“As indicated within my letter of the 7th I would require evidence that a payment against a supply was made to the corresponding supplier. To date this has not been evidenced.”
“I believe that you have not declared the correct amount of VAT due for the period shown on the enclosed schedule. I explained this in my letter dated7 January 2019 …”
“I note the suggestion of a visit to see the records at the premises. As you are aware I initially enquired regarding a combined visit and the records in October. As such I would not wish to delay the production of the records any further. In the case of FS Commercial you will be aware assessments have been raised. On any assessments issued, I would be happy to look at the evidence again should it be produced within the normal assessment time limits.”
“Matters under dispute A decision has been issued that determines the input tax claimed by the company cannot be recovered as sufficient evidence has not been presented to demonstrate an entitlement to recover input tax. Also there has not been evidence of payment provided to show that any input tax incurred has been paid by the company. Your representatives have stated that sufficient alternative evidence has been presented to allow recovery of the input tax. Your representatives have also stated that evidence of payment by the company for supplies received has been provided. … The facts … The records provided showed bulk payment details for the account “Verity” which you advised Officer Mills is a variety of labour providers and your representatives have stated is used for administrative purposes. Officer Mills has advised that the actual invoices that make up the “Verity” payments have not been provided meaning that the input tax relating to these supplies cannot be verified. … No further information or detail regarding the input tax claimed has been presented since the request for the review was received. What I have considered in my review … Your representatives consider that there has been sufficient evidence presented in the form of alternative evidence for the input tax claimed to be allowed and that the assessments raised should be withdrawn. … Regulation 29(2) allows for a claim to be made for input tax despite not having an invoice if other evidence, as allowed by the Commissioners, is held to show VAT was charged. It is considered that the company does not hold a VAT invoice that is required to be provided as per Regulation 13 and that the information provided to date does not amount to sufficient alternative evidence to support any claim for VAT to be recovered as input tax of the company. … The lack of evidence to support the input tax claimed is sufficient to deny the claims that have been made. The decision made here is that HMRC does not have sufficient alternative evidence that can allow a claim to input tax to be made by the company. As HMRC has not been provided with such evidence I am satisfied that Officer Mills is correct to deny the input tax claimed.”
“1. These are the grounds on which the Appellant notifies its appeal to the Tribunal against the decision made by the Respondent on7th January 2019 . 2. By that decision, the Respondent disallowed the Appellant’s input tax claimed since commencement of the business. The decision did not reference the legislative basis on which it was made. 3. The Appellant appeals to the Tribunal on the grounds that the claim for input tax is valid and correctly due. 4. The Respondent’s decision was issued on7th January 2019 based on the Investigating Officer’s view that he had not been supplied with enough evidence of the input tax deducted for the entire trading history of the Appellant. 5. The Assessment relevant to this decision is dated6th February 2019 which related to periods 05/16 to 11/18. 6. The Respondent has been invited to inspect the business records at the Principal Place of Business. This invitation was declined on the same day that the assessment for£34,185,989 was received in the post by the Appellant and again on14th February 2019 . 7. It is the Appellant’s stated position that the Respondent’s decision to deny a VAT input tax claim is incorrect because there is evidence to demonstrate that: a. The Appellant correctly charges VAT on its supply made to customers. This charge meets the definition of output tax atSection 25 of the VAT Act 1994 . b. The supply included VAT which meets the definition of input tax atSection 24 of the VAT Act 1994 and, therefore, the claim for a deduction should be allowed in full. c. The Appellant holds evidence to demonstrate that it receives payment for the supply that it makes to customers in the form of a bank account into which payments are deposited and has made this evidence available to the Respondent. d. The Appellant holds evidence that its supply chain is valid and has correctly been charged VAT relevant to the supply of labour services and has made this evidence available to the Respondent. e. The Appellant holds evidence that it received a supply of taxable services for which it made payment which included an element associated with VAT and has made this evidence available to the Respondent. f. The Respondent incorrectly states that “no evidence” has been provided which is absolutely not the case. The Appellant cooperated with providing information, however due to an unreasonable amount of records being requested the Appellant requested that evidence be reviewed at the Principle [sic] Place of Business. g. Having regard to these facts there are no valid grounds for the Respondent to deny the reclaim of VAT input tax. 8. The Appellant requests the Tribunal to quash the Respondents’ decision for the reasons set out in these grounds of appeal.”
