19980

VAT ASSESSMENT – Appellant sole trader developing products for horses – the Appellant’s costs were £83,000 whilst his income amounted to £3,000 – Respondents disallowed repayments of input tax on specific cost items for a variety of reasons which included no supply, no documentary evidence to substantiate the input tax claim and private use supplies – no fuel scale charge on petrol input tax claims – Appellant did not appear – adjournment application refused – Ground of appeal assessment made to wrong registration – Respondents entitled to disallow input tax repayments and raise fuel scale charge – assessment made to the correct registration – Appeal dismissed. 

MANCHESTER TRIBUNAL CENTRE

	MASLEN CYRIL ALBERT THOMAS	Appellant
trading as
EQUINE INNOVATIONS
	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	             (Chairman)
				      MARJORIE KOSTICK  FCA CTA	  (Member)

Sitting in public in Birmingham on 23 November 2006

The Appellant did not appear

Richard Mansell, advocate instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2007
DECISION
The Appeal
1.	The Appellant was appealing against an assessment issued on 28 November 2000 in the sum of £8,744 plus interest representing VAT arrears for the period 1 October 1997 to 30 April 1999.
2.	The Appellant’s ground of Appeal was that the assessment had been made to the wrong registration.
The Disputed Issues
3.	The Appellant carried on business as a sole proprietor supplying and developing equine equipment. The Appellant was also the sole director of MV Magnetic Systems Ltd, which described its business as the manufacture of magnets. 
4.	The disputed assessment comprised two elements:
(1)	Output tax in the sum of £244 had not been declared with respect to motoring scale charges.
(2)	Input tax repayments in the sum of £8,500 which had been disallowed by the Respondents. The majority of the input tax paid related to invoices issued by MV Magnetic Systems Ltd for the services of Mr Thomas. The remainder comprised VAT credits for supplies of postage, vet fees, electricity and a supply from Maun Industrial developments for which no VAT should have been charged or the evidence supporting the claims was insufficient. 
5.	The dispute consisted of two issues:
(1)	Were the Respondents legally entitled to disallow the input tax repayments and charge output tax on the petrol for the private use element?
(2)	Should the assessment in the sum of £8,744 have been raised against MV Magnetic Systems Ltd rather than the Appellant?
The Hearing
6.	We refused the Appellant’s request to postpone the hearing. We granted the Respondents’ application to hear the Appeal in the absence of the Appellant pursuant to rule 26 of the Tribunal Rules 1986. In reaching our decisions we took account of the following facts:
(1)	The events giving rise to the disputed assessment were seven years old.
(2)	The Appeal had been first listed in August 2001 for a pre-hearing review. Since that date there have been at least five adjournments of the hearing at the Appellant’s request.  The Appellant has never appeared before the Tribunal to prosecute his Appeal.
(3)	The reason for the adjournments was the Appellant’s state of health. Essentially the Appellant suffered from diabetes which had led to complications and high blood pressure. 
(4)	The Tribunal had examined the possibility of holding the hearing in the Appellant’s home or at a venue closer to his home than Birmingham. For various reasons it was not feasible to find another venue other than Birmingham.
(5)	On 9 August 2006 the Tribunal notified the Appellant of the 23 November 2006 hearing date at Birmingham.  The Tribunal had full regard to the information supplied by the Appellant in fixing this date and venue. On 30 June 2006 the Appellant informed the Tribunal that his preferred choice of venue was Birmingham and the dates to avoid were September, October and early November 2006.
(6)	On 11 November 2006 the Appellant applied for an adjournment of the hearing on 23 November due to his medical condition which was supported by a medical certificate. The doctor’s statement recorded that the Appellant should refrain from work until further notice. The doctor diagnosed the Appellant’s disorder as diabetes mellitus and peripheral neuropathy.
(7)	A full-time Tribunal Chairman refused the Appellant’s request for adjournment. On 16 November 2006 the Tribunal informed the Appellant of the Chairman’ decision. Further the Appellant was advised that he could make another postponement application on the day of hearing but if that was refused he should be in a position to proceed with the Appeal.
(8)	The Appellant did not attend the hearing on 23 November 2006.
(9)	Throughout the six years whilst the Appeal has been pending the Appellant has not elaborated upon the ground of his Appeal or provided documentation in support.
