Weight Watchers (UK) Ltd v Revenue & Customs [2010] UKFTT 384 (TC)

FTT-Tax
Weight Watchers (UK) Ltd v Revenue & Customs
[2010] UKFTT 384 (TC) · 2010-08-18
[1]This appeal is a consolidation of four appeals brought by Weight Watchers (UK) Limited (“the Appellant”) against, respectively, four assessments raised by the Respondent Commissioners (“HMRC”) using their powers under section 73(1) Value Added Tax Act 1994 (“VATA”). The assessments were notified to the Appellants by notices of assessment as follows: · Notice dated 29 December 2008 assessing VAT of £1,415,035 for the period ending 31 December 2005 (the “12/05 Assessment”); · Notice dated 27 March 2009 assessing VAT of £2,042,975 for the period ending 31 March 2006 (“the 03/06 Assessment”); · Notice dated 30 June 2009 assessing VAT of £1,930,885 for the period ending 30 June 2006 (the “06/06 Assessment”); and · Notice dated 25 September 2009 assessing VAT of £1,683,824 for the period ending 30 September 2006 (“the 09/06 Assessment”).[2]The Appellant’s case is that the 4 assessments were all made out of time as they were made more than 2 years after the end of the accounting periods to which they respectively related (this is clearly correct) and more than one year after the date on which evidence of the facts sufficient to justify the making of them respectively came to the knowledge of HMRC (see: section 73(6) VATA). HMRC contend that the 4 assessments were all made in time and should be upheld. The assessments were all made before the “long stop” time limit (3 years – or, with effect from 1 April 2009, 4 years – after the end of the prescribed accounting period: section 77(1)(a) VATA). The issue for decision is whether “evidence of facts, sufficient in the opinion of [HMRC] to justify the making of the [assessments, came] to their knowledge” less than one year before the assessments were respectively made (section 73(6)(b) VATA).[3]We received in evidence a witness statement (with an exhibit) made by Ms. Shannon Dale Carvell, Vice-President, International Finance, of W.W.I European Services Limited, an affiliate company of the Appellant. Mr. Angiolini, for HMRC, did not wish to cross-examine her and so the witness statement stands as evidence of the facts contained in it. Miss Menna Nicola Gardner, Higher Officer of HMRC and VAT Tax Specialist for the Appellant since July 2008, also made a witness statement. She gave oral evidence and was cross-examined. We also had in evidence a bundle of documents. From the evidence we find the following facts. The facts[4]The Appellant provides services and products to customers wishing to lose weight and maintain a healthy weight. A key feature of what the Appellant provides is weekly meetings, at which customers’ weights are monitored and customers are offered a range of other services and products.[5]The correct VAT treatment of supplies consisting of the provision of weekly meetings was the subject of a dispute between the Appellant and HMRC which lasted from March 2005 until January 2009. Before March 2005, HMRC had accepted that the Appellant made two supplies in connection with the provision of weekly meetings, a zero-rated supply of printed matter and a separate standard-rated supply. In March 2005, HMRC contended that there was instead only one, standard-rated supply.[6]On 18 March 2005, the Appellant made a voluntary disclosure and claim for overpaid output VAT for periods in the calendar years 2003 and 2004 (03/03 to 12/04) in the total amount of £7,252,510. In support, it enclosed summary calculations showing the gross revenues from the meetings, the VAT payments originally made and the VAT payments recalculated to exclude VAT on the element of the revenues which the Appellant then contended were zero-rated as being consideration for printed matter.[7]The returns which the Appellant made for the periods 12/05, 03/06, 06/06 and 09/06 were made on the basis that there were two supplies, as the Appellant contended.[8]The Appellant was successful in its appeal at the VAT and Duties Tribunal stage. Following the Tribunal’s decision in favour of the Appellant, HMRC authorised repayment of VAT. In a letter dated 29 March 2007 to the Appellant, HMRC explained that they were still considering whether to appeal the decision of the Tribunal to the High Court and added that if there was further litigation and its outcome was in favour of HMRC, it would be necessary to recover part of the repayment authorised. The letter concluded:
“Should [HMRC] decide to appeal to the High Court, it will also be necessary for us to renew our request for information relating to the amounts of sales included in each return from 1 April 05 which were the subject of the disputed liability decision, so that [HMRC’s] position can be protected subject to the final outcome of the litigation”