“A right of deduction shall arise at the time the deductible tax becomes chargeable.”
“In order to exercise the right of deduction, a taxable person must meet the following conditions: (a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238, 239 and 240 … (f) when required to pay VAT as a customer where Articles 194 to 197 or Article 199 apply, he must comply with the formalities as laid down by each Member State.”
“The taxable person shall make the deduction by subtracting from the total amount of VAT due for a given tax period the total amount of VAT in respect of which, during the same period, the right of deduction has arisen and is exercised in accordance with Article 178.”
“Member States may authorise a taxable person to make a deduction which he has not made in accordance with Articles 178 and 179.”
“Member States shall determine the conditions and detailed rules for applying Articles 180 and 181.”
“Every taxable person shall keep accounts in sufficient detail for VAT to be applied and its application checked by the tax authorities.”
“Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers. The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.”
“… it seems to me that the invoice which “must” be held by a taxable person in order to exercise his right to deduction is an important part of the machinery and that Member States are entitled, in the absence of further harmonizing rules, to adopt rules as to the content of an invoice which are reasonably necessary to allow adequate verification and fiscal control.” (Emphasis added)
“If it is established that an intra-Community supply has in fact taken place, exemption from tax can still be refused where the requisite national formalities have not been adhered to, provided that they serve the purpose of the directive, namely the prevention of tax evasion and the correct levying and collection of the tax, in particular the correct and straightforward application of the exemptions. Moreover, such formal requirements may not go further than is necessary to attain those objectives.”
“In the main case, therefore, since it is apparent from the order for reference that there is no dispute about the fact that an intra-Community supply was made, the principle of fiscal neutrality requires—as the Commission of the European Communities also correctly submits—that an exemption from VAT be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements. The only exception is if non-compliance with such formal requirements would effectively prevent the production of conclusive evidence that the substantive requirements have been satisfied. However, that does not appear to be so in the main case.”
“[32] An invoice is intended first to enable a check on whether the person issuing the invoice has paid the tax. [33] This follows from Article 178(a) of the VAT Directive. It provides that in order to exercise the right of deduction, the recipient of a supply must hold an invoice. According to the case-law, this requirement is intended to ensure that VAT is levied and supervised. This is because, pursuant to this provision, deduction of input tax is allowed only if, in the form of the invoice, the tax authority can at the time obtain access to a document which, because of the particulars required by Article 226 of the VAT Directive, contains the information necessary to ensure the corresponding payment of VAT by the person who issued the invoice. This access to the person who issued the invoice is supported by Article 203 of the VAT Directive. According to it, the VAT shown in an invoice is payable by the person who issued it, regardless of whether a liability to tax has actually arisen, and in particular of whether any supply has actually been made. In such cases this saves the tax authority from requiring other evidence.” (Emphasis added)
“[43] …I do not dispute the importance of the invoice in the common system of VAT. It is a form of proof which permits the collection and deduction of VAT. Thus, a trader who invoices the sale of goods or the supply of a service issues an invoice with VAT and collects that VAT on behalf of the state. Similarly, that invoice will enable a taxable person who has paid VAT to provide proof of this and thus to deduct the VAT. More specifically, the VAT identification number allows the tax authorities to levy VAT more easily, by identifying the taxable person concerned, and to verify that the transactions actually occurred, in order to prevent evasion.”
“[24] In addition, a retroactive right to deduct would result in significant additional work for both taxable persons and the tax authorities. Through the retroactive deduction of input VAT, provisional returns filed for a tax period would in fact have to be adjusted, in certain circumstances even several times in the same tax period, and the tax authorities would have to draw up correction notices. [25] By contrast, the interpretation upheld by the German government guarantees a VAT system that can be applied and checked effectively as regards the deduction of input VAT.”
“Does the term “hold” within the meaning of Article 18(1)(a) of the Sixth Directive 77/388 signify that the taxable person must at all times be in a position to present the invoice to the tax authorities?”
“In my opinion, it would be perfectly reasonable for national fiscal authorities to take the view, as the German authorities appear from the order for reference to have done in this case, that a taxable person who simply refuses to produce his invoice or “ticket of admission” when requested should be deprived of the deduction claimed.”
“… it is necessary to distinguish the provisions of the directive relating to exercise of the right to deduct input tax from those concerning proof of that right after a taxable person has exercised it. The distinction between exercise of the right and proof of it on subsequent inspections is inherent in the operation of the VAT system.”
