Bourne v The Commissioner for Revenue & Customs [2010] UKFTT 294 (TC)

FTT-Tax
Bourne v The Commissioner for Revenue & Customs
[2010] UKFTT 294 (TC) · 2010-07-01
[1]The Appellant did not appear at the hearing and was not represented. Having ascertained that the Appellant had been sent written notice of the hearing (which had been relisted for hearing in Plymouth rather than in London at the Appellant's request) and the Tribunal Clerk having telephoned the Appellant leaving messages on his voicemail, the Tribunal directed that the hearing should proceed in the Appellant's absence.[2]This appeal arises from a claim for a VAT refund under s 35 of the Value Added Tax Act 1994, commonly known as the "DIY builders’ scheme". Essentially, this relief allows persons who build their own homes to obtain a refund of input VAT in respect of the goods supplied for the purposes of the building. The relief only applies where the works are carried out otherwise than in the course or furtherance of any business; the main substantive issue in this appeal relates to that question. The Appellant also claims that he was given misleading advice by HMRC to the effect that he was entitled to the relief and that HMRC should not now be allowed to deny him relief. Finally, the appeal raises a question in relation to two invoices whether those invoices contained the information required by regulations made under section 35. The Facts[3]The only evidence presented to the Tribunal consisted of a bundle of documents, including the Appellant’s Notice of Appeal. The following summary is derived from that bundle which, except as otherwise specifically noted, was uncontested.[4]The Appellant’s claim under s 35, dated 13 March 2009, was made in respect of two newly built flats: Flat 2 and Flat 2A, High Street, Okehampton, Devon. That part of the claim in respect of Flat 2A, which amounted to £3,552.52, was refused by the Respondents ("HMRC") on 28 May 2009 on the basis that Flat 2A had been built in the course or furtherance of a business. Part of the claim related to VAT in respect of two invoices (400 and 417) relating to both properties was refused by HMRC on the basis that the invoices did not contain the requisite information. The total amount of VAT in respect of these two invoices was £580.45.[5]When HMRC received a claim on 18 March 2009 they acknowledged receipt of the claim and requested certain further documentation.[6]By a letter dated 14 April 2009, the Appellant replied to the queries raised and gave the following background information as regards the construction of the two properties. The Appellant stated that he had originally intended to construct one property on the site for himself. However, this did not find favour with the planning authorities and he was persuaded to construct two properties: one for himself (Flat 2) and one to be sold (Flat 2A). Both properties were, in accordance with the preference of the planning authorities, two-bedroom flats. The Appellant indicated that his intention at the time of writing his letter of 14 April 2009 remained unchanged, although he had been forced to rent Flat 2A to tenants as a temporary measure to meet loan repayments until the flat could be sold to pay for the construction costs.[7]The Appellant, in his letter of 14 April 2009, also informed HMRC that he was a Civil/ Building Engineer and a Quantity Surveyor working freelance for various construction, civil and marine civil engineering companies. His company, Buildmaster Properties UK Ltd ("the Company"), was established in 1999 to facilitate the Appellant's business activities and to enable the Appellant to retain his independence/freelance status in respect of the numerous companies for which he undertook work. The Appellant also stated that the DIY construction for which he was claiming a refund was funded by his own savings and loans and was constructed for him and not for the Company. He explained that the bulk of the materials for the DIY construction had been bought in the name of the Company because it was more effective to use existing contacts to open trade accounts and to negotiate discounts. He stated that all the money used to purchase materials was his own personal money.[8]In the same letter, the Appellant stated that he was not a commercial developer, that this was only the second building that he had constructed for himself over the last 20 years, that the project had taken place over a period of 6 1/2 years on a part-time basis and that the refund claim covered this period of time.[9]HMRC requested further information by a letter dated 17 April 2009. The Appellant replied by a letter dated 24 April 2009 and stated that the amount of overall costs that could be apportioned to Flat 2 was 60% with the remaining 40% being apportioned to Flat 2A. In his Notice of Appeal dated 28 July 2009, the Appellant revised his apportionment to 85% in respect of Flat 2 and 15% for Flat 2A on the basis that it would not have been possible to construct Flat 2 without constructing the structure of Flat 2A as it relied on Flat 2A for structural support. The Appellant provided no further evidence in support of this amended apportionment.[10]On 28 May 2009 HMRC wrote to the Appellant stating that HMRC were prepared to refund £4662.29 of the total claim for £8881.32. The Appellant appealed against that decision.[11]The Appellant requested an internal review of HMRC's decision. The review letter dated 7 July 2009 confirmed the original decision.[12]In his Notice of Appeal dated 28 July 2009 the Appellant appealed against the decision to deny part of his refund claim. The Main s 35 Value Added Tax Act 1994 Issue[13]The relevant legislation in relation to claims in respect of VAT under the DIY builders’ scheme is contained in s 35 Value Added Tax Act 1994. Section 35 (1) (b) requires that the works are carried out "otherwise than in the course or furtherance of any business". It is this requirement that lies at the heart of the dispute in relation to the claim to refund VAT on goods supplied in respect of Flat 2A.