20278
INPUT TAX — invoices lost in floods — Commissioners’ refusal to allow credit — whether reasonable — yes — one item of claim allowed during course of hearing — appeal allowed in part

MANCHESTER TRIBUNAL CENTRE

MR C H AND MRS J RICHARDS trading as
SANDFORD HOUSE HOTEL	Appellants

- and -

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: Lady Mitting
Peter Whitehead

Sitting in public in Birmingham on Monday 9 July 2007

Mr C H Richards appeared for the Appellants 
 
Mr B Haley, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	The Appellants appeal against an assessment to VAT in the original sum of £16,191 plus interest issued on 1 September 2005 and for periods 10/02 to 10/04 inclusive.  The assessment comprised two elements namely, £8,346 representing a duplicated claim to input tax on invoices issued by Travis Perkins and secondly, £7,845 being input tax claimed and credited on invoices which the Appellants were not able to produce.  Prior to hearing, the Appellants accepted the assessment in relation to the Travis Perkins invoices.  This had arisen out of a genuine error and repayment was made straight away to the Commissioners.  A further reduction of £1,072 was also made prior to hearing in circumstances which we describe below.  There therefore remained in issue before us the sum of £6,772.
2.	We heard oral evidence from Mrs Sarah Bates, the assessing officer, on behalf of the Respondents and from Mr Richards on behalf of the Appellants.  
3.	Mr and Mrs Richards ran, in partnership, the Sandford House Hotel in Shrewsbury, Shropshire.  In 2003, Mr and Mrs Richards had built an extension to the hotel, the work lasting some nine months and costing approximately £100,000.  Throughout the period, on their quarterly VAT returns, Mr and Mrs Richards reclaimed input tax incurred on the building works.  The Richards stored all their records in the hotel cellar which, in March 2004, was completely flooded when the river level rose and all records were lost.
4.	On 2 March and 13 June 2005, Mrs Sarah Bates made pre-arranged visits to the hotel.  She had been made aware of the loss of the records in the flooding but from working papers produced to her by Mr Whittaker, the Richards’ accountant, she was able to draw up a list of invoices relating to the building works upon which input tax had been reclaimed and for which she needed verification.  She left the list with Mr Richards and it was later returned to her with the names annotated with the initials “CR” (can’t remember) or “OOB” (out of business).  Some of the names were ticked, a marking which Mrs Bates did not understand.  Mrs Bates was therefore by this time no further forward and she looked at other means of verification.  Mr Richards had been able to provide her with some bank statements and a couple of repayments for Severn Trent were approved.  Mrs Bates then checked on the Departmental computer system and tried to track down other names on the list.  Four of the names did relate to VAT registered traders and although she still had no documentary evidence of VAT charged or paid, she did allow the claim for input tax in regard to these traders.  This led to a reduction in the assessment of £1,072.  A number of the input tax claims related to a trader called A M Thomas Limited.  Mrs Bates had been able to establish the date of payments to this company from Mr Richards’ bank statements but the payments were made before the date when A M Thomas Limited became registered for VAT.  There could therefore be no claim in respect of input tax on these invoices.  A number of the items of claim related to well known national companies such as Magnet.  Although, again, Mrs Bates had no corroborative evidence, she was able to and did allow the input tax in respect of such invoices as these suppliers were clearly VAT registered.  With regard to all the other names on Mrs Bates’ list, she was unable to establish any viable VAT registration for them and no claim for input tax could therefore be allowed in respect of any of them.  This left in place the remaining balance of the assessment of £6,772, this being upheld also on review.
5.	Mr Richards told us that he and his wife had been in business for some 20 years and never during that time had they missed a tax payment or a VAT payment and never before had they been found to have made any errors adverse to Customs.  They had had two VAT inspections, both of which revealed tax owing to the Richards.  Mr Richards had acted as project manager on the extension as they could not have afforded to have the whole job done professionally.  Mr and Mrs Richards purchased all the material themselves and he employed local workers or workers working on local building sites to do the work for him.  A lot of the workers he got by recommendation or word of mouth but they were not people that he knew personally.  When Mrs Bates had raised with him the problem over the missing invoices, he had tried his utmost to trace the suppliers but in the main to no avail.  A number of them, he could not remember who they were or where they were from and others had just gone out of business, but he assured us, and we have no reason to doubt, that he did make payments to them.