7.	We concluded from the above facts that the Appellant had been given every opportunity to attend the Tribunal to present his case. The Tribunal had adjourned previous hearings to enable the Appellant to recover from operations. The hearing on 23 November 2006 at Birmingham met the Appellant’s specific requirements as set out in his letter dated 30 June 2006.  In that letter the Appellant nominated Birmingham as his preferred venue, which was just 15 miles from his home address. He requested the Tribunal to avoid dates in September, October and early November. The medical certificate produced by the Appellant in support of his adjournment application did not state that he was unfit to attend the Tribunal.  The Appeal itself was in danger of becoming stale. The events giving rise to the disputed assessment were seven years old. The Respondents objected to the adjournment because they considered that the Appeal was without merit and that their right to oppose the Appeal was being compromised by the inordinate delay in hearing the case. In all the circumstances we considered that the interests of justice would be best served by refusing the Appellant’s application to adjourn the hearing and proceeding to determine the Appeal in the Appellant’s absence.
8.	The Appellant supplied a further letter dated 20 November 2006 to the Tribunal Office enclosing a detailed report of his medical condition. Unfortunately that letter was not before the Tribunal on the 23 November. We have, however, considered the letter subsequently. We are satisfied that the contents of the letter and its enclosure would not have altered our decision to refuse the Appellant’s application for adjournment. 
The Evidence
9.	We heard evidence from Mr M G Payne, the officer who made the disputed assessment. The Respondents supplied a bundle of documents.
Our Findings of Fact
10.	The Appellant traded as Equine Innovations developing insect repellent for horses. The Appellant voluntarily registered his business for VAT with effect from 1 October 1997. In his application for registration he declared the value of his taxable supplies at £10,000. 
11.	As at 26 April 2000 the Appellant incurred £86,000 in purchases, and made one taxable supply of £3,000 since the date of registration of 1 October 1997.  The supply related to a device for taking off a horse shoe which was later cancelled. During this period the Appellant made no supplies of insect repellent.
12.	The £86,000 incurred in purchases consisted of general overheads, charges by MV Magnetic Systems Ltd for the Appellant’s services, and a bill from Maun Industrial Developments.  During the period under investigation the Appellant made no purchases for supplies of raw materials associated with the preparation of insect repellent.
13.	The Appellant reclaimed VAT incurred on purchases of petrol used in his wife’s car which was not an asset of the business. The Appellant did not account for output tax on the private use of the petrol.
14.	Under general overheads the Appellant claimed VAT on patent fees, telephone charges, subscription to business link, postage and electricity charges. Mr Payne disallowed the input tax repayment on postage, an exempt supply, and electricity charges, which were not supported by documentary evidence connecting the charges with the business.
15.	The bulk of the Appellant’s input tax repayment during the disputed period related to VAT levied on invoices from MV Magnetic Systems Ltd, of which the Appellant was the sole director, charging the Appellant for his time spent in developing his business, Equine Innovations. The invoices contained no description of the work done by the Appellant. The Appellant supplied no evidence that he actually paid MV Magnetic Systems Ltd for his services.  The Appellant’s only income during the period of assessment was £3,000 for the single taxable supply which was later repaid. The Appellant effectively had no income with which to pay for his services from MV Magnetic Systems Ltd.
16.	At the time of Mr Payne’s VAT assurance visit on 26 April 2000 no accounts had been prepared for MV Magnetic Systems Ltd since the year ending 31 March 1996. Bank statements for the company were missing from December 1997 to November 1998. The company’s sales ledger recorded no current sales. The company had not submitted a VAT return for a considerable period of time. Mr Payne could find no evidence of a taxable supply made by the company in connection with its business of manufacturing magnets. 
17.	The Appellant claimed VAT on supplies from Maun Industrial Ltd in connection with the horse shoe device. The majority of these supplies was not supported by a VAT invoice.  Also the Appellant had been repaid VAT on supplies made by St Georges which were used by the Appellant for his private use rather than business use.
18.	On 9 May 2000 Mr Payne advised the Appellant of his intention to issue an assessment for the sum of £8,744 plus interest. The Appellant was advised to contact Mr Payne on his direct line if he had any queries on the assessment. The Appellant was also told of his rights to request a local reconsideration and to appeal to the independent VAT and duties Tribunal. The Appellant made one phone call to Mr Payne on 5 June 2000 asking about the date of his next VAT return. On 13 July 2000 the Appellant indicated in writing that he was appealing to an independent Tribunal. On 24 July 2000 the Respondents invited the Appellant to submit a request for a local reconsideration and provide further information about why he was disputing the assessment raised by Mr Payne. The Appellant did not take up the Respondents’ invitation. Instead he lodged a Notice of Appeal with the Tribunal dated 3 October 2000, in which he stated that the “assessment was made to the wrong registration”. On 20 November 2000 the Respondents sought clarification from the Appellant about why he believed that the assessment had been wrongly allocated to Equine Innovations. The Appellant did not respond to that request.
