DECISION

Introduction

1. By a letter dated 11 December 2003 HMRC adjusted the Appellant’s VAT return for the VAT quarter to 30 June 2003 by assessing under-declared output tax in the sum of £285,711 and disallowing the major part of the input tax claimed for that period by disallowing £4,270,351.58. Twelve days later on 23 December 2003 HMRC assessed the Appellant for £19,056,186.00 in respect of the ten prescribed accounting periods from 1 October 2000 to 31 March 2003 which assessment was made up of under-declared output tax and over-claimed input tax (see paragraph 32 below).

2. The Appellant appealed these assessments by Notice of Appeal dated 19 August 2004. This was somewhat out of time but HMRC took no point on this and nor has the Tribunal.

Findings of Facts

3. Very few of the facts in this case were in dispute between the parties. The following is our findings of the facts and unless we state otherwise the facts were not in dispute. Where there was a dispute, we have set out our finding of fact and the reason for it.

4. The Appellant traded as Simple-Talk Communications from around 1999 and operated from premises located in Birmingham. His aim was to sell mobile phones and accessories to the public. He registered for VAT on 4 January 2000. He placed adverts in local newspapers to attract business.

5. He was approached in 2000 by a person called Kuldip Dillion (also known as Kuldip Siddhu). Mr Dillion said that he was representing a company, Phones R Us Ltd (“PRU”) who sold mobile phones wholesale and could offer the Appellant phones at a competitive price. The Appellant placed a small order and received the phones. They arrived in packaging making it clear that they had originated with a well known high street retailer of mobile phones. The Appellant sold the phones to a customer in Leicester called Astrotel.

6. Next Astrotel produced a list of phones that they wanted and asked the Appellant to supply them. So the Appellant contacted PRU, who said that they would supply. This was a much larger order. As the Appellant could not fund the purchase, Astrotel suggested that it would negotiate directly with PRU over price and PRU should deliver direct to Astrotel who would pay PRU’s price. Astrotel would give the Appellant his mark-up in the form of what the Appellant termed commission at 50p to £1 per phone.

7. The Appellant never saw the goods in this or any of the other similar transactions he entered into in which he was just paid a mark-up, or as he described it, “commission”. Compared to his normal retail trade, the figures involved in these commission transactions were very large indeed. For instance, the Tribunal was shown an invoice from PRU dated 3 July 2001 with a total of £45,543. Another invoice from PRU dated 9 July 2000 was for £107,176.45. In fact in period 12/00 (which is the first period assessed by HMRC) the Appellant declared £90,976.16 in sales, the much greater part of which in value was sales to Astrotel. In the second period of 2002 (06/02), the value of his sales jumped and thereafter up to and including period 06/03 he was declaring over £3million in sales each quarter. Although his retail business continued, it represented only a small proportion of these figures.

8. Only the commission was paid in the transactions involving Astrotel. The Appellant did not pay or receive the full sums shown on the invoices he received and issued which are at the root of this case. He did not negotiate the price and therefore took the price that he was given by Astrotel to put on the invoices. There was no dispute about this evidence: at the time of HMRC’s compliance checks in 2003 (see below) HMRC had seen the Appellant’s bank account statements and these showed no high value transactions of the sort shown on the invoices.

9. The Appellant also sold the phones purchased from PRU, Swift Telecommunications Ltd (“Swift”) and Swiftsure Ltd (“S Ltd”) to other companies. There were two other entities – Advance and ACC and it was not made clear to the Tribunal, presumably because it was not known, whether these were merely trading names used by Astrotel or actually separate companies. In any event it was accepted by all parties that the arrangements with these two other entities were the same as the arrangements with Astrotel. Any references in this decision notice to Astrotel therefore include these two other entities. Another customer was Talking Point Communications and again it was accepted by all parties that the arrangements here were the same as with Astrotel, and any reference in this decision to Astrotel should be taken to include Talking Point Communications.

10. The Appellant had a verification visit by Mr Bowyer an officer of HMRC on 8 August 2002. There was a discussion between the Appellant and Mr Bower. At this meeting the Appellant explained what he called his concept of trade. This was that he was only paid commission on the deals with PRU and Astrotel.

11. Although it was requested at this meeting, the Appellant did not produce his VAT records. It was agreed that Mr Bowyer would return 4 days later on 12 August in order to inspect them. He did return on that date but the Appellant again did not produce his records. It was agreed Mr Bowyer would return on 16 August. On this visit the Appellant did produce his records. These comprised purchase invoices and copy sales invoices. The Appellant said that he kept no books, and that he completed his quarterly VAT returns by totalling the invoices.

12. Mr Bowyer took away the records having given a receipt. Examination of the records showed that the Appellant had been trading with PRU but that the VAT number on the invoice was incorrect. Apart from the incorrect VAT number, the invoices from PRU appeared to have met all the requirements of the law. These are set out in the Value Added Tax Regulations 1995/2518 Regulation 14 as it applied at the time. This Regulation was amended in 2004 of course but at the time in question, as it does now, there was a requirement for the supplier to quote his name address and VAT registration number – Reg 14(1)(d).

13. A company with the same name as PRU had been registered for VAT but under a different number and in any event was de-registered with effect from October 2000. It was therefore about the time the Appellant started dealing with PRU. It is of course possible the de-registration was backdated and therefore may have been effected only after at least some of the invoices were issued. No evidence was given to the Tribunal on this and it does not matter in that the VAT number de-registered was in any event not the number used on the invoices. It was not clear whether the entity with whom the Appellant dealt was the same as the one which had been validly registered: it appeared that at the least it may have had some of the same personnel.

14. The number quoted on the invoices issued to the Appellant was one digit different to the real (but deregistered) VAT Number. The 7^th number in the valid registration was a “1” whereas in the invoices in question the 7^th digit was consistently a “2”.

15. HMRC wrote to the Appellant on 6 September 2002 to notify them with reference to “VAT No 747 5472 04 Phones “R” Us (UK) Ltd” that “we have reason to believe the VAT number is being used without authority or knowledge of the taxable person. It is therefore our conclusion that their VAT registration number is being used fraudulently in respect of trade with yourselves”.

16. Although the Appellant did not challenge HMRC’s evidence that the VAT number used by PRU on their invoices was incorrect, he did maintain at the hearing (as he had said earlier in meetings and correspondence with HMRC) that HMRC had verified the incorrect number.

