Lancster (t/a Airport Cards) v Revenue & Customs [2009] UKFTT 155 (TC)

FTT-Tax

Lancster (t/a Airport Cards) v Revenue & Customs

[2009] UKFTT 155 (TC) · 2009-07-10

[1]

[2009] UKFTT 155 (TC)

TC00121 OUTPUT TAX – taxi firm sole proprietor – not including on returns VAT on drivers' commission and own driving because tax had not been collected – whether HMRC should have given advice – also quantum of assessments in dispute –whether proprietor's turnover included drivers' takings as well as his own - appeal dismissed on all points – direction made as to change in tribunal Rules on 1 April 2009 by S1 2009 No.273 (L.1.) MARK LANCASTER Trading as Airport Cars Appellant THE COMMISSIONERS OF HER MAJESTY'S REVENUE AND CUSTOMS Respondents First-Tier Tribunal: Judge Rodney P Huggins (Chairman) Roberta Johnson Sitting in public in London on 22 August 2008, 30 March and 29 May 2009 The Appellant appeared in person Vikram Sachdeva, Counsel instructed by the Solicitor of Her Majesty's Revenue and Customs for the Respondents © CROWN COPYRIGHT 2009 DECISION The appeal Mr Mark Lancaster (the Appellant/Mr Lancaster) trading as Airport Cars appeals against two decisions raising assessments of output tax issued by the Commissioners on 12 July 2006 and 26 September 2006. The earlier assessment was for the gross amount before deduction of £13,332.07 and was expressed to be for the Value Added Tax (VAT) period 03/06. However, effectively this was for the tax periods 09/03 to 03/06 inclusive. The figure of £13,332.07 was increased by a further decision issued on 4 June 2009 at the tribunal's instigation. The amended sum, taking all factors into account, is now £13,392 less input tax of £845.16 for the period 03/06 making a net payment due according to the Commissioners of £12,546.84.

[2]The second assessment issued by a decision of 26 September was for the gross sum of £1,942.36. The input tax to be taken into account was £768.30 making a net amount claimed of £1,174.06. The issues

[3]There are three issues arising from the Appellant's taxi business which the tribunal has to consider:(1) what constitutes the Appellant's annual turnover during the years 2003/2004, 2004/2005 and 2005/2006 ?

(2) whether VAT is payable on the Appellant's own earnings as a driver ?

(3) whether VAT is payable on the sums paid to the Appellant (as a contribution to the wages of the controllers on the Appellant's case; and as commission on the Respondent's case) The evidence

[4]The Appellant, who was not represented gave evidence and produced short witness statements from three of the self-employed drivers who worked for him.

[5]On behalf of the Respondent Commissioners Mr Sachdeva called Matthew Leatt (Mr Leatt) an Assurance Officer of Her Majesty's Revenue and Customs (HMRC). He also produced at the final hearing a single bundle of all relevant documents. The facts

[6]On the evidence before us, we find the following facts.

[7]The Appellant is a taxi driver and in December 1999 started his own business in Chessington, Surrey and the surrounding district. He had the opportunity to take over the Kiosk situated in Chessington North Station, Surrey which had been a news agency shop unit but had been empty for some time and vandalised. He approached South West trains who agreed to him taking the office over as a base for his taxi firm. He was given a rent free period of one year when he had to renovate the premises.

[8]As he expected to exceed the VAT limit, he applied for registration to the Respondents on 10 March 2000 stating that he made his first taxable supply of services on 29 December 1999 and wished to be registered retrospectively from 1 October 1999. He stated in his application form that he thought he would make taxable supplies of £200,000 in the first twelve months. However, he subsequently realised that this figure exceeded what in fact occurred.

[9]The Respondents granted him registration for VAT on 13 March 2000. He submitted VAT returns for the quarterly accounting periods 03/03 to 06/06 inclusive. He made a net repayment claim each time of between £491.20 and £977.83.

[10]Initially, he ran the business himself using his own Scorpio motor car and having just one telephone line. Eventually, another driver joined him and by 2005 there were five drivers using his facilities. This continued until June 2007 when a new hotel known as Holiday Inn, Chessington opened and he was granted the concession of providing taxi services and at that date of the first hearing, he had between nine and ten drivers including himself. By May 2009 the number of drivers had reduced to five.

[11]In October 2005, Mr Lancaster instructed Linda James of Alderwick James & Co, 4, The Sanctuary, 23 Oakhill Grove, Surbiton to act as his Accountant. She brought his outstanding tax returns up to date as he had fallen behind the deadlines. He had to pay penalties for delivering tax returns late.

[12]In November 2005, a Minicab questionnaire was sent to him by the Respondents and he completed this form on 17 November 2005. He stated that he was the sole trader and the business was private hire. He indicated that he completed the VAT returns himself and gave certain details as to the address from which he operated at Chessington North Station. He stated that he operated a cash accounting system for account customers but did not indicate that this Scheme operated "for circuit fees". He stated 80% of the account work was paid to the drivers.

[13]In the form, the Appellant stated that his business was for self employed owner/drivers with one controller. He indicated that the drivers did not take it in turns to act as controller. The average monthly income from account work was stated to be between £200 and £300 and his business acted as principal for account work.

[14]In answer to question No.6. "are drivers charged a weekly circuit fee for use of the radio and provision of cash work ?" he answered no in the belief that commission paid to him was not in the same category as circuit fees but paid on fares as and when they arose rather than a weekly charge irrespective of the fares collected

[15]On 16 January 2006 a Mrs Denise Peters, a VAT Compliance Officer from Regional Business Services, London sent a letter to the Appellant raising certain queries about his drivers stating that the number of them varied enormously but was "probably about 15 on average". She also indicated that drivers acted as controllers and asked for a copy of his annual accounts for the previous three years. The Appellant did not receive this letter. However, Mrs Peters did send him another letter on 20 January 2006 raising various queries about the income from the account work, circuit fees and output tax. Mr Lancaster endeavoured to telephone Mrs Peters and did not receive any acknowledgement to his telephone calls. However, on 3 April 2006, Mrs Peters sent him a further letter stating, "I sent you a letter dated 20/01/06 requesting the following information. Unfortunately, as at the date of this letter, a reply has still not been received. On your VAT registration form, you stated that you expected your turnover to be £200,000 a year. Since a response has not been received, an assessment will be issued for VAT due on this amount as follows …" The total amount of the assessment came to £81,906. She stated that notification of the assessment would be issued "within the next 14 days". The Appellant was amazed to receive this letter bearing in mind that his income had never reached such a high figure and he had tried to contact her. Eventually, he did, however, manage to speak to her on the telephone on 10 April 2006 and discussed this situation with her. He then wrote to her on 11 April stating that the income from account work was gross and average per quarter. He also supplied the following information with reference to her query about a circuit fee. " Circuit Fee(a) The breakdown of the contributions from the drivers, approx £50 per week gross goes towards the payment of the telephonists, approx £300 per week, about £10 per week goes towards the upkeep of the office, coffee, tea, heating, lights etc.

