Motorplus Limited v The Commissioners for HMRC [2025] UKFTT 931 (TC)

[2025] UKFTT 00931 (TC)

Case No TC09603

FIRST-TIER TRIBUNAL

TAX CHAMBER

Hearing Heard on: 30 July 2025

Date Judgment date: 4 August 2025

By remote video hearing

Appeal reference: TC/2023/10189

VALUE ADDED TAX – application by the Respondents to strike out an appeal against the denial of claims to recover value added tax input tax on the grounds that the appeal had no reasonable prospect of success – consideration of the jurisdiction of the First–tier Tribunal in the light of the decisions which were the subject of the appeal – conclusion that that jurisdiction included the determination of whether the supplies in question were exempt or taxable and that, in view of that conclusion, the Respondents had failed to establish that the appeal had no reasonable prospect of success – application dismissed

Before

TRIBUNAL JUDGE TONY BEARE

Between

MOTORPLUS LIMITEDAppellant

THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondent

Mr Tim Brown, of counsel, instructed by The VAT People Limited for Appellant

Mr Sam Way, of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for Respondents

DECISION

[1]The appeal to which this decision relates concerns the Respondents’ rejection of an error correction notice (the “ECN”) which was submitted on behalf of the Appellant on 28 July 2022 on the basis that supplies made to it by two suppliers, Adrian Flux Insurance Services (“Flux”) and Herts Insurance Consultant Limited (“HIC” and, together with Flux, the “Suppliers”) over the periods 1 November 2011 to 31 March 2019 (the “First Period”), 1 April 2019 to 31 March 2021 (the “Second Period”) and 1 April 2021 to 28 February 2022 (the “Third Period”), were properly subject to VAT and gave rise to an entitlement on the part of the Appellant to recover value added tax (“VAT”) input tax.

the background to the appeal

[2]The claim made by the Appellant in the ECN was accompanied by a letter to the Respondents from the Appellant’s representative, the VAT People (the “VATP”), setting out the background to the claim. In that letter, after explaining the circumstances in which the relevant supplies had been made, the VATP requested “[the Respondents’] agreement to accept alternative evidence to support the claim given that both suppliers are clearly taxable persons but are not VAT registered and have not provided VAT invoices to [the Appellant]”. The VATP went on to explain the reason why it considered that the relevant supplies were taxable before asking for the Respondents’ comments on its analysis. It then referred the Respondents to the section in the VAT manual which dealt with the acceptance of evidence other than a VAT invoice to support a claim for VAT input tax recovery and explained that the Suppliers had not provided VAT invoices in this case because they had taken the view that the relevant supplies were not taxable.

[3]The claim made by the Appellant was denied by Officer Carolyn Ross of the Respondents on 15 December 2022. In her response, the reason given by Officer Ross for denying the repayment of VAT was that:

“At the time the supplies took place both the supplier and the customer accepted that the supplies were exempt from VAT. No VAT was charged, and no invoices were raised charging VAT.”

[4]Officer Ross then referred the Appellant to the decision in Zipvit v The Commissioners for His Majesty’s Revenue and Customs (No 2)

[2022] UKSC 12

(“Zipvit”), in which the Supreme Court (the “SC”) had upheld the Respondents’ refusal to allow a deduction for VAT input tax in circumstances where, at the time of the supplies, both parties had believed that supplies which were later determined to have been standard–rated were exempt. Officer Ross explained that, in Zipvit, no right to recover VAT input tax had arisen because no VAT had been paid by the appellant in that case and no VAT had become due.

[5]Officer Ross concluded her letter by saying that, “[if], at a future point [the Appellant] were to receive a current dated, VAT only invoice, and payment was made, then they would be entitled to deduct the input tax charged on the invoice.”

[6]On 10 February 2023, the Appellant asked for an independent review of Officer Ross’s decision to refuse the claim.

[7]On 13 September 2023, Officer Ian McInnes wrote to the Appellant to set out the result of that review. That was:(1) to uphold Officer Ross’s refusal of the Appellant’s claim to the extent that the claim related to the First Period; and

(2) to cancel Officer Ross’s refusal of the Appellant’s claim to the extent that the claim related to the Second Period and the Third Period, in each case on the basis that the decision relating to those periods had not been notified to the correct legal entities.

[8]In the review conclusion letter, Officer McInnes explained that there were two conditions which a taxpayer needed to meet in order to be able to deduct VAT input tax. The first was that the VAT input tax needed to have been incurred and the second was that the claim to deduct the VAT input tax needed to be supported by appropriate documentary evidence, whether in the form of a VAT invoice or some other form.

[9]Officer McInnes confirmed that Officer Ross had refused the claim “because at the time the supplies took place Flux/HIC and you had accepted that the supplies were exempt from VAT. No VAT had been charged and no invoices were raised charging VAT”. He went on to say that Officer Ross’s reliance on the decision of the SC in Zipvit was correct.

[10]He then said the following:

“Your representative has stated that the decision letter suggests that you would be entitled to recover the VAT should you receive a VAT invoice from your suppliers. They have taken from this that HMRC accepts that Flux and HIC’s supplies should have been treated as standard rated for VAT. It should be noted that Officer Ross explained “if you were to receive a current dated, VAT only invoice and payment was made, then you would be entitled to deduct input tax charged on the invoice.”

