Willis v Revenue & Customs [2010] UKFTT 280 (TC)

FTT-Tax
Willis v Revenue & Customs
[2010] UKFTT 280 (TC) · 2010-06-15
[1]The disputed decision is of the Commissioners of Her Majesty’s Revenue and Customs (the “Commissioners”) in an assessment in the sum of £7499 plus interest in respect of disallowed input tax claimed in the period 07/07. Background and Chronology[2]The Appellant’s principal place of business is 6 Angel Wharf, Bermondsey Wall East, London, SE16 4TT.[3]The main business activity according to the Appellant’s VAT registration document (VAT 1) is that of a residential property developer.[4]The Appellant has been registered for VAT as a sole proprietor since 1 st January 2001.[5]On 8 th May 2008 Officer Hurd wrote to the Appellant informing him of his intended visit on 16 May 2008. Included within the notification was a request to make certain business records available. This included VAT accounts, purchase day books/ledgers and purchase invoices.[6]On 16 th May 2008 Officer Hurd undertook a routine VAT inspection at the Appellant’s premises.[7]Officer Hurd was unable to undertake basic checks because the Appellant used a running totals method to construct his VAT returns.[8]Officer Hurd requested a purchase incurred in VAT period 07/07 with a value of £1000 or more.[9]On 11 July 2008 Officer Hurd reviewed the case and noted that the Appellant had not provided the requested information.[10]On the same day Officer Hurd wrote to the Appellant requesting the following pertinent information: · A full purchase list for VAT period 07/07 · All purchase invoices incurred in VAT period 07/07 with a value of £1000.00 or over.[11]On 6 th August 2008 (erroneously dated 11 July 2008) Officer Hurd again requested the information detailed in his previous correspondence. Officer Hurd stated that if no reply was forthcoming evidencing the input tax claim then an assessment would be issued.[12]The Appellant responded by email on 29 August 2008 and stated that he would provide invoices with VAT over £1000.00.[13]The Appellant contacted the Commissioners again on 1 st September 2008. He stated that because of his simple method of accounting he could not provide a purchase list for VAT period 07/07.[14]The Appellant further stated that he had been using the net VAT total in his spreadsheet as a source of information. This fact had been demonstrated to Officer Hurd at the VAT visit.[15]On 23 rd September 2008 Officer Hurd responded to the Appellant making the following pertinent points: · The VAT workings by the Appellant show that £2,241.47 of input tax is claimable in VAT period 07/07. · The input tax on the return includes a VAT claim for £9,741.28. · The Appellant has been unable to provide a purchase list to evidence the claim. · Insufficient evidence has been provided to support the claim.[16]Officer Hurd concluded that an assessment would be raised in the sum of £7,499.81 in the event that insufficient evidence was provided to the Commissioners. Officer Hurd recommended the forwarding of all purchase invoices claimed for the VAT period 07/07.[17]In an email to the Commissioners dated 27 October 2008 the Appellant stated that invoices would be posted to Officer Hurd.[18]On 19 January 2009 Officer Hurd wrote to the Appellant. It was stated that the Appellant had not provided sufficient evidence in support of his input tax return. Officer Hurd pointed out that original invoices needed to be kept by the business in such a way that they could be easily produced as evidence. VAT could not be claimed in the absence of these invoices.[19]Officer Hurd concluded that an assessment would be raised in the sum of £7,499.81 plus interest as appropriate.[20]The Appellant responded by email on 4 February 2009 noting that he had provided his accounts which showed that he had only reclaimed sums which he had paid. Furthermore one of the adjustments made by the Appellant had been in the Commissioners favour which suggested there was no deliberate attempt to provide misleading figures.[21]On 5 th February Officer Hurd responded by stating that he would withdraw the assessment once the requested information had been provided.[22]On 30 th March 2009 Officer Rickaby wrote to the Appellant informing him that Officer Hurd’s decision would be reviewed. Officer Rickaby noted that he been unable to reconcile the Appellant’s ‘Development Expenses Report’ to the VAT returns submitted for the VAT periods 04/05 to 07/07.[23]Officer Rickaby requested an explanation of how the Appellant compiled the VAT return figures for each quarter and a copy of the spreadsheet which supports each VAT quarter reclaim.[24]Officer Rickaby referred the Appellant to the email of 1 st September 2008 in which he stated that a spreadsheet had been used showing ‘net VAT total’. A copy of this spreadsheet was requested.[25]The Appellant responded on 15 th May 2009 pointing out that the Commissioners already had a copy of the spreadsheet demonstrating that the total reclaimed is equal to the amount due to the Appellant.[26]On 28 th July 2009 Officer Holl sent an email to the Appellant including the following points: · The Commissioners are satisfied of the Appellant’s input tax claim for the VAT period 07/07 to the sum of £2,242.28. · Evidence for the amount disputed would normally be original invoices from suppliers. · The Appellant has failed to produce such evidence. · The requirements for keeping records and accounts are set down in the VAT Act 1994 and VAT Regulations 1995. · It is a simple exercise to produce a listing of invoices recorded on the VAT return together with copies of the invoices.[27]The Appellant responded to Officer Holl on 10 th August 2009 stating that Officer Holl’s contentions were incorrect. The Appellant notes that he had provided evidence for the small transactions and resolved at a later date the request for transactions where the VAT amount exceeded £1000.00. Relevant legislative provisions[28]Section 73(1) of the VAT Act 1994 provides as follows: “Where a person has failed to make any returns required under this Act (or 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”.[29]Section 73(2) of the VAT Act 1994 provides as follows:
“in any case where, for any prescribed accounting period, there has been paid or credited to any person – (a) as being a repayment or refund of VAT, or (b) as being due to him as a VAT credit an amount which ought not to have been paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly.”