[14]The overall scheme of the legislation is that where a property is built in the course of a business the builder can recover input VAT on the grant of the first major interest in the newly built property. DIY builders (ie builders who are not carrying on a business and who will not be registered for VAT) must make their claim for a VAT refund of input tax (in relation to goods but not services supplied) under section 35. The purpose of the legislation is to put the self-builders in broadly the same position as the person who buys a newly built house from a builder (or who agrees with a builder that the builder should construct a new house on the client's land). We were referred to the helpful summary of these provisions in the decision of the VAT and Duties Tribunal in Michael Patrick Curry v HM Revenue and Customs Commissioners (2007)VAT Decision 20077. Although not cited at the hearing, we have also considered the decision of the VAT and Duties Tribunal in Mr R and Mrs L Watson v Commissioner s of Customs and Excise (2004) VAT Decision 18675 and the decision of this Tribunal in Poala Sassi v HM Revenue and Customs Commissioner s (2010) TC 00224.[15]Mr Dixon for HMRC argued that because Flat 2A had been built by the Appellant either with a view to its sale or letting the property had therefore been constructed "in the course or furtherance of [a] business." Mr Dixon relied in particular on paragraphs 42 and 43 of the Curry decision where the Tribunal said: “42. The most natural reading of the business limitation in section 35 is that a person will be conducting an existing business, and the house will then be constructed ‘in the course or furtherance’ of that business. The business in other words comes first.[43]We do nevertheless accept that if a person builds just one house, always intending to sell it, and he sells it, that person is carrying on a business, and indeed a trade." Mr Dixon also noted that in the Appellant's Notice of Appeal, the Appellant did not appear to dispute HMRC’s contention.[16]We understood HMRC to accept that the Appellant is not a commercial house-builder. His assertion that this was only the second property that he had constructed for himself over the last 20 years was not challenged. It might therefore seem odd that the Appellant could be regarded as constructing Flat 2A in the course or furtherance of a "business". However, the word "business", as used in the Value Added Tax Act 1994, must be construed to conform to the meaning of the expression " economic activity" used in the Council Directive (2006/112/EC): see Riverside Housing Association v HM Revenue and Customs Commissioner s [2006] STC 2072 at paragraph 68. The Directive in Article 9.1 states that VAT is concerned with any person who “independently carries out … any economic activity … whatever the purpose or results of that activity”. The ECJ has stressed that the concept of economic activity must be given a wide scope, and is objective in character, in the sense that the activity is considered per se and without regard to its purpose or results (see EC Commission v Netherlands (Case 235/85) [1987] ECR 1471 at 1487). In addition, Article 9 of the Directive makes it clear that the letting of an asset for the purposes of obtaining income therefrom on a continuing basis is regarded as an economic activity.[17]It is clear from the decisions cited above that where a newly built property is either let or sold on completion, this may mean that the property was constructed in the course or furtherance of a business but that this conclusion is not automatic. It is necessary to look at all the circumstances in deciding whether the sale or letting formed part of a business. For example, in the Sassi case the letting also included designing and creating a sustainable building for use not only as a dwelling but for ongoing research and academic activities and the Tribunal concluded that the letting in those circumstances meant that the building had not been constructed in the course or furtherance of a business. Similarly, in the Curry case the special circumstances of that case, where the letting was a short term expedient, meant that the letting was not a business. Moreover, where the sale or letting is an isolated transaction careful attention must be paid to the context in which the transaction occurs to determine its objective characteristics (see Sassi at paragraph 35 and Riverside Housing Association at paragraph 80).[18]Bearing these considerations in mind, we have concluded that the fact that the Appellant constructed Flat 2A with the intention of selling it and that this intention continued, notwithstanding the temporary expedient of renting the property in order to meet loan repayments, resulted in the Appellant constructing the property in the course or furtherance of a business, viz the business of a speculative developer. Although the Appellant had originally intended to construct one property for his own use and it was only to accommodate planning considerations that he was obliged to build two properties, he nevertheless proceeded to build two properties with the intention that one (Flat 2A) would always be sold. In our view, therefore, Flat 2A was constructed in the course or furtherance of a business. Accordingly, VAT attributable to materials supplied for the construction of Flat 2A does not qualify for a refund under s 35 Value Added Tax 1994.