[2010] UKFTT 125 (TC)

TC00436

Appeal number: 	MAN/07/0011
                           	   	 MAN/071345
                            		LON/09/0095

VAT – repayment supplements – appeals dismissed.

FIRST-TIER TRIBUNAL

TAX 

	MEGANTIC SERVICES LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: 		Richard Barlow (Judge)
			Miss Susan Stott (Member)

Sitting in public at Manchester on 12 to 15 January, 18 January and 20 January 2010

Mr Andrew Trollope QC and Mr Iain McWhannell of counsel instructed by Bark & Co solicitors for the Appellant

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

© CROWN COPYRIGHT 2010

DECISION

1.	These appeals were heard together by direction of the Tribunal and with the agreement of the parties.  The appellant traded mainly as an exporter of goods consisting of mobile phones and CPUs at the times relevant to the appeals and was allowed to make monthly VAT returns on which it typically claimed repayments from HMRC because the exports (in which expression we include, for convenience, dispatches of goods to other EU countries) were zero rated but the appellant had purchased them from other UK traders who had charged output tax in respect of which the appellant was entitled to seek credit and a refund where appropriate, as input tax.  
2.	By the time these appeals were heard the issues between the appellant and the respondents were limited to the appellant’s claims for repayment supplements in respect of nine prescribed accounting periods.  Repayment supplements had been paid in respect of some other periods by the respondents and claims for some other periods had been withdrawn by the appellant.  The amounts of repayment supplements in dispute total approximately £873,500.  
3.	At much of the relevant time the appellant had been part of what was described as the Fairfax Gerrard Group which is a reference to a number of businesses which we were told were in the same ownership but which were not a group in any technical sense for VAT purposes or for any other relevant purposes.  By the time of the hearing of the appeal the beneficial owner of the appellant had sold his shares to Mr Stephen Brookfield who became the sole shareholder and it had moved its seat of operation from Gerrards Cross to Manchester.  Mr Brookfield said he knew of the appellant before he became the sole shareholder and it had had premises in Salford from which some of the actual trading was carried out as well as the headquarters in Gerrards Cross.  He had become the shareholder and a director of the appellant in January 2006 so that the last two of the periods under dispute related to the period after he became a director.  Mr Christopher Ash had been a director before Mr Brookfield and he remained a director after Mr Brookfield became a director.  Mr Ash was therefore a director at all material times.
4.	We heard evidence from the following witnesses called by the appellant: Mr Ash and Mr Brookfield.  We heard evidence from the following witnesses called by the respondents:  Mr Christopher Gilley, Mr David Reynolds, Ms Samantha Jones, Mr Mark McCoy, Mr Roger Mercott, Ms Caroline Golder and Ms Candida Styles.  Mr Trollope had objected to the statement of Mr Paul Cole being read but, because he was unable to attend because of illness, Mr Trollope agreed that his evidence in the form of a written statement could be read by the Tribunal but that we should bear in mind that he had not been cross examined and should therefore take that into account when considering Mr Trollope’s submissions about that evidence.  The statements of the following witnesses for the respondents were read with Mr Trollope’s agreement: Mr Tarenjit Johal, Ms Alison Goulding, Ms Anthea Ballantyne, Mr Gordon Howard, Mr David Lelliott, Ms Emma Cooper, Mr Ian McGinnigle, Mr Graeme Stewart and Ms Helen MacDonald.  In addition, five lever arch files of exhibits, a lever arch file of authorities and a lever arch file of pleadings and other formal documents were produced.  The exhibits were extensively referred to during the hearing and our deliberations.  Also a core bundle was produced and both parties submitted written arguments and submissions.
5.	Before dealing with the evidence we will set out the relevant legal principles.
6.	Section 79 of the VAT Act 1994, as amended, provides for repayment supplements.  Section 79(2) provides that, where certain conditions apply, a person who is entitled to a VAT credit is entitled to a supplement of 5% of the amount due.  The conditions are that the VAT return claiming the credit must have been rendered within the time allowed (that was not in dispute in this case) and that the amount claimed was not excessive subject to stated tolerances (also not in dispute) and “that a written instruction directing the making of the payment or refund is not issued by the commissioners within the relevant period” (that is one of the areas of dispute in this case).
7.	The relevant period is defined as follows in section 79(2A):
“(2A) The relevant period in relation to a return or claim is the period of 30 days beginning with the later of –
(a) the day after the last day of the prescribed accounting period to which the return or claim relates, and
(b) the date of the receipt by the commissioners of the return or claim”.