17. The Appellant’s evidence that he had verified the validity of this VAT number was his recollection of a phone call with Birmingham VAT office in late 1999 and the HMRC letter dated 6 September 2002 mentioned above.

18. Dealing with the letter of 6 September 2002, while it is the case that the letter did not say the VAT number was invalid, it clearly states HMRC’s belief that the number was being used fraudulently. The letter could not reasonably be taken as verification of the validity of the number.

19. On the question of the phone call, HMRC’s evidence was that they could find no record of any verification of the VAT number. Further, that they considered such a conversation inherently unlikely as the number was invalid and therefore extremely unlikely to have been verified. The number quoted could never have been a VAT number because it failed the mathematical verification test for VAT numbers.

20. The Appellant was cross-examined about the call. He maintained that the call had been made but accepted that he may only have asked about the company by name and may not have asked for verification of its VAT number. In view of the Appellant’s own uncertainty in his evidence and the inherent unlikelihood of HMRC verifying an incorrect number, we find as a fact that whatever was actually said in this conversation, HMRC did not give the Appellant verbal verification of the VAT number used on the invoices addressed to him from PRU.

21. HMRC wrote to the Appellant on 13 December 2002. HMRC asked for more details about the Appellant’s trading as shown in the uplifted records and in particular his dealings with PRU.

22. Mr Bowyer visited the Appellant again on 9 January 2003 and took away the records for the period 1 July to 31 September 2002. Examination of the records uplifted showed that the Appellant had commenced making purchases of phones from Swift. Invoices issued by Swift did not include a VAT number valid or otherwise. Instead, the phrase “VAT number applied for” was on the invoice.

23. The Appellant had verified Swift with Companies House Cardiff who confirmed that the company existed. He made no attempt to verify its VAT status with HMRC because, as he said, there was no point as it was not yet registered.

24. HMRC carried out their own checks on Swift. They checked up on the address and phone number given on the invoices. There was no Swift at the address and the phone diverted to an answer phone. There was no record at HMRC of a company called Swift Telecommunications Ltd ever having applied for VAT registration.

25. HMRC returned the records to the Appellant on 23 January 2003, advised him of the errors they had found, and included their calculations of the Appellant’s liability, indicating that they might issue assessments in this amount.

26. HMRC, in the person of Mr Bowyer and a Mr Collins, visited the Appellant again on 19 June 2003. At this meeting the Appellant again explained his “concept of trade” namely that he was only paid commission. He said that he never saw or handled the goods supplied by Swift. He understood the goods were delivered direct to Astrotel. He made no payments to Swift but received his commission from Astrotel in the form of cash, cheque or mobile phones. And he said similar arrangements applied to supplies from PRU. HMRC took away the records for 12/02 and 03/03 and part of the records for the then current period of 06/03.

27. Examination of these records revealed that the Appellant had commenced trading with Swiftsure Ltd (“S Ltd”). This was the third of the three companies the input tax on whose invoices was disallowed by HMRC. The Appellant appears to have commenced dealing with this company in the first VAT quarter of 2003. These invoices had no VAT number. They did not even have the legend “VAT number applied for”.

28. HMRC carried out checks on S Ltd. They checked the address and found that it was an internet café – they found no sign of S Ltd. They found no evidence that S Ltd even existed as a company.

29. At some point HMRC carried out a verification exercise at one of the Appellant’s customers – Talking Point Communications. This revealed a number of invoices issued by the Appellant copies of which he had not kept and the output tax in respect of which he had not declared on his returns. These invoices, together with mathematical errors in adding up the copy invoices which he did have, led to the output tax part of the assessment against the Appellant. As can be seen from the table below the errors amounted to just over £1million and are therefore much the smaller element of HMRC’s claim against the Appellant.

30. As noted above, in December 2003 HMRC assessed the Appellant. The assessments were based on their calculations of underpaid output tax and over claimed input tax as set out in the table below.

31. The second column in the following table shows HMRC’s calculations of underpaid output tax, which was the tax shown on invoices issued by the Appellant which was not declared by him. (Two figures are in brackets because they are negative. In those periods, due to reallocation of invoices to their correct prescribed periods, the Appellant was shown to have overpaid output tax).

32. The last column shows the input tax which was re-claimed by the Appellant and for which he either held no invoice or an invalid VAT invoice.

Period	Underpaid output tax £	Input tax claimed without valid invoice £
12/00	Nil	49,422
03/01	14,770	35,460
06/01	42,154	29,707
09/01	27,045	346,715
12/01	411,427	376,882
03/02	32,979	130,610
06/02	46,723	3,424,215
09/02	268,267	3,222,961
12/02	(33)	5,230,997
03/03	(52,597)	5,418,482
06/03	285,711	4,430,410
totals	1,076,446	22,695,861

The Appellant’s case

33. The main defence which the Appellant offered against the output tax element of the assessments raised by HMRC was that he was only paid on a commission basis. Although he did not express it like this himself, what he was saying is that he was merely an agent receiving commission for arranging sales: he did not in fact make the sales.

34. There is an inconsistency in his position because if he was only receiving commission then he should have issued quite different invoices and made quite different entries on his VAT return. His VAT returns – reclaiming as they did VAT on the sale to him of the phones and accounting for output tax on his resale of the phones – were clearly completed on the basis that he was a principle and not an agent. But if he is right that he was only an agent, his invoices should have been only for the amount of the commission: his VAT returns should not have reclaimed the input tax on the sales by PRU, Swift and S Ltd. His explanation at the hearing of this was that he was inexperienced and did not understand that it was possible to make VAT returns on this basis.

35. With regards the input tax assessment, which was by far the largest part of the assessment, the Appellant maintained that the assessments should not be raised on a number of grounds:

He had verified the companies which issued the invalid invoices;
He felt HMRC should have done more to make him understand the risks of what he was doing;
He was not, as he put it “VAT trained” and had done nothing wrong.
HMRC should have chased the missing companies for the missing VAT.
HMRC were influenced by the Tribunal decision in Bond House Systems Ltd [2003] UKVAT V18100 which was subsequently held to be wrong by the ECJ.

36. The factors put forward by the Appellant are relevant to whether they required HMRC to find in his favour when deciding whether to exercise their discretion to allow him to recover the input tax despite any failures to follow the procedural requirements for deduction or substantive issues such as whether his suppliers were registered.