[19]As regards the Appellant's contention that only 15% of the overall costs of construction should be attributable to Flat 2A, there appears to be no evidence, beyond the mere assertion of the Appellant, to support this attribution. Instead, we consider that the correct apportionment is that originally claimed, viz 40% attributable to Flat 2A, being the proportion previously agreed with and accepted by HMRC. The Legitimate Expectation Claim[20]The Appellant in a letter dated 31 May 2009 and in his Notice of Appeal claims that he was misdirected by HMRC who, he says, advised him that both Flat 2A and Flat 2 would be eligible for a refund claim under Section 35 Value Added Tax Act 1994. Indeed, in his Notice of Appeal the Appellant makes this complaint his main ground of his appeal: “ As pointed out in my letter of 31-05-09 I did explain in great detail to HMRC the nature of the building I was constructing and was instructed by them to use the DIY VAT Scheme, and that all of the VAT for building materials would be recoverable under this scheme. It was HMRC that instructed me to use this scheme and not to become VAT registered which is what I volunteered to do when I phoned HMRC on 18-09-02. I have now found the letter I received from HMRC dated 23-09 -02 which shows the date of my call to them" a reference number QFD14863.... At the time I submitted my claim and signed the VAT 431 DIY refund claim form I was acting under the misleading information that I had been given by HMRC back in 2002 that my entire building, being one building divided into two properties was covered under the scheme. As it would not be possible to construct one half of the structure without constructing and the other half because both halves rely on the support of the other [sic]. Indeed I had queried this with HMRC on 18-09-02 when I phoned and volunteered to become VAT registered, but was told that this was not necessary as it would be more appropriate for me to use the DIY Scheme. A copy of the letter I received with the claim pack from HMRC back in 2002 is attached and hopefully they will now be able to find a record of this call and the information and instructions that I was given. Although I suspect that HMRC will not be able to find any record of this, as it would only support my case that I was incorrectly instructed by HMRC to use the DIY scheme. According to the review letter of 07-07-09, it states "you have no other recourse to obtain a refund of the VAT incurred on the building of 2A" I do not feel that this should be the case given the fact that I was misled by HMRC, and was not aware that my entire building was not covered when I signed VAT form 431 to make my claim."[21]Mr Dixon’s skeleton argument on behalf of HMRC contained the following submission:
"As the Tribunal will be aware there is recent jurisprudence on the limits of the VAT Tribunal's jurisdiction to consider public law principles in determining appeals ( Oxfam v HMRC [2009] EHWC 3078). In the Respondents' submission such questions of law do not arise for consideration in the present case, there being no evidence to support the Appellant's assertion. The Respondents reserve the right to present argument in full on the decision in Oxfam , and related cases, should that be necessary (which the Respondents submit is not the case in this appeal), in particular on the obiter nature of views expressed in the Oxfam decision about the Tribunal's jurisdiction."
[22]Mr Dixon submitted that HMRC did not accept that the Tribunal had jurisdiction to consider arguments of public law. However, since the Appellant had produced no evidence to substantiate his claim that he had been misled the issue of whether the Tribunal had jurisdiction to consider this issue did not arise.[23]In previous Tribunal decisions and in certain dicta contained in decisions of the higher courts it had been assumed that the Tribunal did not have jurisdiction under Section 83 Value Added Tax Act 1994 to hear matters concerning public law, such as legitimate expectation, which arose in relation to an appeal. This issue was considered recently in Oxfam v HMRC [2009] EWHC 3078 , a decision of Sales J. Although the issue was not strictly necessary for the decision in that case, Sales J considered that Section 83, although not conferring a general supervisory jurisdiction on the Tribunal, was wide enough to confer jurisdiction on the Tribunal in respect of public law issues, such as legitimate expectation, which were directly relevant to the issues in respect of which the Tribunal had jurisdiction under Section 83. The learned judge further considered that there was no authority binding on him which required him to reach a contrary conclusion. Since the hearing we have also had the benefit of reading the carefully reasoned decision of this Tribunal (Judge Hellier) in CGI Group (Europe) Ltd v The Commissioners for HM Revenue and Customs [2010] UKFTT 224 TC which considers the jurisdiction issue under s.35 and concludes that this Tribunal does have jurisdiction to hear questions of legitimate expectation.[24]Since the point has not been fully argued before us we express no view on whether the Tribunal has jurisdiction in this case. However, we observe that it is very often the case that the Tribunal will hear appeals brought by appellants, who are frequently unrepresented, where the taxpayer's complaint relates both to the substantive validity of the charge to tax (or the denial of a claim for relief or a refund) and to the allegation that HMRC in its dealings with the taxpayer may have misled the taxpayer as to his or her statutory entitlement. In many such cases the amount of tax involved, although important to the taxpayer, will be relatively small. To require, in such cases, an unrepresented appellant, who will usually have no expertise on matters of jurisdiction or procedure, to file a separate public law claim in a different forum is tantamount, in practice, to denying that appellant the ability to pursue that claim.