Officer Ross has advised that she did not imply that the supplies your received from Flux and HIC should have been treated as standard rated. It is my view that the above statement made by Officer Ross is correct and would likely refer to any subsequent agreement between you and your suppliers on the treatment of the supplies. Your representative also considers that Officer Ross has assumed that you and the suppliers agreed that, at the time, the supplies made by you were VAT exempt and they have explained that this is not the case. You have advised that you specifically raised this point in May 2015. Your representative has advised that Flux sought advice from their representative who was of the view that commission payments were exempt from VAT. Flux were satisfied with that response, but this was not agreed by you. Officer Ross has detailed that at the time the supplies took place both the supplier and the customer accepted that the supplies were exempt from VAT. This would seem clear by the fact that no invoices were raised, and no VAT was charged. There is no evidence to suggest that you have made any previous claims for input tax on this matter or declared input tax with your VAT returns. You also did not advise HMRC that you were unhappy with the tax treatment of those supplies or would seem to have contacted Flux/HIC further on this matter.”

[11]On 13 October 2023, Officer Ross issued replacement letters denying the Appellant’s claim for a repayment of VAT input tax in relation to the Second Period and the Third Period on identical terms to those set out in her letter of 15 December 2022.

[12]Later that month, the Appellant appealed to the First-tier Tribunal (the “FTT”) against the Respondents’ refusal of its claim for each of the three periods. The grounds of appeal in each case were that:(1) the supplies in question were outside the scope of the exemption and the facts in the present case were distinguishable from those in Zipvit; and

(2) the Appellant was entitled to recover the VAT input tax included in the amounts paid, even in the absence of invoices from the Suppliers.

[13]On 29 January 2024, the three appeals were consolidated into the present appeal.

case management history

[14]The appeal has had a long, and somewhat complicated, case management history. For present purposes, it suffices to note the following:(1) on 28 March 2024, the Respondents applied for the FTT to strike out the appeal under Rule 8(2) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Tribunal Rules”) on the basis that the FTT did not have jurisdiction to determine the appeal or under Rule 8(3)(c) of the Tribunal Rules on the basis that the appeal had no reasonable prospect of success;

(2) following objections to that application lodged by the Appellant with the FTT on 29 April 2024, and the Respondents’ reply to those objections lodged with the FTT on 16 May 2024, a video hearing was held before Judge Amanda Brown on 16 September 2024. Prior to the hearing: (a) the Respondents withdrew their application for the appeal to be struck out under Rule 8(2) of the Tribunal Rules; and (b) the Appellant conceded that the application under Rule 8(3)(c) of the Tribunal Rules was appropriate to the extent that the appeal related to the period 1 November 2011 to 31 March 2018. At the hearing, Judge Brown indicated that, from her review of the papers, the facts in the present case were distinguishable from those in Zipvit because the payments made by the Appellant to the Suppliers had been made on a VAT–inclusive basis. As such, the Appellant had at least an arguable case as regards the Second Period, the Third Period and the rest of the First Period. The Respondents accordingly accepted her invitation to withdraw their application under Rule 8(3)(c) of the Tribunal Rules as regards those periods and she directed the Respondents to serve their statement of case (the “SOC”) by no later than 18 November 2024;

(3) on 18 November 2024, the Respondents served the SOC. The SOC included the following submissions on the part of the Respondents: (a) the supplies to the Appellant had been exempt from VAT (paragraphs [29] and [39]); (b) the Appellant had made no argument in its grounds of appeal that the supply to the Appellant was in fact a taxable supply and therefore the issue of whether the supply was in fact a taxable supply did not fall to be considered on the appeal (paragraphs [29] and [38]); (c) a term in the contract between the Appellant and the Suppliers to the effect that the contract price was inclusive of all and any relevant statutory charges and taxes did not have the effect of deeming that the contract price was inclusive of an element in respect of VAT (paragraphs [35] and [40]). (I should note at this point that, at the hearing before me, Mr Way indicated that, although the Respondents would wish to maintain this position in any hearing of the substantive appeal, I should assume for the purposes of dealing with the present application that the Respondents accepted that the payments made by the Appellant to the Suppliers were inclusive of any VAT which might arise in respect of the supplies in question); and (d) even if the Appellant did make payments to the Suppliers for which it had the right to deduct VAT input tax, the Appellant’s claim for a repayment of those sums had been reasonably refused pursuant to Regulation 29(2) of the Value Added Tax Regulations 1995 (SI 1995/2518) (“Regulation 29(2)”) because the Appellant had not provided appropriate documentary evidence to support its claim (paragraphs [42] and following);

(4) following the service of the SOC, a dispute arose between the parties as to whether the Appellant in its grounds of appeal had clearly stated that, in its view, the supplies in question were taxable or whether, as averred by the Respondents in paragraph [29] of the SOC, it had not. On 27 November 2024, Judge Brown held that, in her view, the first ground of appeal did include such a statement and she therefore directed the Respondents to provide further and better particulars of the basis “on which, if they do, they contend that the supplies by the [Suppliers] to the Appellant are exempt from VAT (or in any event not taxable) thereby addressing the first sentence of ground 1 of the Appellant’s grounds of appeal”;