37. As our findings of fact were that the Appellant did not receive verification from HMRC that any of the three companies issuing the invalid invoices were registered for VAT, that is the end of the Appellant’s first contention above. Of course, even if HMRC had mistakenly verified that the companies were VAT registered that does not alter the fact that the invoices were inadequate insofar as they had no VAT number. If HMRC had mistakenly confirmed that the incorrect number used on invoices by PRU was correct then that might have had relevance to the question of whether HMRC properly exercised their discretion to refuse that input tax: but as on our findings of fact that there was no such verification this point does not arise.

38. The Appellant’s second point is that he considers that HMRC should have done more to explain the problems with his business. In his correspondence after the assessment he complained that HMRC knew about his concept of trade but did not inform him that there was a problem until the assessment was raised. He also says he was used by the fraudsters. We address these points in our decision on the input tax part of the claim.

HMRC’s case

39. HMRC’s case on the output tax is that the Appellant made a number of arithmetical errors and omissions in the amount of output tax he declared. In particular, a comparison of the amounts declared as output tax on the Appellant’s VAT returns with copy sales invoices and information obtained in relation to input tax credit claimed by some of the Appellant’s customers revealed that the Appellant’s declared output tax was not in their view credible. They assessed on this basis. They did not contend that the supplies in respect of which the invoices were issued did not take place.

40. There is an inconsistency in HMRC’s case: they have assessed for the output tax on the transactions and maintain that it was not part of their case that the transactions did not take place or that the goods did not exist. Nevertheless Counsel said in his submissions that HMRC thought that the Appellant’s suppliers were “simply a pretence” – the invoices do not represent “evidence of a genuine supply”.

41. HMRC considered that they were entitled to assess for the input tax on the invalid VAT invoices because the Appellant did not hold the requisite document as required by Value Added Tax Regulations 1995 Reg 13, citing Mahsood Ahmed t/a New Touch (2007) VAT Decision 20119. They considered that they had acted reasonably in refusing to exercise their discretion to allow input tax deduction in the absence of valid invoices, citing Kohanzad [1994] STC 967 per Schiemann J at 969. This was because of the absence of other evidence of the supplies for which Appellant claimed to recover input tax. The invoices lacked valid VAT numbers (or in the case of Swift’s and S Ltd’s invoices, any numbers). Further, the Appellant’s case was that he did not acquire the goods thus contradicting his own returns.

Our decision – output tax

42. The first part of HMRC’s case is that the Appellant must account for output tax on the invoices which he issued and in respect of which so far no VAT has been paid. These are the invoices uplifted from the Appellant’s customer of which the Appellant had kept no copy nor made a return in respect of. I will call them the “missing invoices” in this decision.

43. We have to decide whether HMRC were correct in their assessment in so far as it relates to under-declared output tax. This question seems to fall naturally into two parts:

Did the supplies take place?
If they did not, is the Appellant nevertheless liable because he issued VAT invoices?

Did the supplies take place?

44. HMRC say that the Appellant made the supplies stated on the invoice – at least it is no part of their case that he did not - and that he is therefore liable to VAT in respect of them. HMRC see the sale of the phones in question being from PRU (or Swift or S Ltd) to Mr Tariq and from Mr Tariq to Astrotel.

45. As we have said, the Appellant does not dispute that he issued the invoices to Astrotel and that he did not account for VAT in respect of the missing invoices. His case is that he is not liable to account for the VAT shown on them. His grounds for saying this are that he was only paid commission on the transactions and could not be liable for VAT in respect of any more than the commission that he was paid. In other words, although Mr Tariq did not put it quite like this himself, his case is that he was merely an agent arranging or facilitating a sale direct from PRU to Astrotel.

46. If we decide that as a matter of fact the supplies represented in the missing invoices took place, as the Appellant was VAT registered at the time they took place, it will be inescapable that he must pay the output tax on those missing invoices. The sale of mobile phones is subject to VAT at the standard rate at the time of the supply and it was the vendor who was liable to account for it. Different rules have applied to sales taking place on or after 1 June 2007. These rules, contained in s55A VATA 94 make the customer liable to account for the VAT. These rules do not apply to the transactions in this case as they took place (if at all) before 1 June 2007.

47. The question of whether there was a supply seems to fall into two parts:

(1) Was there an actual supply of the phones by the Appellant;

(2) If not, does the operation of the VAT Act deem there to be a supply of the phones?

Was there an actual supply?

48. None of the witnesses at the tribunal was able to give direct evidence on whether the supplies had actually taken place. The Appellant’s evidence was that the goods did not pass through his hands: delivery was by one or other of the three missing traders direct to Astrotel. The Appellant said that the reason for this was that he did not have the funds to make the purchase outright and so he was paid on the commission basis as described above and did not handle the goods or the money.

49. It was also his evidence, and indeed part of HMRC’s case, that these transactions – or purported transactions – were part of a missing trader fraud. The Appellant said that although he had no idea of this at the time of the deals, he has since come to understand that he was used in a fraud. In the document submitted by him to HMRC’s solicitors office in 2008 the Appellant states “It seems clear now that Simple Talk was paid commission from the buyer in a attempt to portray a image that a trade was being taken but wasn’t……” At the start of the hearing he said that “fraud was committed but not by myself…”

50. Not only do the parties agree that there was fraud, the facts themselves point to their being a fraud with the Appellant, a genuinely VAT registered trader, being used by the fraudsters in order to generate genuine VAT invoices. The undisputed evidence that was presented to the Tribunal is consistent with the transactions in question being part of a fraudulent set-up. The deals were clearly pre-arranged. The purchase and sale were put in place by Mr Dillion and Astrotel. There was no negotiation and no real involvement by the Appellant. He did not handle the goods or money and it is difficult to see what he did for his commission other than issue VAT invoices. Even his commission of 50p to a £1 per phone was dictated to him by Astrotel.

51. We find as a fact that the dealings were part of a missing trader fraud. We stress at this point that it was no part of HMRC’s case that the Appellant was in any way knowingly involved in the fraud. It was not alleged by HMRC that the Appellant knew or ought to have known of the fraud and we have made no finding of fact to that end. Does our finding that these transactions were part of a fraud have an impact on the question of whether the Appellant actually supplied mobile phones to Astrotel?

