[2012] UKFTT 373 (TC)
TC02057
Appeal number: TC2011/0382
VAT – ASSESSMENT – Unexplained
discrepancies between SAGE records and VAT returns – No evidence substantiating
some of the Appellant’s input tax claims – Assessment derived from the figures
in the SAGE records – HMRC’s assessment rational and reasonable –
Misdeclaration penalty correctly calculated – no mitigating circumstances –
Appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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MATTHEW GRANGER
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Appellant
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- and -
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THE COMMISSIONERS
FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE MICHAEL TILDESLEY OBE
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MARY AINSWORTH
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Sitting in public at 3rd
Floor Alexandra House, 14-22 The Parsonage, Manchester M3 2JA on 25 April 2012
The Appellant did not appear
(Wayne Granger, the Appellant’s father attended for the preliminary application
but withdrew from the substantive hearing)
John Nicholson advocate for
HMRC
© CROWN COPYRIGHT
2012
DECISION
The Appeal
1.
The Appellant appealed against the following assessments for VAT and a
misdeclaration penalty:
(1)
Assessment issued on 7 December 2007 for ₤12,609 plus interest
(2)
Assessment issued on 7 May 2008 for ₤36,933 plus interest.
(3)
Assessment issued on 19 June 2008 for ₤2,106 plus interest.
(4)
Assessment issued on 8 September 2008 for ₤18,886 plus interest.
(5)
Assessment issued on 22 September 2009 for ₤2,766 repayment to the
Appellant.
(6)
Misdeclaration penalty for ₤1,388 for period 05/05 dated 9 October
2008.
2.
At the time of the assessments the Appellant had two businesses, one as
a sole trader under the name of XL Transport and another called XL Transport
Limited of which he was a director. The assessments related to solely to his
unincorporated business, XL Transport.
3.
The Appellant had appointed Mr Kevin Settle as his representative. Mr
Settle was employed as the Transport Manager and book-keeper for the
Appellant’s businesses. Mr Settle had applied to adjourn the hearing on the
ground that he had not received any notification from the Tribunal for over a
year until he was sent HMRC’s hearing bundle about one week before the hearing.
A judge refused the application but advised that he could renew the application
before this Tribunal.
4.
The Appellant’s father attended the hearing to make the adjournment
application. The Tribunal permitted him to make the application even though his
son and representative were not in attendance. HMRC did not object to the
father representing his son for the purposes of the preliminary application.
The Tribunal reserved its position on whether it had the necessary authority
under rule 11 of the Tribunal Rules 2009 to authorise the father as his son’s
representative in the substantive proceedings.
5.
The father repeated Mr Settle’s assertion made prior to the hearing that
the Tribunal did not contact him for over a year. In those circumstances the
Appellant had had insufficient time to prepare for the hearing. The father
explained that Mr Settle was unable to attend the hearing because of work
commitments, which was corroborated by a letter from his new employers. Further
the Appellant was too ill to appear before the Tribunal. HMRC objected to the
adjournment request pointing out that the Appellant had been given ample
opportunities to provide the necessary documentation, and that the Appellant
had over 15 months since the notification of the review decision in December
2010 to prepare his case. HMRC added that this was a straightforward case
concerned solely with a factual dispute.
6.
The Tribunal refused the Application for adjournment because:
(1)
The Tribunal did not accept Mr Settle’s assertion regarding the lack of
contact for over a year. The Tribunal’s file showed that seven letters on
different dates starting with 20 January 2011 in connection with the Appeal had
been posted to Mr Settle at his correct address. The letter of 1 February 2012
advised Mr Settle that the Tribunal was ready to list the Appeal, whilst the
letter of 6 March 2012 gave him notice of the hearing.
(2)
The Tribunal was satisfied that the Appellant was fully aware of the
basis for the assessment. He had provided no explanation for the discrepancies
between the VAT recorded on his Sage accounts and the VAT returns. The
Appellant had been given various opportunities to supply the requisite invoices
to substantiate the denied input tax claims, which he had failed to do.
(3)
Almost 14 months had elapsed since the making of the Appeal.
(4)
HMRC was ready to proceed with its witness in attendance.
7.
After the Tribunal announced its decision refusing the adjournment, the
Appellant’s father withdrew from the proceedings but remained in the hearing
room. In any event the Tribunal was of the view that he was unable to represent
his son because of the requirements of rule 11 of the Tribunal Rules 2009.
8.
HMRC applied for the proceedings to be heard in the absence of the
Appellant pursuant to rule 33 of the Tribunal Rules 2009, which was granted by
the Tribunal.
9.
The Tribunal was satisfied that the Appellant’s representative had been
duly notified of the date, time and place of the hearing by letter dated 6
March 2012. The Appellant was aware of the proceedings as evidenced by the
attendance of his father. The Tribunal decided it was in the interests of
justice to proceed in the absence of the Appellant for the reasons given in
paragraph 6 above.
10.