(b) Are the drivers required to pay this amount regardless ? The answer is no.

(c) There is no contract for the drivers verbal or otherwise. They are all self-employed and are liable for their own tax and books.

(d) Monthly expenditure is as stated on VAT returns + wages (detailed above) and non VAT items, e.g. tea, postage etc which I would estimate at £50 per month.

(e) Customer complaints are addressed to the drivers then myself."

[16]He added : "Details can be provided for all items, these are listed on a Microsoft money accounts program and can be accessed at any time for you. Print outs can be run off if and when your require them, or you can access them yourself if you wish to visit the office. Annual accounts can be provided, the accountant Linda James will be told that you may be requesting them. May I point out that although you have cancelled the assessment due to information that I gave you during our conversation on 10 March, if I had been able to contact you the assessment would not have been made. After countless phone calls and messages left on your voice mail with no response, I, in desperation spoke to one of your colleagues and begged him to contact you direct, this he did, and you rang me 5 hours later." 17. He heard nothing further from Mrs Peters but Officer Leatt from the VAT Croydon Business Centre came to see him at his business premises on 17 May 2006. Mr Lancaster confirmed that his business operated a Minicab Service and currently had five drivers in addition to Mr Lancaster who also drove. It was open from 6.00 a.m. until midnight. The Appellant worked as a controller sometimes but there were two other office staff who were paid £6 per hour, as their income was under the income tax threshold he paid them cash. Mr Lancaster did not charge himself a circuit fee when he drove. The other drivers were charged 20% of their income although they had only been in force for two weeks prior to Mr Leatt's visit, when they had been charged 15%. Outputs were only accounted for on two account customers. Inputs claimed were rent, phone, computers, rental of a central base radio and Mr Lancaster's own petrol and car running costs. He did not consider that the income he received from drivers as commission was taxable contending that it was a contribution to the controllers' wages.

[18]Mr Leatt advised the Appellant that as from that visit he was obliged to charge VAT on the commission and on his own income and driving work as he was a registered sole proprietor. Mr Lancaster replied by saying that from then on he would be asking for voluntary donations from the drivers rather than a fee. Mr Leatt advised that in his view this would be the same situation.

[19]On 18 May 2006 Mr Leatt spoke on the telephone to Miss James, the Appellant's Accountant. He then followed that by sending a, letter the same day summarising the position. He said that Mr Lancaster had not accounted for VAT on the commission or circuit fee from the drivers believing that this was not subject to VAT but was a contribution to the controllers' wages. Mr Lancaster had allowed drivers to undertake account work for free in view of their commission payments due to him. In the opinion of Mr Leatt this form of offsetting still constituted a taxable supply. Furthermore, the Appellant as a VAT registered sole trader also undertook driving work himself but he had not accounted for any VAT on the income from this although he had recovered input tax on all the petrol and running costs of his car.

[20]He added in his letter that although the financial records prior to 2005 had apparently been lost on the computer, these issues had been ongoing since trading began in 1999. He suggested a meeting to attempt to agree the sums due.

[21]Mr Leatt made an appointment to meet Miss James at her office and this took place on 11 July 2006. She agreed that where drivers paid the controller's wages direct, this still constituted a supply by his business and that outputs would be due on Mr Lancaster's own driving as sole proprietor. She did this before Mr Lancaster arrived as he had been held up. When Mr Lancaster arrived he told Mr Leatt that he now had nothing to do with controllers' wages and the other drivers each paid the controllers direct through one of their number a Mr Andrew Spinetti. Both Mr Leatt and Miss James explained to Mr Lancaster that this was still a taxable supply.

[22]At this meeting Mr Lancaster stated that his turnover currently was below the VAT threshold. He also said that he had been told officially in 1999 that he must register for VAT. The figure of £200,000 given on the VAT 1 Form was optimistic and included the drivers anticipated income as well as his own. Although receiving regular repayments, Mr Lancaster considered that he should have been told that he did not actually need to register. He indicted at the meeting that he wished to de-register for VAT.

[23]During the course of the meeting on 11 July 2006 before Mr Lancaster arrived, Linda James produced for Mr Leatt details of Mr Lancaster's declared turnover for tax years 2003/2004, 2004/2005 and 2005/2006 and Mr Leatt and Miss James agreed that on the basis and taking into account the VAT returns which had been made throughout the three years, a sum of some £14,000 extra output tax was payable by him. Mr Lancaster did not apparently comment on this calculation when he was notified on arrival of what Miss James and Mr Leatt had agreed.

[24]Later the same day, Miss James wrote first to the VAT National Registration office as follows : "We act as tax advisers to Mr Lancaster and enclose form VAT7 application to cancel VAT registration. We have only recently accepted appointment as accountants and tax advisers. On reviewing Mr Lancaster's affairs, and in the course of an inspection from the Croydon VAT office it has become obvious that Mr Lancaster will benefit from cancelling his VAT registration. His turnover is below the VAT registration limit and we should be grateful if you would arrange for the VAT registration to be cancelled with effect from 30 June 2006".

[25]The application to cancel the registration stated that Mr Lancaster's taxable turnover for the next twelve months was estimated at £45,000. He wanted to cancel registration with effect from 30 June 2006.

