19220
VALUE ADDED TAX – ASSESSMENT – validity – whether for a prescribed accounting period – Hindle considered – yes – assessment valid.

VALUE ADDED TAX – TRIBUNAL – jurisdiction to raise issues of its own motion.

LONDON TRIBUNAL CENTRE

BARRY HOPCRAFT	Appellant

-	and –

COMMISSIONERS OF CUSTOMS AND EXCISE 	Respondents

			Tribunal:	RICHARD BARLOW (Chairman)
					MR S K DAS

Sitting in public in London on 23 March 2005

The Appellant in person

Dr I Hutton of counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

Introduction

1.	This appeal was first heard by the tribunal on 15 March 2004.  Following that hearing a part decision was released (decision number 18590) dealing with the issue whether the appellants had made taxable supplies.  We decided that they had made taxable supplies.

2.	At that hearing the parties were represented as they were for this hearing and the chairman raised the question whether the assessment of tax, in an assessment contained in a letter dated 8 May 2002, was a valid assessment.  Although the case was listed for two days and the issue about the liability of the supplies was fully argued in one day, Dr Hutton asked for the issue about the validity of the assessment to be stood over to a different date as it would, or might, require the Commissioners to seek out additional evidence to show that a direction had been made varying the prescribed accounting periods.  

3.	We agreed to deal with the matter in that way.  It is unclear why the resumed hearing has been delayed for so long after the earlier hearing but we have no reason to think that any criticism attaches to the parties for that.

4.	The point raised was whether the period of the assessment was, or needed to be, a prescribed accounting period.  The assessment related to the whole period for which the appellants were liable to register namely beginning on 1 March 1998, which Mr Hopcraft agreed was the correct effective date for registration, assuming the supplies were taxable which we held they were, and ending with the death of Mrs Hopcraft on 12 September 2001 when Mr Hopcraft regrettably therefore became a sole trader.

Validity of the assessment

5.	Regulation 25(1)(b) of the Value Added Tax Regulations 1995 requires the first return of a trader to begin with the effective date of registration.

6.	If a person fails to register but was required to do so, regulation 25(1) imposes a liability to make returns for each quarter and “quarter” is defined in section 96(1) of the VAT Act 1994 as every period of three months ending March, June, September or December.

7.	In principle therefore the combination of the two regulations referred to would have required the partnership to make its first return for the period of one month for March 1998 and thereafter quarterly until a final return should have been made, under regulation 25(4), for the period 1 July 2001 to 12 September 2001.

8.	A combination of sections 96(1) and 25(1) of the VAT Act and the Regulations already cited makes the periods referred to “prescribed accounting periods”.   

9.	No criticism can be made against Mr or Mrs Hopcraft for not making those returns as they held an honest belief that they were not liable to register.

10.	By the time the assessment was made some of the quarterly periods would have been out of time for assessment under section 77(1) of the VAT Act 1994, which allows an assessment to be made only within three years of the end of the prescribed accounting period.

11.	The Regulations provide Customs and Excise with a power to deal with that sort of situation and to avoid periods becoming out of time for assessment by way of Regulation 25(1)(c) which reads (so far as is relevant):

“(c) where the Commissioners consider it necessary in any particular 
case to vary the length of any period or the date on which any period  
begins or ends … they may allow or direct any person to make returns 
accordingly, whether or not the period so varied has ended;”

12.	That power enables the Commissioners to require a person who has failed to register to make a single return for how ever long the period in which he has failed to register may be.  Normally, that will require a variation of the length of a period or periods which had already applied to the unregistered trader; namely the quarterly periods referred to in regulation 25(1).  The time limit provisions make time run from the end of any prescribed accounting period, which will include a period that has been varied under regulation 25(1).  The Commissioners therefore have the power to assess for as long a period as may be necessary by varying the existing periods and then assessing the tax within three years of the end of that period; though they also have to comply with the separate time limit provisions in section 73(6) of the VAT Act 1994. 