[9]In fact, there was an appeal to the High Court, but HMRC did not renew their request for information relating to the amounts of sales included in each return from 1 April 2005.[10]The significant stage in the dispute was the decision by the Court of Appeal, handed down on 25 June 2008, in favour of HMRC, that the components of the meetings formed a single supply for VAT purposes of a standard-rated weight loss programme.[11]On 8 September 2008 Miss Gardner, who had taken over the case for HMRC, emailed Ms. Karen Witton, a partner at KPMG, acting for the Appellant, stating that following the outcome of the Court of Appeal hearing she intended to quantify the income received on which VAT had not been accounted for and asked for her help. She noted that “the period for quarter ending September 2005 will shortly be going out of time and I have inherited some estimated figures but thought I should make contact regarding exact figures”.[12]On 18 September 2008, Ms. Witton emailed Ms. Carvell informing her that Miss Gardner needed to raise the assessment for the VAT period ended 30 September 2005 by the end of September 2008 and “so would appreciate the figures as soon as you can”. Ms. Witton added that Miss Gardner “does appreciate that you are travelling at the moment and if she has to she can use an estimate but would prefer the actual figures of course”. In the same email Ms. Witton told Ms. Carvel that HMRC had not raised an assessment for the June 2005 period and would not be attempting to do so.[13]The exact figures for the September 2005 quarter were not provided, and on 29 September 2008, HMRC raised an assessment against the Appellant for underpaid VAT in the amount of £1,920,615 for the period ending 30 September 2005 (“the 09/05 Assessment”). This assessment was an estimate based on the figures provided by the Appellant on 18 March 2005 (see: above, paragraph [6]).[14]Following the Appellant’s request for a reconsideration of the 09/05 Assessment, HMRC (through Miss Gardner) conceded that it had been made out of time, and withdrew it. In the letter to the Appellant, dated 11 November 2008, which conveyed this decision, Miss Gardner stated that she wished the Appellant to provide the exact figures for the supplies for the period ended 31 December 2005, by 15 December 2008, so that an in-time assessment could be raised for that period.[15]On 8 December 2008, Officer John Southern of HMRC’s Local Compliance office wrote to the Appellant a “Formal Warning Letter” drawing the Appellant’s attention to legal requirements to produce documents relating to VAT (paragraph 7(2), Schedule 11, VATA). Officer Southern referred to Miss Gardner’s request to be provided with figures by 15 December 2008 and to earlier requests for the same figures made by different officers in 2006 and 2007 which had not been responded to.[16]Ms. Witton on behalf of the Appellant on 12 December 2008 responded to Miss Gardner’s letter of 11 November 2008 (and noted Mr. Southern’s letter of 8 December 2008). She requested reconsideration of any proposal to raise an assessment for the 12/05 period. She put the argument (which is essentially the same argument that was put by the Appellant in the appeal) that the relevant question was whether HMRC was already in possession of facts which would have enabled them to raise a best judgment assessment for the 12/05 period. She advanced the view that they were and that, such being the case, HMRC ought not to require the Appellant to provide the actual VAT return figures for the period ending 12/05.[17]This letter appears to have crossed a “Notice of Demand to produce Documents” which was written on 12 December 2008 to the Appellant and hand-delivered by Mr. Southern.[18]Ms. Witton’s letter dated 12 December 2008 gave rise to a discussion with Miss Gardner and an exchange of emails. Miss Gardner sent a formal response (her letter dated 19 December 2008). She stated that HMRC considered that they would be entitled to raise an assessment for the period 12/05 on receipt of actual figures because they would be new information and the assessment would be in-time because it would be raised within 12 months of the receipt of the new information. She extended to 29 December 2008 the time limit for the provision of the actual figures for the 12/05 period, to enable the assessment to be raised within the 3 year time limit. She also required actual information for the periods 03/06 to 12/06 and stated that in their absence an assessment for the 12/06 period would be raised before the end of 2008 based on the information provided in 2005.[19]Ms. Witton wrote to Mr. Southern on 23 December 2008. She explained that the earlier requests for actual figures made in 2006 and 2007 had not been responded to because they were superseded by the letter from HMRC dated 29 March 2007, referred to in paragraph [7] above, and that HMRC had in fact made no requests for information for the 12/05 period until Miss Gardner’s letter of 11 November 2008. Ms. Witton argued that the request for documents in the “Notice of Demand” was unreasonable, in particular as regards the time allowed for production. Nevertheless she stated that the Appellant “commit[ted]” to provide the information requested by Miss Gardner in her letter of 11 November 2008 by 29 December 2008. The other documents or information requested would be provided by 28 February 2009. She reiterated the argument that HMRC was able to raise a best judgment assessment using the information already held by them and that therefore HMRC was out of time to raise an assessment for 12/05.