquisition by him from other member States of any goods,
account for and pay VAT by reference to such periods (in this Act referred to as “prescribed accounting periods”) at such time and in such manner as may be determined by or under regulations and regulations may make different provision for different circumstances.
(2)Subject to the provisions of this section, he is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him.
(3)If either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then, subject to subsections (4) and (5) below, the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners; and an amount which is due under this subsection is referred to in this Act as a “VAT credit”.
(4)The whole or any part of the credit may, subject to and in accordance with regulations, be held over to be credited in and for a subsequent period; and the regulations may allow for it to be so held over either on the taxable person’s own application or in accordance with general or special directions given by the Commissioners from time to time.
(5)Where at the end of any period a VAT credit is due to a taxable person who has failed to submit returns for any earlier period as required by this Act, the Commissioners may withhold payment of the credit until he has complied with that requirement.
(6)A deduction under subsection (2) above and payment of a VAT credit shall not be made or paid except on a claim made in such manner and at such time as may be determined by or under regulations; and, in the case of a person who has made no taxable supplies in the period concerned or any previous period, payment of a VAT credit shall be made subject to such conditions (if any) as the Commissioners think fit to impose, including conditions as to repayment in specified circumstances.
(7)The Treasury may by order provide, in relation to such supplies, acquisitions and importations as the order may specify, that VAT charged on them is to be excluded from any credit under this section; and—
(a)any such provision may be framed by reference to the description of goods or services supplied or goods acquired or imported, the person by whom they are supplied, acquired or imported or to whom they are supplied, the purposes for which they are supplied, acquired or imported, or any circumstances whatsoever; and
(b)such an order may contain provision for consequential relief from output tax.

26A Disallowance of input tax where consideration not paid
(1)Where—
(a)a person has become entitled to credit for any input tax, and
(b)the consideration for the supply to which that input tax relates, or any part of it, is unpaid at the end of the period of 6 months following the relevant date,
he shall be taken, as from the end of that period, not to have been entitled to credit for input tax in respect of the VAT that is referable to the unpaid consideration or part.
(2)For the purposes of subsection (1) above “the relevant date”, in relation to any sum representing consideration for a supply, is—
(a)the date of the supply, or
(b)if later, the date on which the sum became payable.
(3)Regulations may make such supplementary, incidental, consequential or transitional provisions as appear to the Commissioners to be necessary or expedient for the purposes of this section.
(4)Regulations under this section may in particular—
(a)make provision for restoring the whole or any part of an entitlement to credit for input tax where there is a payment after the end of the period mentioned in subsection (1) above;
(b)make rules for ascertaining whether anything paid is to be taken as paid by way of consideration for a particular supply;
(c)make rules dealing with particular cases, such as those involving payment of part of the consideration or mutual debts.
(5)Regulations under this section may make different provision for different circumstances.
(6)Section 6 shall apply for determining the time when a supply is to be treated as taking place for the purposes of construing this section.]

VAT Regulations 1995 
Claims for input tax
29.  —
(1) Subject to paragraph (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.
10/07
26.	Two issues arise under this period. The first relates to input tax in the sum of £2,462.17 which HMRC disallowed as the VAT was chargeable after the relevant period.
27.	Regulation 29 (1) of the VAT Regulations 1995 requires a taxpayer to claim the deduction of input tax on a return for the period in which VAT became chargeable. 
28.	We heard evidence from Mr. Gary Howard Kennedy, the HMRC Officer who had been involved in the decision to disallow the Appellant’s claim. Mr Kennedy confirmed that he had inspected the Appellant Company’s records for the VAT period 10/07, including the purchase invoices which were produced as evidence to support the claims for input tax. 
29.	Mr Kennedy stated that he made a reduction in the amount claimed in respect of purchase invoices that were dated after the period end however he did not dispute that the Appellant was entitled to reclaim the amount of £2,462.17 in the subsequent period. 