8.	By section 79(3) the commissioners are empowered to make regulations for the computation of the 30 day period on the basis that periods shall be left out of account where they are referable to “the raising and answering of any reasonable inquiry” relating to the return or claim.
9.	Section 79(4) deals further with the making of regulations in the following form:
“(4) In determining for the purpose of regulations under subsection (3) whether any period is referable to the raising and answering of such an inquiry as is mentioned in that subsection, there shall be taken to be so referable any period which –
(a) begins with the date on which the commissioners first consider it necessary to make such an inquiry, and
(b) ends with the day on which the commissioners –
(i) satisfy themselves that they have received a complete answer to the inquiry, or
(ii) determine not to make the inquiry or, if they have made it, not to pursue it further,
but excluding such period as may be prescribed …”.
10.	The regulation that gives effect to section 79(4) is regulation 199 of the VAT Regulations 1995.  The relevant part reads: “in the case of the period mentioned in regulation 198(a), it shall be taken to have begun on the date when the commissioners first raised the inquiry and it shall be taken to have ended on the date when they receive a complete answer to their inquiry”.  Regulation 198(a) refers to “the period of 30 days referred to in section 79(2)(b)” although in fact section 79(2)(b) was amended when section 79(2A) was added and the correct reference now to section 79(2)(b) would be to “the relevant period”, though that is still 30 days because of section 79(2A).  We hold that the combined effect of sections 20(2) and 23 of the Interpretation Act 1978 is that the reference in regulation 198 to 30 days should be treated as a reference to the “relevant period” which is, as it happens, 30 days.  
11.	The regulations are not easy to reconcile with the primary legislation in two respects.  Section 79(4)(a) provides that the 30 day period should begin when the commissioners decide it is necessary to make an inquiry whereas the regulations say it should begin on the day when they raise it, which could be later.  The commissioners might for example decide to raise an inquiry but then not actually raise it with the taxpayer until later.  The regulations are more favourable to the taxpayer than the statute appears to envisage because they provide that the clock only stops when the commissioners raise the inquiry which certainly cannot be earlier than when they decide to do so and could be later.  Similarly section 79(4)(b)(i) appears to envisage that the commissioners would have time in which to satisfy themselves about the answer whereas the regulations stop the clock when the answer is received without giving the commissioners time for making a decision.
12.	It may be that the closing words of section 79(4) (“but excluding such period as may be prescribed”) justify the difference between the Act and the Regulations but in any case there is binding authority which requires us to apply the start and finish times set out in the regulations. 
13.	The case of Commissioners of Customs and Excise –v- L Rowland & Co (Retail) Ltd [1992] STC 647 was decided under the predecessor legislation (both the statute and regulations) of those currently in force but they were in the same form as the current legislation.  Auld J held that the raising of the inquiry meant raising it with the taxpayer in the form of questions put to him for answer not in the form of an inquiry in the sense of an investigation leading to a report and that time therefore stopped running against the commissioners only when they had raised the inquiry with the taxpayer.  He also held that time started to run again against the commissioners as soon as they received the reply, albeit that it had to be a complete reply.  The commissioners are not given any additional time to process the information.
14.	Auld J referred to inquiries addressed to the taxpayer as that was the form they took in that case but section 79(4) clearly allows for inquiries to be made of other persons.       
15.	We agree with Mr Bishopp’s decision in Alliance and Leicester plc –v- The Commissioners of Revenue and Customs (Decision 20094) in which he decided that inquiries can stop and restart and that it is the cumulative number of days that can be ignored when calculating whether the 30 day period has been exceeded.
16.	The legislation has the effect that the 30 days stop running with the day on which the inquiry is actually raised and end on the day a complete answer is received and both those days are days when the clock is stopped.  Equally, the day on which the return is received and the day the payment instruction is given both count towards the 30 days allowed before the supplement becomes payable.
17.	A question was raised about what constitutes the issue of a written instruction by the commissioners.  In the case of Beast in the Heart Films (UK) Ltd –v- HMRC [2009] UKFTT 230 the Tribunal held that the issue of the written instruction refers to a document sent to a bank not to an internal document within HMRC.  We will refer to this below as it is convenient to discuss it further in the context of the evidence we have heard.     
18.	A number of other cases were cited to us but we consider that the principles on which we must proceed, except that relating to the issue of the written instructions, are sufficiently identified by the above citations.
19.	The appellant’s prescribed accounting periods at times material to this appeal were single calendar month periods.  We will refer to the periods as, for example, 04/04 (ie the period of one month ending 30 April 2004).   The appeals relate to 04/04, 06/04, 12/04, 06/05, 08/05, 09/05, 12/05, 01/06 and 03/06.  We will deal with some factual issues that relate to more than one period first and will then examine the facts relating to each period as far as is necessary.