[26]By a second letter also dated 11 July, Miss James wrote at length to the VAT Local Compliance Area Office in Croydon. She set out the history of the setting up of Mr Lancaster's business and continued as follows :

"When he set up the business, he sought advice from the Inland Revenue and Customs & Excise. He was apparently advised by Customs, through a meeting with Customs Officers, and through correspondence, that he had to be registered for VAT. At no time was the VAT registration limit explained to him or the fact that as the drivers operate on a self-employed basis he should not include their fares in his overall turnover, just the amount they pay for circuit fees, radio etc. Having been advised by Customs & Excise that he must register for VAT, he did so, although it always seemed to him that this could not be correct, given the level of his income. Over the period of the next seven years, Mr Lancaster prepared his VAT returns on the basis of the instructions he had been given by Customs & Excise, including as income only fees he had charged VAT on, i.e. contract work, and claiming VAT on all relevant business expenses. As a result, he had repayments showing on all VAT returns. This he did not query because at the time he registered it was indicated to him by the Customs Officer that this could well be the case – that it was in his interest to register for VAT and he prepared his returns in accordance with instructions received. We understand that in December 2005, the London VAT district undertook a survey on minicab companies in general. Airport Cars received the survey. Mr Lancaster tried on several occasions to contact somebody at Customs & Excise for advice regarding the answers required on the survey and spent approximately three months trying to contact a specific Customs officer, leaving many messages for her to contact him. She never replied. All that happened was that in May 2006, an assessment was raised on Mr Lancaster in the sum of almost £82,000. Mr Lancaster then received a visit from a local Customs Officer, who started to review his papers. Following on from that visit and our involvement in this case, Mr Lancaster has now sought to de-register from VAT. However, it is clear that for the period of three years, up until the time Customs & Excise contacted him for a visit, he has accrued unpaid VAT in excess of £14,000. This case is totally unacceptable. At no time did Mr Lancaster receive the correct advice regarding whether or not he should register for VAT and if he was registered for VAT precisely what income he had to account for VAT on. Despite there being repayments due to him per his VAT returns over many years, he did not receive a visit to check he was operating VAT correctly and he now finds himself in an almost impossible position with regard to VAT arrears through no fault of his own. Would you please consider this case. We would ask that Customs & Excise exercise their discretion to reduce the amount of VAT Mr Lancaster owes – although he does not dispute the actual amount, it arose at a time when he should not have been VAT registered. We would suggest that Customs & Excise merely seek to recoup the VAT refunded to him over the last three years and not the amount now showing as due…"

[27]As a result of his visit to the Accountant's office the previous day and without knowledge at that time of the letter sent by Miss James referred to above in paragraph 24, Mr Leatt wrote to Mr Lancaster on 12 July 2006 on behalf of the Respondents effectively issuing the first decision of the appeal, namely the Appellant owed some £13,392 in output tax. This was reduced by VAT reclaimed in the period 03/06 at £845.6 to a net figure of £12,546.80. Mr Leatt set out his calculation as follows :

"As agreed, difference between turnover as per annual accounts and declared outputs x7/47 as follows : Year 03/04 £4812 (the VAT quarter 06/03 is now outside the three year limit so only ¾ of this year counted = £3609) Year 04/05 £4708 Year 05/06 £5075 Total £13392 output tax. Agreed to make adjustments in the most recent period therefore 03/06 (£845.16 input tax) is a payment due of £12546.84."

[28]With reference to the application by Miss James to de-register Mr Lancaster from VAT dated 11 July 2006, the Commissioners did not process this because there was a simultaneous application on 9 June 2006 for a new registration by Mr Lancaster as from 1 January 2006. The Wolverhampton VAT office considered it was unreasonable for them to assume that the Appellant wanted to remain unregistered when he had applied for a new registration.

[29]Although the VAT Registration Unit duly processed the new application as an automatic process, it was decided by the Commissioners that as there could not be two VAT registrations for the same legal entity (Mr Lancaster as sole proprietor) the subsequent registration should be cancelled as an invalid registration. If the second registration had been permitted it would have overlapped with the original application for six months.

[30]On 17 July 2006, the Appellant wrote to Mr Leatt indicating his intention to appeal. He enclosed a copy of his letter to Ms James of the same date. He made the following statements : * His main contention was that he "had done everything [he] had been asked to do by H M Customs with regard to this account." * He rang the Respondents six years previously when he started in respect of whether he should be registered or not. * He was apparently told that he should register for VAT if his gross turnover was over the threshold limit. * Gross turnover was the amount of money generated within the company [ sic ] by the self-employed drivers irrespective of what he actually made himself. * He was also told that he could claim any VAT due on inputs to the company [ sic ] only for himself and directly for the company [ sic ]. * The total amount including the drivers was obviously going to be over the threshold, so he registered for VAT. This information was incorrect and he should not have registered because his personal income was well below the threshold limit. * He was told that he should only collect VAT on invoices raised by the company [ sic ] and that these must have the VAT number on them. * He mentioned that the company [ sic ] cards with a receipt on the reverse had a VAT number and was told that this was correct. * He was also told that a VAT number should not be included on cash receipts, a point which was apparently reiterated by Mr Leatt when he visited. * He collected VAT on invoices raised by the company [ sic ] and reclaimed VAT on inputs directly for the company. * He did not collect VAT on any other source of money so was horrified when it was suggested that he should have collected VAT on the controllers' wages: how could he repay something he had never collected ?

[31]Correspondence ensued from HMRC relating to the Appellant's complaint that he had not received a visit in regard to his VAT returns even though he had been putting in VAT repayment returns for many years and the circumstances relating to the abortive assessment of £82,000.

[32]On 28 September 2006, Mr Leatt visited Mr Lancaster at his station Kiosk again in relation to his 06/06 VAT return. He told Mr Leatt that he had completed the return in the same manner as he had done previously and therefore no output tax had been accounted for on commission paid to him by the self-employed drivers or on his own driving work. This was despite being told by Mr Leatt previously that this was a wrong procedure.

[33]Mr Lancaster was alone in the taxi office and as controller at the time, had to answer the phone and speak to the drivers throughout the interview. However, he did show Mr Leatt his computer screen revealing the Cab-Vista system which was used for entering details of the transactions incurred in the taxi business including journeys undertaken by all the drivers. Mr Leatt took down details from the system for the period 1 April to 30 June 2006. The total income generated in the office during this three month period was £50,471.90. This was broken down as to £3,684 from his own driving and the remaining sum of £46,787.90 from the other drivers. When he returned to his office the same day. Mr Leatt calculated that the amount of VAT on Mr Lancaster's income during the three months starting 1 April was £548.68. It could be assumed that Mr Lancaster would have collected from the other drivers' commission at a rate of 20% amounting to £9,357.58. This would attract VAT of £1,393.68. Therefore the output VAT due for the quarter 06/06 was £1,942.36 which had not been included in the VAT return for the quarter. Mr Lancaster had only included a figure of £74.37 in his return for 06/06 which was dated 26 August 2006. He had stated in this return that he had a VAT reclaim of £768.30 on purchases and other inputs for the period. Therefore, according to Mr Leatt, he owed a net VAT payment of £1,174.065.

