INPUT TAX - disallowed - five amounts - whether supplies made to the  Appellant - whether supplies used or to be used for the purpose of the business carried on by the Appellant - no - appeal dismissed - VATA 1994 S 24  

LONDON TRIBUNAL CENTRE

	MALLARD EXPORTS LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

			Tribunal:	DR A N  BRICE (Chairman)
MRS L M SALISBURY

Sitting in public in London on 23 June 2003

Mr R M Crichton, a former Director of the Appellant, for the Appellant

Mr Andrew O'Connor of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

The appeal
1.	Mallard Exports Limited (the Appellant) appeals against an assessment dated 7 February 2002 for tax of £5,222 and interest of £983.95 making a total amount assessed of £6,205.95. The assessment was raised because Customs and Excise dis-allowed five claims for input tax of £3,513, £30, £1,091, £155 and £433 on the ground that the supplies were not made to the Appellant and/or were not used by the Appellant for the purposes of its business. 

The legislation

2.	Section 25(2) of the Value Added Tax Act 1994 (the 1994 Act) provides that a taxable person is entitled to credit for input tax and may deduct that amount from any output tax due from him. Section 24 defines input tax and the relevant part of section 24 provides:

"24(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 … goods or services used or to be used for the purpose of any business carried on or to be carried on by him."

3.	Thus the effect of section 24 in this appeal is that input tax credit can only be claimed in respect of supplies which are both made to the Appellant and used for the purpose of the business of the Appellant.

The issues
 
4.	The issue for determination in the appeal was, in respect of each of the five claims for input tax, whether the supply was made to the Appellant and used or to be used for the purpose of any business carried on by the Appellant within the meaning of section 24.

The evidence

5.        A red bundle of documents was produced by the Appellant and a yellow bundle was produced by Customs and Excise. Oral evidence was given on behalf of the Appellant by Mr R M Crichton, a former director of the Appellant who represented the Appellant at the hearing. We did not find Mr R M Crichton to be a satisfactory witness; he appeared confused and some of his evidence was inconsistent. Oral evidence was given on behalf of Customs and Excise by Mr Simon Christopher Jennings an Officer of HM Customs and Excise. Mr Jennings made the assessment at issue in the appeal. We accept the evidence of Mr Jennings. 

The facts

6.	From the evidence before us we find the following facts.

The Appellant and its business

7.	Before the Appellant started trading the business subsequently carried on by the Appellant was first carried on by Mr R M Crichton, then by Mr R M Crichton trading as Mallard Marketing, then by Mallard Marketing and then by Mallard Exports Limited. During this time the family of Mr R M Crichton, which included his wife Mrs Carole Crichton, her mother Mrs Lily Hurley, and his son Mr R J Crichton, charged various properties to various banks as security. The banks gave overdrafts to these individuals which overdrafts were used by Mr R M Crichton for the purposes of the businesses. From about 1994 the banks started to demand repayment of their loans.

8.       The Appellant was registered for value added tax from 15 August 1997 and carried on the business of an exporter of wholesale pork rinds and bones. The business purchased pork bones and rinds from two or three different companies in the United Kingdom and exported them to purchasers in other member states. The goods were transported direct from the sellers to the purchasers. Most of the Appellant's sales were zero-rated.          

9.	          The financial statements of the Appellant for the year ending on 31 August 1999 stated that it had two directors (Mr R M Crichton and Mr R J Crichton) and that the company secretary was Mrs C Crichton. Turnover in the year was £50,222. The fixed assets of the company were plant and machinery and motor vehicles and did not include any properties. 

10.	On 13 March 2000 Mr R M Crichton resigned as a director of the Appellant because he was made bankrupt.

11.	The financial statements of the Appellant for the year ending on 31 August 2000 showed that the only director was Mr R J Crichton. The resignation of Mr R M Crichton was noted. Turnover had reduced to £36,364. The fixed assets of the company were office additions, plant and machinery and motor vehicles and did not include any properties. 

12.	The financial statements of the Appellant for the year ending on 31 August 2001 showed that turnover had decreased to £1,601 and the loss for the year was £11,674. The fixed assets of the company were office additions, plant and machinery and motor vehicles and did not include any properties. 
 