52. The ECJ decision in Optigen (C-354/03) (not cited to us) anticipates that some transactions can “themselves be vitiated by VAT fraud”. But it seems to us that the ECJ must have had in mind a transaction where both parties to it knew of the fraud. This is because the judgment itself makes it clear that a transaction is not void where one party did not know or have means of knowledge of the fraud:

“Transactions such as those at issue in the main proceedings, which are not themselves vitiated by value added tax fraud, constitute supplies of goods or services effected by a taxable person acting as such and an economic activity …..where they fulfil the objective criteria on which the definitions of those terms are based, regardless of the intention of a trader other than the taxable person concerned involved in the same chain of supply and/or the possible fraudulent nature of another transaction in the chain, prior or subsequent to the transaction carried out by that taxable person, of which that taxable person had no knowledge and no means of knowledge….”

53. An example of a supply vitiated by fraud is the decision in Sandall (1992) VAT Decision 9665. In that case both the buyer and seller knew that the transactions and invoices were shams aimed to recover input tax which had not been paid. The Tribunal held that the Appellant could not be assessed for the VAT on his sham supplies.

54. But in this case it was no part of HMRC’s submissions that the Appellant either knew or had means of knowledge of the fraud that took place. The Appellant’s unchallenged evidence was that he did not know of the fraud at the time of the transactions – whatever he may have come to accept later with hindsight.

55. So the transactions – if they existed – are not vitiated by fraud. But that does not in our view answer the question whether the transactions actually took place. As we have said above, no one present in the Tribunal hearing could give any direct evidence that the supplies of the phones by the Appellant had taken place. It was the Appellant’s case that they had not because he claimed that he only operated on a commission basis. That he only operated on a commission basis is only weak evidence because it would be possible for a genuine supply to take place with the middle supplier only receiving his profit margin, although it is worth noting that this assertion the Appellant asserted to Mr Bowyer right from the start of HMRC’s visits that he had received a commission and that that was not something he only mentioned later.

56. It is possible that the goods shown on the invoices in question never existed. HMRC did not assert this – it was no part of their case that the supplies had not taken place. Nor did the Appellant assert that the goods purportedly sold to Astrotel did not exist - merely that he had not sold them, seen them or handled them.

57. It is true that the Appellant actually received some phones from PRU to supply his retail trade for which he had low value invoices the recovery of the input tax on which HMRC allowed. But these small supplies may have been window dressing by PRU who had clearly sourced these phones from a high street phone vendor. It does not prove that the phones which were the subject of the high value invoices where delivery was allegedly made direct to Astrotel existed.

58. What is a supply for VAT purposes? The VATA 1994 is not particularly helpful in that it provides at s4(1):

“VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him”.

59. The Sixth VAT Directive on which UK law is based is of more assistance. At Article 5 (1) it provides:

“ ‘Supply of goods’ shall mean the transfer of the right to dispose of tangible property as owner.”

60. The UK case of Oliver [1980] STC 73 is to the same effect: a supply of goods means “the passing of possession of goods pursuant to an agreement whereunder the supplier agrees to part and the recipient agrees to take possession.

61. The Appellant’s evidence which we accept is that he never had possession or control of the goods in any sense. His evidence, which we accept, that he was only paid commission indicates that he did not obtain legal ownership either. His evidence and again this was not disputed by HMRC, is that at the time of the transactions he had his “concept of trade” which amounted to acting as an agent on commission (even though the term “agent” was not used by him). So his evidence means that he did not think at the time that he was buying and selling the goods. We have found as a fact that there was fraud we think this makes it clear the Appellant was never intended by PRU, Swift, S Ltd, Astrotel or Mr Dillion actually to possess or own the goods. It was enough for their purposes in perpetrating the fraud that the Appellant issued the invoices: if the phones existed it was most unlikely that they wanted the Appellant – who it is not alleged was part of the conspiracy - actually to own or control them – but merely to represent (by the invoices) that he did.

62. We accept that it would be possible for a genuine supply of goods to have taken place where the supplier in the middle handles neither the money nor the goods, but where, as here, this is combined with the pre-arranged nature of the deals, the lack of negotiation by the Appellant and our finding that the transactions were part of a fraud, the Appellant has satisfied us on the balance of probabilities that the supplies of goods to and by him did not take place.

63. We accept that the Appellant at the time represented in his VAT invoices and VAT returns that he had bought and sold the goods but we do not think that in any real sense that the Appellant actually bought and sold the goods. We find as a fact that the transactions represented on the invoices at issue in this case did not take place.

Deemed supply?

64. This is not the end of the matter, as a deemed supply could potentially arise under the VATA 1994 rules on agency. This provides that when acting in his own name an agent must be treated like a principal. If this applied in this case it would mean that even though the Appellant did not in fact make the supplies (as we have found the case to be), nevertheless the invoices were correct because even though he was an agent the sales are deemed to be by and to the agent.

65. VATA 1994 S47 (2A) provides:

“Where, in the case of any supply of goods….goods are supplied through an agent who acts in his own name, the supply shall be treated both as a supply to the agent and as a supply by the agent.”

66. Was the Appellant an agent who acted in his own name? It is clear that in this case both the seller (PRU, Swift and S Ltd) and buyer (Astrotel) were aware of each other’s identities: they negotiated the price directly and goods moved between them directly (assuming that the goods existed). Nevertheless the Appellant issued invoices in his own name as if he was a principal – so he was in this sense acting in his own name.

67. The meaning of acting in his own name was considered in Express Medicare Ltd VAT Tribunal Decision16969 (2000). The nursing home ordered incontinence pads on behalf of its residents. It claimed that it acted as an agent within the meaning of s47(2A) VATA 94. In some cases the seller of the pads knew the name of the nursing home resident and in some cases they did not: but in all cases they knew that the nursing home was buying on behalf of a particular resident. The Tribunal concluded that that nursing home was not “acting in its own name”. It was of the opinion that if it is known to the parties that there is a principle- even if the name is not known – then the agent cannot be said to act in his own name.

68. This seems to us to be right, and indeed HMRC at the hearing in this case expressly disclaimed reliance on s47 because he did not consider that the Appellant could be said to be acting in his own name because he was not an undisclosed agent.

69. It was mentioned in the Express Medicare case that there is some question whether s47 properly implements the Sixth VAT Directive. This does not seem in point, however, as the UK can not rely, as against a taxpayer, on its own failure to implement the Directive, if indeed it has so failed.

70. Applied to the facts of this case it means that we find that the Appellant did not act in his own name, as buyer and seller were known to each other, and indeed negotiated the deal price and delivery. This means that s47(2A) cannot apply to make the Appellant liable for the VAT as an agent acting in his own name. There is no deemed supply.