[34]Mr Leatt wrote to Mr Lancaster on 29 September 2006 setting out his decision in detail including all the figures referred to in the previous paragraph of this decision.

[35]Mr Leatt made it quite clear in his decision letter the VAT position of Mr Lancaster's business. He said … "As discussed when I saw you on Thursday, and at our previous meetings, the income received by you from your drivers, either as a circuit fee or commission, is your taxable income for VAT purposes. Similarly, as a VAT registered sole trader your own income from all your own driving, not just account work, is taxable…" He also mentioned that if he disagreed with the decision he could request a reconsideration by "the office of issue where the evidence to support your request will be examined. Also you have the right of appeal …"

[36]On 3 October 2006, Mr Lancaster wrote to Mr Leatt requesting reconsideration of the decision relating to the 06/06 period. He gave these reasons : ... At no time has he charged VAT to the drivers. ... Commission has started to be applied to the drivers in the last 2 weeks. ... He has never charged VAT on fares, because if the VAT number is not allowed on card receipts then no VAT is included in the fare. ... VAT was not collected purely by instructions from the Respondents, so how can he be asked for the money ?

[37]On 27 October 2006, Claire Andrews an HMRC Complaints officer in the London Customer Contact Complaints Service wrote to the Appellant's Accountants, Alderwick James & Co, stating that she had investigated their client's complaint and was in a position to be able to respond to some of the concerns raised in their letter of 11 July 2006. She referred to the assertion by the Accountants that Mr Lancaster had never received a visit from HMRC in regard to his VAT returns, even though he had been putting in VAT repayment returns for many years. She replied :

"In response to this query, VAT is a self-assessed tax and as such it is the responsibility of the VAT registered person to ensure that their VAT returns are accurate and correct. However, HMRC does offer support and guidance for registered entities, in the form of VAT Public Notices, the National Advice Service, the Written Enquiries Team, the HMRC website and other publicised information. I would also like to confirm that HMRC does not have a responsibility to visit every VAT registered entity."

Ms Andrews also dealt with the circumstances arising from the abortive assessment for £81,000 raised in April 2006 which are not the subject of this appeal.

[38]On 5 November 2006 Mr Lancaster wrote again, stating that he had "only just" started to charge a commission on the self-employed drivers payments, and he sought confirmation of the position.

[39]On 10 November 2006 Mr Leatt replied stating that Mr Lancaster had not "only just" started to charge a commission from the self-employed drivers, but he had made a charge since the business began, which constituted a taxable supply from him to them for VAT purposes and that he must account for VAT on it. Mr Lancaster was told that all income he received, including commission and his own driving income was liable to VAT, as a VAT registered sole proprietor.

[40]There was a further exchange of letters between Mr Lancaster and Mr Leatt on 19 and 20 November repeating Mr Lancaster's arguments and Mr Leatt's response.

[41]On 27 November 2006 Mr Bill Beedie, a Review Officer of the HMRC London Indirect Tax Appeals Team wrote to the Appellant with the result of his reconsideration of the decisions/assessments of VAT issues to Mr Lancaster on 12 July and 26 September 2006 in the amounts of £13,332.07 and £1,897.99 respectively. He set out at length his findings and concluded that the decision and resulting assessments should be upheld. The appeal

[42]On 20 December 2006 the Appellant lodged a Notice of Appeal against the Assessment of VAT dated 11 August 2006. That Assessment was made after the Appellant had not submitted his VAT return for the period 06/06, and claimed some £13,217. The Grounds of Appeal were as follows :

"Due to the misinformation and misleading information given to me, plus misdirection by the VAT office monies were not collected by myself. Only monies due on invoices raised were collected and paid to Customs and Excise. Please refer to attached correspondence copies. If I did not collect it how can I pay it ?"

[43]On 8 March 2007 the Tribunal refused the Respondents' application to strike out the Appellant's appeal, and instead directed the Appellant to specify :(1) the dates of the assessments against which he was appealing, and

(2) his Grounds of Appeal.

[44]In a letter of 13 March 2007 the Appellant clarified his case :

"The appeal was lodged against the assessments of the 12 th July 2006 (£13,332.07) and 29 th September 2006 (£1,867.99). The appeal was also against the retention of monies held by HMRC for tax returns January 2006, April 2006 and July 2006"

[45]During the course of the second hearing day on 30 March 2009 it became apparent to the tribunal that two matters in the appeal required further clarification and amplification. Directions were accordingly made. Because they have a bearing on the appeal, each Direction is set out below with the consequential responses.

[46]The first Direction requiring responses read as follows :

"The Respondents are to supply a calculation of how the two assessments under appeal are arrived at including the information given to the tribunal at the hearing today by the witness Officer Matthew John Leatt within 14 days from the date of release of this direction. In the event of the Appellant disputing the Respondents' calculation he is to produce his own calculation within 14 days after the delivery by the Respondents of their figures."

[47]Mr Tony Hopkinson of the Solicitor's office of HMRC replied on behalf of the Respondents by letter dated 17 April 2009. Because this effectively put forward minor alterations to the original decision of 12 July 2006 the main points in the letter are reproduced below :

"The turnover figures are from Mr Lancaster's income figures as submitted for his personal tax returns … The calculations are as follows : Year 2003/2004 (tax year to 05/04/2004) income £33160 Less declared outputs + output tax for periods 06/03. 09/03. 12/03 and 03/04 of £981.48 = £32178 VAT inclusive figure (gross) therefore VAT due calculated as 7/47ths (the VAT fraction) = £4,792 VAT Period 06/03 was outside the three year limit so used ¾ of this figure as being for the remaining three periods, £3,594 Matthew Leatt originally used a figure of £3,609 so there is a small difference of £15. Year 2004/2005 (tax year to 05/04/2005) income £32,810 Less declared outputs +output tax for periods 06/04, 09/04. 12/04 and 03/05 of £1411.34 = £31,398 VAT inclusive figure (gross) therefore VAT due calculated as 7/47 th (the VAT fraction) = £4,676 VAT Again Matthew Leatt originally used a figure of £4708 so there is a small difference of £32. Year 2005/2006 (tax year to 05/04/2006) income £36,276 Less declared outputs + output tax for periods 06/05, 09/05, 12/05 and 03/06 of £1,077.15 = £35,198 VAT inclusive figure (gross) therefore VAT due calculated as 7/47ths (the VAT fraction) = £5,242 VAT Matthew Leatt originally used a figure of £5,075 VAT so there is a difference the other way of £167. Overall the additional VAT due was understated by £120. 09/03 £1203 12/03 £1203 03/04 £1203 06/04 £1177 09/04 £1177 12/04 £1177 03/05 £1177 06/05 £1268 09/05 £1269 12/05 £1269 03/06 £1269 Total £13392 Total underdeclared VAT as Per original calculation £13,392 which is the figure Matthew Leatt used to amend box 3 of Mr Lancaster's 03/06 return. Less £845.16 input tax made the return, a payment due of £12,546.84. The VAT periods are not coterminous with the financial years so this is a degree of margin for error involved, however they only differ by a few days, i.e. the difference between the VAT period ending on 31 st March and the financial year ending on 5 th April. This is a "best judgment" assessment based on the only information available i.e. Mr Lancaster's own income figures."