(5) on 14 January 2025, the Respondents served their further and better particulars. In that document, the Respondents stated that their position was that “no decision has been made concerning the chargeability of the supply and no appeal lies in relation to the chargeability of the supply. It does not therefore form part of the issues to be determined in this appeal.” The Respondents submitted that their decision at each stage had been limited to the question of whether the Appellant’s claim for the repayment of VAT input tax should be allowed and that they had not at any stage made a decision about whether the supplies in question were or were not exempt from VAT. Instead, the Appellant’s claim had been refused on the basis that both parties to each supply had accepted that the relevant supply was exempt, no VAT had been charged and no VAT invoices had been raised, with the result that Zipvit applied. The chargeability of the supplies was therefore not an issue which fell to be determined in the appeal;

(6) on 21 January 2025, the Appellant applied to the FTT for a direction precluding the Respondents from defending their rejection of the Appellant’s claims on the basis that the supplies made to the Appellant by the Suppliers were anything other than standard–rated;

(7) on 31 January 2025, the Respondents served their response to the Appellant’s application in which they: (a) submitted that the FTT had no jurisdiction to consider an appeal on the issue of whether the supplies were exempt or standard–rated or to direct the Respondents to make a decision on that issue; (b) applied to amend the SOC by deleting paragraph [29] in its entirety on the basis that that paragraph had been based on a misunderstanding of the Appellant’s grounds of appeal; (c) applied for the appeal to be struck out under Rule 8(3)(c) of the Tribunal Rules on the basis that: (i) the question of whether they had acted reasonably in denying the repayment of the VAT input tax was premised on the substantive chargeability of the supplies in question; (ii) as they had made no decision on the substantive chargeability of those supplies, the question fell outside the FTT’s jurisdiction; and (iii) therefore the appeal had no reasonable prospect of success; and (d) submitted that, following the amendment of the SOC, the issue of whether the supplies were exempt or standard–rated was irrelevant;

(8) on 17 February 2025, Judge Brown: (a) stayed the Appellant’s application that the Respondents be precluded from defending their rejection of the Appellant’s claims on the basis that the supplies made to the Appellant by the Suppliers were anything other than standard–rated; (b) refused the Respondents’ application for the appeal to be struck out; and (c) refused the Respondents’ application to amend the SOC;

(9) on 11 April 2025, the Respondents applied for permission to appeal against Judge Brown’s decision of 17 February 2025 on the basis that: (a) pursuant to the Upper Tribunal (the “UT”) decision in Scandico Limited v The Commissioners for Her Majesty’s Revenue and Customs

[2017] UKUT 0467 (TCC)

(“Scandico”), Section 83(1)(c) of the Value Added Tax Act 1994 (the “VATA”) did not permit the FTT to determine whether VAT was chargeable on the supplies to the Appellant where the Respondents had made no decision on that issue; and (b) given that that was the case, the FTT had erred in refusing to strike out the appeal because, on a true construction of Section 83(1)(c) of the VATA, the appeal had no reasonable prospect of success;

(10) on 30 April 2025, Judge Brown determined that, in the light of the reference to Scandico in the Respondents’ application for permission to appeal against her decision of 17 February 2025, a case to which she had not previously been referred by the parties, she had reviewed that decision and concluded that it should be set aside and re–made. To that end, she attached a draft of her re–made decision which took into account the judgment in Scandico and invited both parties to make representations on the draft before she issued her final re–made decision which would take account of those representations;

(11) on 7 May 2025, the Appellant indicated that it was in agreement with Judge Brown’s draft re–made decision and had no representations to make as regards Judge Brown’s proposed course of action;

(12) on 14 May 2025, the Respondents issued their representations in response to Judge Brown’s proposal of 30 April 2025, objecting both to the procedure which Judge Brown had adopted in reviewing and re–making her decision and to the terms of the draft re–made decision and asking for the decision to be re–made only after an oral hearing at which the parties could make submissions;

(13) on 6 June 2025, Judge Brown directed that, whilst she did not accept that the procedure she had adopted in re–making the decision was flawed, she had concluded that it was in the interests of justice that the decision should be re–made only after an oral hearing and she asked for submissions from both parties as to whether the hearing should be before her or a different judge;

(14) on 13 June 2025, the Appellant asked that the hearing be before Judge Brown and applied for a direction that its application of 21 January 2025 for a direction precluding the Respondents from defending their rejection of the Appellant’s claims on the basis that the supplies made to the Appellant by the Suppliers were anything other than standard–rated, which had been stayed by Judge Brown on 17 February 2025, be heard at the same time;

(15) also on 13 June 2025, the Respondents requested that the hearing be before a different judge on the grounds that, although they did not consider that Judge Brown had any actual bias in relation to the matter in question, the hypothetical objective observer might consider that she was biased; and

(16) on 20 June 2025, Judge Brown determined that the hearing should be before a different judge.

the issue at the hearing

[15]The hearing which was held before me as a result of the case management history described in paragraph 14 above was to determine whether Respondents are entitled to succeed in their application of 31 January 2025 for the striking out of the above appeal under Rule 8(3)(c) of the Tribunal Rules on the basis that the appeal has no reasonable prospect of success.

the law

(c) of the Tribunal Rules

[16]Rule 8(3)(c) of the Tribunal Rules provides that the FTT “may strike out the whole or part of the proceedings if – …(c) the [FTT] considers there is no reasonable prospect of the appellant’s case, or part of it, succeeding”.