The events leading to the assessment

13.        On 18 January 2002 Mr Jennings carried out a routine assurance visit to the Appellant and saw Mr R M Crichton. The visit was to Mr R M Crichton's residence and took place in a room upstairs which was used as an office or study. Mr R M Crichton explained that over the last two years he had been made bankrupt due to a dispute with an associated company, PHB Butchers. Mr R M Crichton said that he was no longer a director of the Appellant but still ran the Appellant and that there had been no sales in 2001 because of the export ban on meat. Mr Jennings examined the value added tax returns against the source figures. The source documents were Excel spreadsheets and the figures tallied; each input tax figure was supported by a brief description.  

14.	Mr Jennings queried various input tax claims. He discussed these with Mr R M Crichton and reviewed some correspondence provided during the course of the visit. He noted that in the accounting period ending on 31 May 1999 input tax of £3,216.35 and £296.89 (totalling £3,513.24) had been claimed and he asked to see the invoices. There was a big bundle of invoices but the particular invoices to support these claims could not be found. Mr Jennings asked Mr R M Crichton about the claims and was told that they were legal fees relating to a private dispute with PHB Butchers. Mr Jennings also noted that, in the accounting period ending on 29 February 2000, input tax of £155.75 had been claimed in respect of legal work and was told that that also related to PHB Butchers. Mr Jennings left it that Mr R M Crichton would find the invoices relating to these claims and send them to him.

15.	Mr Jennings also queried the following claims for input tax:

(1)	 an amount of £30 in the accounting period ending on 30 November 1999; the tax invoice was from Aristocast Originals and was in respect of repairs to a portrait; Mr Jennings formed the view that this supply had not been used for the purpose of any business carried on by the Appellant;  

(2)	an amount of £1,091.27 in the accounting period ending on 30 November 1999 in respect of legal fees. Mr Jennings asked to see the invoice and Mr R M Crichton produced an invoice from Messrs Conway & Co about the sale of his private residence which Mr R M Crichton claimed had been charged as a security for a business loan. The amount of the value added tax shown on the invoice did not tally with the amount claimed but in any event Mr Jennings formed the view that the amount had to be disallowed because the supply had not been made to the Appellant and had not ben used for the purpose of the business of the Appellant; and. 

(3)	an amount of £433.70 in the accounting period ending on 31 August 2000 being in respect of the purchase of a conservatory from B & Q. Mr Jennings saw a till receipt for this amount from B & Q which did not state the name of the purchaser. Mr R M Crichton said that the conservatory was for business use to entertain clients. However, Mr Jennings was of the view that the study he was in was used for clients and so disallowed the claim relating to the conservatory.    

16.	On 21 January 2002 Mr Jennings wrote to the Appellant and notified it of the dis-allowance of claims for input tax of £30, £1,091, and £433.  Mr Jennings also asked for evidence that the supplies of legal fees relating to PHP Butchers had been made to the Appellant; he wanted to see invoices addressed to the Appellant. Mr R M Crichton replied to say that he was not aware that he had made any claims relating to a dispute with PHP Butchers and would telephone the next day. 

17.	On 27 January 2002 Mr R M Crichton wrote to Customs and Excise and agreed that he should not have claimed the £30 input tax in respect of the invoice from Aristocast Originals. He said that the amount of £1,091 was in respect of legal fees incurred because the National Westminster Bank and the Midland Bank had demanded repayment of business loans secured on his house and other family properties. The £433 was in respect of the purchase of a conservatory and a similar claim made in the 1980's had been allowed. The letter also mentioned that the Appellant had claimed input tax of £155.75 twice in respect of the same invoice from Field Seymour Parks and so agreed that the claim for £155.75 should be dis-allowed. 

18.	On 28 January 2002 Mr Jennings wrote to the Appellant and said that the Appellant had claimed input tax in respect of legal fees relating to the dispute with PHP Butchers in the accounting period ending on 31 May 1999 for £3,216.35 and £296.89 and in the accounting period ending on 29 February 2000 for £155.75. 

19.	An assessment was then issued on 7 February 2002 to dis-allow the claims for £30, £1,091, £433, £3,513 (being £3,216.35 with £296.89) and £155.75. That is the assessment against which the Appellant appeals.  