Reasons for Our Decision
The Legal Requirements 
19.	Section 73(1) of the Value Added Tax Act 1994 gives  the  Respondents authority to issue assessments for VAT when specific circumstances apply:
“Where a person has failed to make any returns required under this Act … or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him”.
20.	Section 73(2) of the VAT Act 1994 authorises the Respondents to assess for input tax which ought not to have been paid. A tax payer is only entitled to input tax if the following conditions have been met in respect of the VAT charged on the supply to him:
(1)	a supply must have taken place;
(2)	the input tax credit must be claimed by the taxable person to whom the supply is made,
(3)	the supply must be chargeable to tax at the rate claimed;
(4)	the claimant must hold satisfactory evidence of his entitlement to input tax credit.
21.	 Under section 73 the Respondents are required to consider fairly all material placed before them by the Appellant, and on that material, come to a decision which is reasonable and not arbitrary as to the amount of tax due. The Respondents are under no obligation to do the work of the Appellant by carrying out an exhaustive investigation of the Appellant’s VAT returns and accounting journals.
Were the Respondents legally entitled to disallow the input tax repayments and charge output tax on the petrol for the private use element?
22.	The principal input tax repayment disallowed by the Respondents was the VAT on the charges made by MV Magnetic Systems Ltd for the Appellant’s services in connection with his business. We are satisfied that this did not amount to a supply of services within the meaning of the VAT Act 1994 because:
(1)	The Appellant provided no explanation as to why it was necessary for him to recharge his time from the limited company of which he was the sole director for his work in connection with his sole proprietor business.
(2)	There was no evidence of the Appellant giving consideration to the company for the use of his services.
(3)	There was no evidence that the company and the sole proprietorship were actually engaged in the making of taxable supplies and carrying out a business.
(4)	 The sole purpose of the arrangement was to enable the Appellant to recover input tax to which he was not entitled.
23.	The remaining repayments of input tax disallowed by the Respondents were on the grounds that the supplies were:
(1)	 not chargeable to VAT; or 
(2)	for the Appellant’s private use; or 
(3)	not substantiated by evidence of a VAT invoice.
24.	The above grounds constituted proper and lawful reasons for the Respondents to disallow the repayments. The Appellant has provided no explanation to contradict the Respondents’ findings.
25.	The Respondents accepted the Appellant’s input tax claims in respect of the VAT charged on the road fuel used in his wife’s car which was not an asset of the business. In those circumstances the Appellant was required to account for output tax on that element of the petrol applied to the private use of the Appellant and his wife. The Appellant failed to do this. We are satisfied that the output tax in the sum of £244 was correctly assessed in accordance with the fuel scale charge as set out sections 56 and 57 of the VATA 1994.
26.	 We are, therefore, satisfied that the Respondents were legally entitled to disallow the input tax repayments and charge output tax on the petrol for the private use element.
Should the assessment in the sum of £8,744 have been raised against MV Magnetic Systems Ltd rather than the Appellant?
27.	The Appellant supplied no evidence to support his ground of Appeal that the assessment had been made against the wrong registration. 
28.	Mr Payne’s investigation revealed that the MV Magnetic Systems Ltd was effectively a dormant company. It had made no taxable supplies and no purchases directly connected with its stated business purpose.
29.	The Appellant’s assertion was contradicted by his own actions. He submitted the disputed input tax claims under the VAT registration of his sole proprietor business. Further the bulk of his input tax claims related to alleged supplies of his services from the company to the sole proprietorship which by definition could not have been made by Equine Innovations.
30.	We are, therefore, satisfied that the assessment of £8,744 has been correctly raised against the Appellant.
Decision
31.	We find for the reasons set out in paragraphs 19 to 30 that the Respondents’ assessment in the sum of £8,744 plus interest was correctly made. We, therefore, dismiss the Appeal. We make no order for costs. 
32.	The Appellant may apply to the Tribunal within 14 days of the date of release of the decision to consider whether the decision should be set aside in accordance with rule 26(3) of the Tribunal Rules 1986.

                                                               
                                
MICHAEL TILDESLEY OBE
CHAIRMAN
Release Date: 9 January 2007

MAN/00/0835