Hood v Revenue & Customs [2011] UKFTT 294 (TC)

FTT-Tax
Hood v Revenue & Customs
[2011] UKFTT 294 (TC) · 2011-05-06
[1]This is an appeal against HMRC's assessment on 23 January, 2007 in the amount of £10,865 in respect of VAT chargeable on the sale of pianos. Interest of £1,245.92 has accrued on this assessment. HMRC have not imposed penalties in this case. The assessment concerns supplies made by the Appellant between December 2003 and November 2005.[2]The evidence in this appeal consisted of a folder of documents (including correspondence) produced by HMRC. In addition, the Appellant gave oral evidence. The facts[3]During the material periods, the Appellant carried on three businesses as a sole trader. The businesses were(1) interior design(2) the sale of pianos (new and second-hand) and(3) the provision of piano lessons. The provision of piano lessons was an exempt supply.[4]The assessment under appeal relates to output tax which HMRC consider was payable on the sale of pianos.[5]The Appellant submitted a VAT registration form (VAT 1) on 5 July, 2002 requesting that she be registered for VAT from 1 August, 2002. Paragraph 5 of Form VAT 1 asked applicants to tell HMRC "about all your current and/or intended business activities". The Appellant replied "Interior Design". Paragraph 6 of the Form asked applicants to supply details of any other businesses. The Appellant provided the following information:
"Music teacher part-time and some secondhand pianos sales."
[6]The Appellant submitted Form VAT 1 because her interior design business had reached the VAT threshold in force at the time (£55,000).[7]The Appellant was registered for VAT with an effective date of 1 August, 2002.[8]The Appellant filed regular VAT returns and accounted for VAT.[9]On 25 October, 2006 HMRC visited the Appellant's premises. HMRC observed that the Appellant had not accounted for VAT on the sale of pianos. The following day, HMRC wrote to the Appellant's accountants requesting details of the Appellant's pianos sales.[10]The Appellant's accountants replied on 20 November, 2006 calculating that £10,865 was owed by the Appellant in respect of undeclared VAT. That letter stated that the Appellant had telephoned HMRC's National Advice Service ("NAS") at the time she registered for VAT and that she was advised that she did not have to include the piano business on her VAT returns.[11]In a letter dated 29 December, 2006 to the Appellant's accountants, HMRC requested that the Appellant provide as much background information as possible to enable a review as to whether there had been a misdirection or misunderstanding. The letter stated:
"If it is established that a HMRC officer, with the full facts before them, has given a clear and unequivocal ruling on VAT in writing or, knowing the full facts, has misled a registered person to there [sic] detriment then any assessment of VAT due will be based on the correct ruling from the date the error was brought to the registered person's attention."
[12]On 12 January, 2007 the Appellant wrote to HMRC as follows:
"I would like to confirm that I telephoned the VAT advice line, from the telephone book, to ask if I should include my pianos sales and teaching business on [sic] as the turnover was approximately only £30k and my [interior design] turnover was about to reach the VAT threshold. I was advised only to register the [interior design] business but to write on the application form any other turnover I have with any other business, which I did as you can see. The lady I spoke to on the advice line said that I only need to pay VAT on businesses that are on and above the threshold. I did exactly that. As you can clearly see on my application form it states my music lessons and pianos sales. Your request for £10,856 is causing an awful lot of stress and indeed if you pursue that is it [would] cause incredible hardship. I took advice, believed it and indeed adhered to it. My entire turnover is registered in my accounts as you have clearly seen from your inspection. Can you please seriously consider this error that has been made by your VAT office. I do not see why I should suffer for this mistake especially as I have not included VAT on the sale price and the profit margin is very tight as it is. Perhaps you can explain why I was not contacted by the VAT office when they received my application form. I should have been informed in 2002 that VAT should be paid on my pianos sales not in 2006."
[13]On 23 January, 2007, HMRC issued an assessment in the sum of £10,865.[14]On 24 May, 2007, HMRC wrote to the Appellant notifying her that they could find no grounds on which they could uphold a complaint that she had been misdirected by the NAS when registering for VAT. In particular, there was no record of the telephone call that the Appellant claimed to have made to the NAS. The letter explained that all enquiries to the advice line and responses were recorded on an electronic database indexed by the VAT registration number or, if this information is not given, under the enquirer' s postcode. There was no record under the Appellant's VAT registration number (or under any applicable postcode) that the Appellant had been given the advice that she claimed she had been given.[15]The database did record a telephone call on 16 July, 2002 in which the Appellant advised HMRC that she was newly registered from one August and had received a VAT return for one month only and then three monthly thereafter. The Appellant wanted to know if she should complete the one-month return and was advised that she should complete the one month return.[16]Further conversations with the NAS were logged in October and November 2004 as well as in June and July 2005. The final call mentioned in the letter of 24 May, 2007 was in April 2006. None of these calls dealt with the matter in dispute. The letter of 24 May mistakenly referred to a call on 7 January, 2005 -- this was subsequently corrected to refer to a call on 1 July, 2005.[17]HMRC's letter of 24 May, 2007 referred to the fact that a newly registered trader would have automatically been issued with a "VAT pack" which included various copies of HMRC Notices, including Notice 700. In section 6.1.4 of Notice 700 (the main guide to VAT rules and procedures) it was stated:
"it is a person, not the business, who is registered for VAT and each registration covers all the business activities of the registered person."