Relevant case law on the application of Rule 8(3)(c) of the Tribunal Rules

(c) of the Tribunal Rules

[17]There is no dispute between the parties as to the approach which the FTT is required to take in exercising the power to strike out pursuant to Rule 8(3)(c) of the Tribunal Rules. The FTT is required to exercise the power in a manner analogous to the exercise by a court of the power in CPR 3.4(2)(a) to strike out a statement of case – see the UT decision in The Commissioners of Her Majesty’s Revenue and Customs v Fairford Group

[2014] UKUT 329 (TCC)

[2015] STC 156

(“Fairford”) at paragraph [30].

[18]More detailed guidance on the principles involved was provided by the UT in The First De Sales Limited Partnership v The Commissioners of Her Majesty’s Revenue and Customs

[2018] UKUT 396 (TCC)

(“First De Sales”) at paragraph [33], as follows:

“33. Although the summary in Fairford Group Plc is very helpful, we prefer to apply the more detailed statement of principles in respect of application for summary judgment set out by Lewison J, as he then was, in Easyair Ltd (t/a Openair) v Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15]. This was subsequently approved by the Court of Appeal in AC Ward & Sons v Caitlin Five Limited [2009] EWCA Civ 1098. The parties to this appeal did not suggest that any of these principles were inapplicable to strike out applications. i). The court must consider whether the claimant has a 'realistic' as opposed to a "fanciful' prospect of success: Swain v Hillman [2001] 1 All ER 91 ii). A 'realistic' claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8] iii). In reaching its conclusion the court must not conduct a 'mini-trial': Swain v Hillman iv). This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10] v). However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550; vi). Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63; vii). On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725.”

Other relevant case law

[19]There are three other decisions which are of particular relevance in the context of the present application. These are:(1) The Commissioners for Her Majesty’s Revenue and Customs v Earlsferry Thistle

[2014] UKUT 0250 (TCC)

(“Earlsferry”);

(2) Scandico; and

(3) Zipvit.

[20]In Earlsferry, the Respondents had refused a claim made by the recipient of supplies for the repayment of VAT wrongly paid to the Respondents by its supplier. It did so on the basis that the supplier, as the person who had wrongly paid the VAT, was the only person who could obtain a repayment of the VAT. The recipient’s appeal against that decision under Section 83(1)(b) of the VATA was struck out by the UT on the basis that the FTT had no jurisdiction to entertain the appeal. The UT held that the Respondents had made no decision as to whether the supplies in question were exempt or taxable but had instead based their refusal on the entirely different ground that the claim should have been made by the supplier and not the recipient.

[21]Scandico was a decision of the UT following the disallowance by the Respondents of a claim to VAT input tax by the appellant which was not supported by VAT invoices. The FTT, following long–established practice, and with the agreement of both parties, approached the issue in two stages. It first considered whether there had been taxable supplies to the appellant and it then went on to consider, as a second stage, whether the Respondents’ refusal to accept evidence other than VAT invoices had been reasonable – see Scandico at paragraph [22]. The UT held that this approach had been incorrect because the role of the FTT “is to examine a decision that [the Respondents] have taken and decide whether that decision was right or wrong” (see Scandico at paragraph [39]). In Scandico, the proper construction of the letters setting out the Respondents’ decision was that the Respondents had made no decision as to whether there had been taxable supplies to the appellant. The Respondents had merely decided that there was not enough information provided by the appellant to justify a direction under Regulation 29(2) to the effect that the alternative evidence provided by the appellant in the absence of VAT invoices was sufficient evidence of the supplies and it was that decision which the FTT had to address. Accordingly, the UT declined to express any view on whether there had been taxable supplies to the appellant in that case and confined its decision to the question of whether the Respondents had acted reasonably in refusing to exercise its discretion to allow the alternative evidence to suffice. It went on to hold that, in that case, the FTT had correctly concluded that the Respondents’ decision had been reasonable – see Scandico at paragraphs [44], [60] and [61].

[22]In Zipvit, following a reference which it had made to Court of Justice of the European Union (the “CJEU”), the SC addressed the question of whether the appellant, which had entered into contracts with its supplier on terms that it was obliged to pay an additional amount equal to the VAT on the supplies in the event that they were taxable, was entitled to claim a deduction for those amounts in circumstances where:(1) at the time when the supplies in question had been made, both the appellant and the supplier, and, for that matter, the Respondents, had assumed that the supplies were exempt;

(2) the fact that the supplies in question were taxable became apparent only after a decision by the CJEU in another case; and

(3) in consequence, the appellant had not paid the additional amounts in respect of VAT required by the contracts and there was no prospect that it could be made to pay, or would pay, those additional amounts.

[23]The SC held that, in those circumstances, no amounts in respect of VAT had been “due or paid”, with the result that no claim to deduct VAT input tax arose – see Zipvit at paragraphs [27] to [31]. In the light of that conclusion, the SC declined to decide the question of whether the appellant’s claim to deduct VAT input tax would have been barred in any event because it had received no VAT invoices and, had the Respondents considered the exercise of their discretion under Regulation 29(2), they would have been bound to conclude that the deduction should not be allowed – see Zipvit at paragraphs [32] to [36]. discussion Introduction

discussion

[24]It was common ground that the correct approach to the Respondents’ application to strike out the appeal in this case was:(1) to determine exactly what it was that the Respondents had decided when they denied the VAT input tax claim;

(2) in the light of that and the applicable case law, to determine what issues the FTT had the jurisdiction to decide; and

(3) in the light of the issues which the FTT had the jurisdiction to decide, to determine the Appellant’s prospects of success in the appeal, in the light of the guidance given by the UT in Fairford and First De Sales. What did the Respondents decide? Introduction

What did the Respondents decide?

