[2012] UKFTT 693 (TC)
TC02362
Appeal number:
TC/2009/09754
VAT – Input Tax – validity of VAT invoices – exercise
of discretion by HMRC to allow claim for input tax – whether taxable supply has
taken place – whether supplier is taxable person.
FIRST-TIER TRIBUNAL
TAX CHAMBER
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SPECIAL METALS
AND ENGINEERING LIMITED
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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 W D F COVERDALE
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MR M ATKINSON
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Sitting in public at Leeds on 1st August 2011
Mr R Barlow, Counsel, for the
Appellant
Mr B Haley of the Solicitor’s
office of HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2012
DECISION
1.
The Appellants Special Metals and Engineering Limited appeal a Value
Added Tax Notice of Assessments dated 03.04.2009 in the sum of £66422. The
Notice covered those quarterly tax periods referenced 12/06 to 03/08 inclusive
and was issued pursuant to S73(2) Value Added Tax Act 1994.
2.
The grounds upon which the disputed Assessments were made by HMRC were
as follows:
1.) The Appellant carries
on a business as a dealer in metals from premises in Rotherham and has been
registered for Value Added Tax with effect from 01.09.1998 and the registration
remains extant.
2.) The Appellant was visited
on 22.10.2008 by an officer of HMRC in order to verify the return for the
period 03/08 which showed a repayment due to the Appellant; it was also wished
to verify the accuracy of a recently submitted voluntary disclosure. A further
visit was made on 13.11.2008 in order to check the details of the Appellant’s
suppliers; three of those suppliers gave HMRC cause for concern:
(a)
Dowgate Contractors Limited (Dowgate) – (£12941 input tax).
It became apparent that this trader was deregistered for
VAT with effect from 01.08.2006. Purchase invoices detailing supplies to the
Appellant are dated between 21.09.2006 and 26.02.2007. The address on the
invoices is shown as Glebe Farm but the trader moved to 17 Palatine Road, Rochdale on 18.11.2005. The appellant did not visit this supplier’s premises and dealt with
a Steve Burke who apparently now resides in Cyprus. The goods were delivered by
the supplier but the appellant is unsure of the method used.
(b)
Fiadem Limited (Fiadem) – (£25502 input tax).
This trader was deregistered for VAT with effect from
25.06.2008. Purchase invoices detailing supplies to the Appellant are dated
between 12.12.2007 and 20.03.2008. The Appellant did not visit this supplier’s
premises and dealt with a Neil Butcher by telephone. The Appellant could not
recall the transport arrangements.
(c)
Tachman UK Limited (Tachman) – (£27933 input tax).
This trader was deregistered for VAT with effect from
14.02.2008 (as a missing trader) Purchase invoices detailing supplies to the
Appelant are dated between 16.03.2007 and 26.02 2008. The Appellant could not
recall whether they had visited this supplier’s premises and all transactions
had been made through a Johnny Tach.
3.) On 15.01.2009 HMRC
wrote to the Appellant advising that attempts to contact the suppliers at (a)
to (c) above proved fruitless and no evidence of trading could be found. HMRC
further advised that, despite the Appellant holding copy VAT certificates for
these suppliers and details of payments, they considered the claims to input
tax to be invalid. On 06.05.2009 HMRC requested an explanation as to why, in
the case of the Tachman and Dowgate supplies, the payments were split between
cash for the net amount on the invoices and cheque for the VAT amount and
enquired if there were any delivery notes for the goods and stock records for
the goods. Cheques made out to Dowgate and Tachman were cashed through third
parties. Initially no reply to these enquiries was received.
3.
Essentially the Appellant’s grounds of appeal are that the tax was
incurred in respect of a legitimate business purpose and the invoices were
valid.
4.
The law relating to credit for input tax is contained in S24, 25 and 26
Value Added Tax Act 1994. S24(1) provides the definition of input tax:
“S24(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;
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.”
S24(6) provides: “Regulations may
provide:-
(a) for VAT on the supply of goods or services to a taxable person ... to
be treated as his input tax only if and to the extent that the charge for
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.”
S25(2) provides:
“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
as is due from him.”
S26(1) provides:
“The amount of input tax which a taxable person is entitled to credit at the
end of any period shall be so much of the input tax for the period (that is
input tax on supplies, acquisitions and importations in the period) as is
allowable by or under regulations as being attributable to supplies within
subsection (2) below;
(2)(a) taxable
supplies:”
5.