[48]Mr Lancaster did not respond specifically to this letter which was sent to him as an attachment to an E mail on 17 April 2009. However, he did send a lengthy letter dated 17 April 2009 to Mr Leatt's office marked for his attention setting out what he considered were his real turnover figures and also sent to Mr Hopkinson on 18 May 2009 a copy of his letter to Linda James dated 17 (actually 18) May 2009, copies of what he considered to be his provisional turnover figures for the years 07/07, 07/08 and 08/09, copy of letter from HMRC to Linda James dated 18 May 2006 and his revised turnover figures 2001 through to 18 May 2009.

[49]The Appellant also wrote to Mr Hopkinson on 21 May 2009 denying that he did not comply with the direction by responding to his letter of 17 April stating that he had sent revised turnover figures for the relevant three years. [ These turnover figures are referred to in Mr Lancaster's arguments which appear later in this decision ]

[50]With reference to the slightly altered figured in Mr Hopkinson's letter of 17 April 2009 [ see paragraph 47 above ] at the request of the tribunal at the hearing on 29 May 2009 a substituted decision was made on 4 June 2009. The decision increases the original dated 12 July 2006 by £120 plus interest. [ in the tribunal's view it is not necessary for there to be a separate appeal because the same facts pertain except for the slight amendment to the figures. ]

[51]The second Direction referred to in paragraph 45 of this decision reads as follows :

" The Appellant is to consider whether his Accountant Miss Linda James should give evidence at the next hearing and, if so, she shall serve at the London Tribunal Centre her statement in writing containing the evidence proposed to be given within 21 days after the date of release of this direction."

[52]In the end, Mr Lancaster did not call Miss Linda James as a witness and no written statement was produced to the tribunal. However, she did write a letter to him on 26 March 2009 which does have a bearing on this appeal. This letter was provided to the tribunal and relevant content is set out as follows :

"With regard to the VAT position, I understand you were registered for VAT from 1 October 1999. You became a client of this firm in October 2005. In the years between 1999 and 2006, you had completed VAT returns without accounting for VAT on the full turnover of the Airport Cars business. The problem was identified during a VAT control visit to your offices and in July 2006, we met with Mr Leatt, an officer of HM Revenue and Customs, at our offices, in order to discuss the discrepancies. During that meeting, it was agreed that you, as a registered trader, had to account for VAT on all you own driving income, all account customers billed from Airport Cars and the circuit fees and any other charges you collect from the other drivers. The total of these items is your business turnover, We also agreed at that meeting that the turnover of the business was below the VAT registration level, and that as you had difficulty in understanding the VAT liabilities/computations, you should register for VAT. We estimated, at that time that your turnover for the next twelve months would be £45,000 and that figure was reported on the VAT7 Application for de-registration, submitted to the VAT7 National Registration Service in Newry on 11 July 2006. A copy of the VAT7 is attached, together with a copy of our letter sending the form to HM Revenue and Customs. I understand that later in 2006, you met Mr Leatt again, without my being asked to attend the meeting when Mr Leatt advised you that you should not de-register for VAT. I am not aware of the discussions that took place at that meeting, but you took that advice and from then on you have dealt with the queries regarding your VAT directly with the Central London VAT Office and the VAT Tribunal, occasionally copying us in on correspondence. The accounts for Airport Cars for the year to 31 March 2006, which included in your turnover your driving income, contributions from the drivers towards overheads of the radios, office staff, and account customers' bills total £36,276. It would seem, therefore, that the estimate on the VAT7 of £45,000 was reasonable."

Mr Lancaster subsequently wrote to Miss James on 18 May 2009 on income tax and this VAT appeal. The legislation

[53]It is provided in section 1(2) of the Value Added Tax Act 1994 (VATA) that "VAT on any supply of goods or services is a liability of the person making the supply and (subject to provisions about accounting and payment) becomes due at the time of the supply."

[54]A taxable person is defined in section 3 of VATA as follows :

"A person is a taxable person for the purposes of this Act while he is, or is required to be, registered under this Act."

[55]The scope of VAT is determined by section 4(1) which states, "VAT shall be charged on any supply of goods, or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him."

[56]The relevant European legislation is contained in the Sixth Council Directive (77/388/EEC) ("the Sixth Directive") Article 4 defines a taxable person as follows : "4(1) "Taxable person" shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of the activity. 4(2) The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall be considered an economic activity…" The Respondents VAT Notice 700/25

[57]This Notice explains how VAT applies to the taxi and private hire car trade. Although it does not have the standing of statutory provision, the advice sets out the HMRC position from many sources.

[58]The relevant paragraphs of the Notice state as follows :

" 1.2 What is liable to VAT ? The fares you charge to your passengers for taxi or private hire journeys are liable to VAT at the standard rate … Other sources of income liable to VAT may include … ... Charges for supplying … radios to drivers … … 3 . Businesses which engage drivers 3.1 What type of business does this cover ? This includes all businesses, whether they are a sole proprietorship, partnership or limited company, which either : ... employ staff to drive taxies or private hire cars or ... take on self-employed drivers to work under a contract for services 3.2 Accounting for VAT If you run a business of this kind, then unless you are acting as an agent for any of the drivers for some, or all, of the work they do (see paragraph 3.3) you are a principal in making the supply of transport to the customer. In working out the value of your supply, you should remember that this must include : … ... any fares you (as sole proprietor, director or partner) receive if you drive for the firm … … 3.3 Agent or principal ? As a taxi or private hire car business you may perform two different types of work. These are : ... cash work, where individual customers pay cash to the driver on completion of the journey and ... account work, where regular customers, particularly companies and institutions, are allowed to settle their bill periodically. If all drivers are employees you are a principal and you must follow paragraph 3.2 when accounting for VAT. However, if your drivers are self-employed, you may, depending on the agreements you have with them, be acting as their agent for cash work in some cases for account work as well. … 3.6 Agent for cash work and principal for account work You may, depending again on the terms of any actual written or oral contract between you and the drivers and the actual working practices of your business, be acting as agent for the drivers for the cash work they perform, and as a principal for the work done for account customers. However, if you are to account for VAT on this basis you must be able to satisfy us that : ... the arrangements are reflected in the terms agreed with your drivers and ... there is a genuine difference in the operation of the cash and account sides of your business. 3.7 Accounting for VAT on the agency services If you operate as an agent for cash work and a principal for account work, you must still account for VAT at the standard rate on the full charge to the drivers for the rental of … radios or other services you supply to them. This applies even if you : ... offset the charge when calculating the rate due to the drivers for account work they perform for you or ... deduct it before paying then for account journeys."