13.	In the part decision already issued the tribunal had drawn the parties’ attention to the case of Hindle t/a D J Baker Bar –v- Customs and Excise Commissioners  [2003] EWHC 1665(Ch) reported at 2004 STC 412.  That case was heard before the earlier hearing in this case but was only reported after the hearing.

14.	Dr Hutton argued that that case had settled the question which we still have to decide in that he contended that it decided that an assessment for a ten month period was valid, even though that period had not been made a prescribed accounting period.  There was nothing special about the period being ten months except that it happened to be the period in which Mr and Mrs Hindle traded in partnership.  By the same reasoning the assessment for the period in question in this case would also be valid.

15.	If that was what the High Court held to be the case in Hindle we are of course bound by the holding unless there is some material difference between this case and that one. 

16.	 Equally, if that is what the High Court decided in Hindle it appears to be a departure from what had always been understood to be the case and had apparently been, at least, inherent in the reasoning of the Judges in earlier High Court and Court of Appeal cases; including those cited in the judgement of Neuberger J in Hindle.

17.	Section 73 of the VAT Act 1994 under which the assessment was raised in this case begins with the words “Where a person has failed to make any returns required under this Act …”.  That clause is followed by others dealing with the power to assess where the trader has not kept the means to verify the accuracy of returns which have been made or where the returns appear to be incorrect.  

18.	The phrase “failure to make any returns required under [the] Act” appears to contemplate that the assessment will be tied to the prescribed accounting periods even in the case of a failure to make a return; because the only returns required under the Act are those required for prescribed accounting periods (section 25(1)).  

19.	The time limit provisions in sections 73(6), 77(1) and 77(4) are all tied to prescribed accounting periods and there are no alternative time limits set for assessments not related to prescribed accounting periods.  Given that the legislation has set time limits for assessments in what may be termed the ordinary cases, including those where there has been a failure to register or dishonesty, it would be odd if the Commissioners had a separate and additional power to assess for just whatever period they like and thereby to circumvent all limits of time.

20.	Against that background we turn to consider the judgement in Hindle.

21.	The relevant issue in that case related to an assessment for a period in which the appellants were not registered and which was not obviously for a prescribed accounting period, being for a ten month period from 1 December 1995 to 30 September 1996; though that period was the whole of the period for which that particular legal entity traded.  The period of ten months might therefore have been said to be an amalgam of several periods provided for by regulation 25, being an opening period consisting of part of a quarterly period (starting on the date it does because of regulation 25(1)) and several full quarterly periods.  However, most of those periods would have been out of time by reason of the three year time limit as the assessment was not raised until 27 September 1999.    

22.	The assessment letter is quoted in paragraph [6] of the judgement and it refers to the appellants having “failed to make the return of value added tax [they] were required to make in respect of the period from 1 December 1995 to 30 September 1996”.  The reference to a single return for such a period would only be accurate if a direction had been given under regulation 25(1)(c) or the appellant had requested permission to make a return for that period and had been allowed to do so under the same regulation.

23.	Paragraph [23] of the judgement refers to it being the appellants’ case that the assessment was invalid because it was not for an accounting period provided for by the Act and so it appears that counsel for the appellants had put that point in issue. 

24.	Dr Hutton relied strongly on paragraph [40] of the judgement in which counsel for the Commissioners is said to have been chary about relying on regulation 25(1)(c) because: 

“… reg 25(1)(c) appears to apply to a case where the commissioners 
are going to ‘allow or direct any person to make returns accordingly’, 
and there was no question of that happening in the present case.  
[Counsel] prefers to put her case on reg 40(3) on the basis that reg 40 
is concerned with payment of VAT, whereas reg 25 is concerned with 
returns.”
 
25.	Dr Hutton emphasised the words “there was no question of that happening here” and rightly pointed out that they appeared to rule out any suggestion that a direction had been given that would have made the ten month period a prescribed accounting period.