[25]In relation to the first of those issues, the starting point was to identify the document or documents which set out the Respondents’ decision. Mr Way said that those were the letter of 15 December 2022 and the two letters of 13 October 2023 in which Officer Ross had denied the Appellant’s claim to recover the VAT input tax (the “denial letters”). It was not the letter of 13 September 2023 in which Officer McInnes had set out the result of the review (the “review conclusion letter”). However, he considered that very little turned on that distinction because the basis for the Respondents’ refusal was the same in the case of the denial letters as it was in the case of the review conclusion letter.

[26]Mr Brown said that he did not agree that the review conclusion letter was not relevant in identifying the Respondents’ decision. That was because each notice of appeal which had been sent to the FTT expressly referred to, and attached, the review conclusion letter. Having said that, he agreed that very little turned on that distinction because the basis for the Respondents’ refusal was the same in the case of the denial letters as it was in the case of the review conclusion letter.

[27]I am inclined to agree with Mr Way that it is the terms of the denial letters and not the terms of the review conclusion letter which are relevant in determining what it was that the Respondents decided in this case. I say that because, when one looks at Section 83 of the VATA in context, and particularly in the light of Section 83G of the VATA to which reference is made at the start of that section, it would seem that the appeals listed in that section are appeals against the relevant original decision which was made by the Respondents and not appeals against the review conclusion letter. The conduct of a review subsequent to the making of the relevant decision affects the period in which the appeal may be made but it does not change the fact that the appeal is against the original decision and not against the letter setting out the conclusion of the review. Having said that, I agree with both parties that this does not make a great difference in the present case because the substance of the review conclusion letter is not meaningfully different from the substance of the denial letters.

The parties’ submissions

[28]Turning then to what it was that the Respondents decided in the denial letters, Mr Way said that the Respondents had given two reasons for denying the claims Those were that:(1) first, no VAT had been charged because, at the time when the supplies took place, both the Appellant and the Suppliers accepted that the supplies were exempt; and

(2) secondly, no VAT invoices had been raised.

[29]The reference to the decision in Zipvit was relevant to the first of the above reasons. Mr Way said that the decision in Zipvit was technically not part of the reasons for the Respondents’ refusal, as such, although he accepted that the reference to the decision could colour the interpretation of what it was that the Respondents were deciding.

[30]He observed that both of the reasons set out in paragraph 28 above related to matters of fact and not of law. The Respondents had expressed no view, either in the denial letters (or, for that matter, in the review conclusion letter), on whether the supplies were exempt or taxable.

[31]The question of what decision the Respondents had made was a “short point of law or construction” on which the FTT “has before it all the evidence necessary for the proper determination of the question” (see First De Sales at paragraph [33(vii)]). It was therefore suitable for summary determination in this application.

[32]In response, Mr Brown said that the first reason given for denying the claims was effectively a decision to the effect that the supplies in question were exempt and not taxable. After all, the agreements between the Appellant and the Suppliers had provided that the payments made by the Appellant were inclusive of VAT. As such, the only way in which those payments could not have included an amount in respect of VAT would have been that the supplies were exempt.

Conclusion

[33]It is not altogether straightforward to identify what it was that Officer Ross was deciding when she gave the first reason for denying the claims given that that reason was founded on the fundamental misapprehensions that both the Appellant and the Suppliers considered that the relevant supplies were exempt and that the circumstances were on all fours with those pertaining in Zipvit. Had Officer Ross not been under those misapprehensions, then I would have agreed with Mr Brown that, by concluding that no VAT had been charged, Officer Ross must have been concluding that the relevant supplies were exempt. That is because the payments made by the Appellant to the Suppliers were inclusive of VAT and therefore, if no VAT was charged, that could only be because the supplies were exempt. However, in my view, because of those misapprehensions, the statement by Officer Ross that no VAT had not been charged did not mean that she was concluding that the supplies were exempt. She was merely saying that, as had been the case for the appellant in Zipvit – which, after all, related to taxable supplies – the Appellant had not paid VAT and no VAT had become due from the Appellant.

[34]The fact that Officer Ross had not definitively concluded that the supplies in question were exempt is supported by the statement at the end of her letter to the effect that “[if], at a future point [the Appellant] were to receive a current dated, VAT only invoice, and payment was made, then they would be entitled to deduct the input tax charged on the invoice”. Officer Ross would not have made that statement had she determined that the supplies were exempt.

[35]Turning then to whether, conversely, the statement set out in paragraph 34 above should be construed as saying that the Respondents had accepted (by implication) that the supplies in question were taxable, it is tempting to conclude that it was. After all:(1) at no point in her letter did Officer Ross say that she was expressing no opinion on whether the supplies were taxable or exempt; and

(2) in making that statement, Officer Ross did not say that the Appellant’s right to recover the VAT input tax which was shown in the VAT–only invoice would be conditional on the supplies’ being taxable as a matter of law.

[36]However, I have concluded that, notwithstanding these points, the statement should not be treated as expressing any decision by Officer Ross to the effect that the relevant supplies were taxable. Instead, it should be construed, in context, as simply another statement of fact which was subject to the unstated pre–condition that any deduction of VAT input tax could be made only if the supplies in question were in fact taxable, as to which the Respondents were expressing no view.