30.	Mr Kennedy exhibited a letter from the Appellant to HMRC dated 22 April 2008 in which a voluntary declaration of an error was highlighted. Although the Appellant gave a lower figure of £2,285.42, Mr Kennedy stated that there had been no dispute at the time of his visit to the Appellant on 20 June 2008 and consequently the input tax was denied in the period 10/07 but reclaimed and repaid for the period 01/08.
31.	We accepted Mr Kennedy’s evidence and found that, the claim having been made in the correct period and repaid accordingly, input tax was correctly denied in the sum of £2,462.17 in the period 10/07.
32.	The second matter arising in respect of the period 10/07 relates to the denial of a claim by the Appellant in the sum of £7,074.03. HMRC disallowed this amount on the basis that the three companies involved, namely Priory Eyewear, Genesis Eyewear and Outlook Optical were not VAT registered and accordingly the VAT shown was not input tax.
33.	HMRC relied on Section 4 (1) of the VAT Act 1994 and submitted that the amount claimed was not charged by a taxable person and therefore the amounts shown were not VAT and not deductible as input tax by virtue of Section 24 (1) of the VAT Act 1994. 
34.	Mr Kennedy confirmed in evidence that his inspection of the Appellant Company’s records for the period 10/07 revealed that the Appellant had made a number of claims for input tax on invoices from companies that were not, at the time of the claim or his visit, registered for VAT. The claims disallowed were:
(a)	£1,279.78 Priory Eyewear Ltd invoice date 19 July 2007
(b)	£4,917.50 and £484.75 Genesis Eyewear Ltd invoices dated 30 October 2007
(c)	£392.00 Outlook Optical invoice date 17 October 2007
35.	Mr Booth on behalf of the Appellant did not dispute that the companies in respect of whom the Appellant’s claims were disallowed were not VAT registered, but submitted that in 2008, if he had applied for VAT registration he would have received a notice from HMRC telling him of his obligation to apply VAT to sales and record this on invoices.
36.	Mr Booth referred us to examples within the documents provided of invoices which stated “VAT registration applied for.” Mr Booth stated that having received invoices from the three companies named above which stated that VAT registration had been applied for, the Appellant paid VAT in good faith. 
37.	Mr Booth accepted that subsequently the companies were not VAT registered and submitted that the reality is that, despite Mr Kennedy’s suggestion, he cannot obtain repayment from the companies involved despite his lengthy trading history with the companies.
38.	Mr Booth stated that the Appellant should be given a special dispensation as he was not to know that the companies were not VAT registered or to be VAT registered when he paid VAT. Mr Booth submitted that the rules governing VAT at the time the Appellant paid it obliged the companies to charge VAT and that the Appellant was entitled to the benefit of extra statutory concession 3.9 Notice 48 which provides that where a non-VAT registered person has made a supply to a taxable person and the invoice represents an amount as VAT, the recipient of the supply is not legally entitled to treat the amount as input tax, although if it is clear that the taxable person treated the amount as input tax in good faith, action to recover the amount may be remitted on grounds of good faith.
39.	Mr Kennedy considered the Appellant’s argument in his letter to the Appellant dated 14 August 2009. Mr Kennedy explained his view that the extra statutory concession should not apply due to the Appellant’s close connection to the suppliers, about which more will be said in due course.
Decision in respect of the period 10/07
40.	We found that this Tribunal has no jurisdiction on the issue of extra statutory concession. The sole matter for us to determine is whether the claim for input tax in respect of companies not registered for VAT in the total sum of £7,074.03 was correctly disallowed.
41.	We considered the Appellant’s submissions as to the rules governing VAT at the time the VAT was paid. The Appellant was vague as to what rules he was referring to and accepted that they may not be statutory but could have been in the form of guidance.