[25]In any event, even had we concluded that the Tribunal had jurisdiction, we consider that the Appellant has failed to discharge the burden of proof, which lies upon the Appellant, that HMRC did, in fact, give misleading guidance. HMRC stated that have been unable to trace a record of the alleged telephone conversation although we understand that HMRC do not deny that some conversation may have taken place. It is not clear from the papers before us whether in fact HMRC gave its guidance to the Appellant before or after the planning authorities required the Appellant to build two properties rather than only one property for his own use, although the inference from the Appellant’s Notice of Appeal is that he spoke to HMRC after the decision had been taken to build two properties. Moreover, it is unclear what information was provided by the Appellant to HMRC when seeking guidance and in what terms any guidance was given. Any Appellant who seeks to rely on guidance given by HMRC faces a high hurdle. The Appellant must show that the requirements set out by Bingham LJ in R v IRC, ex parte MFK Underwriting Agencies Ltd [1989] STC 873 at 892 (f-h) have been met. Clearly, the failure of the Appellant to attend the hearing was unfortunate and meant that no further evidence was heard in respect of these matters with the result that it is impossible to be satisfied that this case falls within the criteria set out in the MFK case. Therefore, the Appellant by failing to produce evidence in support of his claim that he received misleading advice, did not discharge the necessary burden of proof and the question of jurisdiction therefore does not arise.[26]In this context, we would repeat the comments of the Tribunal in the Watson case (in paragraph 34):
“We regard it as essential for the Commissioners to inform those making enquiries of this type that they should write to ask for written confirmation of the position as discussed in the course of the telephone conversation. Those who are within the VAT system are expected to be aware that such written confirmation is necessary; it is expecting too much of do-it-yourself builders, who are not part of the normal VAT system, to be aware of this without it being specifically pointed out to them by the Commissioners.”
[27]There appear to have been several cases before the Tribunal where Appellants believe that they had been given misleading telephone guidance in relation to the DIY builders’ scheme. Whether or not this is correct, it will usually be difficult or impossible to prove such a claim unless the guidance is given by HMRC is recorded in writing. Disputed invoices[20]There was one other matter in dispute. This concerned two invoices included by the Appellant with his VAT refund claim (Form VAT 431) which related to the supply of kitchen units and related items. The supplier is a Mr S A Bourne. Nonetheless, it is clear that these invoices do not specify the goods supplied. However, "revised" invoices, apparently supplied by the Appellant after HMRC objected to the original invoices, were included in the bundle of papers provided to the Tribunal and these specify that invoice number 400 was "for the supply of kitchen carcasses, doors and handles" and invoice number 417 was "for the supply of kitchen worktops cornice and pelmet". The revised invoices are addressed to the Company but have the Appellant's name typed above the name of the company. The address on both invoices was Belmont House, Castle Road, Okehampton, Devon, which is the address of both the Appellant and the Company. The copies of the original and revised invoices with which we were supplied were of poor quality. As mentioned in paragraph 7, the Appellant argued that the fact that the invoices contained the name of the Company did not alter the reality that the supplies were in fact made to the Appellant. We accept the Appellant’s view that he was the recipient of the supplies. We consider the Company participated in the transactions merely as an agent or nominee of the Appellant. We did not understand HMRC to contest this analysis.[21]Section 35(2) of the Value Added Tax Act 1994 provides as follows:
“ The Commissioners shall not be required to entertain a claim for a refund of VAT under this section unless the claim— is made within such time and in such form and manner, and contains such information, and is accompanied by such documents, whether by way of evidence or otherwise, as the Commissioners may by regulations prescribe [or, in the case of documents, as the Commissioners may determine in accordance with the regulations].”
Regulation 201 of the VAT Regulations SI 1995/2518 provides in relation to claims under Section 35:
“A claimant shall make his claim in respect of a relevant building by— (a) furnishing to the Commissioners no later than 3 months after the completion of the building [the relevant form for the purposes of the claim] containing the full particulars required therein, and— (b) at the same time furnishing to them— (i) a certificate of completion obtained from a local authority or such other documentary evidence of completion of the building as is satisfactory to the Commissioners, (ii) an invoice showing the registration number of the person supplying the goods, whether or not such an invoice is a VAT invoice, in respect of each supply of goods on which VAT has been paid which have been incorporated into the building or its site, (iii) in respect of imported goods which have been incorporated into the building or its site, documentary evidence of their importation and of the VAT paid thereon, (iv) documentary evidence that planning permission for the building had been granted, and (v) a certificate signed by a quantity surveyor or architect that the goods shown in the claim were or, in his judgement, were likely to have been, incorporated into the building or its site.”