26.	However, paragraph [40] only summarises counsel’s contentions and does not represent Neuberger J’s holdings.

27.	At paragraphs [41] and [42] Neuberger J points out that there would be no reason why the commissioners would have to divide up the ten month period into quarters and parts of quarters and that there was nothing in regulations  25 or 40 that would prevent that.  That is of course the case; though a direction would have been required.  It therefore seems that a direction must have been given, as was implied in the quotation from the commissioners’ letter in paragraph [6]. 

28.	Paragraph [43] of the judgement contains the Judge’s decision about the validity point and he decided only that an assessment need not be restricted to a case where a return has been made.

29.	We therefore hold that the Hindle case did not decide that the commissioners can assess tax for just any period they choose.  Nor can they assess for the whole period of trading on the basis that it is made up of periods which are quarters or part quarters without the time limit applying.  

30.	In this case, as we have already pointed out, the assessment would include periods that were out of time if the commissioners had to rely on the quarterly periods.  They have clearly assessed for a single period ending on 12 September 2001 and the validity of the assessment depends upon that period having been directed as a prescribed accounting period by way of a variation to the quarterly periods.

31.	The letter dated 8 May 2002, by which the commissioners notified the appellant of the assessment, contains the following sentence “Instead of accepting this assessment you may make a single return and pay any tax shown on the return as being due”.  The earlier references to the period 1/3/98 to 12/9/01 in that letter make it clear that the reference to “a single return” is a reference to a return for that period and amounts in our view to a direction to make a return for that period. 

32.	It is unusual for the direction to be in the same letter as the assessment but there does not appear to be anything in the regulations or statutory provisions to prevent it.  Accordingly we hold that the assessment was for a validly notified period and the appeal will be dismissed.    

Jurisdiction to raise issues

33.	Dr Hutton specifically requested the tribunal to state under which of the Value Added Tax Tribunal Rules 1986 it had been within the tribunal’s jurisdiction for the chairman to have raised the validity issue.  He explained that it is necessary to know this in case there is an appeal to the High Court.

34.	The short answer to the point is that there is no rule conferring on the tribunal jurisdiction to raise a legal issue with the parties but that is not surprising as the rules are made under statutory authority relating to procedural matters.  

35.	In our view raising such an issue is a procedural rather than a jurisdictional matter and falls within rule 27(4) by which the tribunal may “regulate its own procedure as it thinks fit”; subject to the specific rules, which are silent about, and therefore do not limit, the right to raise issues.

36.	The jurisdiction of the tribunal is statutory and is to be found in sections 82 and 83 of the VAT Act 1994.  No specific reference is made there to the tribunal having the power to raise issues the parties have not raised.  

37.	The tribunal’s jurisdiction is to hear appeals from decisions of the commissioners and, as was explained by the Court of Appeal in John Dee –v- Customs and Excise Commissioners [1995] STC 941, the nature of the tribunal’s powers will vary according to the nature of the decision appealed against.

38.	It would certainly be contrary to any normal understanding of the meaning of the word “appeal” by a judicial body to require it to make an incorrect decision (possibly knowing it to be incorrect) where neither party raises a point of law which would lead to the correct decision; where ignoring that point would lead to the incorrect decision.

39.	It is at least inherent in the reasoning of the Court of Appeal in Sheridan –v- Stanley Cole (Wainfleet) Ltd  [2003] EWCA 1046 reported at [2003] 4 All ER 1181, that a tribunal has jurisdiction to raise such points.  In that case the employment tribunal was criticised for relying on authorities not cited to it by the parties because the tribunal had not drawn the attention of the parties to those authorities; though it was not held to be fatal to the decision.  No-one appears to have suggested that the tribunal would have been wrong to raise the authorities with the parties.  Had the Court of Appeal thought the tribunal had no jurisdiction to raise them it is reasonable to suppose that it would have said so.   

40.	We hold that the tribunal’s procedural rules and/or its jurisdiction include a power to raise issues with the parties even where the parties are not aware of those issues.  We hold that it would be wrong for the tribunal not to raise such issues, even where both parties are represented, but it is clear that the tribunal should regard itself as particularly obliged to do so when one party is a litigant in person.

RICHARD BARLOW
Chairman

RELEASED: 26 July 2005

LON/02/0459