42.	In the absence of any evidence in support of the Appellant’s argument, we did not accept that the rules or guidance upon which he relied were binding or legislative. We therefore did not accept that there was any obligation upon the companies to charge, or the Appellant to pay VAT. Whether or not the Appellant paid the VAT in good faith, we find does not affect HMRC’s decision to disallow the Appellant’s claim as section 4(1) and 24 (1) of the VAT Act 1994 clearly states that the amounts involved were not VAT and as a consequence not deductible as input tax.
43.	The appeal in respect of the period 10/07 is dismissed.
04/08
44.	In the period 10/07 the Appellant claimed input tax in the sum of £5,198.98 which was subsequently repaid to the Appellant.  HMRC were provided with evidence of payments supporting the deduction of £389.13 by the Appellant.
45.	HMRC formed the view that the supplies with input tax totalling £4,809.00 had not been paid within the 6 month time limit prescribed by section 26A of the VAT Act 1994 and accordingly an adjustment should have been made to reflect this in the VAT return for the period 04/08.
46.	The Appellant’s 04/08 return was not submitted by the due date and consequently a centrally issued assessment in the sum of £2,766.00 was issued.
47.	A nil return was submitted for the 04/08 period by the Appellant in January 2009. This return was rejected by HMRC due to the adjustment of input tax identified in the sum of £4,809.00. 
48.	An assessment in the sum of £4,809.00 was notified to the Appellant by notice dated 28 April 2009 for the period 04/08. Subsequently, due to the centrally issued assessment having been raised, the assessment in the sum of £4,809.00 was reduced to £2,533.00 on 9 June 2010.
49.	The supplies in question were:
(a)	A W Opal		£2,613.46 VAT
(b)	Luxol			£932.40 VAT
(c)	Luxol			£52.50 VAT
(d)	Itchycoo		£211.73 VAT
(e)	The In Crowd	£999.86 VAT
50.	In evidence, Mr Booth conceded that he did not dispute the disallowance of input tax in respect of Itchycoo, although he did not agree with it, on the basis that he accepted there was no evidence upon which he could rely in support of his contentions.
51.	As regards the remaining suppliers, Mr Booth submitted that receipts had been provided to HMRC. Mr Booth queried why the documents he had provided were rejected by HMRC due to being unsigned when similar unsigned documents from companies such as Ikea and PC World were not rejected.
52.	Mr Booth referred us to a letter to The Right Hon Jack Straw MP, undated but signed by Mr Geoff Pearson, Managing Director of Savoy Eyewear. Mr Booth contended that a receipt dated 15 April 2010 relating to supplies provided to the Appellant from A W Opal contained the same signature, which had been rejected by Mr Kennedy of HMRC as illegible. Mr Booth contended that the letter addressed to The Right Hon Jack Straw MP verified that this was Mr Pearson’s signature.
53.	Mr Booth submitted that he had also made cash payments during the relevant period due to poor credit ratings and that the director’s loan account had been provided to HMRC to show the cash payment made. 
54.	Mr Booth stated that he had spoken to an HMRC officer, Mr Mark Gut, in relation to the Notice of Assessment dated 11 June 2010 in the sum of £2,696.54 (£2,533.00 plus interest of £163.54) and had been told to ignore it as it was incorrect. Mr Booth stated that to date, Mr Gut has not put this in writing, despite Mr Booth’s requests. Mr Booth explained that a further Notice of Assessment of the same date was received advising of a credit to the Appellant’s account in the sum of £2,422.98, however it is unknown to what this relates.
55.	Mr Booth submitted that although he had connections to some of the companies to which his claims for input tax had been disallowed, there was no evidence of fraud on his part. This was accepted by Mr Kennedy in cross examination, who stated that he had simply highlighted the amount of trade between a number of small companies where there appeared to be no external trading. Mr Booth stated that the Appellant Company carried out accountancy services for a number of optical agencies and that it was reasonable that he was nominated as spokesperson for those companies. Mr Booth submitted that his human rights had been infringed by HMRC and that the only connection relevant in law was any other company of which he was director.