“[29] However, it follows from the provisions mentioned above, conferring on the Member States the power to require additional information as regards invoices and to impose any other obligation necessary for the correct levying and collection of the tax and for the prevention of fraud, that the Sixth Directive gives Member States the power to determine the rules relating to supervision of the exercise of the right to deduct input tax, in particular the manner in which taxable persons are to establish that right. As indicated by the Advocate General in paragraphs 26 and 27 of his Opinion, that power includes the power to require production of the original invoice when tax inspections are carried out and also, where a taxable person no longer holds it, to allow him to produce other cogent evidence that the transaction in respect of which the deduction is claimed actually took place. [30] Accordingly, in the absence of specific rules governing proof of the right to deduct input tax, Member States have the power to require production of the original invoice in order to establish that right, as well as the power, where a taxable person no longer holds the original, to admit other evidence that the transaction in respect of which the deduction is claimed actually took place. [31] The answer to the national court's questions must therefore be that Article 18(1)(a) and Article 22(3) of the Sixth Directive permit the Member States to regard as an invoice not only the original but also any other document serving as an invoice that fulfils the criteria determined by the Member States themselves, and confer on them the power to require production of the original invoice in order to establish the right to deduct input tax, as well as the power, where a taxable person no longer holds the original, to admit other evidence that the transaction in respect of which the deduction is claimed actually took place.”
“[25] With regard to the rules governing the exercise of the right to deduct, art 18(1)(a) of the Sixth Directive provides that the taxable person must hold an invoice drawn up in accordance with art 22(3) of that directive. [26] Under art 22(3)(b) of the Sixth Directive the invoice must state clearly the price exclusive of tax and the corresponding tax at each rate, as well as any exemptions. Article 22(3)(c) provides for member states to determine the criteria for considering whether a document serves as an invoice. Furthermore, art 22(8) allows member states to impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion. [27] It follows that, with regard to the exercise of the right to deduct, the Sixth Directive does no more than require an invoice containing certain information, and member states may provide for the inclusion of additional information to ensure the correct levying of VAT and to permit supervision by the tax authority (see, to that effect, Jorion (neé Jeunehomme) v Belgium (Joined cases 123/87 and 330/87) [1988] ECR 4517 , para 16). [28] However, the requirement that the invoice should contain particulars other than those set out in art 22(3)(b) of the Sixth Directive, as a condition for the exercise of the right to deduct, must be limited to what is necessary to ensure the levying of VAT and to permit supervision by the tax authority. Moreover, such particulars must not, by reason of their number or technical nature, make the exercise of the right to deduct practically impossible or excessively difficult (Jeunehomme and EGI, para 17).”
“[34] It should be noted that the common system of VAT does not prohibit the correction of incorrect invoices. Accordingly, where all of the material conditions required in order to benefit from the right to deduct VAT are satisfied and, before the tax authority concerned has made a decision, the taxable person has submitted a corrected invoice to that tax authority, the benefit of that right cannot, in principle, be refused on the ground that the original invoice contained an error. [35] However, it must be stated that, with regard to the dispute in the main proceedings, the information necessary to complete and regularise the invoices was submitted after the tax authority had adopted its decision to refuse the right to deduct VAT, with the result that, before that decision was adopted, the invoices provided to that authority had not yet been rectified to enable it to ensure the correct collection of the VAT and to permit supervision thereof. [36] Consequently, the answer to the first question is that the provisions of the Sixth Directive must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, under which the right to deduct VAT may be refused to taxable persons who are recipients of services and are in possession of invoices which are incomplete, even if those invoices are supplemented by the provision of information seeking to prove the occurrence, nature and amount of the transactions invoiced after such a refusal decision was adopted.”
“[34] Furthermore, the Court has held that penalising the failure on the part of the taxable person to comply with the obligations relating to accounts and tax returns by denial of the right to deduct clearly goes further than is necessary to attain the objective of ensuring the correct application of those obligations, since EU law does not prevent Member States from imposing, where necessary, a fine or a financial penalty proportionate to the seriousness of the offence…. [35] The position could be different if the effect of breach of failure to satisfy formal requirements is to prevent the production of conclusive evidence that the substantive requirements have been satisfied... Refusal of the right to deduct depends more on the lack of information necessary to establish that the substantive requirements have been satisfied than it does on failure to comply with a formal requirement….”