Regulation 29(2)(a) of the Value Added Tax Regulations 1995 provides:
“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) supply from another taxable
person, hold the document which is required to be provided under regulation 13:
(b) to (f) ...
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.”
6.
Mr Haley, on behalf of HMRC submits that there are two issues before the
Tribunal:
1.) Did supplies take
place? If they did not there can be no input tax.
2.) If there were
supplies, are the invoices valid VAT invoices.
7.
With regard to the matter of whether supplies took place the Tribunal
has heard much evidence about the nature of the Appellant’s business. This is
well outlined in the Witness Statement of Martin Barber, the Managing Director
of the Appellants who has also given oral evidence today. He presents as a
respectable businessman who has much experience in the scrap metal trade,
having spent all his working life in the business. He describes his practices
in agreeing to buy metals from vendors, taking delivery, booking the goods into
his records, quoting a price and receiving an invoice from the vendor. Most
vendors were known to him so he did not routinely check VAT numbers on
invoices.
8.
Some vendors were simply paid by cheque but others preferred to call at
the Appellants’ premises and collect a cheque for the VAT and cash for the net
amount. These vendors would be dealers and may or may not need cash on the day
in order to do further business with other parties.
9.
Mr Barher goes on to explain that since 2006 he has been requiring sight
of copy VAT registration certificates from all suppliers. He was told by
another dealer that an officer of HMRC had indicated that the VAT element of
invoices should always be paid by cheque so thereafter this is what he did. He
gives convincing evidence that this practice is now customary in the trade and
this is his explanation for paying his customers part in cash and part by
cheque. The Tribunal accepts this evidence and does not find the need to make
further enquiry about that aspect of HMRC’s concerns.
10.
Mr Barber says that he paid all three suppliers, Dowgate, Tachman and
Fiadem in this way.
11.
Mr Barber did not visit the stated business of Dowgate because he
assumed that nobody would be there during the working day. His efforts to trace
their Mr Burke have proved fruitless; the gentleman is now believed to be
living in Cyprus. He has known of the Tachman business for many years and knew
their Mr John Myers, also known as Mr Tach, as someone well known in the trade.
Mr Barber obtained a copy of his VAT Registration certificate but did not visit
his premises for the same reason as stated above. Likewise he obtained a copy
of Fiadem’s VAT Registration certificate.
12.
Mr Barber’s case is that he did everything that could reasonably have been
expected of him to ensure that these suppliers were bona fide traders and
properly registered for VAT. All of his purchases from these dealers were
recorded on a contemporary basis in his Inwards Notebook, a copy of which is
produced to the Tribunal.
13.
HMRC’s position has previously been that it is acknowledged that there
has been a supply of goods to the Appellants but not necessarily the
supply of all the goods that purport to be the subject of the VAT invoices
given to the Appellants. That position has not really changed during the
hearing of this appeal: Mr Robert Payne, an officer of HMRC, who has given oral
evidence to the Tribunal, says that there is still some doubt about whether the
transactions took place and he does not accept that the transactions
necessarily took place. He evidently remains unsatisfied, beyond reasonable
doubt, that the transactions took place. The Tribunal does not accept that is
the correct threshold for assessing the evidence in this case: on the balance
of probabilities all of the transactions that are the subject of the various
invoices in this case did take place. The Tribunal has been assisted in drawing
this conclusion by the credible evidence – given on oath – of Mr Barber and the
comprehensive Schedule of Transactions that he has produced from his business
records.
14.
The Tribunal, therefore now focuses upon the validity of the invoices.
15.
The Tribunal’s attention has been drawn to a document issued by HMRC
namely ‘Statement of Practice: VAT Strategy – Input tax deduction without a
valid VAT invoice.’ This addresses the difficulties that can arise (both for
business traders and HMRC) from the use of invalid VAT invoices and refers to
the initial remedy of returning to the supplier and asking for a valid VAT
invoice. If, for some reason, this cannot be done the trader may still be
entitled to input tax recovery: in most cases, provided businesses continue to
undertake normal commercial checks to ensure their supplier and the supplies
they receive are bona fide prior to doing any trade, it is likely that
they will be able to satisfy HMRC that the input tax is deductible.
16.
Paragraph 5 of the Statement of Practice refers to certain conditions:
“5. A business has incurred input tax if the following
conditions are met:
- there has actually
been a supply of goods or services;
- ...
- the supplier is
a taxable person, ie someone either registered for VAT in the UK, or required to be registered;
- the supply is
made to the person making the deduction;
- the recipient is
a taxable person at the time the tax was incurred; and
- the recipient
intends to use the goods or services for his business purposes.
