19265

VAT – deduction of input tax – sufficiency of evidence of Appellant’s  making taxable supplies – sufficiency of evidence of payment of input tax and circumstances relative thereto – VATTA 1994 Sections 24-26, VATA Regulations (SI 1995/2518) – Appeal refused.

EDINBURGH TRIBUNAL CENTRE

	JOHN GREEN T/A CMOS                                             
                                                                                                    	Appellant					
	- and -

	HM REVENUE AND CUSTOMS	       Respondents

			Tribunal:	 K Mure, QC (Chairman):  

Sitting in Edinburgh on Monday 5 September 2005.

for the Appellant		John Green appeared on his own behalf

for the Respondents	Julie Strachan, Solicitor,  Shepherd & Wedderburn, 
                                            WS

© CROWN COPYRIGHT 2005.

DECISION

INTRODUCTION
	The Appellant, Mr John Green, appeared personally at the Hearing.  Miss Julie Strachan, Solicitor, of Shepherd & Wedderburn, WS, appeared for the Respondents.

	The appeal is against the Respondents’ refusal to make payment of £29,381.45 representing, the Appellant claims input tax paid by him and claimed in his VAT Return for the period to November 2004.

	The issue is whether the Appellant was then in business making taxable supplies, and further, whether there is satisfactory evidence of payment of such input tax in the relevant period.
									
THE LAW
	A taxable person for VAT purposes may deduct  input tax on supplies to him used for the purposes of any business carried on or to be carried on by him.  In particular Section 24 of VATTA 1994 provides -	“(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..
	(6)  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 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;”			
	Section 25(2) provides -
		“Subject to the provisions of this section, [a taxable 			person] 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 the 			amount from any output tax that is due from him.”	
	VAT Regulations (SI 1985/2518) provide in terms of Regulation 		13 that VAT invoices should be provided by a taxable 			person where a taxable supply of goods or services is 		made, and further by Regulation 29 (2) the parties 			seeking to deduct relative input tax should hold the 			invoice.  Other evidence may be acceptable subject to 		the discretion of the Respondents. 			

	Miss Strachan referred also to - 
	Ian Flockton Developments v CCE [1987] STC 394;
	H Lister (Slippers) v CCE (1984) VAT Decision 1747;
	Cobb’s Croft Service Station Ltd v CCE [1976] VATTR 170;
	Kohanzad v CCE [1994] STC 967

THE FACTS	
	The Respondents lodged Witness Statements from two of their Officers, Anne Marie O’Toole and her Manager, Charles McKie.  No objection was taken to these by the Appellant.  He himself gave evidence.   That evidence was in many respects unclear and uncertain.   The Appellant has a “background” in electrical engineering.  Until its liquidation in 1995 he was the principally interested party in a limited company, CMOS Limited.   Thereafter the Appellant claimed that he adopted “CMOS” as a business name.   At about the time of the Return the Appellant had no employees, although, he claimed, he contracted for services and support on an ad hoc basis and received goodwill support from others.    Although he claimed to have carried out work during 2004 at Faslane and the Gairloch for the Navy and Ministry of Defence and had done other work in Brno in the Czech Republic, no documentary evidence or correspondence was available to confirm this.   Certain correspondence from the Appellant bearing the letter heading “CMOS” with addresses in Alexandria, Scotland, and the Czech Republic was produced, but this in itself did not confirm the making of taxable business supplies.

	While I found Mr Green well-meaning and earnest, his evidence was confused and contradictory.    I did not consider it reliable.  Photographs of a model boat and aeroplane and of certain structures were produced, but their significance, in relation to any trading activities by Mr Green as “CMOS” is unclear.   In particular Mr Green seemed to accept that a substantial part of the expenditure claimed fell outwith the period of the Return.   While in certain circumstances input tax on pre-registration expenditure can be recoverable, these provisions had not been taken into account by him.  He sought to explain away the absence of invoices and documentary evidence by his landlords (a local authority) having cleared his house of its contents.  But that house had been vacated by him in 2003, months before the period of the Return!    (This earlier address at 48/8 Halkett Crescent, Alexandria, is noted in the Application for Registration;  Document 1.)  He could not apportion even an approximate figure of input tax invoiced and referable to the period of the November 2004 Return.  He could not confirm that he as a sole trader had paid the VAT of which he sought repayment.    The Appellant referred to the Appendices to the Statement of Practice of the Respondents dated July 2003 (Authorities no 13) and criticised the Respondents for not pursuing with him matters indicated there with a view to resolving the dispute.   However, at the conclusion of the Hearing no further information or documentation was forthcoming to meet these questions.