20.	An issue arose as to whether the respondents had proved the date of receipt of the returns for the earliest three periods under appeal.  The respondents contend that the date stamps applied to those and all the other returns made by submission of paper return forms show the true date of receipt, it being their case that all paper returns were stamped on the day of receipt at their Southend on Sea office.  The last two returns were submitted electronically.  The returns for 06/05, 08/05, 09/05 and 12/05 were paper returns and the appellant agreed that the dates of receipt for those returns were as stamped on them but it disputed when the returns for 04/04, 06/04, and 12/04 were received.
21.	The respondents did not call a witness from the Southend office to speak to the procedure for stamping dates on the forms but Mr McCoy told us that he had spent some weeks at that office fifteen or so years ago for training purposes and that he had been shown the process for reception of returns which he said included seeing them being put in pigeon holes ready for stamping and that he had seen them being stamped.  Later, contradicting himself, he said that he had seen envelopes being opened and that the returns were stamped first and then they were put in the pigeon holes.  Mr McCoy also gave rather confused evidence about having heard from other members of staff that returns were stamped with dates of receipt.  Ms Jones also told us that she had been told by colleagues in Southend that returns were stamped with the date on the day they were received.  Some of her own colleagues had visited Southend for training because the work they were involved with was transferred from Southend to Bootle and those colleagues had reported back about what the procedures were.  Mr Trollope cross examined Ms Jones and she agreed that the information she had received had not been conveyed in a formal way and that it had been some time ago.  
22.	That evidence is certainly sufficient to be capable of proving that the commissioners’ practice was that returns should be stamped with the date of receipt on the day of receipt and if we had had heard no other evidence we would have so found. 
23.	However, the evidence on this point did not end there because Mr Ash gave evidence that the appellant had adopted a procedure of sending the VAT returns in the post on the same day as they were signed.  So far as the three earliest returns are concerned, they were stamped as received at Southend more than two working days after the date of signature.  The appellant contended that we should find that the returns were posted as soon as they were signed with the consequence that the stamping at Southend should have been, at most, two working days later.  The appellant contended that processing of any returns that were stamped more than two days after the signature must have been delayed at Southend.
24.	Mr Ash’s evidence on this point suffers from the same deficiency as the one the appellant complains about in respect of the respondents’ evidence.  He did not deal with the posting or signature of the returns.  That was done by a Mr Syed or a Mr Nicholson neither of whom were called.  Mr McCoy and Ms Jones did not deal with stamping dates at Southend.
25.	Both parties’ witnesses were speaking about their procedures in the absence of actual direct evidence.
26.	A further relevant factor is the fact that Mr Ash explained that the input tax being claimed was in effect working capital of the appellant and so it was important to obtain it as soon as possible.  He said that for that reason the appellant’s procedure was to make the returns in the first week of the month following the end of the prescribed accounting period.  That would mean that the return for 04/04 should have been made by 7 May 2004.  In fact it was not signed until 13 May 2004 and the appellant contends it was posted on that day and so should be taken to have been received on 17 May in the ordinary course of post (there having been an intervening weekend) but the respondents date stamp says it was received on 25 May.
27.	The return for 06/04 was signed on 7 July 2004 and the appellant contends it was posted on that day and it should have been received on 9 July but the respondents stamped it on 20 July.  The relevant dates for the 12/04 return were that it was signed on 10 January 2005, normal course of post would give a date of receipt of 12 January but the date stamp is 17 January. 
28.	Mr Ash explained that the reason for the returns being signed later than the first week after the end of the prescribed accounting period was that these returns were made in the early part of the appellant’s involvement with this type of trading and the appellant’s systems had not been perfected as they were later.  On the other hand we note that the respondents had been operating the tax for over thirty years by 2004 and accurately knowing the date of submission of returns was important for a number of reasons and always had been.  In the early years after the introduction of VAT it was a criminal offence under section 38(5) of the Finance Act 1972 to submit a VAT return late.  The criminal offences were later replaced by civil penalties and default surcharges.  It has also been necessary for the commissioners to know the date of receipt for purposes of the repayment supplement and interest charges since 1985.
29.	The respondents’ evidence in this respect is strongly corroborated by the fact that the returns for 06/05, 08/05, 09/05 and 12/05 were stamped as received two days after they were signed and that the appellant had signed them on either the first or second working day of the month after the end of the prescribed accounting period.  It is the appellant’s procedures that appear to have changed rather than those of the respondents, as the delay in signing the returns ended, but if the respondents had been habitually stamping the returns late there is no obvious reason why that would have ceased.  On the other hand the appellant had on its own admission been perfecting its systems during the period covered by the three returns in respect of which the date of receipt is disputed. 