[20]On 24 December 2008, Ms. Carvell, for the Appellant, provided Miss Gardner with the output VAT details of the return for the 12/05 period, showing VAT payable of £1,415,035. On 29 December 2008 a notice of the 12/05 Assessment was sent by Miss Gardner to the Appellant. The 12/05 Assessment replicated the actual figure of tax due which had been supplied. Miss Gardner also at the same time served a notice of assessment covering the 12/06 period (estimated from the figures provided in 2005).[21]On 26 January 2009, the Appellant requested an independent reconsideration of the 12/05 Assessment on the basis that it had been made out of time.[22]HMRC initially imposed a misdeclaration penalty but this was withdrawn by a letter dated 17 February 2009.[23]On 26 February 2009, HMRC notified the Appellant of the conclusion of their independent reconsideration, which was that the 12/05 Assessment should be upheld.[24]On 19 March 2009, the Appellant appealed against the 12/05 Assessment on the grounds that it had been made out of time.[25]On 27 March 2009, the Appellant provided HMRC with the actual sales figures for the period ended 31 March 2006 (03/06) – showing VAT payable of £2,042,975. On the same day HMRC raised the 03/06 Assessment, which replicated that figure.[26]On 30 June 2009, the Appellant provided HMRC with the actual figures for the period ended 30 June 2006 (06/06) – showing VAT payable of £1,930,885. On the same day HMRC raised the 06/06 Assessment, which replicated that figure.[27]On 23 September 2009, the Appellant provided HMRC with the actual figures for the period ended 30 September 2006 (09/06) – showing VAT payable of £1,683,824. On 25 September 2009, HMRC raised the 09/06 Assessment, which replicated that figure.[28]The Appellant appealed the 03/06 Assessment, the 06/06 Assessment and the 09/06 Assessment on 22 April 2009, 8 July 2009 and 9 October 2009 respectively on the grounds that the assessments were made out of time. The appeals have now been consolidated.[29]Miss Gardner’s evidence was that HMRC’s aim is always to get the actual figures if possible to form the basis of assessment, rather than estimated figures. Estimates are used in cases of incomplete records or if the time for assessment is about to run out and actual figures are not available. She accepted, and we find, that she asked for the actual figures in this case for two reasons: to get the material for an accurate assessment, and (from 11 November 2008 at the latest – the date when the 09/05 Assessment was withdrawn) also to extend the time limit for raising a valid assessment. She also accepted that if the Appellant had not provided (in the case of the 12/05 Assessment) the accurate figures before 31 December 2008 HMRC “would have lost the money” – the actual figures were provided on 24 December 2008. This was because the “long stop” time limit for making an assessment in respect of the 12/05 period expired on 31 December 2008. She accepted that she had raised assessments for the periods 09/05 and 12/06 on the basis of the figures supplied in March 2005, believing that they were “best judgment” assessments. The statutory provisions[30]The relevant provisions of the VATA are as follows:[31]Section 73: “(1) Where … it appears to the Commissioners that [any returns required under the VATA ] are incomplete or incorrect, they may assess the amount of VAT due from [the person concerned] to the best of their judgment and notify it to him.” … (6) An assessment under subsection (1) … of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following –(a) 2 years after the end of the prescribed accounting period; or(b) one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge, but (subject to that section) where further such evidence comes to the Commissioners’ knowledge after the making of an assessment under subsection (1) … above, another assessment may be made under that subsection, in addition to any earlier assessment.[32]Section 77:
“(1) … an assessment under section 73 … shall not be made- (a) more than 3 [4, with effect from 1 April 2009 ,] years after the end of the prescribed accounting period … concerned”
. The submissions[33]Mr. Sinfield, for the Appellant, submitted that the evidence establishes that the Commissioners after receipt of the figures provided by the Appellant in March 2005 had sufficient factual information to make an assessment to the best of their judgment. That was the basis on which the 09/05 Assessment and the first assessment for the 12/06 period were made. It follows, in his submission, that the assessments appealed against were made out of time (like the 09/05 Assessment) because they were made after the time limit provided by section 73(6) VATA, that is, more than 2 years after the ends of the respective prescribed accounting periods and also more than one year after evidence of facts, sufficient in their opinion to justify the making of a best of judgment assessment had come to their knowledge.