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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Hands v Revenue & Customs [2008] UKVAT V20788 (01 September 2008) URL: http://www.bailii.org/uk/cases/UKVAT/2008/V20788.html Cite as: [2008] UKVAT V20788

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20788

VAT – assessment – value of supply – appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

TERRY HANDS

Appellant

-and-

HER MAJESTY'S COMMISSIONERS OF REVENUE AND CUSTOMS

Respondents

Tribunal: Richard Barlow (Chairman)

Peter Whitehead (Member)

Sitting in public in Manchester on 21, 22 and 23 May 2008.

Nigel Gibbon of Omnis for the Appellant.

Andrew O'Connor of counsel, instructed by the Solicitor for HM Revenue and Customs, for the Respondents.

© CROWN COPYRIGHT 2008


 


DECISION
1. The appellant appeals against an assessment of VAT for the period 1 July 2003 to 31 January 2005 in the sum of £80,220 and against a misdeclaration penalty arising from the alleged underpayment giving rise to that assessment.
2. Mr Hands had acted as a fundraiser and manager for a charity called the Summertime Trust under an agreement in writing between him and the Trust dated 1 July 2003. Mr Hands now agrees that he should have registered and accounted for VAT from 1 July 2003 and that the tax period assessed was a properly constituted prescribed accounting period. Indeed, following a compulsory registration by the respondents, he has accounted for some tax in respect of the period assessed but the respondents have alleged that he should have accounted for a higher amount.
3. Mr Hands claims that the value of the services he provided to the Trust at the material time should be valued, for VAT purposes, as approximately 35% of the sums collected through his efforts on behalf of the Trust whereas the respondents contend that the services should be valued as 80% of the sums collected.
4. The Trust was based in Blaydon and Mr Hands was based in Northampton. The Trust existed, at the relevant time, to provide holidays for disabled people and their carers.
5. A written agreement dated 1 July 2003 between Mr Hands and the Trust was drafted by Mr Hands, though he said he had cribbed it from another similar document and it was vetted by the Trust's solicitor, who suggested some minor amendments, before a trustee signed it. The paragraphs of the agreement were not numbered but for ease of reference we have numbered those that we will quote which are the ones we consider to be the most significant for the purposes of this decision and which are as follows:

1) TH will raise funds for and on behalf of the charity. The services provided by TH shall be those of a self-employed fundraiser and manager.

2) TH shall be known as the National Fundraising Manager for the charity and shall recruit, train and manage self-employed fundraisers to carry out fund raising works for and on behalf of the charity. TH will maintain personal records of all fundraisers and take reasonable measures to ensure the bona fides of applicants.

3) The fundraisers shall be known as fundraisers to the charity and they shall carry out their works for and on behalf of the charity.

4) TH will meet all the set-up and operational costs of the fundraising services covered within this agreement for example, infrastructure, human resources, recruitment, advertising, printed materials including letterheads, competitions tickets, leaflets etc. The charity will provide TH with any available information and artworks to facilitate the production of such printed materials.

5) TH will pay the fundraisers directly from the operational percentage agreed with the charity.

6) The principal initial method of fund raising carried out by TH shall be the sale of competition tickets. The charity shall receive twenty percent of the sales value of such tickets and TH shall retain the remaining eighty percent as an operational percentage and to defray all expenses including prize money.

7) TH will provide any prizes offered within the competitions and give the trustees of the charity the opportunity to be present at any organised presentations of prizes.

8) During the sale of competition tickets the fundraisers may receive donations on behalf of the charity, TH will pay these donations to the charity in full by means of a paying in book provided to TH by the charity. The charity on a weekly basis will pay TH a management fee of 1/3^rd of the total.

9) As the National Fundraising manager who is independent of the charity TH will at all times try to achieve high standards and attract public confidence and support. He will expect his fundraisers to aspire to high standards and will work to ensure this. …

