[2013] UKFTT 86 (TC)
TC02504
Appeal number: TC/2012/05873
VAT–Strike out application-
VAT treatment of gaming machines income –“reconsideration” - appeal – extension
of time- administrative error – dilatory agents – emigration and de
registration – extension of time not granted – appeal struck out.
FIRST-TIER TRIBUNAL
TAX CHAMBER
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TAMAR LEISURE
SPOT
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE RACHEL SHORT
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WILLIAM HAARER
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Sitting in public at St
Catherines House 5 Notte Street Plymouth on 12 December 2012
Having heard Mr Tromans and Mr
Marker of Parkhurst Hill Chartered Accountants for the Appellant
Mr Leslie Bingham, Higher Officer
of HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2013
DECISION
1.
This is an appeal against an application by HMRC to strike out the
Appellant’s ( Tamar Leisure Spot “TLS”) case under Rule 8 of the Tribunal
Procedures (First tier Tribunal)(Tax Chamber) Rules 2009 (“the Tribunal
Rules”), on the basis that TLS’ appeal against HMRC’s decision of 20 October
2009 not to repay VAT in respect of periods 7/2004 – 1/2006 is out of time
under s 83G Value Added Tax Act 1994 (“VATA 1994”).
Agreed facts.
2.
TLS was a leisure business run as a partnership by Mr and Mrs Woolcock
which was registered for VAT in the UK.
3.
TLS made a “voluntary disclosure” of £15,820.95 being over paid out put
VAT in respect of gaming machine income to HMRC on 2 July 2007 (Folio1). This
was rejected by HMRC on 31 July 2007 (Folio 35) and TLS appealed against this
rejection on 22 August 2007 (Folio 34), requesting that their appeal be stood
over behind the lead VAT case – Rank Group Plc (C-259/10 and C-260/10).
This was confirmed by HMRC to TLS in a letter of 17 September 2007 (Folio 6).
4.
HMRC wrote to TLS on 20 October 2009 stating that “It is no longer HMRC
policy to delay the conclusion of reconsiderations pending the outcome of on
going litigation” and confirmed that TLS’s original claim had been refused. The
letter also pointed out, in its final paragraph, the TLS had the right to
appeal against this decision to the First Tier Tribunal (HMRC letter at Folio
32).
5.
TLS responded to HMRC on 11 November 2009 (Folio 31) appealing against
this refusal. This letter was incorrectly sent to HMRC’s office in Bristol, not to the First Tier Tribunal. The letter was not forwarded by HMRC to the
Tribunal.
6.
TLS applied to cancel its UK VAT registration in August 2010, the
partnership business was sold and the partners, Mr and Mrs Woolcock emigrated
to Australia.
7.
On 16 March 2012 TLS’s UK agent wrote to HMRC explaining that the TLS
business had been disposed of and that their client had de-registered for VAT
and emigrated to Australia. However, prior to closing their files, the agent
wished to confirm the status of the outstanding VAT claim (Folio16). HMRC
wrote in response on 18 May 2012 that TLS’s claim had been rejected and was not
under appeal (Folio 17). TLS therefore appealed to this Tribunal on 21 May
2012 and HMRC applied for the application to be struck out on 6 August 2012 on
the basis that the appeal was out of time.
The Relevant Legislation:
8.
The time limits for making an appeal in respect of a decision of HMRC
concerning VAT are set out at s 83G (1)(a) VATA and stipulate that appeals must
be made within 30 days of the date if the issuance of the HMRC document
notifying the decision.
9.
The Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009, SI
2009/273, set out at Rule 8 the circumstances in which a party’s case may be
struck out. Rule 5 sets out the Tribunal’s case management powers, including
the ability to grant extensions of time for making an appeal. Rule 2 sets out
the overriding objective of the Rules “to deal with cases fairly and justly”.
10.
We have not been asked to consider the substantive basis of this appeal,
but it is worth briefly rehearsing the history of litigation in this area to
put this case into context. The lead UK case concerning the VAT treatment of “mechanised
cash bingo machines” is the Rank plc case, referred to above, heard
first before the UK VAT Tribunal in 2006, itself following on from a 2005 decision
of the ECJ known as Linneweber (Finanzampt Gladbeck v Linneweber
(C-435/20)), concerning the treatment of a different type of gaming machine. The
Rank Case made its way to the UK High Court in 2009 and to the ECJ at
the end of 2011. A final decision in the Rank case is still awaited. It is
fair to say therefore that litigation in this area has been extensive and
complex.
11.
