18672
VALUE ADDED TAX assessment input tax trader failing to produce evidence to support claim whether assessment to recover over-claimed input tax correct yes appeal dismissed
VALUE ADDED TAX security trader submitting several returns late history of defaults large and growing debt to Commissioners whether decision to require security reasonable yes whether subsequent cessation of trade relevant no appeal dismissed
MANCHESTER TRIBUNAL CENTRE
GRAHAM ROSS Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Mr C P Bishopp (Chairman)
Mr J T B Strangward (Member)
Sitting in public in Manchester on 21 June 2004
The Appellant did not appear and was not represented
Mr J Cannan, of counsel, instructed by the Solicitor's Office of HM Customs and Excise, for the Respondents
© CROWN COPYRIGHT 2004
DECISION
- On 21 June 2004 we sat to hear two appeals of Graham Ross. Since they were dependent on related facts, it was appropriate that they should be heard at the same time. They are, first, an appeal against an assessment notified on 3 September 1999 in the aggregate sum of £9,359 and, second, an appeal against a notice of requirement to provide security, communicated by a letter of 15 August 2002 (and confirmed by a letter of 20 February 2003). The amount of security required is £8,452 if Mr Ross is to continue to make quarterly returns, or £5,635 if instead he makes monthly returns.
- Mr Ross did not attend the hearing and we will return to the reasons for his non-attendance later in this decision. In his email communicating the reasons why he had decided not to attend he indicated that he expected the hearing to proceed in his absence, and Jonathan Cannan, counsel for the Commissioners, asked us to deal with the matter on that basis. We agreed it was appropriate we should do so. Where hereafter we refer to Mr Ross's arguments we mean those put forward in his email or in his correspondence with the Commissioners and, on occasion, the tribunal.
- Mr Ross is, or was, a practising solicitor. For some, at least, of the relevant period it seems that he did not practise in the conventional sense of acting directly for members of the public, but only as a consultant to other solicitors. It appears that he set up his practice (though he had been working in some other capacity previously) in December 1996, and he registered (though not promptly) for VAT with effect from 2 December 1996. He was required to send in a first, long period, return to 30 June 1997, and thereafter to furnish returns at quarterly intervals.
- We understand that Mr Ross sent in his first few returns apparently uneventfully. In August 1999, he received a control visit from the officer who, subsequently, raised the assessment against which he has appealed, Mrs V Gellvear. She was unable to verify that Mr Ross's claims for input tax credit were correct. He had included in his returns some claims for which he had no documentation. He had also claimed credit for the input tax on the entirety of the amount he was required to pay to the Solicitors' Indemnity Fund in the course of a year, even though (as the invoice he later produced clearly showed) he ought to have claimed credit in the periods in which the monthly instalments he was paying actually fell due. It was not clear whether he had claimed relief for all of the input tax included in vehicle leasing payments which he was making or, as he ought correctly to have done, had claimed only 50% of the input tax (see regulation 7(2H) of the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222) as amended). It was, additionally but separately, not clear whether he was accounting for fuel scale charges.
- The assessment covers all of the periods from 06/97 to 03/99, save for 06/98 for which Mrs Gellvear could identify no mistake. In three of the periods assessed she concluded there was a net sum due to the Commissioners, but in four the assessment increases the sum due to the appellant, by the correction of his timing error in claiming the entirety of the input tax on his payment to the Solicitors' Indemnity Fund in a single period. Shortly put, the assessment corrects some errors and seeks to recover input tax for which credit was incorrectly claimed.
- It was apparent to Mrs Gellvear that the appellant's accounting records were rather poorly maintained. We could see from the copy documentation provided to us that in the main they consisted of rather brief computer printouts containing very little detail. Even so, it was clear that some of the claim could not possibly be sustained since it included standard-rate input tax supposedly incurred on rail tickets, even though they are zero-rated by item 4 of group 8 to Schedule 8 of the Value Added Tax Act 1994.
- Regulation 29(2) of the Value Added Tax Regulations 1995 (SI 1995/2518) provides that the person making a claim for input tax credit must, at the time of making the claim, hold appropriate evidence of his entitlement, usually in the form of a valid VAT invoice. The Commissioners have a discretion to accept something less than a valid VAT invoice. Mr Ross contends that at the time he made his input tax claims, he did hold such evidence and that is sufficient for his claim to succeed; it is immaterial that he can no longer produce it. That contention is contrary, in our view, to the purpose of regulation 2A(2), which requires the claimant to "hold or provide such other evidence of the charge to VAT as the Commissioners may direct"; and it overlooks paragraphs 4(1) and 6 of Schedule 11 to the 1994 Act, which respectively allow the Commissioners to demand the production of appropriate evidence to support an input tax claim, and require traders to keep records for a period of up to six years. It is in any event quite obvious that Mr Ross could never have had proper evidence of his entitlement to input tax credit at the standard rate on zero-rated items. The appellant contends that in other cases, where (as he implicitly concedes) he has not held VAT invoices, the Commissioners should have accepted, in their place, secondary evidence such as his monthly credit card statements.
- It is settled law that it is for the trader to establish his claim for input tax credit. So much is apparent in domestic law see sections 25 and 26 of the 1994 Act and regulation 29 of the 1995 Regulations - and also in European law see the Sixth VAT Directive (77/388/EEC) article 18, and Rompelman v Minister van Financiλn (Case 268/83) [1985] ECR 655 at 665. If the Commissioners refuse to accept secondary evidence unreasonably, their refusal is susceptible to review by this tribunal: see section 83(c) of the 1994 Act.