30.	Weighing up the evidence on both sides we are satisfied that the respondents have proved at least on a balance of probability that all the returns were stamped on the day when they were received.
31.	The next factual issue that is common to all the periods in question concerns when “a written instruction directing the making of the payment or refund is not issued … within the relevant period” as required by section 79(2)(b).
32.	We heard a very good deal of evidence about the commissioners’ procedures for recording information and the means of recording and giving effect to decisions made by officers.  So far as repayments of input tax are concerned various officers in various offices are authorised to decide that a repayment should or should not be made or that a decision should be delayed while inquiries are carried out.  There are checks and requirements for counter-signatories at various stages, as may be expected, to prevent accidental payments, underpayments or actual fraud.
33.	The relevant officers have access to the computer, the main frame of which is operated in Shoebury, though whether the machine itself is there we know not.  When a decision is made at the appropriate level more than one procedure can be used to initiate the payment but the usual one for the authorisation of a repayment is a manual payment instruction.  That does not mean that the officer concerned makes out a cheque.  A particular type of entry known as a “171” is made on the computer and that type of entry can be made by a properly authorised officer in any office.  The office at which the relevant decisions were made in this case happened to be in Liverpool and that may well be the only one that deals with these particular types of payment.
34.	Once that entry is made, the computer is ready to interact with a computer at the bank where the commissioners hold their account and to instruct the bank’s computer to make the relevant payment by electronic means, more than one possible means being available.
35.	Before the commissioners’ computer actually sends the message to the bank’s computer to make the repayments of input tax the commissioners have adopted the procedure that the office or offices which have authorised those payments (whether through the 171 procedure or some other procedure) must send a form known as a VOPS 240 to the computer centre by fax and that centre has to acknowledge receipt, also by fax.  At first it appeared to us that that form would be a final check and confirmation that all the actual payments authorised by 171 and other procedures should properly be paid but we were told that the VOPS 240 form is sent fairly early in the day and further payments may be authorised later on the same day.  The VOPS 240 form therefore does not afford an opportunity to check that all the details entered on the computer are correct, that has to be done when the 171 and similar entries are made.
36.	After receipt of the VOPS 240 form the staff who operate the computer set it to send the necessary messages to the bank’s computer overnight for processing all the repayments authorised during the day and the payments are initiated by the bank’s computer the next day.  Payment is not received on that next day if it is paid by BACS or Bank Giro payment though it will be paid on that next day if it is made by a CHAPS payment.
37.	The VOPS 240 form is headed “instruction to make VAT repayments” and is addressed to the shift leader at Shoebury Computer Complex.  It contains the following wording:
“In accordance with section 79(2)(b) of the VAT Act 1994, you are hereby directed to make payment of all sums due under section 26(3) of that Act, and of all refunds due under section 33 or 33A of that Act, which are authorised by the computer processing system scheduled for:
[There follows a box to insert a date]”.
38.	It seems clear that the VOPS 240 is the type of document the Tribunal referred to in the Beast in the Heart Films case referred to above.
39.	It is also clear from the reference in it to section 79(2)(b) that the commissioners intend it to be a written instruction directing the payment and from the evidence we heard it is the only document actually in writing that purports to make such a direction.  No evidence was given that any later document is created or that this or any other document is actually sent to the commissioners’ bank.
40.	Section 79(2)(b), taken literally, would lead to the conclusion that a supplement is payable in a case where no written instruction is issued even if the payment is made within the 30 days of the relevant period.  That would be such an absurd result that we are prepared to read it as being implied that a payment made within the 30 days does not lead to a supplement becoming due even if no written instruction is issued.
41.	With respect to the Tribunal that decided the Beast in the Heart Films case, we do not agree that the written instruction must be to a third party (the bank), provided that there is an internal written instruction which does in fact lead to the making of the payment.  The evidence in this case was, and we so find, that the staff at Shoebury do not set their computer to run the instruction to the bank’s computer overnight unless a VOPS 240 for that day has been received.  The VOPS 240 form therefore does amount to an instruction to make the payment albeit that there is then a further necessary step before the payment is actually initiated, being the computer message sent to the bank’s computer.
