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	First-tier Tribunal (Tax)
You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Walk in Walk in Action Ltd v Revenue & Customs [2009] UKFTT 186 (TC) (29 July 2009) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00141.html Cite as: [2009] UKFTT 186 (TC)

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[2009] UKFTT 186 (TC)




TC00141

Appeal number: LON/2009/413

VALUE ADDED TAX - interest – assessment by HMRC to recover prior overpayments of input tax – input tax claim made in VAT return subject to an adjustment - assessment and adjustment subsequently reduced after long period – whether reduction demonstrates that HMRC had made an error when making original assessment and adjustment – s78 VAT Act 1994 – whether Tribunal has discretion to award interest on equitable grounds – no – appeal dismissed

FIRST-TIER TRIBUNAL


TAX





WALK THE WALK IN ACTION LIMITED Appellant



- and -

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS (VAT) Respondents



TRIBUNAL: Nicholas Aleksander (Tribunal Judge)

J M Neill ACA

Sitting in public in London on 8 July 2009

Simon Davey, Finance Director for the Appellant

James Rivett of Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents


© CROWN COPYRIGHT 2009


 


DECISION
1. This is an appeal by Walk the Walk in Action Limited ("WWA") against a decision of the Commissioners for HM Revenue and Customs ("HMRC") dated 18 September 2009, by which they refused to pay interest on an amount of input tax claimed by WWA in their VAT return for the VAT period 06/06 which was repaid in July 2008.
2. Simon Davey, Finance Director, represented WWA. James Rivett of Counsel represented HMRC. We were given an agreed bundle of documents. In addition we heard evidence from Patricia Yates, an officer of HMRC.

Background Facts

3. The background facts are for the most part not in dispute.
4. WWA is a wholly owned subsidiary of Walk the Walk Worldwide ("WWW"), a Scottish registered charity. Both have been registered as a group since 1 October 2002. WWA is a profit making company. It stages an annual fundraising "Moonwalk" in London (since 2005 an additional Moonwalk has been held in Edinburgh). Participants in the Moonwalk are sponsored, and the sponsorship money is paid to WWW. The participants are required to pay an entry fee to WWA (which was treated as a multiple supply of zero rated publications and food, and standard rated services and goods). WWA funds the costs of the event from the entry fees, corporate sponsorship and from an event management fee charged by WWA to WWW.
5. WWA claimed full recovery of all input tax incurred in relation to the Moonwalk.
6. Following meetings between WWA and HMRC in May and November 2005, on 21 December 2005 Ms Yates wrote to WWA with some queries relating to the attribution of inputs between the business and non-business activities carried on by the VAT group. There were then a series of telephone calls and letters from WWA to HMRC, which, amongst other things, informed HMRC that Messrs Kingston Smith had been appointed to deal with the queries. As neither WWA nor the accountants had given any substantive response to the queries, on 17 May 2006 Ms Yates wrote to WWA to say that absent a response, an assessment would be raised on a best judgment basis to recover input tax which ought to have been attributed to non-business activities.
7. On 28 July 2006 HMRC received WWA's VAT return for the 06/06 quarter, which showed a net repayment due of £213,655.33.
8. On 16 August 2006, HMRC wrote to WWA saying that they would be issuing an assessment on a best judgment basis for periods 09/03 to 03/06, and providing details of the basis to be used to attribute inputs between business and non-business activities. An assessment was issued on 24 August 2006 for £230,203. In addition by a letter dated 18 August 2006, HMRC adjusted the input tax credit on the 06/06 return to adjust for input tax which was judged to relate to non-business activities. The net repayment for 06/06 was reduced from £213,655.33 to £94.622.43.
9. WWA were informed of their right to appeal against the assessment and against the decision to adjust the 06/06 return. No appeals against the assessment or the decision were ever made.
10. On 20 October 2006, Kingston Smith wrote to HMRC on behalf of WWA providing responses to some of the queries raised by HMRC in their December 2005 letter (we note that in some respects, the information provided by Kingston Smith was incorrect).
11. Correspondence then continued between HMRC and WWA in an irregular manner until July 2008 – with extended intervals (both on the part of WWA and HMRC) between receiving a letter and replying to it.
12. On 11 July 2008, HMRC wrote to WWA agreeing that the August 2006 assessment, relating to 09/03 to 03/06 would be substantially reduced in the light of information supplied by WWA. In addition HMRC would allow WWA to recover most of the input tax claimed in the 06/06 return. On 18 July 2008 HMRC reduced the August 2006 assessment and in addition, authorised repayment of most of the input tax claimed in the 06/06 return. The net repayment made to WWA was £62,368.62.
13. On 4 September 2008, WWA claimed interest on the proportion of input tax claimed in the July 2006 return that had been allowed. This claim was refused on 18 September 2008. The decision to refuse the claim was upheld on a review.
14. This is an appeal against the decision of HMRC to refuse payment of interest on the amount due from HMRC for the 06/06 return once it had been adjusted. In the course of argument we raised with the parties whether repayment supplement might be payable, and whether the Notice of Appeal could be amended to add a claim for repayment supplement. HMRC objected to such an amendment on the basis that the Tribunal had no jurisdiction to deal with a claim for repayment supplement. As WWA had made no claim for repayment supplement, HMRC had made no decision about its payment. As there had been no decision on repayment supplement, then there was nothing against which WWA could appeal – and nothing (at least as regards repayment supplement) on which this Tribunal could adjudicate. We agree. As WWA had made no claim for repayment supplement, then there was no appealable decision as respects repayment supplement which could be heard by this Tribunal.