6.	Mr Whittaker would have seen at some stage all the original invoices because they would have gone off with the remainder of the books and accounting records to him in September 2003 and 2004 for preparation of the annual accounts.  It was not, however, known, whether or not Mr Whittaker checked each invoice individually or only samples.  The books and accounting records were all amongst the documents destroyed in the flood.
7.	It was not in dispute that the extension described by Mr Richards had been carried out and that the Richards had made payment to the listed suppliers.  Equally, it was not in dispute that the records had been lost in the flooding of March 2004.  
Conclusions 
8.	Subject to meeting all the necessary criteria, a trader is entitled, as of right, to reclaim his input tax on production of a valid invoice which meets all the statutory requirements.  Where, however, such an invoice cannot be produced, the Commissioners still have a discretion to meet a repayment claim.  This discretion could be exercised in favour of a trader if, for example, he could provide other documentary evidence.  What Mr and Mrs Richards were unable to show to Mrs Bates was that a number of the suppliers were in fact VAT registered and that the payments made to these suppliers had included VAT recoverable by the Richards as input tax.  When a trader appeals against the refusal of the Commissioners to exercise their discretion in the trader’s favour, the tribunal exercises a supervisory jurisdiction only.  As we explained to Mr Richards, our jurisdiction only enabled us to consider the reasonableness of the Commissioners’ actions and conduct.  If, in all the circumstances, the officers acted reasonably, then the appeal cannot succeed.  
9.	Mrs Bates had in front of her a list of suppliers to whom the Richards had made payments.  Some of these were nationally known companies whom she knew were VAT registered and the input tax was allowed in respect of each of these claims.  Others, Mrs Bates was able to find on her database and the input tax was therefore allowed in relation to these suppliers. The only claims she refused related to those traders whom she could not verify to have been VAT registered at the time payments were made to them.   We did question Mr Richards quite closely on the role of Mr Whittaker to see whether perhaps evidence from him would enable an entitlement to input tax to be shown but first, it was not at all clear whether or not Mr Whittaker had checked each individual invoice, and if he had not, he therefore would not be able to throw any light on whether or not the supplier had been VAT registered.  Even if he had checked the individual invoices, it is most unlikely that his evidence could conclusively show that the suppliers had been registered because, for example, it was indisputable that A M Thomas Limited were not registered at the time.
10.	We believe that in all the circumstances the Commissioners acted completely reasonably.  Mrs Bates allowed the input tax wherever she possibly could and indeed carried out her own enquiries to try and establish an entitlement when she searched the Customs database.  She did everything that could reasonably be expected of her and whilst we have every sympathy for Mr and Mrs Richards, we cannot find that the Commissioners acted unreasonably and the appeal cannot therefore be allowed.  During the course of the hearing, Mr Richards produced from a company called Pennine (one of the names on the list), a certificate of completion from their quantity surveyor and a statement of account.  Whilst these did not meet the statutory requirements for an invoice and most importantly did not contain a VAT number, Mrs Bates did exercise her discretion in favour of Mr and Mrs Richards and indicated that the Commissioners would allow the input tax in relation to that invoice.  There therefore stands to be deducted from the assessment of £6,772 a further sum of £1,102.50, representing the input tax claimed in respect of Pennine.
11.	 In principal, the appeal is dismissed but it is technically allowed in part as the amount of the assessment is reduced as a result of Mrs Bates’ concession on Pennine.  Mr Haley made no application for costs and no order is made.

LADY MITTING
CHAIRMAN
Release Date: 1 August 2007
MAN/06/0625