Throughout the course of this litigation HMRC have issued a number of
Business Briefs setting out their views of the impact of the Courts’ decisions
on UK taxpayers. Mr Bingham referred to these Business Briefs, including 40/09,
referring to the High Court decision in Rank Plc and 11/10 in response
to the First Tier Tribunal final ruling. These Business Briefs included
information about which VAT claims HMRC considered to be valid and which claims
had been or would be paid out.
The Arguments.
12.
For TLS, it was argued that it is unjust for HMRC to refuse this claim
on the basis that they changed their procedure for making appeals in 2009,
forcing the client to make a new appeal. Second, TLS had made a valid appeal in
response to this change of procedure, being their letter of 11 November 2009,
and genuinely believed that their claim was still live on the basis of that
letter. The TLS claim had been made in time and HMRC were incorrect to state
that the appeal was out of time.
13.
TLS’s agents referred to a number of decisions of the First Tier
Tribunal concerning similar claims, but stressed that TLS’ situation could be
distinguished from all of them because in this case a claim had actually been
made on time.
14.
TLS also referred to the three year time limit for making claims, established
by the Marks & Spencer case and referred to in the Medical House
PLC Tribunal decision (19859) and pointed out that their appeal to this
Tribunal had been made within three years of HMRC’s letter of October 2009. TLS’
agents accepted that there had been some delay in prosecuting their case, as a
result of the sale of the taxpayers’ business and their emigration, but
stressed that nevertheless the appeal had been made in time. They also pointed
out that HMRC themselves had not corresponded directly with TLS in the
intervening period and the agents had only become aware that this claim had not
been paid because they knew of other claimants whose claims had been paid out
in 2011.
15.
TLS said that, whatever changes in procedure had been introduced by
HMRC, they had an agreement with HMRC made in September 2007 (letter of 17
September 2007) that their case would be stood behind the Rank plc
decision, this agreement was still valid and therefore there was no need for
any further appeals to be made.
16.
For HMRC Mr Bingham did not dispute that the letter of 11 November 2009
had been received by HMRC, but argued that this could not be treated as a valid
claim because it was incorrectly sent to HMRC rather than to the First Tier
Tribunal. The appeal is therefore now four years and nine months out of time.
Mr Bingham accepted that this has arisen as the result of an administrative
error and that it would otherwise have been treated as a valid appeal. He also
stated that in some circumstances appeals incorrectly addressed to HMRC had
been passed on to the Tribunals, but this had not been done in this instance.
17.
Mr Bingham queried why this VAT re claim had not been dealt with as part
of TLS’ de registration for VAT in 2009 and said that TLS’ agents should have
been aware of the position in respect of Rank plc based re claims
because of the details set out in the Business Briefs published by HMRC. It
was TLS’ (and their agents’) obligation to monitor the progress of their
reclaim and ensure that the claims were properly made. TLS had not been
diligent in pursuing this appeal. Even if TLS could argue that they were not
aware of the progress of these claims until other claims were paid out from
March 2011, it had still taken them until March 2012 to take any action.
DIRECTIONS
18.
At the hearing the Tribunal reserved its decision on the application for
a strike out, but now makes the following Directions: HMRC’s application to strike
out TLS’ case under Rule 8 of the Tribunal Rules should be allowed on the basis
that TLS’ appeal against HMRC’s refusal of their claim in October 2009 is out
of time.
Decision
19.
The Tribunal has come to this conclusion on the basis that the
administrative error made by TLS in November 2009 in failing to correctly
address their appeal to the Tribunal has been compounded by their failure
subsequently to diligently follow up the progress of any potential appeal.
20.
In TLS’ favour, their error in writing to HMRC in November 2009 was
understandable, given that the process for making appeals had only recently
been changed and appeals would previously have been made to HMRC. Mr Bingham
accepted that at this time HMRC were helping taxpayers with this transition by
passing wrongly addressed appeals to the Tribunal, TLS were unlucky that this
was not done in their case. If the issue here had been turned only on this
administrative error, the decision of the Tribunal might well have been
different.
21.
However, there is a secondary consideration and that is the dilatory behaviour
of TLS (and their agents), in circumstances where the taxpayers were attempting
to tidy up their affairs, sell their business and de register for VAT. Despite
all of this being done by TLS during 2010, it is clear that this VAT re-claim
would never have been picked up had it not been noticed as part of the agent’s
archiving process in 2012. We agree with HMRC that in these circumstances the
onus is on the taxpayer to ensure that claims are dealt with in a timely
fashion, and that was clearly not what occurred here. In fact, neither the
taxpayer nor their agents seem to have taken any interest in pursuing the appeal.
22.