The Appellant's arguments

[59]On 1 July 2008 Mr Lancaster delivered to Mr Hopkinson of the HMRC Solicitor's office his own statement of case which sets out explicitly his contentions. Subsequently, in correspondence with Mr Leatt and Mr Hopkinson and at the tribunal hearings the Appellant continued to assert his arguments.

[60]The Appellant not only appealed against the two decisions/assessments but also the retention of money he alleged was owed by HMRC in a total of £3,422.09. This additional issue was not before the tribunal as it was not included in the grounds of appeal and there was accordingly no information before the tribunal upon which it could adjudicate. 61. The first contention put forward by Mr Lancaster was that he was misdirected by the Respondents to register for VAT in the first place. He said that he was told in 1999 that he must register for VAT as the anticipated level of supplies would be over the threshold limit. He alleged that when he asked what supplies must have VAT applied, he was informed by the local office in Staines, Middlesex, that only invoices raised were liable for tax and they must have a VAT number displayed.

[62]Secondly. He never acted as principal to the drivers he used in his business. He contended he was their agent. The drivers were all self-employed.

[63]As for drivers payments toward the outgoings of the taxi office were concerned, until 2004 the contributions were not a proportion of fares collected by the drivers. Mr Lancaster introduced a standard 15% charge on fares which was increased to 20% in 2006. He considered it was a "payment towards the cost of running the office". He agreed it could be called "a commission" but definitely not "a circuit fee" which was a regular payment of a fixed amount not dependent on the fares earned by the drivers. At no time was any VAT applied to this commission as he had been told officially that VAT should only be subject to "invoices raised with the VAT number on". This commission in his view did not fit into that category; invoices were not generated so he thought VAT was not applied.

[64]The same criteria applied to his earnings as a driver.

[65]He also maintained that his gross turnover included all the takings of the drivers as well as his own fees. He told the tribunal that when he had contacted the Inland Revenue in order to obtain a definite answer to the question in the Tax Return of what should be included in that section which stated in "Business Income Part 14 – your turnover – the takings, fees, sales or money earned in your Business" – the answer he was given was that his turnover should include drivers' commissions, sales invoices and personal earnings. He pointed out that commissions would only represent 20% of turnover. He was then informed that the figure entered under the section on the Tax returns "business income/sales" should be the total amount of sales e.g. every job undertaken for or on behalf of the business". Therefore, that was his true turnover and his income was a percentage or proportion of that figure.

[66]Mr Lancaster contended that the two assessments were made as a result of the "calculations made on my turnover being interpreted as my income". He felt that Mr Leatt had not come to terms with what his counterparts in HMRC Tax returns section required. He also said that there were two other factors which affected his position. First, his business was not visited sooner when any discrepancies might have been discovered earlier. A period of six years was too long. Secondly, Mr Lancaster said that the Cabvista computer system he had been using in the years 2006, 2007 and 2008 was unreliable and also rather basic. He decided in May 2009 to use another software system.

[67]He summarised that the Respondents were trying to reclaim money they knew was not collected and the assessments were misconceived. The Respondents' arguments

[68]Mr Sachdeva for the Commissioners referred to the amended statement of case. First, dealing with the Appellant's own earnings as a driver, he contended that VAT is indeed payable on these. The only valid reason he gave for resisting this argument was that he was misdirected by the Respondents to register for VAT in the first place. Mr Sachdeva put forward five points to oppose this assertion as follows :(1) The Appellant's estimate of his prospective turnover for the 12 months after 10 March 2000 was £200,000 – well over the threshold.

(2) Even if the Appellant was able to establish that certain advice was given by the Respondents, and that it was incorrect, and that such incorrectness caused the Appellant to register for VAT, it would not affect the Appellant's liability in law for VAT.

(3) Given that the Appellant in fact did register for VAT, he is taken to know his obligations to collect VAT from those whom he has supplied a relevant service. Thus the Appellant's complaint has caused no loss.

(4) The Respondents were considering the Claimant's complaint of misdirection.

(5) Further, the VAT tribunal did not have any jurisdiction over such a complaint.

[69]Secondly, with reference to the payments made by the drivers, it was argued on behalf of the Commissioners that, on the evidence before the tribunal, the Appellant did not handle the controllers' fees as agent for the drivers but that he did operate these fees as principal. He quoted from two VAT decisions to support his view, They were : Crayforth & Bexley Heath (Motors) Limited v The Commissioners of Customs and Excise [1995] VTD 13620 (Crayforth) and Home and Away Limited v The Commissioners of Customs and Excise [2003] VTD 18195 (Home and Away)

[70]Finally, Mr Sachdeva said that Mr Leatt had reached the two assessment figures using his best judgment. He relied upon the turnover figures given by Linda James, the Appellant's Accountant on 11 July 2006. On 28 September 2006 he took the turnover figure for the period 1 April to 30 June 2006 in the sum of £50,471.90 from the Cab-Vista system screen. Counsel said that it was, in his opinion, not plausible that in the tax year 2005/2006 his total turnover including all the drivers' takings was only £36,276. Mr Lancaster's Accountant had not supported the Appellant's view. Reasons for decision

[71]The tribunal considers that the burden of proof in deciding whether the assessments are correct or not lies on the Appellant.

[72]Before we consider whether the Appellant discharges the burden, we would refer to the comment by Mr Hopkinson of the Solicitor's office of HMRC at the end of his letter dated 17 April 2009 that the revised decision for the 03/06 return was a "best judgment" assessment based on the only information available, ie Mr Lancaster's own income figures. Mr Sachdeva for the Commissioners agreed that proposition. We concur and it is therefore necessary for us to set out the principles of "best judgment" to be used by an officer of HMRC in reaching a decision/assessment relating to VAT.