- In this case, Mr Ross has not come even close to persuading us that there is anything at all unreasonable about the Commissioners' attitude. It is not a case in which the Commissioners have adopted a punctilious or fastidious approach but one in which, almost five years after Mrs Gellvear's visit, Mr Ross has failed to produce any evidence on which reliance could reasonably be placed. Such limited additional documentation as he has provided is largely irrelevant (since it relates to periods for which he has not been assessed) or adds nothing to the material available to Mrs Gellvear at her visit. What Mr Ross has, throughout, failed to do is to identify clearly those items which were included in his original claims (as set out in his VAT returns) together with any others for which he has some evidence; instead he has produced some documentation not available to Mrs Gellvear without indicating whether or not the input tax for which these documents are evidence was included in that original claim. It seems to us not only reasonable but inevitable that the Commissioners should disallow claims for which there is no proper evidence or clear explanation. On the contrary, we think Mrs Gellvear endeavoured to be as fair as possible to Mr Ross and that her assessment cannot be criticised.
- After Mrs Gellvear's visit in August 1999, Mr Ross's compliance record deteriorated. His return for 06/99, due a few days before Mrs Gellvear's visit, was not submitted until August 2002, some three years late; at the same time he submitted his returns for several other periods (those returns too were all late) and some, but not complete, payment. By the time the notice requiring Mr Ross to provide security was issued, he owed the Commissioners over £36,000, not including the amount of the assessment against which he had appealed, and by the time the review letter of February 2003 was written, his indebtedness had risen to over £65,000. He had by then rendered himself liable to the default surcharge on no fewer than 15 occasions.
- Mr Ross apparently does not dispute those facts, but argues that since he has now closed his practice there is no purpose in requiring him to give security; thus the notice should accordingly be discharged. Unfortunately he misunderstands the nature of the tribunal's jurisdiction. We may look only at the facts as they were, and ought reasonably to have been known by, the Commissioners at the date the notice was issued see Customs & Excise Commissioners v Peachtree Enterprises Limited [1994] STC 747; and we may discharge the notice only if the Commissioners' decision is unreasonable in that they have taken into account the irrelevant, have disregarded the relevant, have misdirected themselves in law or have come to a conclusion which no reasonable panel of Commissioners could have reached: see John Dee Limited v Customs & Excise Commissioners [1995] STC 941. In our view the decision to require security was manifestly reasonable. It seems to us perfectly clear that Mr Ross's attitude in relation to his accounting properly for VAT was casual at best. It is no answer to say, as he does, that he was in dispute with the Commissioners about Mrs Gellvear's assessment. That dispute cannot excuse his failure to account properly for his VAT liabilities in later periods. Mr Ross may de-register now he has closed his practice, in which case the requirement to give security will lapse, but we cannot allow his appeal against the notice as it stands.
- We accordingly dismiss both appeals.
- Mr Cannan sought a direction in the Commissioners' favour in respect of the costs of the appeals. At this point it is necessary to set out some detail of the background to the case.
- The assessment was made, as we have recorded, as long ago as September 1999. It was followed by correspondence between Mr Ross and his local VAT office and he did not serve notice of appeal until March 2001, well over a year out of time. There were then several delays in the progress of the appeal (in part due to skirmishing about the lateness of the appeal) and, while it would be unfair to say that Mr Ross was more blameworthy than anyone else in causing those delays, it is apparent to us that he has done little to ensure that his appeal was brought to an early conclusion. The security appeal has a rather shorter history. The notice of requirement was issued, as we have indicated, in August 2002 and confirmed following review on 20 February 2003. Although this appeal has not come on for an early hearing, it does not seem to us that Mr Ross is in any way culpable. We leave delay out of account.
- Both appeals were fully contested and there was no indication, to the tribunal or (we were told by Mr Cannan) to the Commissioners, that Mr Ross might not pursue either to a conclusion. However, on the morning of 21 June (the day fixed for the hearing) and without any prior warning Mr Ross sent an email to the Commissioners' solicitor's office, with a copy to the tribunal, indicating that he did not propose to attend. He invited the tribunal to allow his appeal against the security requirement for the reason we have already given, that he had ceased to practise. He said that he had failed to realise that the assessment appeal would be heard at the same time and had not prepared for it though, later, he acknowledged that the mistake was his. He dwelt upon a perceived inadequacy of disclosure by the respondents, but he had already made an application for further disclosure by them which had been dismissed on 8 December 2003. It is, if we may say so, perfectly obvious that disclosure by the respondents in a case such as this is virtually irrelevant since the only question in issue is whether the trader seeking input tax credit has, and is able to produce, the evidence supporting his claim.
- In our view, neither of these appeals has, or ever has had, any merit and they are frivolous. We are satisfied that it is right in principle that the Commissioners should have their costs of the appeals. However, we do not think it appropriate we should direct the appellant to pay costs in respect of the several past hearings where the tribunal has not made any costs direction (nor of course do we propose to reopen the one direction in which costs were provided for). Mr Cannan indicated to us that the Commissioners accepted that Mr Ross's application for a hearing in private, heard immediately before an intended hearing of the assessment appeal and which caused the hearing of the appeal itself to be postponed, even though it failed, raised issues of general importance, and that it would not be appropriate for the Commissioners to seek a direction for their costs in respect of that part of the hearing at which his application was made. They had, however, been obliged to prepare for the substantive hearing on that day in case it should take place, and had had to prepare again for the hearing on 21 June 2004; and they had prepared for the security appeal. He invited us to assess the costs summarily, which we think it appropriate we should do. We assess them in the aggregate at £2,300 - £1,500 for the assessment appeal and £800 for the security appeal and we further direct that the appellant is to pay that sum to the Commissioners by 31 July 2004.
COLIN BISHOPP
CHAIRMAN
Release date: 29/06/2004
MAN/01/0454 & MAN/03/0236
