19677

Flat Rate Scheme: obligation to account for VAT on acquisitions and imports
LONDON TRIBUNAL CENTRE

Judith Barbara West	Appellant
(t/a “West One”)

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS	Respondents

Tribunal:	Charles Hellier (Chairman)
Richard Corke

Sitting in public in Bristol on 22 June 2006.

Mrs West in person, Appellant

Mr J Holl instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This is an appeal by Mrs West against an assessment by the Respondents for £7,557.00 in respect of the periods from 1 December 2003 to 30 November 2004.
2.	There was no dispute about the facts relevant to the assessment under appeal:
(1)	Mrs West carries on business retailing ladies’ clothes from Market Street, Wells, Somerset. She has been registered for VAT since 1987;
(2)	Mrs West made an application to account for VAT under the provisions of section 26B VAT Act 1994 and Regulations 55A to 55V of the VAT Regulations 1995 (the Flat Rate Scheme);
(3)	in operating the scheme in the relevant period Mrs West did not fill in box 2 on her VAT return. That box relates to VAT on acquisitions from EC Member States;
(4)	during the relevant period Mr West made acquisitions from other EC Member States. The VAT attributable to those acquisitions was, in total, the £7,557.00 assessed by the Respondents.
3.	The Respondents’ assert that, under the flat rate scheme, the taxable person is required to account for VAT on acquisitions from  EC Member States.
4.	Mrs West said that her interest in the flat rate scheme had been prompted by the small booklet “Simplifying VAT for small businesses” which includes as one of the benefits of the scheme the comment “little chance of mistakes, so fewer worries”. She does not dispute the figures or the fact that she made acquisitions by importing stock for sale in her shop. However she says that she was misled by the Commissioners’ small booklet explaining the flat rate scheme which did not make any reference to acquisitions. As a result, it was not until she was contacted by Mrs Susan Giles, the VAT Officer, in February 2005 that she became aware that the Commissioners expected her to continue to account for VAT on acquisitions.
5.	Mrs West had moved shop while she was using the flat rate scheme and had incurred capital costs in refurbishment. The operation of the flat rate scheme meant that £2,500 of VAT input in these costs was not recoverable. As a result, Mrs West felt somewhat hard done by.
6.	Mrs West made no suggestion that the Commissioners, or Mrs Giles, had acted otherwise than bona fide. Mr Holl made it clear that the Commissioners would not seek any penalty and did not suggest that Mrs West had acted dishonestly. He indicated that he would bring the omission in the leaflet of a clear reference to acquisitions and importations to the attention of those responsible for its production: given the volume of cross border trade which now took place and Mrs Giles’ comment that she had come across one other case when a flat rate trader had failed to account for VAT on acquisitions or imports, it might be thought appropriate to make the position absolutely clear in the small leaflet (perhaps under the heading “Points to Watch”) rather than leaving it solely to be covered in the more detailed leaflet on the scheme which the Commissioners also published.
Discussion
7.	Our jurisdiction is provided by Statute. In the context of an assessment it is to hear an appeal against the amount of the assessment. In determining such an appeal we must consider whether the terms of the relevant statutory provisions support the assessment, and whether the facts as we find them support the amount of the assessment. We may also have regard to whether the assessment was made to the best judgment of the Commissioners. We do not however have the prerogative jurisdiction of the High Court: the High Court can consider whether a public authority, such as the Commissioners, acted properly in a particular context and if it did that Court may quash a decision of the authority or require it to take, or to desist from, some action. That jurisdiction is not vested in the tribunal.
8.	Since there is no dispute about the amount of any VAT attributable to acquisitions the only issue which remains before us is whether the Act and the Regulations support the Commissioners’ contention that a taxable person remains liable to account for VAT on acquisitions in a period in which that person is within the flat rate scheme.
9.	The Act provides a framework within which the regulations are to fill in the gaps, and under which the taxable person pays a reduced or “flat” rate of tax on his turnover. That rate will be less than 171/2% but the taxpayer obtains no other credit for his input tax except where a capital item costing over £2,000 is purchased.
10.	Section 26B(1) VAT Act 1994 provides that the Regulations may be made under which, if a person so elects, his VAT liability “in respect of his relevant supplies” shall be a percentage of his relevant turnover for the period. “[R]elevant supplies” are defined as all supplies made by him except such supplies as the regulations specify. Sub-section (5) then provides that a participant in the flat rate scheme shall not be entitled to credit for input tax except as the regulations provide.
11.	We note at this stage that section 26B makes no express provision about acquisitions or supplies of services to which the reverse charge in section 8 applies. However the words of section 26B(1) which limit “the amount of his liability to VAT in respect of his relevant supplies” do not appear to envisage any limitation in respect of a liability for an acquisition because, for the reasons set out below, an acquisition is not a “relevant supply” by the taxpayer.
12.	The liability to pay tax in respect of the acquisition of goods from other member states is imposed by section 10:
“(1) VAT shall be charged on any acquisition from another member state of any goods where - 

(a) the acquisition is a taxable acquisition and takes place in the UK;

(b) the acquisition is otherwise than in pursuance of a taxable supply [i.e. supply made in the UK]; and

(c) the person who makes the acquisition is a taxable person…”

13.	We note that the mechanism of section 10 is not the same as the reverse charge mechanism in section 8. In section 10 a direct charge is imposed on an acquisition; in section 8 there is a deemed supply of an imported service by the recipient to himself. Thus an acquisition of goods is not treated as a supply of the goods acquired by the acquirer to himself. An acquisition is thus not a “relevant supply” and the VAT liability on the acquisition is unaffected by section 26B(1).
14.	Regulations 55A to 55V deal with the operation of the scheme. They specify the relevant flat rate for the class of business concerned and deal with matters such as joining and leaving the scheme. They also deal with capital acquisitions.
15.	 Only regulation 55C makes any direct reference to “acquisitions”. It provides that, subject to (3) and (5) an acquisition from a member state (or importation from outside the member state) is one of the things which is a “relevant purchase” of a flat rate trades. The effect of this is felt in Regulation 55E(1) under which input tax is allowed in respect of relevant purchases of capital items costing more than £2,000, and in Regulation 55E(2) which deals with input tax credit or acquisitions which are not relevant purchases. None of these, however, or any other provisions of this chapter of the Regulations affects the requirement in section 10 to account for VAT on acquisitions.
16.	Thus it appears to us that a person who elects to be treated, and is authorised, as a flat rate trader remains liable to account for VAT on acquisitions and importations of goods.
17.	As a result, we dismiss the appeal: the Act requires a flat rate trader to account for VAT on acquisitions and there is no dispute about the amount of the tax exigible.

Charles Hellier

CHAIRMAN
RELEASE DATE: 3 Auguat 2006

LON/2005/0892