[34]He cited a number of authorities and decisions of the VAT and Duties Tribunal, in particular, the decision in Lazard Brothers & Co. Ltd. v Commissioners of Customs and Excise (VATTR 13476), a decision of Mr. Paul Heim released on 24 July 1995. In that case the Commissioners obtained enough information in September 1992 to enable them to make an assessment, but they did not issue one until May 1994. The Commissioners relied on the provision by Lazards in March 1994 of a schedule of amounts due calculated on the basis of previously agreed figures as the point when “evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment” had “come to their knowledge”. The Tribunal held that the schedule was simply a calculation based on facts already known by the Commissioners and therefore was not evidence of facts to justify the making of the assessment. Such evidence had been known by the Commissioners in September 1992 and the assessment was therefore made out of time. Mr. Sinfield submitted that Lazard Brothers Ltd. demonstrates that where the Commissioners already have evidence of facts sufficient to make best of judgment assessments, the time limits are not extended by a request for further information. He submitted that the evidence showed that HMRC required the actual figures solely for the purpose of extending the time for the making of assessments.[35]He also referred to the decision in St. Martin’s Healthcare Limited and St. Martin’s Medical Services Limited v Commissioners for HMRC (VATTR 20778) (Chairman: Mr. Howard Nowlan, release date: 20 August 2008). In that case the Tribunal stated (at paragraph [90]) that “once [HMRC] have sufficient evidence and sufficient facts in order to make a sensible assessment they must be entitled to make the assessment”. Mr. Sinfield submitted that the proper course was for HMRC to issue assessments in respect of periods ending more than 2 years earlier, within one year of the date they had sufficient evidence of facts in order to make a sensible assessment (that is, an assessment to the best of their judgment), namely (in this case) within one year of 18 March 2005.[36]He referred to William Alfred Collins v Commissioners of Customs and Excise (VATTR 13579), a decision of Mr. Stephen Oliver QC (as he then was), released on 22 September 1995. Mr. Oliver said in that case that the failure of the visiting officer of HMRC to make an assessment within one year of his visit was in a technical sense ‘perverse’. Similarly, Mr. Sinfield submits that the failure of HMRC in this case to make estimated assessments to the best of their judgment based on the figures provided in March 2005 within the 2-year time limit in section 73(6)a) VATA was perverse.[37]Regarding the statutory wording, he submitted that the reference in section 73(6)(b) to “the assessment” was not a reference to an assessment for any particular amount, but a reference to an assessment of an amount of VAT due for a particular accounting period (in context, see: section 73(1), an amount of VAT which had to be assessed to recover a deficiency caused by an incomplete or incorrect return). Thus, he submitted, the one year time limit provided for by section 73(6)(b) is one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of an assessment of an amount of VAT due for a particular accounting period, comes to their knowledge.[38]He accepted that the figures provided by the Appellant in March 2005 (which referred, of course, to the calendar years 2003 and 2004) were not such as would have enabled Miss Gardner to make an accurate assessment for the periods 12/05, 03/06, 06/06 and 09/06, but he submitted that the important thing was that they were sufficient to found a reasonable best judgment assessment (as was accepted by HMRC), particularly having regard to the stable profile of the business which HMRC would have been able to ascertain by reference to the turnover figures included in the VAT returns made for the periods in 2005 and 2006 in question. HMRC could be expected to have known from the returns that the Appellant’s pattern of trading had not changed materially during 2005 and 2006 from the profile reflected in the figures for 2003 and 2004 which had been provided in March 2005. In fact the overall figure of VAT due per the assessments raised on the basis of the actual figures (£7,072,719) was only immaterially different from the overall figure which would have been due on the basis of the estimated figures (some £7,682,000).[39]He submitted that the case turned on whether Miss Gardner believed she already had sufficient evidence to justify making an assessment for the 12/05, 03/06, 06/06 and 09/06 periods before obtaining the actual figures, and not on whether she thought it would be better to assess using actual figures.[40]Mr. Angiolini, for HMRC, submitted that Miss Gardner’s main reason for asking for actual figures was to get the amount of the assessment(s) correct. She had been asking for actual figures before she became aware of the problems with the one-year time limit. This was illustrated by an email sent by her to Ms. Witton on 8 September 2008, when she had written:
“The period for quarter ending September 2005 will shortly be going out of time and I have inherited some estimated figures but thought I should make contact regarding exact figures.”
