[2010] UKFTT 614 (TC)

TC00856

Appeal reference: TC/2009/00900

VAT – property renovation – failure to register for VAT – assessment to VAT – belated notification penalty – appeal upheld in part

FIRST- TIER TRIBUNAL
TAX

   JARVIS ELLIS T/A ELLIS CONSTRUCTION	Appellant

- and -

THE COMMISSIONERS FOR
                          HER MAJESTY’S REVENUE AND CUSTOMS           Respondents

Tribunal: 	Jennifer Trigger (Judge)
David Demack (Judge)

Sitting in public in Manchester on 1 September 2010

Mr Ellis appeared in person

Mr. Bernard Haley, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	This appeal is made by Jarvis Ellis (“the Appellant”) who, during the period relevant to this appeal, carried on the business of property renovation, as a sole proprietor, using the trading style Ellis Construction, from 56 Gorse Valley Road, Hasland, Chesterfield, Derbyshire, against:

1.	The registration for VAT with effect from 1 February 2008 to 31 January 2009;
2.	A Notice of Assessment in the sum of £5,982.81;
3.	A belated notification penalty in the sum of £897 – mitigated by 25% to £673. 

2.	Before us Mr. Haley conceded that the Appellant had proffered a reasonable explanation for the failure to register at the appropriate time.  Furthermore Mr. Haley informed us that the Notice of Assessment was incorrect.  The Respondent had used the flat rate figure of 8.5% which was effective from 2011 only.  The correct flat rate figure that should have been applied was 7.5%.  Accordingly the assessed amount of VAT should have been £5,728.95.  The Appellant accepted that the Respondent had applied the 8.5% flat rate incorrectly and that the assessment should have been based on a flat rate of 7.5%.  Furthermore the Appellant accepted that when the flat rate of 7.5% was applied the correct amount of the assessment was £5,728.95.  This was the full extent of the Appellant’s concession before us.

3.	In the Statement of Case served on 30 April 2010, the Commissioners for Her Majesty’s Revenue and Customs (“the Respondent”), set out the grounds upon which it had made its decision to assess the Appellant to tax as follows:

“1. Mr. Jarvis Ellis (the Appellant) carries on business as a renovator of property, as a sole proprietor using the trading style Ellis Construction.

…

The Appellant has been involved in property renovation since June 2007.

2. The Appellant submitted an Application to Register (Form VAT1) in September 2009 and upon examination of the Appellant’s Self Employment Tax Return it became apparent that the Appellant, at some stage, had exceeded the turnover limits for VAT registration.  The Respondents calculated, on a rolling monthly turnover, that the Appellant had exceeded the threshold at 31 December 2007 thus giving an effective date of registration of 1 February 2008.  The Respondents further calculated that the Appellant was liable to remain registered until 31 January 2009, at which point the Appellant’s turnover fell below the registration limit.  On this basis the Appellant was registered for VAT from 1 February 2008 until 31 January 2009.

3. As a consequence of the liability to be registered, and in the absence of a VAT return for the long period liability, the Respondents assessed the Appellant in the sum of £5,982.81.  The consequence of the failure to register at the appropriate time resulted in the belated notification penalty in the sum of £673…”

4.	The Respondent in reaching its decision had considered sections 67, 70, 71, 73 and schedule 1 of the Value Added Tax 1994.

5.	In his Notice of Appeal against the tax assessment, given on 30 December 2009, the Appellant’s grounds of appeal are:

“My reasons for not agreeing to HMRC’s decision are as follows:

(a)	This was my first year of trading and I have not got a clue regarding VAT requirements.  I was advised to appoint an accountant who would control all my paperwork that would need to be obtained and submitted to HMRC.
(b)	I have taken their decision as I am being penalised for the paperwork being submitted late, if that is correct they can see that the late paperwork was submitted by the accountant.  I understand that I am responsible for my own paperwork, if I am doing a self-assessment, but I have an accountant that is liaising with HMRC.
(c)	I am being asked for VAT payment that I have not charged to any of my customers.
(d)	I can remember signing paperwork to be registered for VAT and signing paperwork to be deregistered with the accountant which I believe was submitted to the HMRC.  I was not advised by the accountant that we were late in getting our paperwork in, if it was then it would have been explained to me what could happen if we are late.
(e)	This also sounds like an error by the accountant as outlined by HMRC, but to me an accountant is acting professionally between HMRC and myself.”

6.	Before us Mr. Haley referred to document 16.  The figures contained in that document had been compiled from the Appellant’s trading and profit and loss account for the period 1 June 2007 to 31 March 2008, and a schedule of the Appellant’s taxable supplies for a period of 21 months to 31 March 2009.  The figures contained in the document were accepted by the Appellant.  The figures revealed that the Appellant should have registered for VAT at 31 December 2007 when his turnover reached £65,629.30.  The VAT registration limits vary annually and are to be found in Schedule 1 of the Value Added Tax 1994.  For the tax year 2008/2009 the VAT registration limit was £67,000.  Mr. Haley told us that the Respondents calculation had been based on document 16 using the figure of £25,614 recorded as February-08 and all subsequent figures until the entry January-09 where a figure of £70,386 was recorded.  Using a rolling monthly turnover the Respondent had determined that the Appellant had exceeded the threshold at 31 December 2007, giving an effective date of 1 February 2008.  As a consequence the Respondent had assessed the Appellant to tax using the now-conceded 7.5% flat rate, and the assessment computed was £5,728.95.

7.	Mr. Haley told us that the Respondent was not obliged to make the assessment using the flat rate scheme, nor was the Respondent required to deregister the Appellant for VAT.  By both actions, the Respondent had demonstrated an appreciation of the trading realities faced by the Appellant in running his newly established business.

8.	It was the Appellant’s case before us that he had little understanding of the law relating to VAT and that he had not realised all that he was required to do to comply with the statutory requirements.  The Appellant explained that he was inexperienced in running a business venture and that he did not appreciate that he needed to register to comply with the Value Added Tax Act 1994, nor that he needed to maintain a record of inspection of his monthly turnover.  The Appellant recognised that whilst he had had advice from an accountant, the responsibility to register for VAT purposes was his.

9.	We found that the Appellant’s turnover had exceeded the VAT threshold at 31 December 2007 and the effective date of registration was 1 February 2008.  The Appellant was liable to remain registered until 31 January 2009.  The Appellant had failed to register for VAT from 1 February 2008 until 31 January 2009.  Accordingly in our judgment the Respondent were entitled to assess the Appellant, and that the assessment of £5,728.95 had been correctly assessed by the Respondent.  Accordingly, by consent, we allow the appeal against the belated notification penalty but confirm the assessment to VAT at £5,728.95, which is payable by the Appellant to the Respondent. 

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JENNIFER TRIGGER
TRIBUNAL JUDGE
Release Date: 30 November 2010