19766

Value Added Tax – Input tax recovery – Invalid invoices – Regs 13(1) and 14(1) VAT Regulations 1995 – Appeal dismissed – Costs awarded to Respondents

LONDON TRIBUNAL CENTRE

	GOODLUCK EMPLOYMENT SERVICES LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	DR KAMEEL KHAN (Chairman)
						MR SUNIL K DAS LLM, ACIS

Sitting in public in London on 5 April 2006

Mr I Ahmed, Accountant, for the Appellant 

Mr Richard Smith, Counsel, instructed by the Solicitor for Her Majesty’s Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	The disputed decision of the Commissioners of Her Majesty’s Revenue and Customs (HMRC) is the decision to assess the Appellant pursuant to section 73 of the Value Added Tax Act 1994 (“VATA 1994”) in the sum of £7,039 (plus interest) representing input tax invalidly claimed in respect of the prescribed accounting period 11/04.  The assessment is dated 18 February 2005.

2.	The Appellant is a company which provides labour to employers and whose principal place of business is 1273 Francis Road, London E10 6NT.  They were registered for VAT on 1 July 2004 (Reg). No.843 631 627).

3.	The Appellant made an application for VAT registration dated 5 July 2004 which stated that there was the expectation that taxable supplies to a value of £500,000 would be made over the following 12 months.  The registration was approved with effect from 1 July 2004.

4.	On 26 January 2005, the Appellant made their first VAT return (for the period 1 July 2004 to 30 November 2004).  A high amount for purchases and input tax was declared on the return given that the business’s main overhead was wages to contract workers.

5.	On 9 February 2005, Her Majesty’s Revenue and Customs visited the Appellant. Various documents were requested, including invoices for purchases.  These were later provided to Her Majesty’s Revenue and Customs. On examination of the documents, there were problems with some invoices. There were twenty invoices issued by Shaikh Employment Services Limited for the supply of labour on which the Appellant had reclaimed input tax. However, Shaikh Employment Services Limited were not registered for VAT. On 15 February 2005, Her Majesty’s Revenue and Customs wrote to the Appellant stating that the input tax reclaimed on the basis of those invoices would be disallowed and an assessment issued accordingly. The notice of assessment was issued on 22 February 2005 in the sum of £7,039 plus interest.

6.	Ahmed & Co, accountants for the Appellant, wrote to Her Majesty’s Revenue and Customs in an undated letter stating that they wished to appeal against the assessment on the basis that the Appellant had paid Shaikh Employment Services in good faith and valid VAT invoices were received.  They said that they understood that Shaikh Employment Services were in the process of being registered for VAT.

7.	Her Majesty’s Revenue and Customs confirmed the assessment by letter on 21 March 2005.  It was reiterated that the purchases upon which the Appellant sought to reclaim input tax were not taxable as they had been made by an unregistered entity.

Appellant’s Case

8.	The Appellant’s case as stated in their Notice of Appeal is that they:

“paid VAT to a known trader known as Shaikh Employment Services Limited.  We are trying to get VAT invoices from Shaikh Employment Limited.  We are also taking action to collect money from Shaikh Employment Services Limited.”

9.	The Commissioners’ case is that:

(a)	A taxpayer such as the Appellant is entitled to credit for input tax he incurs in the furtherance of his business and then to deduct that amount from the output tax that is due from him (VATA 1994, s.25 (2)).

(b)	Input tax for these purposes means VAT on the supply to him of any goods or services (VATA 1994, s.24(1) ).

(c)	VAT can only be charged by a taxable person i.e. one who is or is required to be registered (VATA 1994, s.3(1) ).

(d)	Registered persons making taxable supplies are under an obligation to provide VAT invoices (regulation 13(1) ) of the VAT Regulations 1995, SI 1995/2518 (“the Regulations”).

(e)	VAT invoices must contain, inter alia, the registration number of the supplier (Reg. 14(1)(d) ) of the Regulations.

(f)	A person claiming deduction of input tax is obliged to hold the relevant invoice (Reg. 29(2)(a) of the Regulations).

(g)	None of the twenty invoices from Shaikh Employment Services Limited can be used for input tax recovery since they contain no VAT registration number and are therefore invalid.

(h)	Shaikh Employment Services has improperly charged VAT on its invoices.

(i)	The fact that the Appellant is taking action to collect money from Shaikh Employment Services Limited, presumably in respect of money wrongly charged as VAT, is inconsistent with an appeal against this assessment

10.	Our finding and reasons are given below:

11.	At an earlier hearing on 22 March 2006, the Appellant asked for an adjournment due to the illness of his accountant, who was his representative.  This was granted.  Following the adjournment, Her Majesty’s Revenue and Customs wrote to Mr R Shahid, director of the Appellant, explaining that while they did not oppose the adjournment the appeal had “little merit” and “if the matter returns to the Tribunal on 5 April, as listed and the position is substantially unchanged, the Commissioners will be applying for their legal costs to be paid by you.”

12.	At the hearing on 5 April 2006, the Appellant’s representative, Mr I Ahmed, explained that the Appellant had obtained judgment in the county court for recovery of the sums paid to Shaikh Employment Services Limited, as VAT, and in the circumstances, did not wish to continue with the hearing.

13.	In the circumstances, the Appellant’s appeal is to be dismissed and Her Majesty’s Revenue and Customs’ costs are to be paid by the Appellant. Details of such costs should be provided to the Tribunal and to the Appellant by the Respondents.

DR KAMEEL KHAN
CHAIRMAN

RELEASED: 13 September 2006

LON/05/440