The correspondence after the assessment

20.	On 5 and 6 February 2002 Mr R M Crichton wrote to Customs and Excise and he wrote again on 8 February. The letter of 8 February appeared to agree that the dis-allowance of the amounts of £155, £30, and £433 were correct. It disputed the dis-allowance of the amounts of £3,513 and £1,091 and claimed a further amount of £2,776.60 which, it was said, had not been claimed in any return. Part of that further amount related to invoices from Messrs Conway & Co of May 1999, October 1999 and 28 April 2000. 

21.	In February 2003 Mr R M Crichton was released from his bankruptcy. 
 
The arguments of the Appellant

22.	For the Appellant Mr R M Crichton argued that the amounts of £3,513 and £155 were in respect of legal fees but not fees in relation to a dispute with PHP Butchers. He agreed that the amount of £30 should be disallowed. He argued that the amount of £1,091 related to the sale of his house which had been charged as security for a business loan and also for returning a car to a hire purchase company (Warrior Finance) and did not relate to legal services connected with PHP Butchers. He thought that the amount of £155 was part of the amount of £1,091 and so had been double counted in which case he agreed that it should be disallowed. He argued that the amount of £433 was in respect of the conservatory and a previous amount had been allowed at an earlier date.  
	
The arguments for Customs and Excise

23.	For Customs and Excise Mr O'Connor argued that the supplies in respect of which the input tax had been dis-allowed had not been made to the Appellant and had not been used by the Appellant for the purposes of its business. Accordingly, tax on those supplies was not input tax as defined in section 24. 

Reasons for Decision

24.	In considering the arguments of the parties we have found it convenient to consider each of the dis-allowed claims separately. 

(1)  - The amount of £3,513

25.	This amount relates to two claims for input tax credit of £3,216.35 and £296.89 respectively in the accounting period ending on 31 May 1999; both claims were disallowed because Customs and Excise were of the view that the supplies were in respect of legal fees relating to a private dispute between Mr R M Crichton and PHP Butchers. 

26.	There was a conflict of evidence about what was said about these invoices at Mr Jennings' visit of 18 January 2002. Mr Jennings gave evidence that he was told during his visit that the supplies were supplies of legal services relating to a private dispute between Mr R M Crichton and an associated entity, PHP Butchers. Mr R M Crichton disputed this and said that he did not mention PHP Butchers. Mr Jennings' evidence is supported by contemporaneous documents including his notes taken at the visit, his visit report, and his letter of 21 January 2002 asking for evidence about these supplies. We therefore prefer the evidence of Mr Jennings as to what was said on 18 January 2002.

27.	However, it may be that Mr R M Crichton was mistaken when he mentioned PHP Butchers to Mr Jennings and that the claims for input tax related to other legal services. In that case we would expect the Appellant to produce invoices to support the claims.  

28.	At the hearing Mr R M Crichton did produce seven invoices, and two statements of account, which are summarised below. Some of these had already been produced to support the additional claim for £2,776.60 made in the Appellants' letter of 8 February 2002. The input tax in respect of all nine documents amounted to £7,686.11.

29.	The seven invoices were:

(1)	An invoice dated 18 September 1998 from Messrs Sorrell, Chartered Surveyors, addressed to Mrs C Crichton in respect of the introduction of a purchaser for 81 Salisbury Avenue; the amount of value added tax was £177.62;

(2)	An invoice dated 12 May 1999 from Messrs Conway & Co, Solicitors,  addressed to Mrs Carole Crichton in respect of proceedings against National Westminster Bank and a warrant for possession;  the amount of value added tax was £84; this invoice had already been produced on 8 February 2002;

(3)	An invoice dated 14 May 1999 from Messrs Conway & Co addressed to Mrs Carole Crichton in respect of advances with Midland Bank Plc and correspondence about rent for 2 Queen Street Henley-on-Thames; this invoice showed value added tax of £44.10; this invoice had already been produced on 8 February 2002;

(4)	An invoice dated 14 May 1999 from Messrs Conway & Co addressed to Mrs Carole Crichton in respect of a dispute with Westminster Bank Plc about 24 Ridgway and 81 Salisbury Avenue; it showed value added tax of £1,176.77 and had already been produced on 8 February 2002;
  