17.
Paragraph 6 refers to a discretion that can be exercised by HMRC:
“6. If you are a taxable person, in order to exercise
your basic right to deduct input tax, you must hold a valid VAT invoice.
Without a valid VAT invoice, there is no right to deduct input tax. However, in
the absence of such an invoice, you may still be able to make claims for input
tax, but these claims are subject to HMRC’s discretion. This of course assumes
that a taxable supply has taken place. Where HMRC question the fact that an
underlying supply has taken place, these provisions do not apply.”
18.
Paragraph 7 refers to evidence and confirms that HMRC may “consider
evidence other than that contained in documents when exercising their
discretion.”
19.
Paragraph 8 refers to the required contents of a valid VAT invoice and
will not be recited here.
20.
It has already been stated that the Tribunal finds that the taxable
supply has been made. The Tribunal now addresses the question of whether, in
case the invoices are invalid, HMRC should properly have exercised their
discretion and allowed claims for input tax credits. The Tribunal has power to
do this pursuant to a supervisory jurisdiction over the exercise of HMRC
discretion.
21.
It is HMRC’s case that the three suppliers were de-registered for VAT
“with effect from” various dates. The Tribunal needs to ascertain not only the
dates when de-registration was effected but also whether the suppliers were
‘required to be registered’ (paragraph 5 of the Statement of Practice).
22.
Dowgate was evidently deregistered with effect from 01.08.2006 (and
indeed apparently in liquidation). The Tribunal will accept that it was
deregistered at all material times for present purposes ie in particular it was
deregistered at the dates of the supplies to the Appellant. However the level
of the transactions with the Appellant clearly indicates that Dowgate was registrable,
the turnover clearly being above the VAT threshold for registration (£59.000);
the value of the supplies made by Dowgate to the Appellant was £88,942.71 in
five months; Dowgate was a taxable person. The Appellants had always dealt with
the same person (although there now appears to be some doubt as to identities
and there may have been some other person purporting to represent Dowgate); It
would not be reasonable to expect the Appellant to travel to visit Dowgate’s
premises; it is concluded that there was no onus on the Appellant to enquire
further as to Dowgate’s VAT status.
23.
Fiadem was registered for VAT at all material times: the relevant
supplies were between 12.12.2007 and 20.03.2008; the company was not
deregistered until (with effect from) 25.06.2008; all the supplies were made by
it as a registered taxable person. They were a new customer to the Appellant
but known to Mr Barber and referred to him by someone in the trade.
24.
Tachman was evidently deregistered for VAT with effect from 14.02.2008;
relevant supplies were between 16.03.2007 and 26.02.2008; the only supply that
falls outside this period is a supply valued at £7,979.83 – one of the smaller
Tachman invoices – on 26.02.2008 (twelve days after deregistration), all
others being within the period of registration.
25.
The Tribunal has concluded that in all cases the volume of transactions
were such as to entitle the Appellant to assume that the three suppliers were
registered because the transactions would have made them registrable. Normal
commercial checks were made by the Appellants: VAT Registration certificates
were checked at the outset of dealings with their suppliers; they had no reason
to believe that there had been deregistrations; there was no onus on the
Appellants to enquire further into the status of the suppliers.
26.
Furthermore it is apparent that normal commercial arrangements were in
place: there has been a satisfactory explanation of the mixed payments of cash
and cheques as stated in paragraph 9 above.
27.
The position of HMRC has no doubt been influenced by the fact that the
three suppliers have not accounted for output tax. There has been a loss to
HMRC. This was not to be known to the Appellant and is not the issue before the
Tribunal today. The Tribunal accepts that, realistically, the Appellant had no
means of knowing that the suppliers had been deregistered at material times.
28.
Up to the date of deregistration the VAT invoices from Fiadem and
Tachman were valid. The other VAT invoices were invalid but the Tribunal
concludes that discretion has not properly been exercised by HMRC on the basis
of information available at the date of the decision that has been appealed. An
invalid VAT invoice can never truly be validated but this can be done, and is
endorsed by the Tribunal, for the purpose of allowing a claim for input tax.
29.
This appeal is therefore allowed.
30.
As the Tribunal’s jurisdiction is supervisory HMRC is directed to review
again all of the invoices in question in order to implement the Tribunal’s
decision.
31.
Mr Barlow for the Appellants made no application for costs and no order
is made.
32.
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.
W D F COVERDALE
TRIBUNAL JUDGE
RELEASE DATE: 23 October 2012