The Tribunal heard evidence from Mrs Woolley for HMRC and received a
bundle of documents. Mrs Woolley was the Officer who made the disputed
assessments. The Appellant’s father remained in the Tribunal room throughout
the hearing. The father had a copy of the documents bundle and was permitted by
the Tribunal to ask a question.
The Facts
11.
On 13 November 2007 Mrs Woolley carried out a routine VAT visit of the
Appellant’s registered principle place of business. Mrs Woolley undertook a
reconciliation of the output and input tax declared on the VAT returns and the
VAT reports on the Appellant’s SAGE accounting package. Mrs Woolley found that
the output tax and the input tax declared in the VAT returns for periods 05/05,
02/06 and 05/06 did not correspond with that recorded in the SAGE reports. Mrs
Woolley informed the Appellant of the discrepancies and requested further
information for periods 11/04 to 08/07 which was provided on the 14 January
2008. Mrs Woolley identified the same discrepancies in periods 08/06 to 08/07
(inclusive).
12.
Mrs Woolley’s investigation revealed that the value of output tax
recorded in the SAGE reports exceeded that declared in the VAT returns in the
following amounts.
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Period
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Output Tax
Discrepancy (₤)
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05/05
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2,082
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02/06
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1,468
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05/06
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3,080
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08/06
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4,745
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11/06
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2,723
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02/07
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4,468
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05/07
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1,371
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08/07
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9,773
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13.
The Appellant has not provided an explanation for the discrepancies between
the output tax recorded in the SAGE reports and that declared in the VAT
returns for the said periods.
14.
Mrs Woolley’s investigation of the Appellant’s input tax claims for the
periods 05/05 to 08/07 comprised two stages. First she identified the
variations between the input tax recorded in the SAGE reports and that declared
in the VAT returns. In all the periods except 05/06 the amount of input tax due
in the SAGE accounts was less than that claimed in the VAT returns. In respect
of 05/06 Mrs Woolley preferred the higher figure for input tax recorded in the
SAGE report which worked to the benefit of the Appellant.
15.
The second stage of Mrs Woolley’s enquiry was to verify whether the figures
given for the input tax due in the SAGE reports were evidenced by VAT invoices.
Mrs Woolley found that in many instances there was no VAT invoice to
substantiate the input tax due in the reports. In periods 11/06 and 02/07 several
invoices were not addressed to the Appellant but to XL Transport Limited, a
different legal entity. Mrs Woolley disallowed the claims for input tax not
substantiated by VAT invoices and those supported by invoices in the name of XL
Transport Limited.
16.
On 7 May 2008 Mrs Woolley issued an assessment in the sum of
₤43,292 for the periods 08/06 to 08/07 inclusive. On 23 May 2008 Mrs
Woolley issued a protective assessment in the sum of ₤13,779 for the
periods 05/05, 02/06 and 05/06. The amounts specified in these assessments were
derived from the discrepancies identified by Mrs Woolley between the figures
recorded in the SAGE accounts and the VAT returns.
17.
Mrs Woolley issued two further assessments relating to her decision to
disallow input tax claims not substantiated by VAT invoices. They were on 19
June 2008 (date of calculation 22 May 2008) in the sum of ₤2,106 for
period 05/05, and on 8 September 2008 in the sum of ₤18,886 for periods
02/06 to 02/07 inclusive.
18.
On 22 September 2009 Mrs Woolley amended the assessments dated 7 May
2008 and 23 May 2008 by reducing the amounts due to ₤12,609 and
₤36,933 respectively. Mrs Woolley took this course of action after
considering additional evidence supplied by the Appellant in respect of his
input tax claims. Mrs Woolley also issued a new assessment for period 08/07 for
the repayment of ₤2,766 to the Appellant.
19.
On the 10 September 2010 Mrs Woolley met with Mr Settle and Mr Granger’s
father. Mr Settle produced seven purchase invoices from XL Transport Limited to
the Appellant on which a total of ₤53,833 in VAT had been incurred. Mr
Settle insisted that these invoices represented the monies paid by XL Transport
Limited for supplies made to the Appellant. Mrs Woolley rejected the invoices
as evidence to substantiate a claim by the Appellant for the VAT incurred in
the sum of ₤53,833. Her reasons for rejecting the Appellant’s claim were
that XL Transport Limited was not entitled to charge VAT on four of the seven
invoices which were dated prior to its effective date of VAT registration on 1
February 2007 and that XL Transport Limited had supplied no compelling evidence
of payment of the VAT on the supplies by the customers. Finally XL Transport
Limited after registration had not declared any output tax. Its first VAT
return was a nil return after which it had not submitted any returns. XL
Transport Limited was now insolvent with a debt of ₤78,934.89 as at 30
March 2012.
20.