56.	The evidence of Mr Kennedy was that there had been correspondence between himself and the Appellant which resulted in his assessment of 7 April 2009 disallowing input tax in the sum of £4,809.00. Receipts for payments in respect of a number of companies had been accepted by Mr Kennedy, such as Style Factory Ltd which was registered for VAT, Church View Optical Ltd and Jill Eyewear Ltd, for which documents purporting to show payment were accepted.
57.	Mr Kennedy’s witness statement dated 31 March 2011 set out the background to the Appellant Company and associated companies. In summary, the Appellant notified HMRC of a change of address by letter dated 8 October 2007 signed by Ms St Pierre. The new address arose from a tenancy agreement between the Appellant Company and Jill Eyewear Ltd, the director of the latter company being at that time Mr Stuart Robinson. The new address of Unit 11, Craven Nursery Park, Skipton, North Yorkshire was also, at that time, the address of Church View Optical Ltd and Jill Eyewear Ltd. 
58.	The Appellant notified HMRC of a change of address by letter dated 10 January 2008. The letter stated that the new director was Ms Julie Ann Booth. Mr Kennedy stated that contact had been made by Ms St Pierre with HMRC 11 days after submitting her resignation to enquire about the Company’s repayment claim. 
59.	On 19 March 2008 the VAT Variations Unit in Wolverhampton received a letter from the Appellant Company giving consent for HMRC to “speak freely on all matters relevant to” the Appellant and two associated companies; Style Factory Ltd and Bits and Doins Ltd, signed by J. A. Booth. 
60.	A further change of address was notified to HMRC in March 2008. On 20 June 2008, Mr Kennedy visited the premises at Kendal to find it unoccupied. The sign outside the property bore the name “Stylottica” which is a company controlled by Mr Booth. A Companies House search of the address of Unit 3, Library Road, Kendal showed that it is the registered address for Priory Eyewear Ltd, of which Mr Robinson was a former and current director. 
61.	On 24 June 2008, Mr Booth contacted Mr Kennedy informing him of the Appellant Company’s new address in Preston. Mr Kennedy visited the premises on 1 July 2008, at which time Mr Stuart Robinson was present. Mr Kennedy noted that the address of Mr Robinson given in his capacity as company director of Priory Eyewear Ltd is also the address given on invoices from Genesis Eyewear and is also the address of Ms Christine Brooks, who Mr Kennedy explained was company secretary for (inter alia) Luxol Ltd, who provided accountancy services for the Appellant Company and also Stylottica. 
62.	Mr Kennedy stated that during his inspection of the Appellant’s invoices, he noted that the address on invoice number 1206 from Outlook Optical dated 17 October 2007 was Unit 20, Craven Park, Skipton, North Yorkshire; the same industrial estate as two companies run by Mr Robinson; Church View Optical Ltd and Jill Eyewear Ltd, and also the same industrial park as Priory Eyewear Ltd. 
63.	Mr Kennedy stated that at the time of his visit Mr Booth had confirmed that the invoices had not been paid, which corroborated Mr Kennedy’s view of the Company’s bank records which showed minimal cash movements, insufficient to meet the invoices inspected by Mr Kennedy at the time. 
64.	Following further correspondence between Mr Kennedy and the Appellant, and further review of documents provided by Mr Booth, Mr Kennedy wrote to the Appellant on 7 April 2009 to state that the company had failed to produce evidence of payment for invoices totalling £2,196.49, the claim for which would therefore be disallowed. Mr Kennedy also stated that he would not accept a document purporting to be a receipt from A W Opal dated 26 May 2007 as valid and the input tax claimed thereon would also be disallowed. 