[37]For the above reasons, I have concluded that, in the denial letters (and, for that matter, in the review conclusion letter), the Respondents made no decision as to whether the supplies made to the Appellant by the Suppliers were exempt or taxable. The only decisions which were made by the Respondents were that the claim to recover the VAT should be denied because:(1) no VAT had been charged; and

(2) no VAT invoices had been raised. What issues does the FTT have the jurisdiction to decide? The parties’ submissions

What issues does the FTT have the jurisdiction to decide?

[38]Mr Way said that, since the Respondents had made no decision in relation whether the relevant supplies were exempt or taxable, the FTT had no jurisdiction to entertain an appeal against the decision under Section 83(1)(b) of the VATA – see Earlsferry at paragraphs [20] to [26].

[39]Similarly, Scandico demonstrated that the jurisdiction of the FTT under Section 83(1)(c) of the VATA was to consider only the issue in relation to which the Respondents had made a decision – namely, whether or not the Respondents’ refusal to exercise their discretion under Regulation 29(2) was reasonable. Where the Respondents had made no decision in relation to whether the supply in respect of which the deduction for VAT input tax was being claimed was exempt or taxable, Section 83(1)(c) of the VATA did not confer jurisdiction on the FTT to determine that question because:(1) a decision on that issue by the FTT in an appeal under Section 83(1)(c) of the VATA would affect third parties – namely, the supplier and the supplier’s other customers;

(2) construing Section 83(1)(c) of the VATA in that way would amount to compelling the Respondents to decide that issue simply because the Appellant had made its appeal. The function of the FTT was to determine appeals against decisions that had actually been made by the Respondents. The FTT did not have the power to compel the Respondents to make a decision which might be the subject of an appeal – see Mather v The Commissioners for Her Majesty’s Revenue and Customs

[2014] UKFTT 1062 (TC)

; and

(3) Parliament could not have intended that an appeal could be made on the chargeability of a supply by the recipient of the supply simply because the issue could be subsumed into one of the other jurisdictional gateways in Section 83(1) of the VATA.

[40]Mr Way added that the Appellant’s remedy if it considered that the Respondents should have made that decision was a claim for judicial review. It was not a matter for the FTT.

[41]Mr Brown said that, even if the Respondents had not reached a decision in relation to whether the supplies were exempt or taxable:(1) the decision in Scandico applied only to appeals brought under Section 83(1)(c) of the VATA and had no effect on appeals brought under Section 83(1)(b) of the VATA; and

(2) the decision by the Respondents in this case did not fall solely within the second category mentioned in Scandico – namely, the reasonableness of the Respondents’ refusal to exercise their discretion under Regulation 29(2) – but extended also to the additional issue of whether VAT had been charged. That decision was clearly not part of the exercise of the Respondents’ discretion under Regulation 29(2) but related to the question of whether VAT input tax had been incurred by the Appellant. In determining whether that decision was right or wrong, the FTT was necessarily entitled and obliged to consider whether the supplies in question were exempt or taxable because the payments made by the Appellant to the Suppliers had been expressed to be VAT–inclusive.

Conclusion

[42]I agree with Mr Way that, since the Respondents made no decision as to whether the supplies in question were exempt or taxable, the FTT has no jurisdiction to entertain an appeal under Section 83(1)(b) of the VATA – see Earlsferry.

[43]However, when it comes to the appeal under Section 83(1)(c) of the VATA, I do not agree with Mr Way that the FTT has no jurisdiction to consider whether the supplies in question were exempt or taxable. I say that because it is clear from the decision of the UT in Scandico that the jurisdiction of the FTT extends to a consideration of all the decisions which were made by the Respondents in the particular case. In Scandico, the only decision which was being challenged was the reasonableness of the Respondents’ refusal to exercise its discretion under Regulation 29(2). As such, if the only basis for the Respondents’ denial of the claims in this case had been the second reason set out in each of paragraphs 28 and 37 above, then I would agree with Mr Way that it would be clear from Scandico that any consideration of whether the supplies in question were exempt or taxable would be outside the scope of the FTT’s jurisdiction.

[44]However, in this case, the first reason given by the Respondents for denying the claims was that no VAT had been charged. As Mr Brown pointed out at the hearing, this was not a decision which related to the exercise of the Respondents’ discretion under Regulation 29(2). Instead, it was a self–standing decision which the FTT is both entitled and obliged to address in the context of the appeal. It is impossible to determine whether that decision was right or wrong without addressing the question of whether the supplies were exempt or taxable because the payments made by the Appellant to the Suppliers were expressed to be VAT–inclusive. Consequently, even though Officer Ross, because of her misapprehension in relation to the similarity of the present facts to those in Zipvit, did not herself reach a decision as to whether the supplies in question were exempt or taxable, it is a question which the FTT must necessarily decide before it can reach a conclusion as to whether Officer Ross’s decision to the effect that no VAT had been charged was right or wrong.

[45]The present circumstances are therefore distinguishable from those pertaining in Scandico where the relevant decision – the reasonableness or otherwise of the Respondents’ decision not to exercise their discretion under Regulation 29(2) – did not require any consideration of whether the appellant had received taxable supplies.