42.	In the case of Kitspern Limited –v- HMRC (Decision 4472) which was cited to us, Mr Oliver, as he then was, referred to section 20(1) of the Finance Act 1985 as amended, which uses the same words as section 79(2)(b), as providing that a taxpayer is entitled to a supplement “where the commissioners failed to pay the VAT claimed … within thirty days” and referred to the need for a direction without qualifying the form the direction must take.  Similarly in Customs and Excise Commissioners –v- W Timms & Son (Builders) Ltd [1992] STC 374, also cited to us, MacPherson J referred to  the purpose of section 20 as being to provide for a supplement if the payment was not made within the time limit, without referring to the written instruction.  In the Watford Timber Company –v- HMRC case (Decision 14756) the Tribunal accepted without question that the VOPS 240 form was the written direction.
43.	We do not agree with the appellant that the commissioners (which includes one of their officers duly authorised for that purpose) cannot issue a direction to one of their own officers.
44.	We hold therefore that the VOPS 240 form is a form that can comply with the requirements of section 79(2)(b), though of course we would add that it cannot be a direction requiring the payment to be made unless it has that effect.  In other words it must lead directly to the making of the payment.  We find that what occurred was that the once the VOPS 240 forms were issued the computer was run overnight and the payments were made in the normal course of banking having been initiated in the bank’s computer during the next day.  We will deal with the factual details when we consider the individual periods.
45.	There are some anomalous entries in the ledger as to the payment dates because the dates on the ledger are always the dates when the entries are made which are not necessarily the dates when the action was taken and some entries are repeated in different parts of the ledger to avoid double payments or to prevent the computer offsetting a payment that it is intended should be made against some other entry in the ledger.  We find as a fact that VOPS 240 forms were issued on each relevant day because otherwise the payments would not have been made.  But as the VOPS 240 forms for the relevant days were not produced (we only saw a sample), we can only work back from the dates the sums in question were actually credited to the appellant’s bank account and deduce therefrom when the instruction was issued, giving the appellant the benefit of any doubt that might remain about the date of authorisation.
46.	The appellant did not dispute that HMRC were entitled in principle to raise inquiries in respect of any of the periods in dispute.  The large sums involved, the fact that the transactions were all in a sector of the economy where traders were sometimes involved in fraud (though no such allegation was made against the appellant) and the fact that at least two other businesses in the Fairfax Gerrard group had received assessments in respect of similar transactions; all justified the respondents in deciding that inquiries were necessary.
47.	We now turn to the inquiries in respect of specific periods.
48.	For period 04/04 we find (as explained above) that the date stamp on the return shows that it was received on 25 May 2004 and that is the date of receipt so that we hold that the 30 day period begins with that date.  We have not seen a VOPS 240 form for that period and so we are not able to find from such a form when the payment was authorised.  In respect of this period payment was not made by BACS but was made by bank giro.  We did not receive any reliable evidence of how long after payment is authorised by that method the money will be credited to the payee’s account.  We do know however from having seen the relevant bank statement that the payment was credited to the appellant’s bank account on 29 June 2004 which is therefore the latest date that the payment could have been authorised.  We will proceed on the basis that the instruction was given to the bank on 29 June.  That gives the appellant the maximum benefit of the doubt that remains as a result of the respondents’ failure to prove when payment was directed.  We therefore find that the number of days between the receipt of the return and the authorisation of the payment (including both those days) was 36.
49.	Mr Ash and Mr Brookfield, the appellant’s witnesses, gave no specific evidence about the commissioners’ inquiries in respect of this period but the burden of proof is on the respondents to justify the delay in directing payment.
50.	Mr Gilley gave evidence that the appellant had submitted documents to the commissioners on 7 June 2004 which gave information about the transaction on which it was claiming input tax.  For this and the other periods in dispute the appellant was submitting such information, without being asked for it, in order to speed up the payments by assisting the respondents in any verification that was needed.  The receipt of such information, when voluntarily given, does not constitute an inquiry by the respondents and nor do they thereby have any additional time to consider those documents beyond the 30 days allowed by statute.
51.	On 7 June Mr Gilley asked another officer to obtain information about the appellant’s supplier.  On 8 June Mr Gilley requested Ms Barker of the CCT team (the Central Co-ordinating Team) to make an inquiry of the French authorities about the appellant’s customer and a freight forwarder.  On 9 June Mr Syed Ali of the appellant emailed inquiring about the repayment.  Mr Wretham (a colleague of Mr Gilley) replied asking for the copy documents to be resent in landscape print and told him that what had been sent was incomplete.  On 10 June 2004 Mr Ash sent some details of the IMEI numbers (identification numbers) of the goods in question apparently unprompted by HMRC.                      
52.	The request for documents in a more easily readable form is not a relevant inquiry as the commissioners are only entitled to delay payment pending the receipt of information.  They are not entitled to delay it until it is received in an easier to use form.  However, the inquiries about the appellant’s supplier, customer and the freight forwarder are, we find, all reasonable inquiries in a case like this.