[73]We are guided by the principle as described by Farquharson J in Mr Wishmore Limited v the Commissioners of Customs and Excise [1988] at page 728q who said :

"The Tribunal … should restrict itself, on the hearing of an appeal to deciding whether the taxpayer company has established the decision arrived at by the commissioners was unreasonable, or … whether the decision had been arrived at by taking into account matters which are not relevant or by ignoring matters which are relevant."

[74]The principles were further developed in Customs and Excise Commissioners v Peachtree Enterprises Ltd

[1994] STC 747

where it was held that the tribunal had to limit itself to considering facts and matters which were known at the time the disputed decision was made by Customs and Excise. The principles were yet further advanced in John Dee Limited v Customs and Excise Commissioners

[1995] STC 941

where the Court of Appeal held that the tribunal had to consider whether Customs and Excise could have acted, or whether they had taken in account some irrelevant matters, or had disregarded something to which they should have given weight. The tribunal could not exercise a fresh discretion; the protection of the revenue was not a responsibility of the tribunal or the court. However, if it was shown that the decision of Customs and Excise was erroneous because they had failed to take some relevant material into account, the tribunal could, nevertheless, dismiss the appeal if the decision would inevitably have been the same had account been taken of the additional material.

[75]We now consider the three main issues between the parties. Drivers' Payments

[76]It is admitted by the Appellant that the self-employed drivers working for his business paid first for the use of the controllers who manned the taxi office and secondly using the Appellant's premises and equipment including the radio system. 77. Initially, Mr Lancaster said that it was an ad hoc arrangement but commission of 15% was paid to him during the relevant years which increased to 20% in 2006. The tribunal accepts that situation.

[78]The Appellant has put forward four arguments to support his contention that VAT should not be charged to him on the commission paid by the drivers. We deal with each contention as follows :(1) He argued that the controllers were paid directly by the drivers. We find that the Appellant engaged the few controllers who worked for him. In fact, he acted as controller frequently when he was not working as a driver himself. The controllers other than the Appellant used his office and equipment and were paid wages by him. This point was considered by the tribunal in Crayforth . Mr Stephen Oliver QC made the following observations with which we agree. "If the Company is to succeed in its appeal it must establish that it handled the controllers' fee element in the weekly circuit fees as agent for the drivers. To establish this the Company has to satisfy us that the drivers engage the controllers to control and manage their booking … We infer … that the controllers are an essential and integrated part of the Company's business as it now carried on and as it has been carried on since VAT started. The controllers occupy the Company's premises and they use the Company's equipment to carry on their controlling work. We conclude therefore that the drivers do not, either expressly of by implication, appoint the controllers to control and manage the bookings obtained by the Company. We now turn to the specific question, this is whether the Company handles the controllers' fees and pays them out to the controllers and agent for the drivers. We have found that the controllers are not agents for the drivers. It must follow, we think, that the Company pays over the controllers' fees as principal. It must also follow, we think, that the full amount of each weekly circuit fee is received by the Company as principal. Our conclusion, therefore, is that the Company has, at all material times been correctly accounting for output tax on the full amount of the circuit fees." This view was endorsed in Home and Away.

(2) Alternatively, he should not be liable for output tax and commission paid for controllers fees and the use of the radio system because he was told by an unnamed person representing the Respondents that he had done everything he had been asked to do by the Respondents with regard to the matter. There is no record of this alleged statement which is not in accordance with the Respondents' usual practice and direction. In the absence of any proof we find that on the balance of probabilities the advice was not given.

(3) Alternatively, he should not have been registered for VAT in the first place as he was given incorrect advice by an unnamed person on behalf of the Respondents. Similarly to the previous arguments, the Appellant has not given specific details of when the advice was given, by whom, and what facts the Appellant told the representative of the Respondents before such advice was given. We agree with Mr Sachdeva that we do not have any statutory or other jurisdiction to entertain such a complaint. The Respondents are considering the appellant's complaint of misdirection elsewhere in accordance with the normal procedure. This is outside the scope of the tribunal's jurisdiction.

(4) Mr Lancaster argued that as the drivers had not included VAT on the fees and subsequent commission paid to him, he was not obligated to pay VAT himself. In our view, this is a fallacious assertion for the following reason. At the relevant times, Mr Lancaster was a taxable person and section 4(1) of VATA provides that VAT is to be charged on any supply of services where it is "a taxable supply made by a taxable person in the course or furtherance of any business carried on by him." Mr Lancaster was making a supply of services to the drivers in providing controllers and use of premises and radio facility. They paid him fees and then commission for these services. Those payments must therefore be subject to VAT. The fact VAT has not been specifically mentioned when the payments are made is not a reason for not paying VAT to the Respondents. Appellant's own earnings as a driver 79. It appears to the tribunal that the Appellant has put forward two arguments to support his case in this regard. First, that as he did not collect VAT from customers, he was not bound to account for VAT on their fares especially as he was told by the Respondents' representatives that he should not issue VAT receipts to customers. This falls into the same category as the fees and commission paid by the drivers referred to in the previous paragraph of this decision. By virtue of section 4(1) of VATA he was making taxable supplies in the course of his taxi business. There cannot be any exclusion from this liability. Secondly, the Appellant contended he was misdirected by the Respondents to register for VAT in the first place. In his original application form he estimated that his prospective turnover for the twelve months after 10 March 2000 would be £200,000. He argued his turnover proved to be considerably less than that figure and he made a mistake. Indeed his Accountant Miss James at the meeting on 11 July 2006 gave an estimate of taxable turnover in the next twelve moths of £45,000. Even if he was misdirected (which is denied by the Respondents) the Appellant should know of his obligation to collect VAT from those from whom he has supplied a relevant service. Mr Lancaster argued that if he had been visited by an HMRC Officer before Mr Leatt called he would have become more aware of his predicament. This is not an argument acceptable to the tribunal as Mr Lancaster is obligated to seek advice himself and not wait for HMRC to find out something is wrong. He fell behind with his tax returns and had to employ Miss James to sort out his income tax position. This resulted in late returns for several years and penalties. He should have investigated his VAT position much earlier. The annual turnover

[80]Throughout the proceedings, Mr Lancaster has maintained that his gross annual turnover has always included all the earnings of the self-employed drivers who work for his business.