[41]But he submitted that Miss Gardner’s motive in asking for the exact figures was irrelevant. The key consideration was: what was Miss Gardner’s opinion of what evidence of facts was required in order to issue the assessment(s)? Mr. Angiolini submitted that the evidence was that her opinion was that the exact figures were necessary. Her opinion reflected HMRC’s policy, which is that as far as possible assessments should be issued on the basis of the exact figures for the period concerned. He submitted that the question for the Tribunal was whether Miss Gardner’s actions in waiting for the exact figures before raising the assessments(s) was Wednesbury unreasonable. He submitted that the Appellant could succeed only on the basis that it had satisfied the Tribunal what Miss Gardner’s actions were Wednesbury unreasonable, that is, that they were such that no reasonable body of Commissioners would have carried them out.[42]In answer to this question, he submitted that Miss Gardner’s actions cannot have been Wednesbury unreasonable. She required production of exact figures before making the assessment(s), and this requirement had been advanced by requests made consistently and continuously at times when she was not conscious of the one-year time limit, as well as at times when she was.[43]His response to the Tribunal decisions cited by the Appellant was that in all of them the Commissioners had been found to have assessed out of time because the actual facts and figures had been available to them for the requisite period before the making of the assessments.[44]Mr. Angiolini also cited various authorities and decisions of the VAT and Duties Tribunal. Among them was Pegasus Birds Limited v Customs and Excise Commissioners in the High Court (Dyson J, as he then was) and in the Court of Appeal ([2000] STC 91). This authority had also been cited by Mr. Sinfield.[45]Mr. Angiolini referred to the 6 legal principles to be applied where best judgment assessments are in issue – see: [1999] STC at p.101 per Dyson J. They are:(1) HMRC’s opinion referred to in section 73(6)(b) is an opinion as to whether they have evidence of facts sufficient to justify making the assessment;(2) The evidence in question must be sufficient to justify making the assessment in question;(3) The knowledge referred to in section 73(6)(b) is actual, not constructive, knowledge;(4) The correct approach for a tribunal to adopt is (i) to decide what were the facts which, in the opinion of the officer making the assessment on behalf of HMRC, justified the making of the assessment, and (ii) to determine when the last piece of evidence of these facts of sufficient weight to justify making the assessment was communicated to HMRC;(5) An officer’s decision that the evidence of which he has knowledge is insufficient to justify making an assessment, and accordingly, his failure to make an earlier assessment, can only be challenged on Wednesbury principles, or principles analogous to Wednesbury ;(6) The burden is on the taxpayer to show that the assessment was made outside the time limit specified in section 73(6)(b) of the VATA.[46]The construction of section 73(6)(b) adopted by Dyson J was approved by the Court of Appeal (see: [2000] STC 97 at [11]). Discussion and Decision[47]One of the odd aspects of this case is the fact that had the Appellant not provided the exact figures for the VAT due in the periods 12/05, 03/06, 06/06 and 09/06 just days before the third anniversary of the end of the periods respectively (in the case of the period 06/06 on the third anniversary itself), giving HMRC the opportunity, which they took, to make the assessments complained of before the expiry of the 3-year time limit, then the only sanction which the Appellant would have suffered for non-production of the exact figures would have been liability to a small penalty, while the substantial VAT liabilities would have gone un-assessed without any other redress available to HMRC.[48]Mr. Angiolini said that if that had happened, the Appellant would have been classified by HMRC as a non-compliant trader, which would have led to a more active supervision of its future compliance. Mr. Sinfield said that it did not enter the Appellant’s head not to comply, and its tardiness in compliance was due to Shannon Carvell’s travel commitments.