Case for WWA

15. In essence the case for WWA is that it should be treated fairly. As HMRC have charged interest on amounts owing by WWA to HMRC, equally HMRC should pay interest on amounts owed by HMRC to WWA. Interest is not penal, but simply compensation for the time value of money. Further, the underlying reason for WWA being out of its money is due to an error on the part of HMRC in making an excessive adjustment to the 06/06 VAT return.

Case for HMRC

16. The case for HMRC is that the obligations to pay interest under VAT legislation are (for good reasons) asymmetric. Interest is only payable by HMRC in the circumstances prescribed in VAT legislation. Further there is no inherent jurisdiction in the Tribunal to award interest. None of the circumstances set out in VAT legislation is in point, and therefore no interest is payable.

Conclusions

17. We agree with HMRC that no interest is payable to WWA for the following reasons.
18. First, the Tribunal is a creature of the statute that created it. It has no jurisdiction beyond that conferred upon it by the relevant legislation. It cannot award interest merely because it would be reasonable to do so. We can only determine that interest is payable if the legislation allows us to do so.
19. Of the provisions in the VAT Act that provide for HMRC to pay interest, the most relevant is section 78. This provides for HMRC to pay interest in circumstances "where, due to an error on the part of [HMRC], a person has … suffered delay in receiving payment …". Did HMRC make an "error" when adjusting the amount of input tax credit in the 06/06 return, in the light of the fact that the adjustment was substantially reversed in July 2008? In our view, HMRC did not make an error when they originally adjusted the 06/06 return. The adjustment was made on a best judgment basis, using the information that HMRC had before them at the time. They had sought information from WWA, but WWA had not given any substantive response to the questions raised. HMRC had reasonable grounds at the time to adjust the 06/06 return and to make the August 2006 assessment. We agree with the tribunal in Wheeler (1995) TR 13617 that "it is repugnant to commonsense and to the intention of the legislation to say that the payment by way of set-off of tax on account of the assessment was due to an 'error' on the part of the Commissioners notwithstanding that objectively, after the requisite information for which they had been asking had at last been supplied, it could be said that the assessment was actually not justified." There was no "error" in making the August 2006 assessment and adjustment to the 06/06 return on a best judgment basis. Further, although HMRC may have been slow in dealing with some of the correspondence, delays do not amount to an "error" for the purposes of section 78. Accordingly, interest is not payable under section 78 VAT Act 1994
20. For completeness, we add that interest is not payable under section 84(8) VAT Act 1994 either. This provides that where the whole or any part of any VAT credit due to the Appellant has not been paid, the tribunal can order that the VAT credit be repaid with interest. However in this case the VAT credit was paid without recourse to an appeal to this Tribunal. The Tribunal therefore does not have jurisdiction under section 84(8) to order that the VAT credit be repaid with interest.

Appeal dismissed

21. For the reasons stated above, this appeal is therefore dismissed.
22. HMRC did not apply for costs, and we therefore make no order in that regards.
Nicholas Aleksander
TRIBUNAL JUDGE RELEASE DATE: 29 July 2009