(5)	An invoice dated 14 May 1999 from Messrs Conway & Co addressed
to Mrs Crichton in respect of the sale of 24 Ridgeway;  the amount of value added tax was £360.50; 

(6)	An invoice dated 29 October 1999 from Messrs Conway & Co addressed to Mrs Lily Hurley for legal services in connection with the sale of 61 Salisbury Avenue; the amount of value added tax was £87.50; and

(7)	An invoice dated  28 April 2000 from Messrs Conway & Co addressed to Mrs Hurley in respect of the sale of 57 and 67 Salisbury Avenue; the amount of value added tax was £355.25. 

30	In considering these invoices it is relevant that the dis-allowed claims were of the amounts of £3,216.35 and £296.89 and were made in the accounting period ending on 31 May 1999. Only invoices (2), (3), (4) and (5) above relate to the accounting period ending on 31 May 1999 and so only these could be relevant. The amounts of value added tax on these invoices do not tally with the amounts claimed of £3,216.35 and £296.89. In any event Mr R M Crichton stated in his letter of 8 February 2002 that he had not claimed input tax in respect of invoices (2), (3) and (4) in any return. Further, none of invoices (2), (3) (4) or (5) are addressed to the Appellant. We therefore conclude that these supplies were not made to the Appellant. Finally, it is relevant that all these supplies relate to properties and the financial statements of the Appellant indicated that it did not own any properties. Mr R M Crichton argued that the supplies were used by the Appellant because the properties were sold in order to repay loans which had been used in the business of the Appellant. We do not accept that argument. The supplies were made to the owners of the properties mentioned in the invoices (and not to the Appellant) and the supplies were used by the owners (and not by the Appellant) to realise money to repay the loans made to the owners by various banks.   

31.	In addition to the seven invoices two statements of account were produced by Mr R M Crichton. These were:

(1)	A statement of account from Messrs Conway & Co dated 13 May 1999 about the sale of Ridgway; this showed in the account details of a bill for the proceedings against the Natwest Bank with value added tax of £3,014.27; fees relating to Midland Bank with value added tax of £44.10; fees relating to National Westminster Bank v Homeloans Limited with value added tax of £84; and a contribution to legal fees paid by National Westminster Bank of which the value added tax was £1,837.50; thus the total of the amounts of value added tax mentioned on the statement was £4,979.87; and 

(2)	A completion statement addressed to Mrs Hurley dated 28 April 2000 about the sale of 57 and 67 Salisbury Avenue; this showed legal fees amounted to £2,000 with value added tax of £350 in addition; the statement was marked in manuscript pencil "£420.50" and that was the amount that the Appellant wished to claim as input tax. 

32.	Statements of account are not tax invoices and cannot be used to support a claim for input tax. In any event two of the amounts shown in the statement of account of 13 May 1999 (the amounts of £84 and £44.10) repeat the amounts shown in invoices (2) and (3) above and the amount shown on the statement of 28 April 2000 appears to repeat the amount shown in invoice (7) above.  

33.	Having considered all the evidence we conclude that the Appellant has not produced evidence to support the claims for input tax credit of £3,216.35 and £296.89 respectively in the accounting period ending on 31 May 1999.

(2)	The amount of £30

34.	The amount of £30 was disallowed in the accounting period ending on 30 November 1999 because Customs and Excise were of the view that it related to a purchase invoice from Aristocast Originals for repairs to a portrait and that the supply was not to be used for the purpose of any business carried on by the Appellant. The Appellant agreed that the amount of £30 should not have been claimed as input tax.

(3)	The amount of £1,091 

35.	The amount of £1,091 was disallowed in the accounting period ending on 30 November 1999 because Customs and Excise were of the view that it related to an invoice for legal fees for the sale of Mr Crichton's private residence which had been charged as security for business loans made to the Appellant and that the supply was not made to the Appellant and was not used for the purpose of any business carried on by the Appellant. The Appellant argued that the amount of £1,091 was in fact three separate amounts, one for legal fees for the sale of a private residence and the other two for legal fees in respect of the handing back of a car to a finance house. At the hearing the Appellant produced three invoices of which the value added tax added up to £1,091.13. They were:

(1)	An invoice dated 21 April 1999 from Messrs Simmons and Lawrence estate agents addressed to Mr and Mrs R Crichton in respect of commission on the sale of 24 Ridgeway; the amount of value added tax was £931.88;

(2)	An invoice dated 27 May 1999 from Messrs Field, Seymour Parkes Solicitors addressed to Mr R M Crichton being an interim account for advice in connection with "PHP Butchers/Propser De Mulder" and a bankruptcy search; the value added tax amounted to £155.75;  and 

(3)	An invoice dated 12 August 1999 from Messrs Winter & Co Solicitors addressed to Mr R M Crichton for writing four letters and receiving four letters; the amount of value added tax was £3.50.

36.	At the hearing Mr R M Crichton claimed that the invoices (2) and (3) related to the return of a company car where PHB had paid the initial instalments which had then been taken over by the Appellant. The only evidence before us to support this claim was a facsimile message dated 28 February 2000 from Messrs Field Seymour Parkes to Mr R M Crichton about Warrior Finance; however the actual message was not shown on the copy produced at the hearing. We were also shown an undated letter from Warrior addressed to Mr R M Crichton about an application for finance.

37.	On the evidence before us we accept that the three amounts of value added tax shown on these three invoices and amounting to £1,091 were the amounts which represented the claim in the accounting period ending on 30 November 1999. As far as the first invoice is concerned this was not addressed to the Appellant, the supply was not made to the Appellant, and the supply was not used for the purposes of the business of the Appellant. As far as the other two invoices are concerned, on the evidence before us we are not satisfied that they relate to supplies to the Appellant. In our experience solicitors are usually extremely careful in identifying the names of their clients with some precision. If the supplies were made to the Appellant then it is most probable that the Appellant's name would appear on these two invoices which it does not. 

38.	Further the evidence before us does not support Mr R M Crichton's contention that the fees related to the return of a company car belonging to the Appellant; the work mentioned in the invoices makes no mention of a company car and invoice (2) describes other work. Indeed, in oral evidence Mr R M Crichton accepted that invoice (2) related to his bankruptcy. Finally, the documents about the car produced by Mr R M Crichton are not consistent with his contentions because the invoice from Messrs Field Seymour Parkes was dated 27 May 1999 and the facsimile message from the same firm which was alleged to be about the car was dated 28 February 2000.    

39.	Having considered all the evidence we conclude that the Appellant has not produced evidence to support the claims for input tax credit of £1,091 in the accounting period ending on 30 November 1999.  

(4)	The amount of £155  

40.	The amount of £155 was disallowed in the accounting period ending on 29 February 2000 because Customs and Excise were of the view that it related to supplies of legal services in respect of the private dispute between Mr Crichton and PHP Butchers and that the supply was not made to the Appellant and was not to be used for the purpose of any business carried on by the Appellant.

41.	As far as the amount of £155 was concerned, the Appellant could not produce an invoice for this supply but thought that it was the same amount as that shown on the invoice dated 27 May 1999 from Messrs Field, Seymour Parkes which had been included in the amount of £1,091.

42.	We have already dis-allowed the claim for £155 in connection with the amount of £1,091 above and we also dis-allow the repeat claim for £155.

 (5)	The amount of £433

43.	The amount of £433 was disallowed in the accounting period ending on 31 August 2000 because Customs and Excise were of the view that it related to the purchase from B & Q of a conservatory and the supply was not to be used for the purpose of any business carried on by the Appellant. The invoice was a till receipt and so did not contain the name of the purchaser. In evidence Mr R M Crichton told us that the conservatory was used for business "once a month". We bear in mind that the Appellant did not own any property and so the conservatory could not have been built on land owned by the Appellant. Having regard to all the evidence before us we are not satisfied that the supply of the conservatory was made to the Appellant nor that it was used for the purpose of the business of the Appellant. 

Decision

44.	Our decision on the issue for determination in the appeal is that, in respect of each of the five claims for input tax, the supply was not made to the Appellant and the supply was not used or to be used for the purpose of any business carried on by the Appellant within the meaning of section 24.

45.	The appeal is, therefore, dismissed.

DR NUALA BRICE

CHAIRMAN

RELEASE DATE:

LON/2003/0048
09.09.03