VAT shown on invoices

71. HMRC were asked at the hearing if they were relying on VATA 1994 Sch11 paragraph 5 which provides as follows:

(1) VAT due from any person shall be recoverable as a debt due to the Crown.

(2) Where an invoice shows a supply of goods or services as taking place with VAT chargeable on it, there shall be recoverable from the person who issued the invoice an amount equal to that which is shown on the invoice as VAT, or, if VAT is not separately shown, to so much of the total amount shown as payable as is to be taken as representing VAT on the supply.

(3) Sub-paragraph (2) above applies whether or not –

(a) the invoice is a VAT invoice issued in pursuance of paragraph 2(1) above; or

(b) the supply shown on the invoice actually takes or has taken place, or the amount shown as VAT, or any amount of VAT, is or was chargeable on the supply; or

and any sum recoverable from a person under the sub-paragraph shall, if it is in any case VAT be recoverable as such and shall otherwise be recoverable as a debt due to the Crown.”

72. Mr Baldry’s reply was that following the decision in Sandall (cited above) he did not think he was able to rely on it. We agree. Although it seems clear from the recently released decision of the ECJ in Stadeco (C-566/07) (not cited to us and indeed only released on the second day of the hearing) that the Sixth Directive would allow the UK to give itself power to assess where a VAT invoice shows VAT, it seems that the UK has not done this.

73. The only potentially relevant assessing power for HMRC in this case is VATA 1994 s73 which allows HMRC to assess where “returns are incomplete or incorrect”. But if the supplies did not take place, the returns aren’t incomplete or incorrect in so far as the missing output tax is concerned.

74. As decided in Sandall, and we agree, Schedule 11 does not give HMRC power to issue an assessment for VAT shown on a false invoice. It merely gives them power to take debt recovery proceedings. VAT shown on invoices can only be recovered as VAT (presumably this means assessed) where it is VAT: “... if it is in any case VAT be recoverable as such... .” Otherwise, it says it is “recoverable as a debt due to the Crown”. In this case we have found that the VAT shown on the invoices was not VAT as the supplies represented by the missing invoices did not take place. Therefore the VAT shown is recoverable, but only as a debt due to the Crown. It cannot be assessed and the two assessments issued in this case to recover it are therefore to that extent ineffective. Apart from time limits, of course, there is nothing to prevent HMRC taking debt recovery proceedings against the Appellant now.

75. Indeed, the logical conclusion of our finding that the Appellant did not make supplies to Astrotel is that not only can HMRC not assess him for VAT on the missing invoices, but could not have assessed him for the output tax which he did declare. The Appellant has paid this VAT to HMRC – mostly by offsetting it against his input tax claims. However, it seems clear to us that the Appellant cannot reclaim this VAT from HMRC (nor offset it against HMRC’s assessment to reclaim the over-recovered input tax) despite our finding that no supplies were made. Schedule 11 of the VAT Act provides that issuing an invoice charging VAT creates a debt to the Crown. Therefore any request by the Appellant for repayment of or credit for the output tax for which he did account should be met with the defence that the money was a debt owed to the Crown and is not repayable. As we have stated above, the Appellant does owe the VAT on the missing invoices to HMRC: he just can not be assessed for it. HMRC must take debt proceedings if they wish to recover it and if they are in time to do so.

76. In light of the above Mr Tariq’s success before us so far as the output tax is concerned may well prove to be a Pyrrhic victory.

Our decision – input tax assessments

77. HMRC denied that the Appellant was entitled to the input tax which he claimed on invoices from PRU, Swift and S Ltd on the grounds that the invoices were not valid VAT invoices. In HMRC’s view there is no right to deduct input tax where only invalid invoices are held. HMRC also consider that in so far as they have discretion to admit a claim not supported by valid VAT invoice, they are entitled to refuse to exercise it in the Appellant’s favour.

78. We think that four questions arise here for the Tribunal:

· Is there a right to deduct under the VAT Act s24 and s26?

· If there is, were the invoices held by the Appellant valid?

· If they were not, were HMRC correct to exercise their discretion to refuse to admit alternative evidence?

· If in principle the assessment to recover the input tax is correct, was it arithmetically correct?

Right to deduct

79. Section 26 provides that a taxpayer has a right to deduct input tax which is attributable to taxable supplies that he has made:

(1) The amount of input tax for which a taxable person is entitled to credit ….shall be so much of the input tax…as is allowable by or under regulations as being attributable to supplies within subsection (2) below.

(2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business –

(a) taxable supplies…

80. Section 24 defines “input tax”:

(1) … input tax … means the following tax, that is to say –

(a) VAT on the supply to him of any goods or services

being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him.

81. The fundamental problem for the Appellant is that his evidence is that he acted only on a commission basis and did not really make the supplies shown on his invoices. We have accepted the unreality of his supplies as supplies of goods. But it therefore has to follow that any VAT charged to him on these invoices was not his input tax. It was not, in the words of section 24 “VAT on the supply to him or any goods or services.” The phones, if they existed, were supplied direct from PRU (or S Ltd or Swift) to Astrotel. They were not supplied to the Appellant. The VAT on these phones was not input tax claimable by the Appellant. Even if it was, under section 26, it is not attributable to supplies made by him. His evidence is that his supplies were akin to those of an agent (even if he did not use this word himself). He did not sell the goods and therefore the VAT on their purchase could not be attributable to a sale made by him, nor would it seem to be attributable to his services as agent.

82. That finding by itself is enough to dispose of the case. We find that the Appellant was not entitled to reclaim the VAT shown on the invalid invoices because it was not input tax attributable to supplies made by him.

Valid VAT invoices?

83. However, for the sake of completeness, we will also deal with HMRC’s case that the VAT on the invoices in question should be disallowed under VAT Regulations 1995 Regulation 29. This is the regulation mentioned in Section 26. Not only does the input tax have to be input tax and attributable to supplies made by the registered taxpayer, it has to be permitted under the regulations.

84. Regulation 29 sets out the rules for the evidence the taxpayer must hold when claiming deduction of input tax. This appeal covers invoices issued in period 12/00 to 06/03. Regulation 29 was amended with effect from 16 April 2003 by the VAT (Amendment) (No 3) Regulations 2003 SI No 1114. This was not drawn to the Tribunal’s attention and it was not suggested that anything turned on it.