65.	On 7 April 2009 Mr Kennedy issued an assessment for input tax disallowed in the sum of £4,809.00. 
66.	On 15 May 2009, Mr Kennedy wrote to the Appellant highlighting that it is usual practice to have receipts signed by the recipient and that if signed receipts were obtained by the Appellant, Mr Kennedy would review the position. The letter also referred the Appellant to Section 26A of the VAT Act 1994 which provides for the refusal of input tax claims on unpaid invoices. Mr Kennedy explained that the documents which he had rejected appeared basic and on letterheads which could easily be compiled on a computer. Mr Kennedy stated that the invoices did not appear pre-printed as he would expect and that in the absence of the Appellant’s bank statements or cashbook to show payment or transfer of monies, he sought the signature of an officer of the companies to verify against records held by HMRC.
67.	At a meeting with the Appellant on 17 July 2009, Mr Kennedy stated that the Appellant had drawn his attention to Extra Statutory Concession 3.9 Notice 48, which provides that on the grounds of equity, a person may be permitted to deduct VAT incurred on a payment where it had been treated as input tax in good faith. Mr Kennedy considered this point, and by letter dated 14 August 2009 notified the Appellant of HMRC’s view that the Extra Statutory Concession should not be applied due to the relationship between the Appellant and his suppliers. Mr Kennedy explained in evidence that there was a long history of trading between the Appellant and his suppliers and that given this trading relationship, HMRC took the view that the Appellant may be able to recover the VAT. 
68.	In October 2009, Mr Kennedy ceased to have responsibility for the Appellant. In preparation for the hearing, on 8 November 2010 Mr Kennedy obtained exhibits relevant to the matters under appeal from HMRC Chaucer’s Walk, Blackburn, Lancashire. In the course of obtaining the documentation, Mr Kennedy discovered documentation which had not been available to him whilst he held responsibility for the Appellant. Mr Kennedy found a copy of a receipt from A W Opal Ltd for payment of the invoice upon which Mr Kennedy had disallowed the Appellant’s input tax claim. The document was signed and dated 15 April 2010. The signature is illegible but underneath was written “Mr G Pearson”. Mr Kennedy compared the signature to that held for Mr Pearson on the HMRC’s electronic folder and found there to be a difference significant enough for him to question the validity of the signature. Mr Kennedy also queried in evidence why there had been such a delay (over 1 year) between his refusal of the unsigned document to the appearance of the signed copy, particularly as A W Opal Ltd had been based at the same address as the Appellant in Preston and highlighted the fact that Mr Pearson, according to a Companies House search, was not an officer of the company at the time the invoice was issued and the claim made. Mr Kennedy confirmed that the Appellant had not provided any other evidence of payment in support. Mr Kennedy exhibited documents in support of his evidence that his Companies House search had also revealed that Mr Pearson is or had been a director of a number of companies associated with Mr Booth, such as the Appellant Company itself, Pineapple Slice Ltd, Style Factory Ltd, K D Optical Ltd, Dales Optical Ltd, Mayfair Ltd, Bitz and Doins Ltd and Lakeside Optical Ltd. Mr Kennedy also confirmed that the Companies House search revealed that Mr Pearson had been a director of a number of companies associated with Ms Christine Brooks. Mr Pearson had ceased to be a director of A W Opal Ltd on 1 June 2010, when Mr Stuart Robinson took over.
69.	Mr Kennedy exhibited the results of a Companies House search of Mr Robinson, which revealed that he was director of a number of companies whose invoices to the Appellant were the subject of denial of input tax and that both Mr Robinson and Mr Booth have been directors of Isis Eyewear Ltd and Sight for Sore Eyes Ltd.
70.	Mr Kennedy raised concerns over Mr Booth’s connections with A W Opal Ltd which had also led him to query the validity of the invoice provided; A W Opal Ltd had, shortly after it commenced trading, invoiced Mr Booth for rent and rates on its premises, staff and vehicle charges and building work carried out at the Appellant’s premises. Mr Kennedy suggested that this was an indication that A W Opal Ltd occupied premises as an agent for Mr Booth. In addition, a letter from A W Opal Ltd signed by Mr Robinson and dated 2 June 2010 authorised HMRC to take instruction and communicate with Mr Booth in respect of the tax affairs of A W Opal Ltd. 
