19011
	
	FLAT RATE SCHEME — in calculating the threshold for entry should excise duty be included in the sale price of beer included in turnover — the legislation and regulations so provided — Human Rights Act 1998 — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	GARY & DIANE OLDERSHAW
	trading as OLDERSHAW BREWERY	Appellants

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Elsie Gilliland (Chairman)
						 Susan C Stott FCA ATII	

Sitting in public in York on 10 February 2005

Gary Oldershaw for the Appellants

Lisa Linklater of counsel instructed by the Solicitor’s office for HM Customs and Excise for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	The appeal before the tribunal is that of Gary Oldershaw who with Diane Oldershaw trades as Oldershaw Brewery (the Appellants) against a decision of the Commissioners set out in a letter from them dated 2 July 2004 not to allow the Appellants to join the flat-rate scheme, a scheme which allows small businesses an alternative method of accounting for VAT, namely by calculating VAT payments as a percentage of VAT-exclusive turnover rather than the usual transaction-based accounting method. In the Notice of Appeal dated 12 July 2004 and in the submissions of Mr Oldershaw to the tribunal the Appellants have argued that the Commissioners took into account wrong criteria in considering the application.

2.	In his evidence Mr Oldershaw set out the trading background. Initially on his own, and subsequently with his wife, he had operated a small brewery for some eight years from a large garage next to his house. The business had been VAT-registered from the beginning. He had been interested in the flat-rate scheme which he knew was intended to assist small stand-alone businesses with administration costs but his initial enquiries had led him to believe that his firm’s turnover exceeded the threshold. His interest had revived when he expected some reduction in turnover when there were fewer employees. His application had been turned down with, he considered, no clear explanation and so, as advised by the National Advice Service helpline of the Commissioners, he had put in the appeal to the tribunal. The issue as he saw it was whether in calculating the firm’s turnover for the purposes of the flat-rate scheme beer duty which, like VAT, was collected and paid across to the Commissioners by the business should be included. The Appellants accepted that VAT was payable on the beer duty but he pointed out that the VAT figure was not included as part of turnover whereas beer duty which he viewed as merely another tax had been. The Appellants submitted also that this put the business in a less favourable position than, say, that of a producer of soft drinks as the Appellants were required to inflate the turnover figure with an item that was not profit. 

3.	Counsel for the Commissioners submitted that the criteria applied by them in calculating the turnover for the purposes of the scheme were correct and that the excise duty on the beer which the customers of the Appellants had duly paid when they purchased the beer was part of the taxable supply. So far as the VAT element was concerned the Appellant had agreed that VAT was payable on the excise duty but counsel submitted the difference between the Appellants’ position and that of the manufacturer of soft drinks was that the latter was making lower taxable supplies and receiving less VAT (at 17.5%) than the supplier of beer.

4.	The relevant legislative provisions are in the Value Added Tax Act 1994 sections 2, 4, 19, 26B and paragraph 3 of Schedule 6; and in the Value Added Tax Regulations 1995 regulation 55L(1). The authority for the special scheme is in Article 24 of the EC Sixth Council Directive (77/388/EEC), which provides as follows:

	“1. Member States which might encounter difficulties in applying the normal tax scheme to small undertakings by reason of their activities or structure shall have the option, under such conditions and within such limits as they may set …, of applying simplified procedures such as flat-rate schemes for charging and collecting the tax provided they do not lead to a reduction thereof.” 

5.	To be eligible for the flat-rate scheme the taxpayer must satisfy two conditions namely that:- (i) the value of taxable supplies to be made by him in the period of one year then beginning will not exceed £150,000; and (ii) the total value of his income in the period of one year then beginning will not exceed £187,500 (regulation 55L(1)). In the instant case we are looking at (i) only as no point has been taken on the second element.

6.	The scheme of the VAT legislation is that the value of any supply of goods or services unless otherwise provided by or under the VAT Act is to be determined under section 19 and Schedule 6. Section 19(2) provides that if the supply is for a consideration in money its value “shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration”, ie the value of the supply is the value of the goods plus VAT.