[30]Schedule 11(6) of the VAT Act 1994 provides as follows:(1) Every taxable person shall keep such records as the Commissioners may by regulations require ….(2) Regulations under sub-paragraph (1) above may make different provision for different cases and may be framed by reference to such records as may be specified in any notice published by the Commissioners in pursuance of the regulations and not withdrawn by a further notice.[31]Regulation 29 of the Value Added Tax Regulations 1995/2518 states the following: (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. Regulation 13 details the obligations of a taxable person to supply a VAT invoice. Regulation 14 describes the contents of a VAT invoice. 31. Regulation 32 of the Value Added Tax Regulations 1995/2518 states the following: (1) Every taxable person shall keep and maintain, in accordance with this regulation, an account to be known as the VAT Account. (2) The VAT Account shall be divided into separate parts relating to the prescribed accounting periods of the taxable person and each such part shall be further divided into 2 portions to be known as ‘the VAT payable portion’ and the ‘VAT allowable portion’. The Appellant submissions The Appellant’s grounds of appeal can be summarised as follows:[32]All accounts and supporting evidence have been provided as requested. This includes the spreadsheet (approximately 7 pages) for the period 26 January 2004 to 1 May 2008 which gives items of expenditure and the VAT treatment. The spreadsheet was created by the Appellant.[33]He said that the information requested by these Commissioners is contained in the spreadsheet. The information by a Commissioner was not always provided in a timely manner due to the poor record keeping of his partner and the accounts as audited by Officer Hurd showed that VAT had not been over-claimed. The Commissioner’s submissions[34]At No 1 the Appellant claimed the sum of £9,7041.28 on his VAT return for the period 07/07. He is required by law to supply VAT invoices in order to claim input tax in relation to the VAT on the supply to him of any goods or services used or to be used in his business.[35]Officer Hurd requested a proper purchase list for the VAT period 07/07 which detailed the invoices included in the Appellant’s input tax claim. The Commissioners have never received this information.[36]Commissioners allowed input tax payment of £2,242.28 as that amount was supported by the relevant invoices.[37]The Commissioners say that they cannot find on the spreadsheet evidence of having incurred the input tax claimed for the relevant period and the invoices for those items were not provided. They say that there was no evidence showing that the expenditure on the spreadsheet was incurred and the only way in which this could be verified was through the provision of the relevant invoices for the relevant period.[38]The Commissioners feel that the officer reached a reasonable and non-arbitrary decision based on the material laid before him and the decision should be upheld and the appeal dismissed. Conclusion[39]It should be noted that Mr Melville Hurd, Higher Officer, HMRC gave oral evidence at the hearing.[40]Mr Hurd’s evidence was very important to the tribunal. He said that he had reviewed the spreadsheet provided by the Appellant but was not able to verify or check the items listed therein to allow the claim for input tax. The input tax shown on the spreadsheets do not tally with the figures given in the VAT return. He requested various documentary evidence. Not all of the evidence requested was available or provided. He informed the Appellant that the evidence provided was not satisfactory and asked him to provide further evidence. He said at all times he was willing to withdraw the assessment once the relevant evidence was provided. Where proper documentary evidence was provided he allowed the VAT input tax to be recovered.[41]Since the Appellant was a net recoverer of VAT having made largely zero rated supplies, he expected the returns to be quite simple and straightforward. He was prepared to accept spreadsheet in so far as it was accurate but the transactions listed on the spreadsheet did not support the input tax sought to be recovered. In other words there was a mismatch between the VAT sought to be recovered and the amounts shown on the spreadsheet and VAT return. He said there was discretion to be exercised to accept certain amounts but the amount of the discrepancy was too large to exercise discretion in the Appellant’s favour.[42]The tribunal noted that the assessments were made within the relevant time limits and on the basis of the best evidence which was available at the time.[43]The tribunal finds that the Commissioners had acted reasonably in the circumstances. The Commissioners are not in a position for them to pay out money where there was no evidence of an entitlement to that money. This would be against the discharge of their public duty.[44]The tribunal has a supervisory jurisdiction and the burden of proof rests with the Appellant to show that the Commissioners had acted unreasonably. The tribunal finds that the Commissioners acted reasonably in the circumstances and the appeal should accordingly be dismissed.[45]The Appellant was informed at the time of the hearing of the tribunal’s decision. DR K KHAN TRIBUNAL JUDGE RELEASE DATE: 15 June 2010