[18]The letter acknowledged that the Appellant had advised HMRC that the main business activity was interior design and the estimated turnover for other income (music teaching/selling pianos) was £50,000. HMRC stated that they did not consider that the onus was on HMRC to reiterate that the VAT registration would cover all the business activities since this was fully explained in the Notices which had been issued.[19]The letter also acknowledged that HMRC considered the Appellant's error was a genuine mistake. Indeed, there is no suggestion that the Appellant has been anything other than honest in her dealings with HMRC and that her failure to account for VAT on sale of pianos was an honest error.[20]In her evidence, the Appellant stated that she contacted the VAT helpline at some time in June or July 2002 to clarify her position in respect of VAT registration. She had started an interior design business and needed clarity as to whether the business of selling pianos had to be included in VAT returns, as she would then have to start charging VAT on the sale of pianos.[21]The Appellant stated that she spoke to a lady on the helpline who explained that she did not have to charge VAT in respect of the sale of pianos until it reached the turnover required to pay VAT. According to the Appellant, the HMRC officer on the helpline told her to note all her business interests on the application form. The Appellant said that she was told they were separate businesses.[22]The Appellant described herself as doing her best. She said that she had called the NAS for advice to ensure that she was doing the right thing. She was not trying to hide anything and she put everything on the application form has requested. She thought that that was what the helpline was for. She carried out what she was told to do and felt that she had been positively misdirected. As a result, she did not charge VAT on the pianos sales.[23]In cross-examination, Mr Yates challenged the Appellant's assertion that she had been misled in the telephone call with the NAS and suggested that she was mistaken. The Appellant denied this.[24]Throughout the dispute with HMRC the Appellant has steadfastly maintained that she was misled in this telephone conversation by HMRC. There is no doubt, judging from the correspondence between the Appellant and HMRC concerning “time to pay” arrangements for the alleged VAT liability, that the Appellant has suffered hardship as a result of the unexpected VAT liability on the sale of pianos.[25]The Appellant lodged a notice of appeal on 6 April, 2010 (the time for serving a notice of appeal having been extended pursuant to directions of this Tribunal issued on 14 April, 2010). The law[26]It was not in dispute that under the Value Added Tax Act 1994 ("VATA") there was no distinction between the various businesses which a person may carry on (provided the business involves the making of taxable supplies) for the purposes of(1) deciding whether a person is required to be registered for VAT (section 4 VATA), and(2) accounting for VAT once the trader is registered (Schedule 1 VATA).[27]The Appellant did not dispute that she was validly registered for VAT from 1 August, 2002 and that output tax was chargeable in relation to her sales of pianos.[28]Her case was that she was misled by HMRC when in June or July 2002 she telephoned the NAS. Was there a misdirection?[29]Mr Yates argued that there was no misdirection. There was no record of a call in which the Appellant says that she was misled. There was a call made on 16 July, 2002 (shortly after 5 July, 2002, when the Appellant completed her VAT registration form) but this only concerned the question whether a one month for three month return had to be completed. The burden of proof was on the Appellant to show that she had been misdirected.[30]In any event, when they Appellant became registered for VAT she would have received various Notices, including Notice 700. These would have made it clear to her that anything done by way of business can be a taxable supply and that a registered person must charge VAT on all taxable supplies.[31]In our view, the Appellant has failed to discharge the burden of proof required to show that she had been misdirected by HMRC. She was unable to produce any evidence of the telephone call. Moreover, she needed to demonstrate that the requirements set out by Bingham LJ in R v IRC, ex parte MFK Underwriting [1990] 1 WLR 1545 at 1569 E were satisfied:
"First, it is necessary that the taxpayer should have put all his cards face upwards on the table. This means that he must give full details of these specific transaction on which he seeks the revenue's ruling.... It means that he must indicate to the revenue the ruling sought.... Secondly, it is necessary that the ruling or statement relied upon should be clear, unambiguous and devoid of a relevant qualification."
[32]In our view, the Appellant had failed to show that these requirements were satisfied.[33]There is no doubt that the Appellant has acted in good faith throughout. However, we believe that she was mistaken about the import of the telephone call which she says she placed in June or July 2002. The error which she attributes to the NAS is so basic an error of VAT law that, on the balance of probabilities, we think it is highly unlikely that any such assurance, such as the Appellant alleges, was given. If it was given, which we doubt, we think it most probable that it was given on a misunderstanding of the facts.[34]For these reasons we would dismiss this appeal. Jurisdiction[35]Mr Yates gave us a full and learned argument in support of his submission that the Tribunal did not have jurisdiction to hear an argument based on misdirection or legitimate expectation. Mr Yates referred to the decision of Sales J in Oxfam v HMRC [2010] STC 686 as well as to many other authorities, including recent Tribunal decisions in Hanover Company Services Ltd v HMRC [2010] SFTD 1047 and CGI Group (Europe) Ltd v HMRC [2010] SFTD 1001 .[36]Although Mr Yates very fairly presented opposing arguments and fully discharged his responsibilities to the Tribunal, we do not think it is sensible for us to express an opinion on this issue in the absence of full arguments on both sides, particularly since our conclusion on whether there was a misdirection makes it unnecessary for us to reach a conclusion on the question of jurisdiction. Decision[37]For the reasons given above, we dismiss this appeal.[38]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: 6 May 2011