On 9 October 2008 Mrs Woolley issued three misdeclaration penalties for
periods 05/05, 02/06 and 02/07. The last two penalties were quashed on review
because the amount of the error did not equal or exceed 30 per cent of the
gross amount of the tax due on the return. In respect of period 05/05 the error
made equated to 32 per cent of the tax due which resulted in a penalty of 15
per cent of the tax due (₤9,257) equalling ₤1,388. Mrs Woolley
decided that there were no grounds to mitigate the penalty describing the
Appellant’s co-operation with her enquiries as spasmodic.
Reasons
21.
Section 73(1) of the Value Added Tax Act 1994 gives HMRC authority to
issue assessments for VAT when specific circumstances apply:
“Where a person has failed to make any returns
required under this Act … or to keep any documents and afford the facilities
necessary to verify such returns or where it appears to the Commissioners that
such returns are incomplete or incorrect, they may assess the amount of VAT due
from him to the best of their judgment and notify it to him”.
22.
Under section 73 HMRC is required to consider fairly all material
placed before it by a tax payer and on that material, come to a decision which
is reasonable and not arbitrary as to the amount of tax due. HMRC is under no
obligation to do the work of the tax payer by carrying out an exhaustive
investigation of the tax payer’s VAT returns and accounting journals.
23.
Under section 25 of the VAT Act 1994 a taxable person is entitled at the
end of each accounting period to credit for input tax paid on taxable supplies
of goods or services made by a taxable person. Section 24(6)(a) of the 1994 Act
enables Regulations to be made which provide for VAT to be treated as 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. Regulation 29(2)(a) of the VAT Regulations 1995
requires a taxable person to hold a VAT invoice for the supply from another
taxable person, in respect of which a claim for input tax is made. Regulation
14(1) of the 1995 Regulations specifies the contents of a VAT invoice.
24.
Where a tax payer understates his liability to pay VAT that exceeds 30
per cent of the gross amount of VAT for that period he is liable to pay a
misdeclaration penalty representing 15 per cent of the VAT which would have
been lost if the inaccuracy had not been discovered (section 63(1) of the VATA
1994). Under section 63(10) a tax payer can avoid the penalty if he can
demonstrate a reasonable excuse or that he furnished HMRC with full particulars
of the error at a time when he had no reason to believe that enquiries were
being made in his tax affairs by HMRC. Under section 70 the Tribunal has power
to reduce the penalty to such amount including nil as it thinks proper.
25.
The Tribunal finds the following facts in relation to this Appeal:
(1)
The time limits for making the disputed assessments were met.
(2)
The assessments were derived from the figures for output and input tax
in the SAGE accounting records compiled by the Appellant.
(3)
The Appellant did not offer an explanation for the discrepancies between
the figures recorded in the SAGE accounting records and those in the VAT
returns.
(4)
The Appellant was given various opportunities to supply Mrs Woolley with
the requisite invoices to substantiate the input tax claims.
(5)
Mrs Woolley reduced the assessments where the Appellant adduced the
necessary evidence for an input tax claim.
(6)
The amounts in the amended assessments relating to input tax claims
consisted of those claims not evidenced by a VAT invoice.
(7)
The seven purchase invoices from XL Transport Limited produced at the 10
September 2010 meeting did not constitute evidence for a VAT repayment claim by
the Appellant. The Tribunal adopts the reasons given by Mrs Woolley in
paragraph 19 above.
(8)
The Appellant had understated his liability to pay VAT in the 05/05
return and, therefore, liable to pay a penalty of 15 per cent of the VAT due.
(9)
The misdeclaration penalty of ₤1,388.for period 05/05 was
correctly calculated. The Appellant offered no reasonable excuse for the error
in his VAT return. There were no mitigating circumstances to reduce the
penalty.
26.
The Tribunal’s findings of fact demonstrated that the assessments were
derived from the Appellant’s SAGE accounting records. The Appellant at no time
has challenged the correctness of the figures given in the SAGE reports. The
Appellant’s dispute with the assessments was that he was entitled to recover
the VAT disallowed by Mrs Woolley because he had paid for the supplies which
gave rise to the repayment claims during the relevant periods. Mrs Woolley’s
investigation, however, revealed that there was no evidence of valid VAT
invoices for the disputed input tax claims. The Tribunal finds that Mrs Woolley
carried out her duty under section 73 of the 1994 Act of considering the
information placed before her and coming to a decision which was reasonable and
not arbitrary as to the amount of tax due. The Tribunal is satisfied that the
assessments were correct.
27.
The facts showed that the Appellant had understated the VAT due in
period 05/05 and liable to a misdeclaration penalty of 15 per cent of the
understated tax. There were no mitigating circumstances to reduce the penalty.
Decision
28.
For the reasons given above the Tribunal dismisses the Appeal and
upholds the assessments and the misdeclaration penalty as set out in paragraph
1 above.
29.
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.
30.
As the Appeal was heard in the Appellant’s absence the Appellant may
also apply for the decision to be set aside provided he makes application in
writing to the Tribunal within 28 days from the date of this decision.
TRIBUNAL JUDGE
RELEASE DATE: 10 May 2012