	In the circumstances I can make only limited Findings -in- Fact viz:-
(i)	The Appellant applied for and was granted VAT registration with effect from 1 July 2003 in relation to the business of micro-processor applications and fibre optics, conducted at Southgate House, Bonhill, Alexandria.   
(ii)	 In the Return for the period to November 2004 the Appellant sought repayment of input tax of £29,381.45 from the Respondents.   The Respondents refused to make a payment of this or any smaller sum to the Appellant.
(iii)	No invoices or other documentation have been exhibited to the Respondents or produced to the Tribunal in support of such expenditure.
(iv)	There is no credible or reliable evidence showing or tending to show that in about 2004 the Appellant was carrying out works as an independent contractor, and providing taxable supplies for VAT purposes.
(v)	Anne Marie O’Toole and Charles McKie, both officers of the Respondents, visited the Appellant at his home, 35 Thomas Street, Alexandria.   Miss O’Toole visited on 21 December 2004 and they both attended on 24 February 2005.   On each occasion they requested to see invoices and other documentation showing or tending to show the payment of input tax and, also, the making of taxable supplies.  No such documentation was produced or has been produced to date.
(vi)	The Appellant left his former home at 48/8 Halkett Crescent, Alexandria, in 2003 (i.e. preceding the period of the November 2004 Return) and moved thereafter to 35 Thomas Street, Alexandria.
(vii)	The evidence of Miss O’Toole and Mr McKie in relation to their enquiries is as set out in their respective Witness Statements (Documents 4 and 5).

SUBMISSIONS FOR APPELLANT
	The Appellant produced a typed “Statement of Case” dated 30 August 2005 in relation to this hearing and to which reference is made.  In conjunction with his remarks at the Hearing his argument seems to be that the tests prescribed in the Appendices to the Statement of Practice of July 2003 (Authorities - No 13) could be satisfied.   He founded also on the actions of the local authority as his landlord removing the contents of his house at 48/8 Halkett Crescent.   (I refer elsewhere to the evidential difficulties which I have here).   

SUBMISSIONS FOR RESPONDENTS
	Miss Strachan invited me to refuse the appeal.  She submitted that the Appellant had not produced satisfactory evidence to support the claim for repayment of input tax.   She referred to Section 24(1) VATTA as indicating that the input tax had to relate to supplies provided by the claimant business.   In the present case, she argued, the Appellant had not shown that these supplies related to a current or future business.   It appeared that since registration in 2003 no taxable supplies had been made.   A significant level of activity was required for an entity to be considered a “business” for VAT purposes.    She founded on the Decisions in Ian Flockton Developments, H Lister (Slippers), and Cobb’s Croft Service Station Ltd noted supra in support of this proposition.    

	Moreover evidence was required to support the claim and here no VAT invoices or other evidence tending to support the outlay had been exhibited.     She referred to Regulation 13 in SI 1995/2518.  She indicated that the Respondents had a discretion to accept a claim for input tax in the absence of invoices but argued that this could not have been exercised appropriately in the present case.  No documentation at all had been exhibited and the Appellant’s explanation of documentation having been uplifted and destroyed by his landlord did not explain away the absence.   The Appellant had left the local authority house in Halkett Crescent in 2003, preceding the period relating to the Return.

	The burden of proof rested on the Appellant and he had failed to discharge this.

DECISION
	I consider that the Respondents’ arguments are well-founded.
	The Appellant in my view has failed to establish on the balance of probabilities that he was actively in business in the course of 2004, making taxable supplies for VAT purposes.    The nature of the business which was registered for VAT purposes was in the fields of micro-processors and fibre optics.   There is no documentation or other satisfactory evidence relative to contracts undertaken by the Appellant.   There is no evidence of research and development for such an undertaking.    The photographs do not assist.  Some proven level of business activity is required in terms of the authorities cited and evidence of this is not available.

	Further the Appellant has failed to evidence satisfactorily his claim for repayment of input tax.   Ideally supporting invoices should be available.  None has been produced.   Alternative evidence can be acceptable on a discretionary basis but no documentation or record in any form is present.    The Respondents asked for this on several occasions.   Even in his oral evidence the Appellant could not attribute a particular sum of input tax to the relevant VAT period.   He could not confirm that he himself had paid the tax for which he sought repayment.    The possible supporting documentation would have postdated the Appellant’s departure from the local authority house at Halkett Crescent and any removal or destruction by the Council of papers there does not explain away this failure.

	For these reasons, therefore, the Appeal is refused.

COSTS	
	Neither party sought an award of costs and so no award is made.

	Finally I would express my thanks to both Miss Strachan and Mr Green for the helpful and courteous manner in which they presented their arguments.

KENNETH MURE, QC

CHAIRMAN

RELEASE:  26 SEPTEMBER 2005

EDN/05/31