[81]He wrote a lengthy letter to his Accountant, Miss James on 18 May 2009 when he delivered all his accounting documents for the tax years 2006/2007, 2007/2008 and 2008/2009. He referred to the VAT appeal in his letter and continued to dispute Mr Leatt's figures. He commented in his letter as follows :

"…As you know the tax returns you did for years 03/04, 04/05 and 05/06, were for a turnover of £33,160, £32,810 and £36,276 respectfully, these are well documented. This as we know was not my "income" it was turnover, so, for my own piece of mind I contacted the Tax Return section of H.M.R.C, they informed me my turnover should include drivers commissions, sales, invoices and personal earnings, I pointed out that commissions would only represented approx 20% of turnover they then confirmed that the figure entered under the section on the Tax Return "business income/sales" should be total amount of sales, e.g. every job undertaken for or on behalf of the business known as Mark Lancaster trading as Airport cars, this is the true turnover and my income would be a percentage or proportion of that. Putting anything less than the true turnover would be incorrect and liable to penalties. So as far as the Tax Return section of H.M.R.C. are concerned, my returns were correctly completed, but then, you were fully aware of that. On the other hand Mr Leatt is convinced that the turnover figures are in fact my income and believing that based his assessments on that inaccuracy. I wish I was earning £33,000 a year six years ago and £50,000 now, I certainly would not be working 100 hours a week …" 82. Mr Lancaster attached to his letter to Miss James of 18 May 2009 account figures for the years 2006/2007, 2007/2008 and 2008/2009. He inserted figures for earnings of other drivers purporting to imply that they were included in the gross turnover. 83. At the hearing and in all the extensive correspondence and documentation produced to the tribunal there has not been one shred of real evidence to substantiate what Mr Lancaster is asserting. The evidence before the tribunal overwhelmingly implies that the turnover figures before the tribunal do not include the total earnings of the drivers. We set out the following facts upon which we rely for this assumption. (1) The only annual accounts for the business produced to the tribunal were in draft form for the twelve months ending 31 March 2006. The turnover was £36,276 and after deducting "direct costs" of £12,546 a gross profit of £23,730 was revealed. The total expenses amounted to £27,451 resulting in a net loss for the year of £3,721. It was revealed in the balance sheet that Mr Lancaster had drawings of £11,525 during the year. If his drivers earnings had been included in the gross turnover, his business would have been run at a greatly increased loss which was not feasible on the figures produced. (2) In her letter to Mr Lancaster dated 26 March 2009, Miss James said referring to the July 2006 meeting with Mr Leatt "

During that meeting, it was agreed that you, as a registered trader, had to account for VAT on all you own driving income, all account customers billed from Airport Cars and the circuit fees and any other charges you collect from the other drivers. The total of these items is your business turnover …" No mention is made of other drivers' earnings as being in this turnover. It was also her firm who produced the annual accounts for the year ending 31 March 2006. (3) The Appellant produced at the tribunal's direction copies of relevant parts of his tax returns for the years 2003/2004, 2004/2005 and 2005/2006. These are referred to in Mr Hopkinson's letter of 17 April 2009 (see paragraph 47 of this decision). There is no mention of other drivers' earnings as being in the gross turnover figures. Mr Lancaster has declared in his income tax returns that the income he received and declared was earned by him and not other persons. (4) When Mr Leatt called at Mr Lancaster's office on 28 September 2006, he took down from the computer details of the total income generated in the business during the three month period of 1 April to 30 June 2006. This Cab-Vista system showed a total income generated during the three months as £50,471.90. The other drivers contributed £46,787.90 and Mr Lancaster only earned £3,684 himself. On these figures, the other drivers would have paid some £9,357 as commission @ 20% or £7,018 @ 15% commission. Mr Lancaster has revealed on the last day of the hearing that the annual turnover of his business for 2006/2007 was £35,158. If the other drivers' earnings revealed to Mr Leatt on 28 September 2006 for one quarter of twelve months was continued throughout the year then the commission from the other drivers would be sufficient to make up the gross turnover for the tax year. It was argued by Mr Lancaster that the Cab-Vista computer system was proving unreliable. He never gave the tribunal examples nor did he produce computer records to substantiate his argument. (5) Although the tribunal gave Mr Lancaster every opportunity to call Miss James as a witness, this did not occur. (6) Other than already mentioned, no accounting records were produced to give credence to Mr Lancaster's assertion that he had always included the other drivers' earnings in his gross turnover.

[84]Taking these factors into account the tribunal finds that on the balance of probabilities the gross turnover figures for the relevant years used by Mr Leatt in calculating the two assessments did not include the other drivers' earnings. Decision

[85]Our decision on the issues for determination in the appeal are :(1) The Respondents did assess the two amounts of tax due from the Appellant to the best of their judgment, through their Officer Mr Leatt. He based his decision on the only information available to him at the time; and

(2) The assessments are correct as increased by the assessment dated 4 June 2009.

(3) The appeal against both the assessments is dismissed.

(4) Having taken all factors into account, there is no order as to costs. Directions relating to the further appeal procedure

[86]On 1 April 2009 The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009-2009 No. 273 (L.1.) came into force. A new appeal procedure to the new Upper Tribunal was introduced in Part 4 under Rules 40, 41 and 42. These rules superseded the previous procedure for appealing to the High Court under section 11 of the Tribunals and Inquiries Act, 1992. The previous procedure therefore no longer exists.

[87]In accordance with the Ministerial Statement of 10 March 2009 and paragraph 7(3)(a) of Schedule 3 to the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 ("the Transfer Order") the First-Tier Tribunal (Tax Chamber) retain the discretion to apply the procedural rules of the former VAT and Duties Tribunal under the VAT Tribunals Rules 1986 as amended (S1 1986/590). Paragraph 7.2 of Schedule 3 of the Transfer Order states that where a hearing before an existing tribunal began before the commencement date of the new rule but was not completed by that date, the tribunal must be comprised for the continuation of that hearing of the persons who began it. That is the case here.

[88]In the circumstances, and bearing in mind that both parties' pleadings were submitted well before 1 April 2009 and the matter proceeded to a full hearing of the appeal on two occasions but was adjourned on both occasions, being part-heard twice prior to the implementation of the new rules, this tribunal directs that the VAT Tribunals Rules 1986 as amended shall continue to apply to this appeal.

[89]However, as the right of appeal to the High Court no longer exists, this tribunal further directs that Rules 40, 41 and 42 of SI 2009 No. 273 (L.1.) shall also apply to this appeal. Rodney P Huggins Chairman Released : 10 July 2009 LON/2006/1568