The relevant form required for making a claim under s 35 is form VAT 431. This form contains a declaration requiring a claimant to declare:
"I have read Notice 719"
. Unfortunately, the relevant version of Notice 719 was not available at the hearing but has since been supplied to the Tribunal by HMRC. The relevant part of Notice 719 is paragraph 11.4 which reads as follows:
“ You must send with your claim all your invoices, bills, credit notes and other documents that support the amount of your claim. These must be originals and not copies. You must have a VAT invoice for all of the eligible goods and services you claim for. The goods or services must have been supplied to you and we may ask you to prove that you have paid for them. The VAT invoice must show— — the supplier's VAT registration number; — the quantity and description of the goods and/or services; — your name and address if the value is more than £100; and — the price of each item. ”
[22]Mr Dixon for HMRC pointed out that the original invoices were not addressed to the Appellant and did not specify the materials used. Nonetheless, these deficiencies seem to have been corrected on the revised invoices. Mr Dixon's objection to the revised invoices was that there was no reference on these invoices to the fact that they related to the Appellant's private property. Moreover, Mr Dixon suggested that the additional information supplied in the revised invoices may merely have been typed in ie by typing over the original invoices.[23]Dealing with these points in turn, it is true that the revised invoices do not refer to either Flat 2 or Flat 2A. However, the original invoices were attached to form VAT 431 which contained a declaration by the Appellant that all the information on the form and accompanying documents were correct. The original invoices were listed on that form. It is true that the revised invoices were not listed on the form but it is plain that these revised invoices simply supplement the original invoices and the original invoices by virtue of the declaration referred to above must be taken to relate to the relevant properties. There is certainly no evidence to suggest that they related to any other properties. On the contrary, Part 2A of the form, under the heading “Kitchen Units”, refers to “16 base units, 8 wall units, 8 worktops”. Accordingly, we do not accept Mr Dixon's objection that the invoices did not refer on their face to the properties in question.[24]As to Mr Dixon's second objection that the revised invoices had merely been typed over by the Appellant, the quality of the copies provided to the Tribunal was such that we were not in a position to verify whether this was the case or not. Therefore, we are not minded to accept that there was any irregularity in relation to these invoices such as that suggested by Mr Dixon in the absence of clear evidence to that effect.[25]Finally, Mr Dixon raised another objection to the original and revised invoices. He argued that the invoices did not contain the detail required by Notice 719 since that they did not adequately identify the quantity, description or price of each item supplied as required by Notice 719.[26]Whether the relevant part (paragraph 11.4) of Notice 719 has statutory effect is not immediately obvious. Certainly, Notice 719 is not included in those Notices referred to in Notice 747 as one which has legal effect. However, Section 35 (2) refers, in the case of documents, to the Commissioners having power to prescribe in accordance with the regulations the type of documents which must be supplied. Accordingly, we consider that, insofar as paragraph 11.4 of Notice 714 sets out the documentary evidence which a taxpayer has to produce in order to support a claim under s 35, it has legal effect and the Appellant is bound to supply the information required if his claim is to be accepted.[27]With some reluctance we agree that the original and revised invoices do not meet the criteria set out in paragraph 11.4 because they do not identify with sufficient precision the quantity and the individual price for each item. In his letter of 31 May 2009 the Appellant invited HMRC to contact Mr S. A. Bourne if they required further information but has, as far as we are aware, taken no steps to supply or to procure the supply of this information himself. We therefore conclude that the Appellant’s claim in respect of invoices 400 and 417 fails and must be dismissed. Decision[28]We have therefore decided that the Appellant's appeal in respect of his claim for a refund of VAT under s 35 Value Added Tax Act 1994 in respect of Flat 2 A must be dismissed since the works were carried out in the course or furtherance of a business. We hold that the Appellant has provided no evidence that he received misleading advice from HMRC so that the question of jurisdiction of the Tribunal does not arise. Finally, we have decided that the Appellant's appeal in respect of invoices 400 and 417 as regards Flat 2 also fail since those invoices do not provide the required information.[29]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. GUY BRANNAN TRIBUNAL JUDGE RELEASE DATE: 1 July 2010

Cited in 1 later judgment