71.	As a result of the apparent connection between the Appellant Company, Mr Booth and A W Opal Ltd, Mr Kennedy remained of the view that the Appellant’s claim should be disallowed without verification of the date of payment from an independent source, such as bank statement. 
72.	Mr Kennedy confirmed that the decision to disallow the Appellant’s claims in the period 04/08 arose from a combination of lack of evidence of payment in respect of Itchycoo Ltd, The In Crowd Ltd and Luxol Ltd, and failure to meet the requirements of Section 26A of the VAT Act 1994 by making payment within 6 months. Mr Kennedy stated that he had no knowledge of decisions made in respect of any other companies and that he had only been instructed to deal with the Appellant Company.
Decision in respect of the period 04/08
73.	Section 26A of the VAT Act 1994 applies to supplies on which a taxable person can recover input tax, but where there has been a failure to pay for the said supplies within 6 months of the relevant date, the taxable person may not in such circumstances be entitled to credit for input tax in respect of the VAT that is referable to the unpaid consideration or in part.
74.	The relevant date is defined by Section 26A (2) of the VAT Act 1994 as the date of the supply or if later, the date upon which the sum became payable.
75.	Section 26A (6) of the VAT Act 1994 provides for Section 6 of the same Act to apply in determining when a supply is treated as taking place, that being the invoice date.
76.	The invoices in respect of the claims made in this period were dated within the period 10/07. Evidence of payment was provided by the Appellant in respect of £389.13 and consequently HMRC reduced the disallowed amount claimed from £5,198.98 to £4,809.00. 
77.	As the £5,198.98 claimed was repaid to the Appellant, assessments totalling £4,809.00 were raised against the Appellant in order to recover the amount disallowed.
78.	The correspondence from Mrs Brewis to the Appellant dated 28 September 2010 and 17 November 2010 set out the basis of the assessments and the evidence sought by HMRC, namely proof of payment in respect of A W Opal, Luxol, Itchycoo and The In Crowd. The letter from Mrs Brewis dated 17 November 2010 states “you told me that you cannot obtain proof of payment of supplies from Ichycoo and The In Crowd.” During the hearing, the Appellant accepted that there was no evidence, and therefore no dispute in respect of the disallowed sum relating to Ichycoo. 
79.	In respect of supplies purported to be made by The In Crowd and Luxol, the supplies were shown in the Appellant’s purchase day book and invoices were produced in respect of the three supplies. However there was no evidence of payment in respect of the supplies, either by way of receipt of payment (whether the Appellant’s or that provided to the recipient) or bank statements showing the transfer of monies. We were not satisfied in the absence of such evidence that payment had been shown by the Appellant to have been made.
80.	Even if payment had been made, we could not be satisfied that the Appellant had paid for the supplies within 6 months of the date of the supply, which in the absence of any evidence to show payment was due at a later date, we found to be the relevant date.
81.	As regards the claim in respect of A W Opal, the Appellant did provide an unsigned receipt dated 26 May 2007 and a signed receipt bearing the same date, with the date below the signature of Mr Pearson marked as 15 April 2010. We noted the Appellant’s contention that HMRC have not provided any statutory provision requiring that receipts must be signed or dated, however we did not find it unreasonable that HMRC should want to satisfy itself as to the veracity of a claim where companies involved are not independent or “at arm’s length” of each other.
82.	We found Mr Kennedy’s evidence as to why the document provided by the Appellant had been rejected to be compelling. We found as a fact that there was a significant and unexplained delay between the production of the unsigned invoice and the signed invoice. Taken together with the close connections between the businesses and their officers, we found Mr Kennedy’s decision to reject the document due to the lack of independent evidence to verify the document to be entirely reasonable.
83.	However, even if we had found that there was no basis upon which Mr Kennedy ought to have disallowed the claim in respect of A W Opal, we accepted HMRC’s submission as to the application of Section 26A of the VAT Act 1994.