53.	Mr Gilley admitted that he did not know when or even if the incomplete information requested following Mr Ali’s email on 9 June was received but he was prepared to assume that it was received before he decided to recommend authorisation of the payment.   
54.	The information about the appellant’s supplier which was requested on 7 June was received by Mr Gilley on 22 June and Mr Gilley decided to recommend the authorisation of the repayment on that day which led to the actual payment on 29 June.  
55.	Mr Trollope put it to Mr Gilley that there had been a delay in obtaining that information and that a telephone call by Mr Ash on 22 June had prompted Mr Gilley to chase up the answer to the inquiry of 7 June but Mr Gilley denied that and we find his evidence to be truthful.  It is clear from the log kept by Mr Gilley and Mr Wretham that they were well aware of the need to make speedy inquires because of the 30 day limit and we are satisfied that although Mr Gilley was waiting for the reply until 22 June there was no undue delay in the inquiry.
56.	Although the inquiry about the French purchaser was not answered until 21 July, which was therefore after the payment had been authorised, we do not agree with Mr Trollope that that means that that inquiry was demonstrated to have been irrelevant from the outset.  The decision to make the payment led to a without prejudice payment in period 04/04.  All the payments with which we are concerned were made in that way.  There is no statutory basis for a without prejudice payment but it appears the commissioners make payments which they describe in that way in order to alert the taxpayer to the fact that the payment could still be recovered if necessary by the issue of an assessment and that the making of the payment does not preclude an assessment.  The commissioners would be able to issue an assessment for at least three years after the end of the accounting period if new evidence came to light.  If the reply from France had therefore led to a conclusion that the payment should not have been made it could have been reversed by assessment and it would be wrong to assume the reply would necessarily be irrelevant.  Mr Gilley could have delayed payment until that reply was received but decided not to do so. 
57.	We therefore hold that between 7 June and 22 June 2004 the inquiry about the appellant’s supplier was continuing and between 8 June and 22 June 2004 the inquiry about the French purchaser was continuing.  Those inquiries are therefore 16 and 15 days long (though those are not cumulative numbers of days) and as the payment was 35 days after the receipt of the return they, or either of them, reduce the number of days to be taken into account to well below the 30 days that would entitle the appellant to a supplement for that period.
58.	The disputed repayment for period 06/04 is for part only of the amount claimed in that period.  The return is date stamped 20 July 2004 and we find, for the reasons already explained, that was the date it was received.  Payment was made to the appellant’s bank account on 11 August by BACS payment.  The appellant’s bank statement records that payment specifically as a BACS payment.  The evidence we heard satisfied us that BACS payments are made on the second working day after the instruction is sent so that a BACS payment made on 11 August must have been the result of an instruction sent electronically to the respondents’ bank on 9 August which is 21 days after the receipt of the return.  The VOPS 240 form must therefore have been issued on 6 August (because there was an intervening weekend).  No supplement is therefore payable for that period.
59.	The disputed repayment for period 12/04 is for the whole of the amount claimed in that period.  The return is date stamped 17 January 2005 and we find, for the reasons already explained, that was the date it was received.  Payment was made to the appellant’s bank account on 16 February 2005 by BACS payment.  The appellant’s bank statement records that payment specifically as a BACS payment.  The bank must have been instructed on 14 February to make it which is 29 days after the receipt of the return.  The VOPS 240 must have been issued on 11 February (because of an intervening weekend).  No supplement is therefore payable for that period.
60.	The repayment for period 06/05 was for the whole amount claimed in that period.  The return is date stamped 4 July 2005 and the appellant did not dispute that that was the date it was received.  Payment was made to the appellant’s bank account on 8 August 2005 by BACS payment.  The appellant’s bank statement records that payment specifically as a BACS payment.  The instruction to the bank must have been sent on 4 August (because there was an intervening weekend) which is 32 days after the receipt of the return and the VOPS 240 must have been issued on 3 August 31 days after receipt.  Therefore a supplement will be payable unless an inquiry justified the delay.  
61.	We read the evidence of Mr Cole who was ill and was unable to attend the hearing.  Mr Trollope submitted that the fact that he was unable to cross examine diminished the weight of Mr Cole’s evidence and we agree with that submission but Mr Cole’s evidence is corroborated by Ms Cooper’s statement which was accepted as evidence both of and those witnesses contributed to a decision log setting out the steps taken during their consideration of the repayment.  The appellant had submitted documents to the Staines office on 4 July 2005 in support of its claim and in order to speed it up (as already explained).  The documents were deal packs each containing documents about a separate transaction.  At least 10 were submitted because that number were checked (the check taking until 15 July) but four deals and the details of payments were not submitted and on 19 July Mr Cole requested the appellant to send those details and they were received on 25 July.