[46]They are also distinguishable from those in Zipvit, where any payment in respect of VAT, if required, would have been made in addition to the amounts that had actually been paid by the appellant in that case. Here, since the payments made by the Appellant were inclusive of any VAT that arose, it is impossible for the FTT to determine whether the Respondents’ decision to the effect that no VAT had been charged was right or wrong without addressing the question of whether the supplies in question were exempt or taxable.

[47]It follows from the above that, contrary to Mr Way’s submissions, I consider that the FTT does have jurisdiction to address the question of whether the supplies in this case were exempt or taxable, in addition to its consideration of whether the Respondents’ decision not to exercise their discretion under Regulation 29(2) was reasonable. The Appellant’s prospects of success Conclusion

The Appellant’s prospects of success

[48]The conclusion which I have reached in paragraphs 42 to 47 above means that the Respondents’ application to strike out the appeal necessarily fails because they have not at any stage suggested that the Appellant’s prospects of succeeding in establishing that the supplies in this case were taxable fail the threshold laid down in Fairford and First De Sales as described in paragraphs 17 and 18 above. On the contrary, the application is based entirely on the proposition that the FTT has no jurisdiction to consider whether the supplies in question were exempt or taxable and, for the reasons I have given, I do not consider this to be the case. As for the question of whether the supplies in this case were taxable, in accordance with the guidance set out in First De Sales, I have not conducted a “mini–trial” of it but I see no reason to think that the Appellant’s prospects in succeeding on it are fanciful, as opposed to realistic – and the Respondents have made no submissions to that effect.

[49]There is one further point which I should make in this context.

[50]Even if I am wrong to have reached the conclusion set out in paragraphs 42 to 47 above, it is common ground that the FTT has the jurisdiction to consider the reasonableness or otherwise of the refusal by the Respondents to exercise their discretion under Regulation 29(2). That is something which the UT in Scandico went on to do after reaching its conclusion to the effect that the FTT had no jurisdiction to determine whether the appellant in that case had received taxable supplies. It follows from this that, in my view, even if the FTT in this case were to be precluded from considering whether the supplies made to the Appellant by the Suppliers were exempt or taxable, the Appellant might still be able to succeed in its appeal against the decision by the Respondents to refuse to exercise their discretion under Regulation 29(2). Whilst its success on that point might have limited value to the Appellant in that instance given that, on this hypothesis, it would have no means of obtaining a ruling from the FTT to the effect that the supplies in question were taxable, it would be up to the Appellant to decide whether to pursue the appeal on that basis. It would not be something which required the appeal to be struck out under Rule 8(3)(c) of the Tribunal Rules, in the same way that, in Scandico, having reached the conclusion that it had no jurisdiction to address the question of whether the taxable supplies in that case had been received by the appellant, the UT did not simply dismiss the appeal but went on to consider the reasonableness of the Respondents’ decision under Regulation 29(2).

[51]In relation to this issue, Mr Way said that, in Scandico, there was a clear distinction between the issue which the UT had held that the FTT did not have the jurisdiction to consider – namely, the question of whether the taxable supplies which were agreed to have been made had been received by the appellant – and the issue which the UT had held the FTT did have jurisdiction to consider – namely, the question of whether the Respondents had acted unreasonably in refusing to exercise their discretion under Regulation 29(2). However, no such clear distinction arose in the present case because, here, the issue which the FTT did not have the jurisdiction to consider was not whether supplies which were agreed to be taxable had been received by the Appellant but rather whether the supplies themselves were taxable. If those supplies were not taxable, then there was no evidence on which the Appellant could rely as evidence of the receipt of taxable supplies. That was because the foundation for the Appellant’s claim was that the contracts between it and the Suppliers provided that the contract price was inclusive of all relevant statutory charges and taxes. As such, the taxability or otherwise of the supplies inevitably “infected” any consideration of whether the Respondents had acted reasonably in refusing to exercise their discretion under Regulation 29(2). An inability on the part of the Appellant to establish that the supplies were taxable – because of the jurisdictional limit on the FTT – inevitably meant that the Appellant could not establish that the Respondents had acted unreasonably in refusing to exercise their discretion under Regulation 29(2) and therefore the Appellant had no reasonable prospect of success on that issue.

[52]I do not agree with that submission.

[53]In the first place, I see no meaningful distinction between the issue which was held to be outside the jurisdiction of the FTT in Scandico and the issue which, on the hypothesis that I am now making, is outside the jurisdiction of the FTT in the present case. In both cases, the issue which is outside the jurisdiction of the FTT boils down to the same thing – namely, has the appellant in question received taxable supplies.

[54]In addition, it is apparent from paragraphs [46] and [47] of the SOC that the Appellant has provided the Respondents with evidence other than VAT invoices of the amounts of VAT which it claims to have paid in this case. That evidence was in the form of a spreadsheet and it is that evidence which the Respondents took into account in refusing to exercise their discretion. I can see no reason why, even if the FTT were to be unable to determine whether the supplies in question were exempt or taxable, the Appellant would have no reasonable prospect of persuading the FTT that the Respondents’ refusal to accept that evidence to justify the exercise of their discretion under Regulation 29(2) was unreasonable. The two questions are entirely unrelated, as was demonstrated by the UT’s decision in Scandico.

[55]If the taxability or otherwise of the supplies went to the question of the reasonableness of the Respondents’ decision to refuse to exercise their discretion under Regulation 29(2), then Scandico would not have been decided in the way it was. The UT would simply have held that, because of its inability to determine whether the taxable supplies in that case had been received by the appellant, the appeal should fail. It would not have gone on to address the reasonableness of the Respondents’ refusal to exercise their discretion under Regulation 29(2).