7.	That scheme is modified in relation to the flat-rate scheme by section 26B. The flat-rate scheme provides for the amount of liability to VAT to be the appropriate percentage of the taxpayer’s “relevant turnover”. “Relevant turnover” is defined by section 26B(2)(c) as being the total of – “(i) the value of those of his relevant supplies that are taxable supplies, together with the VAT chargeable on them, and (ii) the value of those of his relevant supplies that are exempt supplies. In section 26B(2)(c)(i) the value of the taxpayer’s relevant supplies is exclusive of VAT whereas under section 19(2) the value is inclusive of VAT.

8.	The Appellants submitted that if the VAT is excluded in the definition of relevant turnover, equally the beer duty should be excluded, it like the VAT being money for which they are accountable and which they are not entitled to retain for their own benefit. However we can find nothing in the legislation or the regulations which provides for the exclusion of excise duty in ascertaining the amount of the relevant turnover. Section 26B modifies section 19(2) in relation to VAT but makes no provision for excluding excise duty. Clearly the excise duty chargeable is part of the consideration received by the Appellant and VAT is chargeable in the ordinary way as on persons not subject to the flat-rate scheme when ascertaining turnover. Likewise it seems to us when ascertaining a person’s relevant turnover the turnover must include the excise duty. The purpose of the flat-rate scheme is to relieve certain small traders from the paperwork involved in the normal scheme; it is not to exclude goods from VAT. If it had been intended that the financial limits specified in regulation 55L were exclusive of excise duty we would have expected that to have been expressly provided for either in section 26B or in the regulations relevant to the flat-rate scheme. There is no such provision and it is not open to us to read words into the statute or regulations that are not there. 

9.	There is a provision in paragraph 3 of Schedule 6 to the VAT Act which provides in relation to dutiable goods imported into the UK, or where the time of supply of dutiable goods is determined under section 18(4) of the VAT Act, that “the value of the supply shall be taken for the purposes of this Act to be the sum of its value apart from this paragraph and the amount, so far as not already included in that value, of the duty, … which has been or is to be paid in respect of the goods” ie where this provision applies the value of the goods expressly includes the excise duty. Section 18(4) deals with goods which are subject to a warehousing regime, that is whilst kept in a warehouse or being transported between warehouses without the payment of any duty, levy or VAT, and it is dealing with cases where the consideration or sale price does not include the duty. In such cases a charge to VAT is made on leaving the warehouse regime and the consideration is deemed to include the duty whether or not it was charged. This provision in our view does not assist the Appellants because it is common ground that VAT is payable on the Appellants’ total business income including beer duty under the flat-rate scheme. The express inclusion of excise duty under paragraph 3 of Schedule 6 is not directed to a case where the turnover includes duty.

10.	We accept that the inclusion of excise duty within the value of the Appellants’ supplies and/or their turnover does have the effect of excluding small traders who supply excise goods from the benefit of the scheme when other traders who are not accountable for excise duty will qualify in the sense that they would be entitled to join the scheme and to retain the whole of the consideration excluding VAT for their own benefit as part of the profits of their business. This is however the effect of the statutory provision.

11.	The Appellants have submitted that this was unfairly discriminatory and infringed their human rights under the Human Rights Act 1998. We do not consider that there has been a breach of the Appellants’ human rights or that the Human Rights Act is of assistance in construing the provisions of regulation 55L and section 26B of the VAT Act. The levy of tax is specifically permitted by the Human Rights Act under Article 1 of the First Protocol.

12.	Counsel suggested that in any event in the instant matter even were beer duty to be excluded from the calculations the threshold would still have been exceeded. This point does not have to be taken further as we have determined the legal issue on the question of eligibility to use the flat-rate scheme in the Commissioners’ favour and find their decision correct. 

13.	The appeal is dismissed.

14.	The Commissioners have not sought costs and we make no direction as to costs.

 

ELSIE GILLILAND
CHAIRMAN
Release Date: 31 March 2005

MAN/04/0386