[49]In the event, the Appellant complied by providing the figures which enabled HMRC to assess and to claim that new evidence of facts, sufficient in their opinion to justify the making of the assessment had come to their knowledge and that they therefore had the benefit of a new one-year extension of time to assess, pursuant to section 73(6)(b) of the VATA.[50]Another odd aspect of the case is that HMRC, having let the 2-year time limit provided by section 73(6)(a) expire without assessing for the periods in question, claim to be able to extend the time for assessment by requesting information which, in March 2007, they certainly knew that they needed in order to make an exact, rather than an estimated, assessment. In March 2007, HMRC were well within the 2-year period provided by section 73(6)(a) in relation to all the periods in question (the earliest of which was 12/05), and they can, we consider, be criticised for not pressing more effectively to be provided with this information during 2007.[51]We have however concluded that these odd aspects of the case do not shed any light on the statutory purpose behind the rules about the time limits for assessing which might assist us to decide the issue at the heart of this appeal. That issue is the proper construction of section 73(6)(b) and its application to the facts we have found.[52]Crucial to this task of construction is the meaning which we give to the words “the assessment” in the phrase “evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment”.[53]As recorded above (at paragraph [37]), Mr. Sinfield submitted that “the assessment” meant the assessment of an amount which had to be assessed in order to recover a deficiency caused by an incomplete or incorrect return. He sought in this way to persuade us to construe “the assessment” in the phrase we have set out as ‘the assessment which could have been made to the best of HMRC’s judgment based on the estimated figures obtained in March 2005’ rather than the actual assessment(s) which HMRC made, and which are the subjects of the appeal.[54]We consider that this is a strained, if not impossible, construction and, moreover that it is a construction not supported by the analysis of the relevant legal principles given by Dyson J in Pegasus Birds Limited (see: paragraph [45] above). ‘The assessment’ in the relevant phrase must, we consider, mean “the assessment[s] in question” (see: Dyson J’s second principle), or the assessment(s) whose validity is impugned and which the Appellant has appealed against. In other words, we start with the assessments which HMRC have actually made, not with assessments that they could have made if they had been in time to make them, and consider when evidence of facts, sufficient in their opinion to justify making the assessments actually made, came to HMRC’s knowledge.[55]When the legal test is viewed in this way the answer in our view is clear. The evidence of facts sufficient in Miss Gardner’s view to justify making the actual assessments was the actual figures supplied period by period immediately before the assessments were made. This being the position, clearly the assessments were all made in time. Miss Gardner’s view that the receipt of the actual figures justified the making of the actual assessments which reflected them was not challenged by Mr. Sinfield on the basis that it was Wednesbury unreasonable, and, in any case, no such challenge could have succeeded.[56]Mr. Sinfield’s arguments based on the fact that HMRC did not make assessments based on the estimated figures before such assessments would have been out of time do not in our view provide any reason for impugning the validity of the assessments actually made. Nor is Miss Gardner’s motive in asking for the exact figures relevant to the question we have to decide. What is relevant is whether Miss Gardner was of the opinion that the receipt of the exact figures justified the making of the assessments which were actually made, and we find that she was of that opinion.[57]For these reasons we dismiss the consolidated appeals. Costs[58]Neither party made an application for costs and we make no direction. Right to apply for permission to appeal[59]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. JOHN WALTERS QC TRIBUNAL JUDGE RELEASE DATE: 18 August 2010

Cited in 2 later judgments