[56]In short, I do not accept the distinction which Mr Way was drawing between the question of whether taxable supplies which were agreed to have been made had been received by the appellant (Scandico) and the question of whether the supplies received by the appellant were taxable (this case).

disposition

[57]It follows from the above that the Respondents’ application to strike out the appeal is dismissed. The parties are required to send to the FTT (for the FTT’s consideration), within 21 days of this decision, an agreed draft of the directions for the further case management of the appeal or their respective submissions to the FTT to that effect.

[58]As I have already noted in paragraph 14(14) above, in its response to Judge Brown’s decision of 6 June 2025 to hold an oral hearing in respect of the Respondents’ decision to strike out the appeal, the Appellant applied for a direction that its application of 21 January 2025 for a direction precluding the Respondents from defending their rejection of the Appellant’s claims on the basis that the supplies made to the Appellant by the Suppliers were anything other than standard–rated, which had been stayed by Judge Brown on 17 February 2025, be heard at the same time. However, neither party referred to this application in their skeleton arguments before the hearing of the application to strike out the appeal or at any stage in the course of the hearing. If the Appellant wishes to renew this application, it should do so within 14 days of this decision, giving reasons why the stay should be lifted, whereupon the Respondents will have 14 days from their receipt of the renewal within which to lodge their response to it.

the respondents’ conduct

[59]Finally, I would like to make some observations about the Respondents’ conduct in these proceedings because, in my view, it falls short of the standards which the Appellant was entitled to expect from them.

[60]When Officer Ross issued the denial letters on the basis that no VAT had been charged because “both the supplier and the customer accepted that the supplies were exempt” and then relied on the decision in Zipvit to support her denial, she made two mistakes. The first was to say that that the Appellant had accepted that the supplies in question were exempt and the second, which was partly in consequence of that first mistake, was to say that the facts in this case were similar to those in Zipvit.

[61]As regards the first mistake, the letter from the VATP of 28 July 2022 made it apparent that, whilst the Suppliers were of the view that the relevant supplies were exempt, that was not the view which the Appellant had taken.

[62]As regards the second mistake, Zipvit was a case where, at the time when the relevant supplies were made, both parties (and the Respondents) erroneously considered that the relevant supplies were exempt. Although the contract between the parties required the recipient of the supplies to pay the supplier an additional amount equal to the VAT arising on the supplies, the effect of that common mistake was that, even after the parties realised that the supplies in question were in fact taxable, that additional amount was never paid and the SC in Zipvit noted that there was now no prospect that the recipient could be made to pay, or would pay, that additional amount (see Zipvit at paragraph [6]).

[63]It was therefore very different from the present case where, at the time when the supplies were made, the Suppliers considered that the relevant supplies were exempt but the Appellant, as the recipient of the supplies, considered that the relevant supplies were taxable. More significantly, if, as I have been asked to assume for the purposes of this application, the payments made by the Appellant to the Suppliers included an amount equal to any VAT arising in respect of the supplies, then the only proper basis for concluding that no VAT was paid by the Appellant in receiving those supplies was that the supplies were exempt.

[64]It is therefore surprising that Officer Ross considered that the present facts were on all fours with those in Zipvit and that she gave no consideration to whether the VAT–inclusive language in the contracts necessarily meant that, in making its payments under the contracts, the Appellant had incurred VAT input tax.

[65]The same errors were repeated by Officer McInnes in the review conclusion letter and were the basis for the Respondents’ first application to strike out the appeal on 28 March 2024.

[66]The Respondents were then in error again when they submitted in the SOC that the Appellant had made no argument in its grounds of appeal that the supplies made to the Appellant by the Suppliers were taxable. Not only was it apparent from the letter from the VATP of 28 July 2022 that the Appellant’s view was that the supplies were taxable but ground 1 of the grounds of appeal had in fact stated that, in the Appellant’s view, the supplies were not exempt from VAT (which is to say that they were taxable). It is therefore surprising that the Respondents reached the conclusion that the Appellant had accepted that the supplies in question were exempt.

[67]However, instead of apologising for the mistakes outlined above, the Respondents, in making the current application to strike out the appeal, have sought to take advantage of those mistakes. Had they approached the claim correctly, they would have realised that Zipvit was not an appropriate basis on which to deny the claim and that, instead, they were required to reach a view on whether the supplies in question were exempt or taxable before they could conclude that no VAT input tax had been incurred by the Appellant. It is regrettable that the Respondents have now sought to strike out the appeal in reliance on the fact that they did not adopt the correct approach.

[68]Having set out at some length, through the letter from the VATP of 28 July 2022, the reasons for its conclusion that the supplies in question were taxable and explained that the Suppliers considered that those supplies were exempt, the Appellant was entitled to expect that the Respondents would come to a conclusion (and express a view) on that question in deciding whether to accept or deny the claim. I do not consider it to be appropriate for the Appellant to be told at this stage in the proceedings that the only way for it to compel the Respondents to fulfil their duty in this respect is by way of a claim for judicial review.

Right to apply for permission to appeal

[69]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 Rules. 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. Release Date: 04th AUGUST 2025

Cited in 1 later judgment

Michael Stefan Duma & Anor v The Commissioners for HMRC 2026