62.	Mr Trollope submitted that there had been an unreasonable delay in requesting that additional information but as the checking of those that had been sent took until Friday 15 July we do not regard it as an unreasonable delay for Mr Cole to have only requested the missing details on the following Tuesday.  As the repayment claimed was £2,022,188 and as the appellant had departed from its practice of voluntarily submitting the details of all its transactions the respondents were fully justified in wanting the additional information before deciding to pay the amount claimed. 
63.	Seven days of inquiry are therefore to be ignored when considering whether payment was not authorised within 30 days and as the payment was  authorised 31 days after the return was received we hold that those seven days mean that no supplement is payable for 06/05. 
64.	The repayment for period 08/05 was for the whole amount claimed in that period (£2,108,931).  The return is date stamped 2 September 2005 and the appellant did not dispute that that was the date it was received.  Payment was made to the appellant’s bank account on 10 October by BACS payment.  The appellant’s bank statement records that payment specifically as a BACS payment.  A BACS payment made on 10 October must have been the result of an instruction to the bank on 6 October (because there was an intervening weekend) which is 35 days after the receipt of the return and the VOPS 240 must have been issued on 5 October which is 34 days after receipt of the return.  
65.	The evidence is again that of Mr Cole and Ms Cooper and we approached it in the same way as for period 06/05.  On 21 September Ms Cooper and Mr Cole emailed airlines to verify export details and received a reply the next day.  On 22 September 2005 Mr Cole contacted Mr Ali to request outstanding information and further documents were received on 26 September but those documents appeared to show that some deals were cancelled and so Mr Cole raised a question about that with Mr Ali on 3 October and Mr Ali replied on 4 October.  The relevant inquiries therefore ran from 21 September to 26 September (six days) and 3 to 4 October (two days) making a total of eight days to be deducted from the 35 between the receipt of the return and the computer’s authorisation of the payment to the respondents’ bank or the 34 days from the receipt of the return and the issue of the VOPS 240.  Accordingly the relevant delay was only 27 or 26 days and no supplement is due for 08/05.
66.	 The return for 09/05 is date stamped 4 October 2005 and the appellant did not dispute that that was the date it was received.  
67.	Part payment was made to the appellant’s bank account on 25 November 2005 in the sum of £1,982,685.  The appellant’s bank statement records that payment specifically as a BACS payment.  A BACS payment made on 25 November must have been the subject of an instruction to the bank on 23 November which is 51 days after the receipt of the return and the VOPS 240 must have been issued on 22 November (50 days after the receipt of the return).
68.	The balance of £203,743 was credited to the appellant’s bank account on 20 December and, as it was a BACS payment, the bank must have been instructed on 16 December (because of an intervening weekend) which is 74 days after the receipt of the return and the VOPS 240 must have been issued on 15 December (73 days after receipt of the return).    
69.	Mr Mercott’s evidence which we find to be truthful satisfied us and we find that between 11 October and 31 October 2005 information in the form of documents was requested and was awaited as follows.  On 11 October Mr Mercott requested supporting documents as the appellant had not followed its usual practice of submitting deal packs. The deal packs were submitted the next day but Mr Mercott requested sales and purchase listings and a VAT summary.  We note here that although the deal packs might contain a lot of information about individual transactions from which a large part of the input tax claimed could be identified, only the full purchase records and sales records and the VAT summary would enable a full reconciliation of the declaration on the return with the appellant’s trading in that period.  Mr Mercott sent two reminders about the listings and summary and full information was only received on 31 October.  
70.	However that did not complete the inquiries because on 1 November Mr Mercott asked for an explanation of duplicate IMEI numbers (which means numbers which apparently indicated that the appellant had bought and sold the same goods on two separate occasions).  On 8 November the appellant sent an explanation and a new list of IMEI numbers.  In fact the appellant had mistakenly given the wrong numbers when they were first sent.
71.	Some internal inquiries between Mr Mercott and another officer then continued but they are irrelevant to the calculation of the period of inquiries that can be disregarded.
72.	On 11 November inquiries began about other traders’ involvement in the appellant’s transactions in the period and the reply in the form of documents was received on 16 November. 
73.	The periods of inquiry were therefore from 11 October to 31 October (21 days), 1 November to 8 November (8 days) and 11 November to 16 November (6 days) making a total of 35 days to be deducted from the 51 between the receipt of the return and the authorisation of the payment or the 50 days to the issue of the VOPS 240.  Therefore only 15 or 16 days had elapsed that would have counted towards the necessary 30 and so no supplement is payable in respect of the first payment for 09/05.