85. Up to that date it read as follows:

(1) Subject to paragraphs (1A) and (2) below, and save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25(2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT became chargeable…….

(2) At the time of claiming deduction of input tax in accordance with paragraph (1) above, a person shall, if the claim is in respect of—

(a) a supply from another taxable person, hold the document which is required to be provided under regulation 13;

provided that where the Commissioners so direct, either generally or in relation to particular cases or classes of cases, a claimant shall hold, instead of the document or invoice (as the case may require) specified in sub-paragraph (a)….. above, such other documentary evidence of the charge to VAT as the Commissioners may direct.”

86. With effect from 16 April 2003 the last sub paragraph was changed to read:

“…provided that where the Commissioners so direct, either generally or in relation to particular cases or classes of cases, a claimant shall hold or provide such other evidence of the charge to VAT as the Commissioners may direct.”

87. As can be seen the changes were:

(a) to introduce the words “or provide”; and

(b) to remove the qualification that the alternative evidence of the supply must be documentary.

88. HMRC did not draw this to the Tribunal’s attention presumably because (from their submissions to the Tribunal) it was apparent that they considered that HMRC’s discretion to accept alternative evidence of the supply arose under Regulation 29(1) and not under the last sub-paragraph of Regulation 29(2) – the part of the section that was changed as noted above.

89. A plain reading of s26 would suggest that HMRC is wrong to consider that the discretion arises under r29(1) rather than r29(2). Regulation 29(1) requires a person to reclaim his input tax on a return for the accounting period in which the input tax was incurred – unless HMRC allow or direct otherwise.

90. Regulation 29(2) requires a taxpayer to hold a VAT invoice for the input tax at the time he submits his claim – unless HMRC allow or direct otherwise.

91. It seems to this Tribunal that in either the case of Regulation 29(1) or 29(2) HMRC can make a general direction applying to a class of cases or can make an individual direction applying to a single taxpayer, which can be made after the event.

92. As this is not a case of a late claim for input tax by the Appellant, on the face of it r29(1) is not in point. It is a case of a claim without a valid VAT invoice and therefore r29(2) is, on the face of it, very much in point. HMRC, however, based their view that the discretion arose under Reg 29(1) on the decision in Kohanzad. The judge in that case looking at the same provisions as contained in Regulation 29 (before the 2003 amendments of course) but numbered differently under the earlier VAT regulations, appeared to consider that the discretion arose under the equivalent of r29(1). However, the judgment does not cite the equivalent of the last sub-paragraph of r29(2) and this may be a simple oversight. A High Court decision is of course binding on this Tribunal but as the question of under which regulation the discretion arose was not in issue in that case. We do not think that Kohanzad is authority that the discretion arises under r29(1) and not r29(2).

93. Similarly, this issue is not decisive to this appeal, as all parties are agreed that HMRC does have a discretion to admit alternative evidence. Further, HMRC did not consider that that discretion was limited only to accepting documentary evidence, which they might have done in respect of pre- 16 April 2003 invoices, had they considered that the discretion arose under Regulation 29(2). As our decision (see below) is that even under the more generous rules of the later Regulation 29(2) or even if the discretion arises under Regulation 29(1), that HMRC were correct not to exercise that discretion in the Appellant’s favour, the point is not decisive.

94. Did the Appellant fail the test in Regulation 29(2)(a)? We find that the invoices he held in respect of the disputed input tax were not valid VAT invoices under Regulation 13. This regulation requires the invoice to contain the supplier’s VAT number. It reads insofar as relevant as follows:

“ (1) …where a registered person -

(a) makes a taxable supply in the United Kingdom to a taxable person…

he shall provide such persons as are mentioned above with a VAT invoice… .”

95. Regulation 14 defines a VAT invoice. It reads insofar as relevant as follows:

“(1) …a registered person providing a VAT invoice in accordance with regulation 13 shall state thereon the following particulars – …

(d) the name, address and registration number of the supplier… .”

96. There was no dispute between the parties that the invoices did not contain the suppliers’ VAT number. Only PRU’s invoices even purported to contain a VAT number and it was accepted that that number was false.

97. But even more fundamental than the absence of VAT number, it seems to us, is that an invoice under Regulation 13 can only be provided by a registered person. HMRC’s uncontested evidence was that none of the three suppliers in question (PRU, Swift and S Ltd) were registered. They could not issue an invoice under Regulation 13.

98. Does it inevitably follow that once the requirement in Regulation 29(2)(a) is failed by the Appellant, all that is left to consider is the correctness of HMRC’s exercise of discretion to refuse to accept alternative evidence? The Appellant did not raise this argument himself, not surprisingly, as he was not legally represented. Nevertheless, counsel for HMRC drew our attention to the case of Ellen Garage (Oldham) Limited VAT Decision 12407 [1994] VATTR 392 which decided that because an unregistered taxable person was not required to issue an invoice under Regulation 13, then the taxpayer had only to show the supplies had in fact taken place.

99. Strictly this point is not relevant to this appeal as we have found that as a matter of fact the supplies did not take place, but we will consider it as it is relevant to our alternative finding, that the invoices were in any event invalid.

100. The Ellen Garage case concerned a taxpayer using the services of an unregistered person who purported to be registered and issued an invoice with a false VAT number charging VAT. The person issuing the invoice should have been registered as the value of their supplies exceeded the registration threshold: they were therefore a taxable person although not a registered person.

101. The Appellant in that case succeeded because the Tribunal held that, where a supply was made by an unregistered taxable person, that person could not issue a valid VAT invoice and therefore there was no requirement for the person claiming deduction to be given a valid VAT invoice: all they had to show was that a taxable supply had taken place.

102. The Chairman said “I hold therefore that regulation 62(1A) [now Regulation 29(2)] does not require a document of any kind to be held by a person who is claiming to deduct input tax in respect of a supply from an unregistered taxable person, except possibly where the Commissioners make a direction to that effect under the proviso, which they have not done. It follows….that the question for my decision is….whether….the supplies in question were made in such a manner to attract the tax in question.”

103. This case is on the face of it very helpful to the Appellant’s claim (or would be were it not for our finding of fact the supplies did not take place). Putting aside our finding that genuine supplies were not made to the Appellant, the Appellant’s position was similar to the claimant’s in Ellen Garage. The value of the “supplies” made to him by PRU, Swift and S Ltd would all have been well over the VAT registration threshold. There is every reason to believe that they were not registered for VAT but, if the supplies were made, they were registerable and therefore taxable persons.