This Tribunal can grant an extension of time to make an appeal under
Rule 5, if, as stated in Rule 2(1) of the Tribunal Rules, to do so would ensure
that the case was dealt with “fairly and justly”. Previous decisions in this
area suggest that this entails a balancing exercise, considering both the
taxpayer’s rights to pursue a claim and HMRC’s need for certainty and closure.
In this regard, while not binding, the criteria set out in the Civil Procedure Rules,
in particular Rule 3.9 concerning relief from sanctions are also relevant and
we have considered them as part of coming to this decision, although neither
party cited these to the Tribunal. We have also been guided by the general
principle set out by Lord Wool C J in Taylor v Lawrence ([2002] EWCA Civ 90) that the circumstances in which appeals should be allowed out of
time should be the exception rather than the rule.
23.
Considering each of the CPR test in turn; (i) The interests of the
administration of justice; While we have not considered the validity of
the substantive appeal in this case, it is clear that TLS will have no other straightforward
avenue to pursue these claims if this appeal is not allowed.
24.
(ii) Prompt application for relief; TLS’ agents accept that they
have been dilatory in not pursuing this claim, and we assume, TLS themselves
were not aware of the existence of the claim at the time when they de
registered for VAT.
25.
(iii) Intentional failure to comply. TLS genuinely believed that
their appeal of November 2009 was properly made and the administrative error in
addressing the appeal to the wrong place was an honest error, but TLS’ lack of
action subsequently is we think more culpable.
26.
(iv) Explanation for the failure, as above, there is a genuine
explanation for the initial failure, but not we think, for the subsequent lack
of activity, particularly given the significant factual changes in relation to
the TLS business (sale and de registration) and the decisions of its owners (emigration).
27.
(v) Compliance with other rules and practices – No evidence was
provided to the Tribunal concerning TLS’ compliance record other than in
respect of the case under consideration.
28.
(vi) Responsibility for the failure – We think the responsibility
is shared here between TLS itself and their agents, but both TLS and their
agents have failed to diligently pursue this claim.
29.
(vii) Can the trial date still be met – If an extension of time
is granted, there is no reason why the appeal cannot proceed.
30.
(viii) The effect of the failure to comply and (ix) Effect of
granting the relief– Mr Bingham has confirmed that the fact that TLS is no
longer registered for VAT does not have any impact on the validity of this
claim, but we view the act of de -registration, sale of the business and emigration
as suggesting that TLS’ owners consider all its UK VAT affairs to be closed.
Any payments made now could only be an unexpected windfall for TLS’ owners. In
comparison, HMRC will have to re open a claim which they consider closed and
consider whether this gives other taxpayers in similar circumstances the
potential of making claims which are technically out of time.
31.
Taking all of these factors into account, the Tribunal considers while
it would not be in the interests of justice to deny TLS the right to make an
appeal merely on the basis of an administrative error, nevertheless the later
failure by TLS to pursue the claim at all, including their agent’s admission
that the claim was only picked up coincidentally as part of their archiving
process, suggests that TLS have fallen below the standards which HMRC rightly
expect of taxpayers and have failed to prosecute their appeal with reasonable
diligence.
32.
We consider that to allow an appeal in these circumstances would expose
HMRC to other claimants who have failed to comply with the time limits for
making claims, for similar, or other reasons and that there is considerable
weight in the argument that HMRC need to be able to apply objective and
consistent criteria in assessing the validity of claims and determining which
claims should be treated as closed, and that it is only in extreme
circumstances that the time limits in the VAT legislation should be overruled.
33.
The Tribunal have considered TLS’ arguments that their rights should not
be impacted by HMRC’s change of procedure in 2009. The fairness of the way in
which that change of procedure was notified is outside the remit of this
Tribunal, but HMRC’s letter of October 2009 did clearly state both the change
of procedure and what was required of TLS. Therefore this Tribunal cannot
accept TLS’ argument that their original 2007 appeal letter should be treated
as surviving this change of process, particularly since TLS did attempt to make
a new appeal in response to the October letter.
34.
As regards TLS’ arguments that they are within the three year window for
appeals established in the European Court by the M&S case (Marks and
Spencer Plc v HMRC [2002] STC 1036), we do not think that this is relevant
to the question of whether this appeal has been made in time. The “three year
cap” established in that case is a three year period from the date of any
contested tax payment for a claim to be made. This is quite separate from the
procedural rules applied by HMRC and now this Tribunal for making appeals
against decisions of HMRC.
35.
For these reasons we agree with HMRC that no extension of time should be
granted to TLS under Rule 5 and the appeal should therefore be struck out under
Rule 8.
36.
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.
RACHEL
SHORT
TRIBUNAL JUDGE
RELEASE DATE: 30 January 2013