74.	All of the above inquiries were relevant to the second payment but in addition inquiries were made from 5 December to 12 December about a Spanish company that had been involved in the transaction or transactions for which the second payment was later made so that for that payment which was authorised 74 days after the receipt of the return a further 8 days were deductible in addition to the 35 making a total of  43 days deductible from the 74 or 73 days and leaving 31 or 30 days when the clock was running against the commissioners.  As we have held that it is the issue of the VOPS 240 that stops the clock running the deduction of 43 days from the 73 to the issue of the VOPS 240 means that we hold that no supplement was payable.  If we were found to be wrong about that and that the clock runs until the next day when the respondents’ computer sends the message to the bank’s computer then the delay would be 31 days (74 minus 43) and so a supplement of 5% of £203,743.75 (£10,187.29) would be payable.  This is the only period of those in dispute in which the one day difference between the issue of the VOPS 240 and the computer message to the bank’s computer would make a difference to the outcome.
75.	For the period 12/05 the parties both agree the return was received on 4 January 2006.  The appellant’s bank statement shows a payment of £1,192,952 in February 2006 but the day of the month is illegible.  In correspondence the appellant stated that the date was in fact 6 February 2006.  The payment was a BACS payment and because of an intervening weekend the respondents’ bank must have been instructed on 2 February and the VOPS 240 must have been issued on 1 February, being therefore 29 or 30 days after receipt of the return.
76.	Mr Mercott’s evidence was that he had received some deal pack information from Mr Ash on 10 January but that on 18 January he requested details of IMEI numbers and box and lot numbers concerning the goods in question.  He received a reply on 19 January by email but the IMEI and box numbers for about 14 deals were not given and one sale and one purchase were not included in the deal packs that were sent.  Accordingly on 19 January he requested the missing information. The information deal pack information was received on 26 January and so that information was then complete and Mr Mercott decided on 30 January to recommend the authorisation of the payment though he was still awaiting information he had requested about IMEI numbers.  The deal pack information requested on 19 January and completed on 26 January accounts for eight days of inquiries and so that alone means that no supplement is payable but as the inquiries continued in respect of the IMEI numbers up to the date of Mr Mercott’s decision there were a further four days of inquiry in addition to the eight.  The fact that the payment was recommended before full replies were received does not mean those inquiries were irrelevant for the same reasons as those given in paragraph 56 above.
77.	Period 01/06 involved a repayment claim of £3,666,294 and the return was made electronically on 1 February which is the date the return was received.  A single payment was made and it was a BACS payment shown on the appellant’s bank statement to have been received on 9 March 2006 so that the instruction to the bank must have been given on 7 March and the VOPS 240 must have been issued on 6 March being therefore 35 and 34 days after the receipt of the return respectively.    
78.	Mr Mercott’s evidence was that on 6 February 2006 he requested relevant documents to verify the return and received some documents on 15 February but some of the necessary information was missing.  Ms Styles faxed a request for that information on 22 February and for other information on 24 February.  Most of the information requested had been received by 27 February but IMEI numbers and box and lot details were still awaited.  Mr Mercott recorded that checks were completed on 3 March.
79.	There was therefore a continuous period of inquiry from 6 February until at least 24 February when the last request for information was made which is nineteen days and so the payment authorisation was well within the 30 days whether the VOPS 240 or the instruction to the bank is taken as the relevant event and so no supplement is payable.
80.	The period 03/06 return was made electronically on 3 April 2006 and a BACS payment was received by the appellant on 4 May 2006 for £5,926,654.  The instruction to the bank must have been sent on 2 May and the VOPS 240 must have been issued on 28 April as Monday 1 May was a holiday.  The VOPS240 was therefore issued 26 days after the receipt of the return and the instruction to the bank to make the payment was 30 days after the receipt of the return and so the payment was in time on whatever view is taken about the relevant end date of the 30 days ie whether the VOPS240 ends it or the instruction to the bank.  In addition, on 4 April 2006 Ms Styles emailed Mr Ash asking him to send records and deal packs and he sent them with a letter dated 13 April which was received on that date (presumably hand delivered).  Therefore ten days are to be deducted for inquiries and there is no entitlement to a supplement for that period on any view of the facts.
81.	Mr Trollope submitted that some of the inquiries contended for by the respondents were only routine checking of the returns.  We do not agree with that submission.  All the inquiries we have considered amount to a good deal more than simply checking arithmetic on the returns and were genuine inquiries about the facts behind the bare figures of the claims.
82.	The result of our decision is that the appeals are dismissed. 
83.	Any application for an award of costs is directed to be made within 42 days of the release of this decision stating in any such application the legal basis and grounds for the award sought (bearing in mind the Tribunal Rules as they now stand), but not at that stage quantifying the claim.
84.	Either party has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   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.

RICHARD BARLOW

TRIBUNAL JUDGE
RELEASE DATE: 19 March 2010