104. But Ellen Garage is only a decision of the VAT & Duties Tribunal and not binding on this its successor Tribunal. So we have to decide if we agree with it. As Counsel for HMRC also pointed out, a later case, Mahsood Ahmed t/a New Touch VAT Decision 20119, did not follow the Ellen Garage decision. This was also a case of supplies being made by a person who was taxable but not actually registered for VAT. The supplies made were well over the VAT registration threshold but the supplier not registered.

105. The Chairman in the Ahmed case agreed with the chairman in Ellen Garage that Regulation 29(2)(a) (or Regulation 62(1A)(a) as it was at the time Ellen Garage was decided) does not apply in a case where the supplier is not registered: in such a case it is not possible for the supplier to issue a valid VAT invoice and therefore impossible for the recipient of the supply to hold it.

106. But the Chairman in Ahmed disagreed with Ellen abut the consequences of this. The Chair in Ellen decided that the consequence was that the recipient of the supply did not have to hold any evidence of the supply: the Chairman in Ahmed decided that the recipient must hold evidence as directed by HMRC in its discretion. At paragraph 77 he says:

“Since Regulation 29(2) does not specify a document or other specific evidence in the case of a supply from a person who is taxable but not registered, that situation must be regarded, as falling within the proviso to regulation 29(2), so that the taxpayer, in order to claim the deduction, must hold or provide such other evidence of the charge to VAT as the Commissioners may direct – thus the matter is within their discretion. This is an outcome which entirely accords with common sense…..”

107. The Chairman in Ahmed went on to point out that the Chairman in Ellen Garage had accepted that the proviso allowing HMRC to make a direction for alternative evidence applied even in the case of the unregistered taxable supplier. However, the conclusion in Ellen Garage where there was no specific direction seemed to be that therefore there was no requirement to produce alternative evidence at all: the conclusion in Ahmed was that HMRC had a discretion to refuse to accept what alternative evidence was offered. They were reinforced in their conclusion by the High Court decision (a decision by which this Tribunal is bound) in Kohanzad [1994] STC 967 in which Schiemann J said that HMRC had a discretion and that that discretion could be exercised against the claimant. The facts of that case were somewhat different: the claimant could not produce the invoices in respect of which he was claiming input tax deduction. There was no suggestion that the suppliers were not registered for VAT.

108. We prefer the conclusion of the chairman in Ahmed. It is common sense that a claimant who received a supply from a registered person should not be in a worse position than a claimant who received a supply from an unregistered taxable person. In other words, the better interpretation of Regulation 29(2) is that because a claimant who cannot produce a valid invoice for a supply from a registered person can only make a claim if HMRC in their discretion permit it, it follows that a claimant who cannot produce a valid invoice because the supply was from an unregistered person can only make a claim if HMRC in their discretion permit it. This is not only common sense but a more natural reading of the Regulation.

109. In conclusion, the invoices were not valid and Regulation 29(2) requires the Appellant to hold such evidence of the supply to him as HMRC have directed if he is to be entitled to deduct the input tax. HMRC have not directed that the evidence provided or held by the Appellant is sufficient for his input tax. Therefore the only remaining question is whether HMRC’s refusal to make such a direction is unlawful.

Decision on exercise of HMRC’s discretion

110. Again our decision on this point is academic as we have already decided that the supplies to which the invalid invoices relate did not take place but as the issue was raised we will give our decision. It is settled that the Tribunal’s jurisdiction when looking at the lawfulness of HMRC’s exercise of discretion under Regulation 29(2) is only supervisory. Schiemann J in Kohanzad says:

“It is established that the tribunal, when it is considering a case where the commissioners have a discretion, exercises a supervisory jurisdiction over the exercise by the commissioners of that discretion. It is not an original discretion of the tribunal, it is one where it sees whether the commissioners have exercised their discretion in a defensible manner…and indeed it has recently been decided that the supervisory jurisdiction is to be exercised in relation to materials which were before the commissioners, rather than in relation to later material…..It is, of course, well established that in this type of case, the burden of proof lies on an appellant to satisfy the tribunal that the decision of the commissioners was incorrect.”

111. So we need to decide on the basis of what was known to HMRC at the time they took the decision in 2003 to assess for the input tax whether their decision was perverse. This can be put another way: was their decision one HMRC could not reasonably have reached? Did they fail to consider relevant matters or did they take into account irrelevant matters? It seems to us on the evidence given that at the time of the decision HMRC knew:

the Appellant was claiming that he was only paid commission and did not therefore make the supplies on which HMRC claimed he should pay output tax (HMRC of course did not accept this);
the Appellant had not kept proper records and had not properly checked that any of PRU, Swift or S Ltd were VAT registered;
HMRC suspected that the suppliers who issued the invalid invoices were involved in fraud;
HMRC had good reason to believe that the suppliers were not registered for VAT and that therefore the VAT shown on the invoices issued by them to the Appellant would go uncollected.

112. Even without the first three factors, this last factor alone indicates that so far from being a perverse decision, it was a decision HMRC were quite justified in reaching.

113. As mentioned above, the Appellant did not consider the assessment against him to be fair. He put forward a number of reasons:

He had verified the companies which issued the invalid invoices;
He felt HMRC should have done more to make him understand the risks of what he was doing;
He was not, as he put it “VAT trained” and had done nothing wrong.
HMRC should have chased the missing companies for the missing VAT.
HMRC were influenced by the Tribunal decision in Bond House.

114. We have disposed of the verification point above as our findings of fact do not bear out that the Appellant had received verification of the VAT numbers of the missing traders.

115. Should HMRC have, after considering the other points raised by the Appellant, allowed the input tax recovery? Our view is that it should not. Our reasons are as follows.

116. When HMRC took the decision to deny him input tax HMRC did so on their then understanding of the law as set out in the Tribunal decision in Bond House. The Tribunal in that case, to summarise their views, considered that the existence of fraud somewhere in the chain of transactions meant that all the transactions in the chain were vitiated by lack of economic substance.

117. If this were the correct view of the law, then HMRC’s suspicions that the suppliers who issued the invalid invoices were involved in fraud would justify the decision to which they came to refuse to exercise their discretion in the Appellant’s favour and allow him input tax recovery. But it was not a correct view of the law. The European Court of Justice decided, in the case of Optigen cited above, that transactions were not vitiated by fraud somewhere else in the supply chain.