“…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”
“(1) The Commissioners may, as a condition of allowing or repaying input tax to any person, require the production of such evidence relating to VAT as they may specify.”
“Where a person has failed to make any returns required under this Act (or under any provision repealed by 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.”
“(c) the amount of any input tax which may be credited to a person … (p) an assessment— (i) under section 73(1) or (2) in respect of a period for which the appellant has made a return under this Act, or (ii) under subsections (7), (7A) or (7B) of that section, or the amount of such an assessment” or the amount of such an assessment”
“(1) … save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25(2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT became chargeable save that, where he does not at that time hold the document or invoice required by paragraph (2) below, he shall make his claim on the return for the first prescribed accounting period in which he holds that document or invoice. … (2) At the time of claiming deduction of input tax in accordance with paragraph (1) above, a person shall, if the claim is in respect of— (a) a supply from another taxable person, hold the document which is required to be provided under regulation 13… … provided that where the Commissioners so direct, either generally or in relation to particular cases or classes of cases, a claimant shall hold, or provide, such other evidence of the charge to VAT as the Commissioners may direct.”
“The first is whether to entertain an application to establish the right to deduct otherwise than by a compliant invoice (“where the Commissioners so direct”). The second, if the first discretion is exercised in the taxable person’s favour, is the discretion to specify the documentary evidence that HMRC require in order to prove that the input tax has been incurred (“such other documentary evidence of the charge to VAT as the Commissioners may direct”).”
“…a registered taxable person is not entitled to any credit in respect of input tax unless at the time of claiming such a credit he holds a tax invoice in relation to that supply, and the commissioners, as is well known, will from time to time send somebody to look at these invoices to see that they add up. But none the less, the second effect of the provision is that the commissioners have a discretion to allow credit for input tax, notwithstanding that the registered taxable person does not hold such a tax invoice. So, they do have that discretion. In essence, this case is about the exercise of that discretion. As we shall see, they exercised that discretion against the appellant.”
“(c) the amount of any input tax which may be credited to a person ... (m) an assessment—(i) under sub-paragraph (1) or (2) of paragraph 4 of Schedule 7 to this Act, in respect of a period for which the appellant has made a return under this Act.”
“Now, that is the formal position of the tribunal. It is established that the tribunal, when it is considering a case where the commissioners have a discretion, exercises a supervisory jurisdiction over the exercise by the commissioners of that discretion. It is not an original discretion of the tribunal, it is one where it sees whether the commissioners have exercised their discretion in a defensible manner. That is the accepted law in this branch of the court’s jurisdiction, and indeed it has recently been decided that the supervisory jurisdiction is to be exercised in relation to materials which were before the commissioners, rather than in relation to later material.”
“But, in my judgment, it follows from the approach in John Dee that, if the appellant’s appeal against the assessment is to be allowed, on the grounds that HMRC wrongly failed even to consider the exercise of the regulation 29(2) discretion, then necessarily – since the appeal is against the assessment itself – the assessment falls to be discharged, leaving HMRC, if they wish to do so, to consider the proper exercise of their discretion on the correct legal basis and, if they are able (given the statutory time constraints), to issue a new assessment if so advised.” (Emphasis added)
“We also observe that in exercising its statutory jurisdiction, the FTT is well able to decide whether or not the HMRC Officer acted unreasonably, for instance by requesting information which was irrelevant, or by refusing to accept an invoice was valid. However, that was not this case.”
“A decision has been issued that determines the input tax claimed by the company cannot be recovered as sufficient evidence has not been presented to demonstrate an entitlement to recover input tax. Also there has not been evidence of payment provided to show that any input tax incurred has been paid by the company. Your representatives have stated that sufficient alternative evidence has been presented to allow recovery of the input tax.” (Emphasis added)
“In appeals of this kind, the First-tier tribunal should address only the decision which is before it, namely HMRC’s decision that, in the absence of the VAT receipts, they were not prepared to exercise their discretion to accept the alternative evidence provided by the taxpayer as to whether there had been a taxable supply. The test that the First-tier tribunal applies in reviewing that decision is the test set out in Kohanzad.”
