19479

Value added tax – appeals – hardship – whether appellants had shown that grounds of hardship justified the non-payment of value added tax before their appeal proceeded – no grounds shown 

LONDON TRIBUNAL CENTRE

	PETER and LINDA KEMP	Appellants

-	and –

	 THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS                                                  

Respondents

				Tribunal:	Dr. David Williams (Chairman)
						Angela West (Member) 

Sitting in public in Cardiff on 7 December 2005

Mr Roger Davies of Theo Jones &Co, chartered accountants, for the Appellants 

Mrs Pauline Crinnion of the Office of the Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1	The tribunal heard the parties on the hardship application of the Appellants on 7 December. The tribunal announced its decision that the application be dismissed and that the Appellants pay or deposit the tax by 31 01 2006. This was confirmed by written direction on 14 December 2005.

2	By letter dated 20 December 2005 the Appellants asked for the tribunal’s findings of fact and reasons for the direction. Unfortunately the issue of these reasons has been delayed since then because the chairman has been on leave or otherwise unavailable for several weeks since then. 

3	The oral hearing was attended by both parties. It took place in two sessions on 7 December. Mr Kemp was present at the first session but discharged from attending at the second session. The reason for the second session being – unusually – directed by the tribunal was to give Mr Davies a belated final opportunity to produce his clients’ accounts for 2004. 

4	The tribunal heard the matter for an hour at the first session and then again for 25 minutes at the second session. The chairman gave oral reasons for the decision of the tribunal at the end of the second session.

5	In giving the reasons, the chairman emphasised the importance of the decisions of the Respondents (the Commissioners) and of the tribunal being based on facts and evidence and not on mere assertions. In this case it had given the Appellants a final chance on the day of hearing to support their contentions with evidence about the accounts, and it had considered that evidence and not merely closed the case at the end of the first session. Not only that, but the chairman had, in adjourning the matter to the second session, indicated clearly to Mr Kemp and Mr Davies the factors that the tribunal took into account in hardship cases. That guidance is adopted into this statement of reasons. The tribunal had to take account of the public interest, and had to ensure no unfairness between those who paid the VAT due and those who did not. It had to consider whether, if the Appellants lost their appeal, the Commissioners would receive the VAT then payable. And it commented that if the Appellants won, then the Commissioners would repay the VAT paid with interest. The chairman also emphasised the need for the Appellants to show the tribunal that they were suffering hardship as at the date of the hearing.  

6	The chairman also acknowledged on behalf of the tribunal that the case was not an “open and shut” case. There were issues warranting consideration on the application. But the tribunal had concluded that the evidence produced did not, when properly weighed, constitute hardship such that it was proper to allow the appeal to proceed without payment of the value added tax owed.

7	The case for the Appellants was rested on the contention that the only way in which the Appellants would be able to raise the funds to pay the value added tax in dispute was by a further mortgage of their property. This was in addition to an existing mortgage of £90,000. The Appellants had limited savings, and a bank and credit card overdraft. Mr Kemp was under personal financial obligations because he was helping the two children of his first marriage and as a result of family problems had also adopted as his children two of his grandchildren that had been in care.

8	 For the Commissioners, Mrs Crinnion drew attention to the lack of evidence about the business, in particular before the production at the hearing of the 2004 accounts. She also drew attention to the underlying concern that the Appellants had operated a retail scheme incorrectly. The business was a cash business, and the decision of the Commissioners to oppose the hardship application had taken this into account, along with the available accounts and cash flow forecasts. This was not a case where the Appellants could say that they were owed the VAT by others, or had suffered bad debts from non payment by customers. The Appellants and their advisers had had time to sort out the problems of the business that were apparent when they acquired it some years before. 

9	Further information was given from the Appellants in reply to questions from the tribunal and Mrs Crinnion. From this it was established that the Appellants received a salary of about £30,000 a year for the sub-post-office run as part of the business, in addition to and separately from the net income from the business (shown as a net loss of £4,331 in the latest accounts). The turnover of the business in 2003 was over £250,000. Mr Kemp also accepted that a few months previously he had purchased a new car with a loan. This was a trade down from an older car. The sum involved was about £10,000. The business also has a van. The business had few other debts apart from that and its tax debts.  

10	The tribunal noted, in reaching its decision: the nature and extent of the Appellant’s business and business turnover, the guaranteed income stream to the Appellants from the post office salary, the Appellants’ current capital position, the absence of bad debts or delayed payments by customers, the time available to the Appellants since acquiring the business to sort out any cash flow and expenses problems, and that the Appellants had recently found themselves able to purchase a new car (even on a trading-down basis) while also maintaining a van. In that context, the tribunal did not find that the need to obtain, and the costs of obtaining, a further mortgage – even accepting that that was the only way of funding the VAT payable before the appeal could proceed - were such as to place the Appellants in hardship in having to pay the VAT ahead of the appeal.

11	The tribunal made no order as to costs. 

DAVID WILLIAMS
CHAIRMAN

RELEASED: 28 February 2006

LON/2005/499