84.	There was no evidence produced by the Appellant to show that the amount payable to A W Opal was due later than the date of supply or that, if it was due later, payment was made within 6 months of the due date. The unsigned document was sent to HMRC on 22 March 2009 and the signed document was sent, at the earliest, on 15 April 2010 for a claim relating to the period 10/07. Mr Booth provided no explanation as to how Mr Pearson, who signed the later copy of the receipt, verified that payment had been made by the Appellant at a time when he (Mr Pearson) was not the company director nor was any explanation given as to why this information was not available to us.
85.	In the absence of any evidence to the contrary, we found that the Appellant had failed to pay for the supplies within 6 months of the date of supply and therefore the claim for input tax in respect of the VAT declared as paid to A W Opal must fail.
86.	We do not find that the Appellant’s human rights are infringed by HMRC’s decisions in respect of any of the matters under appeal. We found that HMRC have acted lawfully and that the decisions made by HMRC do not contravene the Human Rights Act 1998 or the ECHR in that they are intended for the purpose of protecting the revenue and lawful collection of taxes.
87.	The appeal in respect of the period 04/08 is dismissed.
07/09
88.	The only issue raised in respect of this period was whether or not the Appellant had been repaid monies authorised as owing to him. 
89.	A reconciliation schedule had been provided to the Appellant by Mrs E Brewis by letter dated 17 November 2010 in an attempt to clarify the amounts paid to the Appellant and due from him. This followed an explanation from Mrs Brewis in a letter dated 28 September 2010. 
90.	The letter of 28 September 2010 confirms that the amounts claimed by the Appellant in respect of the 07/09 period were allowed in full and offset against debts. Where debts were subsequently removed, credits were either offset against other debts or repaid to the Appellant.
91.	Mr Booth accepted in evidence that he had not checked in his own records or bank statements against the dates provided by HMRC, the payments shown to have been made on the schedule. 
Decision in respect of the period 07/09
92.	We found that there was no decision appealed against relating to this period as HMRC had allowed the Appellant’s claim in full. The issue as to when, or if, the Appellant was repaid is not one which this Tribunal has jurisdiction to determine and in the absence of any evidence by the Appellant to the contrary, we accept the reconciliation schedule and explanation provided by Mrs Brewis as to the fact that amounts shown on the schedule were repaid and monies have been set off against the Appellant’s debts. 
93.	The appeal in respect of the period 07/09 is dismissed.
Costs
94.	We considered Mr Booth’s application for costs. 
95.	The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 provide for an order for costs to be made where one of three conditions under Rule 10 (a) – (c) is satisfied. 
96.	The Tribunals Courts and Enforcement Act 2007 provides at Section 29 for costs or expenses
(1)The costs of and incidental to—
(a)all proceedings in the First-tier Tribunal, and
(b)all proceedings in the Upper Tribunal,
shall be in the discretion of the Tribunal in which the proceedings take place.
(2)The relevant Tribunal shall have full power to determine by whom and to what extent the costs are to be paid.
(3)Subsections (1) and (2) have effect subject to Tribunal Procedure Rules.
(4)In any proceedings mentioned in subsection (1), the relevant Tribunal may—
(a)disallow, or
(b)(as the case may be) order the legal or other representative concerned to meet,
the whole of any wasted costs or such part of them as may be determined in accordance with Tribunal Procedure Rules.
(5)In subsection (4) “wasted costs” means any costs incurred by a party—
(a)as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative, or
(b)which, in the light of any such act or omission occurring after they were incurred, the relevant Tribunal considers it is unreasonable to expect that party to pay.
97.	We were not satisfied that any of the conditions under Rule 10 (a) – (c) were met nor did we consider that HMRC had acted in any unreasonable, negligent or improper manner which would justify the making of an order.
98.	The application is dismissed.
99.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

TRIBUNAL JUDGE
RELEASE DATE: 9 June 2011