“In our judgment Petroma is authority for the proposition that where the Member State tax authority adopts a decision refusing the right to deduct VAT because the information provided by the taxpayer is incomplete or irregular, the Sixth VAT Directive did not require the tax authority to revisit that decision when further information was provided after the decision has been taken. The position should be no different where the further information is provided to a tribunal in the context of an appeal against the initial refusal. This must apply equally to the PVD as to the Sixth VAT Directive. The fact that the FTT did, despite its misgivings about the relevance of the exercise, actually examine the facts in detail and conclude that there was a supply does not allow Scandico to sidestep the exercise of HMRC's discretion, or to require that discretion to be exercised by reference to the later information before the FTT.” (Emphasis added)
“Section 73(1) states that an assessment under that section is of 'the amount of VAT due'. Accordingly, unless the assessment determines the net amount of VAT due it cannot be an assessment for the purpose of s 73(1). Similarly, in s 73(6) the assessment is described as an assessment 'of an amount of VAT due'. Thus there cannot be an appeal against an assessment under s 73(1) unless it assesses that there is a net amount of VAT due. If the taxpayer contends that he is entitled to a repayment of VAT, he will have to appeal on some other ground, such as against the amount of input tax allowed, and VATA makes express provision for this in s 83.”
“The explanation may be that the tribunal, applying its own judgment to the same underlying material at the second, or ‘quantum’, stage of the appeal, has made different assumptions — say, as to food/drink ratios, wastage or pilferage — from those made by the commissioners….Or the explanation may be that the tribunal is satisfied that the commissioners have made a mistake — that they have misunderstood or misinterpreted the material which was before them, adopted a wrong methodology or, more simply, made a miscalculation in computing the amount of VAT payable from their own figures.” (Emphasis added)
“In the usual case the tribunal will have the material before it from which it can see why the commissioners made the assessment which they did; and may have further material which was not available to the commissioners when the assessment was made. In such cases, as it seems to me, a tribunal would be well advised to concentrate on the question “what amount of tax is properly due from the taxpayer?”; taking the material before it as a whole and applying its own judgment… ” (Emphasis added)
“i) The Tribunal should remember that its primary task is to find the correct amount of tax, so far as possible on the material properly available to it, the burden resting on the taxpayer. In all but very exceptional cases, that should be the focus of the hearing, and the Tribunal should not allow it to be diverted into an attack on the Commissioners’ exercise of judgment at the time of the assessment. ii) Where the taxpayer seeks to challenge the assessment as a whole on “best of their judgment” grounds, it is essential that the grounds are clearly and fully stated before the hearing begins.”
“[15] The first stage is for the tribunal to consider whether, at the time such an assessment was made, it was made to the best judgment of the Commissioners. At this stage, the tribunal’s jurisdiction is akin to a supervisory judicial review jurisdiction…. [17] Where the tribunal is satisfied that the Commissioners have used their best judgment in making the assessment, the second stage for the tribunal is to consider whether the amount assessed is correct. As Mithras makes clear, in relation to this second stage the tribunal has a full appellate jurisdiction. It can therefore consider all available evidence, including material not available to HMRC at the time when the assessment was made, in substituting its own judgment as to the correct amount of the assessment.”
“In my judgment it is necessary in each case to examine the nature of the decision against which the appeal is brought…. in my view the function and powers of a tribunal in each case will depend in large measure on the nature of the decision appealed against and of course on any special statutory provisions.”
“Mr Pickup submitted that the fact that the appeal is brought under s 83(1)(c) VATA means that the issue before the tribunal is the broad issue of the amount of input tax which may be credited to Scandico. That, he said, requires or entitles the tribunal to examine all issues which go to that question, including here whether there has in fact been a taxable supply to Scandico. We do not agree. This confusion arises from the fact that the result of HMRC’s exercise of discretion in these circumstances is to disallow the deduction. But the refusal to allow a deduction of input tax is the potential result of two different decisions. The first is a decision that for some reason, for example that there has been no taxable supply or that the supply is exempt, the taxpayer is not entitled to input tax credit. The second decision is that HMRC is not satisfied on the evidence presented to it that there has been a taxable supply. Although both kinds of decision lead to the same result—the refusal of input tax deduction—they are different decisions. The fact that the challenge to both kinds of decision comes to the tribunal through s 83(1)(c) VATA does not, in our judgment, expand the jurisdiction of the tribunal to consider a decision that has not in fact been made by HMRC.”