118. It could therefore be said that by taking the Tribunal decision in Bond House into account, HMRC took into account something that was not relevant (although of course they could not have known this at the time.) However, the Wednesbury test of unreasonableness could only lead to a reversal of HMRC’s decision if HMRC would have come to a different decision had they known of the outcome of the Optigen case. And it seems clear that they would not. As we have said, HMRC’s undisputed evidence was that the suppliers were not VAT registered. At the time the decision was taken HMRC had good reason to suspect that the “VAT” charged to the Appellant had gone missing. The only reasonable course of action HMRC could take in the exercise of their discretion was to refuse to allow the Appellant to recover this “input tax” for which he did not hold valid invoices. It is for the taxpayer to satisfy himself of the bona fides of the persons he conducts business with: HMRC is not an insurance net to be relied on when a trader finds out his suppliers are not bona fides.

119. As mentioned above, it was also the Appellant’s case that HMRC’s exercise of discretion failed to take into account the unfairness as he saw it of his position.

120. Again it seems to us that, if the Appellant is correct to say that HMRC should have done more to warn him and that it was not “fair” of them to assess him, someone who was not as he put it “VAT trained”, then this might be relevant to the question of their refusal to exercise their discretion to allow the input tax. However, we do not find that HMRC acted improperly. It is for the taxpayer to satisfy himself that he is acting within the law. HMRC did not become involved until they visited the Appellant in August 2002. Within a month by their letter of 6 September 2002 they informed him by letter their concerns with the validity of PRU’s invoices. The Appellant has said that this letter was misleading in that it did not point out the VAT number used was incorrect nor that PRU was no longer registered for VAT. However, the letter was quite clear that HMRC did not think that the Appellant should be accepting invoices from this company. From then onwards HMRC’s concerns with the position from the number of repeat visits are apparent. Yet the Appellant continued to trade and indeed commenced trading with new suppliers – Swift and S Ltd – who did not even claim to be VAT registered.

121. The Appellant also put forward the case that he should be entitled to the input tax on the grounds that he was a fully compliant trader. HMRC at the hearing took issue with this: they did not consider him a fully compliant trader. We agree with HMRC on this. The Appellant did not keep proper records. He kept no books. The copy invoices he kept were not complete. He declared output tax and input tax as if he were buying and selling but his evidence was that he considered himself only to be acting on a commission basis. We do not think in any event even had his record keeping been without fault that this by itself would have justified an exercise of discretion in his favour.

122. The Appellant also said it was unfair to him that HMRC were looking to him to repay the missing VAT rather than going after the fraudsters. HMRC’s response was that they had not found them. Again we do not consider this something which HMRC could reasonably take into account when deciding on an exercise of their discretion. As we have said, it is for the taxpayer to satisfy himself of the bona fides of the persons he conducts business with: HMRC is not an insurance net to be relied on when a trader finds out his suppliers are not bona fides.

Were assessments correct?

123. In the hearing and in his statements the Appellant had said he thought the assessments were mathematically wrong. However, it seems what he meant by this was that they were wrong in law (for the reasons he gave which we have set out above). We have agreed with him that the output tax assessment was wrong but not the input tax assessment. At no time did the Appellant actually advance anything to say that the assessments – input tax or output tax - were arithmetically wrong. It is for the Appellant to show that the assessment is wrong and he advanced nothing at the hearing to suggest that the figures were incorrect, having been given ample opportunity before the hearing to look at the invoices. We also note that for some time the Appellant had representatives acting for him (although they ceased acting before the hearing) and those representatives did not suggest that the assessments were wrong in the way they were calculated. Therefore we find that the assessments (in so far as they relate to input tax) were correct.

124. That concludes the case. In summary our decision is that:

in so far as the two assessments under appeal are an assessment for under-declared output tax they cannot stand;
insofar as they are assessments for over-declared input tax they are valid.

In actual figures this means as follows:

of the assessment for £19,056,186 plus interest, only £18,265,450.75 plus interest can stand (the rest being for assessed output tax);
of the assessment for £4,270,351.58 only £3,984,639 can stand (the rest being for assessed output tax).

Costs

125. HMRC asked for an order for costs. This however, we think, gives rise to a difficulty and, as we explain, our decision on this is that if HMRC wish to pursue this then the Tribunal must be reconvened to decide the issue.

126. The difficulty as we see it is that this is a transitional case. The Notice of Appeal was served in 2004 when VAT & Duties Tribunal was in existence and the Value Added Tax Tribunals Rules 1986 were in force. It was however, heard by the Tax Chamber of the First-tier Tribunal and the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 are in force.

127. Under the Transfer of Tribunal Functions and Revenue and Custom Appeals Order 2009 SI 56 Schedule 3 the default position is that current proceedings – such as this case which was started but not concluded in the old Tribunal – become subject to the new rules. But this is with the proviso that the Tribunal can give a direction to disapply any provision of the new rules and apply any provision of the old rules.

128. The costs rules under the two sets of rules are not the same. Under the old VAT rules, the rule was that costs were at the discretion of the Tribunal though in practice the exercise of that discretion was substantially affected by statements made on behalf of Customs and Excise in Parliament about cases in which they would not ask for costs. Under the new Rules, Rule 10 provides that the Tribunal has only very limited powers to make a costs order. The normal position under the new rules will be that of no costs to either party. The most common exception, and the only one which it seems could apply in this case, would be if the Tribunal directed that the case be categorised as complex. For complex cases, costs follow the event. However, even in a complex case Rule 10(1)(c) allows the Appellant to opt back into the no costs regime.

129. So it seems to me that we cannot make a costs order without considering whether the old or new rules should apply. Because if the new rules apply, we would only be able to make a costs order if we designated the case as complex and the Appellant did not chose to opt out of the costs regime. It is by no means certain that this case would be categorised as complex rather than standard, and even if it was, as we have said, the Appellant could opt out of the costs regime. Under the old rules, of course, HMRC might expect to get the greater part of their reasonable costs as they have substantially won their case.

130. We were not addressed on this point of the old and new rules, and therefore, as we have said, if HMRC want to maintain their application for costs, we would ask for representations on this point from both parties.

131. The Appellant and the Respondents have a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules. 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.

First-tier Tribunal (Tax)

TAX

Appellant

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS

Respondents