6. The circumstances in which that agreement came into existence were that Mr Hands had contacted various charities by letter or email offering his services at a time when his relationship with an Irish charity for which he had acted as fundraiser was ending. The Trust had been considering changing its collecting methods and Mr Hands and the trustees and their administrator met to discuss a possible arrangement.
7. At that meeting Mr Hands referred to his existing team of collectors and offered to collect funds on behalf of the Trust by means of collectors who would solicit money from passers-by at places like supermarkets by presenting them with opportunities to place money in collecting tins in exchange for tickets which represented chances to win small sums of money, essentially by chance, although with the usual simple questions to be answered and a tie-breaker consisting of seeking suggestions about how to raise more funds. Part of the purpose of the tickets was to publicise the activities of the charity and to alert potential beneficiaries to the possibility of applying for holidays.
8. Mr Hands said in evidence that the 80% referred to in the agreement as the operational percentage had been agreed after he explained that collectors would be paid 35% of the money taken by them and field managers who were to supervise the collectors would be paid 10% of the money taken by the collectors they were supervising and 5% would be paid to a booking clerk who arranged with supermarkets that the collectors could attend. Mr Hands said that initially he proposed that he should receive 25% to cover the expenses of running an office, managing the collectors and other staff and to provide his income. The Trust would then have received 25% but by negotiation the parties arrived at the agreed figure of 20% for the Trust upon it being agreed that Mr Hands would also provide the tickets.
9. Miss Linda Pears (trustee) and Mrs Judith Watson (administrator of the charity) both denied, when giving evidence, that Mr Hands had broken the figures down in that way though Miss Pears did agree that initially it had been suggested that the Trust would arrange the printing of tickets.
10. In this respect we prefer the evidence of Miss Pears and Mrs Watson to that of the appellant. It emerged quite clearly that they felt that Mr Hands had let them down in several ways and indeed that they feel a good deal of animosity towards him and blame him for the closure of the charity. Despite that, both gave their evidence fairly and sensibly not purporting to recall more than might be expected and not exaggerating their evidence. In addition, as Miss Pears said, if the precise percentages had been agreed they might as well have been included in the agreement. In contrast Mr Hands gave his evidence in a partisan and evasive manner.
11. Subsequent events re-enforce our opinion about this aspect of the evidence. Mr Hands admitted that he had later dispensed with the services of field managers (except in one case) but rather than telling the Trust about that and increasing the percentage he paid to the Trust, he increased the percentage he paid to the collectors without reference to the Trust. Also, when Mr Hands first became involved with the Trust he already had arrangements with a number of collectors who had been collecting for the Irish charity and he admitted that they immediately started to collect for the Trust and in effect constituted the initial cohort of collectors. However, he had paid them a different percentage to the 35% he claimed he had then just agreed with the Trust. That was because of the arrangements that had applied when the Irish charity had been using Mr Hands' services but clearly, if the arrangement with the Trust had been as Mr Hands now claims, he could not have agreed with the Trust to pay 35% to the collectors knowing that he would in fact be paying them more than that. We reject Mr Hands' assertion in evidence that he had told Miss Pears that the initial cohort of collectors (together with their field managers) would be paid 70% of the collections leaving him only 10%. Had he revealed that he could manage the collections for only 10% of the takings so far as some of the collectors were concerned, it is difficult to see why the trustees would have agree to pay him 80% of the total in respect of all collectors including those receiving much less than the 70% referred to. We also prefer Miss Pears' evidence on this point for the reasons already stated.
12. Subsequently, the collectors for the Irish charity were all dismissed for dishonesty consisting of what Mr Hands termed "skimming" which is to say they had taken money for themselves from the collections before passing any of the money to Mr Hands. From that point the newly recruited collectors were paid 35% of the money they collected.
13. The appellant's case is that he should only have to account for VAT on the sums he received after paying for the collectors, the field managers and the bookings clerk and after paying for other expenses as agreed under the agreement. We were told that the precise figure is not yet known but that it is estimated that 35% of the total money collected would fall within that category. Given that he contends that precise percentages were agreed that contradiction is further evidence that precise figures were not agreed.
14. Mr O'Connor reminded us about the case of Customs and Excise Commissioners –v- Reed Personnel Services Ltd [1995] STC 588 in which Laws J held that a supply for VAT purposes is not necessarily the same concept as a contractual duty and that the true construction of a contractual document may not always answer the question what was the nature of a supply? In particular there may be such difficulties where more than two parties are involved. In this case, although they are not parties to the contract between Mr Hands and the Trust, clearly the situations of the collectors, the field managers and the bookings clerk are relevant.
15. Mr Gibbon argued that the agreement was clear and that it amounts to an agreement that the various expenses would be paid by the Trust albeit through the agency of Mr Hands and that all he received was the balance after making those payments and that that was the consideration for the supplies that he made.
16. Mr O'Connor accepted that there was some ambiguity in the agreement but argued that what actually happened was that Mr Hands received the full 80% as consideration for the supplies he made under the agreement and although he obviously had to make payments out of that 80% that was no different from any trader who will have expenses to pay in order to make his supplies. Mr O'Connor relied in particular on the fact that Mr Hands ran the operation in his own way without much involvement from the Trust and indeed that he took steps to exclude the Trust from involvement.
17. Turning to the agreement itself we make the following observations. Paragraphs 1 and 2 (in our numbering), by making it clear that Mr Hands was self employed and free to appoint and manage his own staff, are consistent with the commissioners' case because they suggest a good deal of autonomy on the part of Mr Hands. Although the words "for and on behalf of" are not entirely inconsistent with the appellant's case we consider them to be neutral so far as the any issue concerning the nature and value of the supply is concerned. Clearly Mr Hands would be acting for and on behalf of the charity whether he was an employee (which neither party has suggested) or a contractor and regardless of the degree of autonomy he might enjoy in that capacity.
18. Paragraphs 2 and 3 suggest that the collectors would be acting directly for the charity, which Mr Gibbon contended meant that the payments made to them would be made to them by the charity as consideration for their supplies, rather than that the payment would be from Mr Hands. Mr Gibbon contended that the payments to them would be made by Mr Hands on behalf of the charity. Taking the words of those paragraphs at face value we might agree but we have already found that there was no agreement between the parties to the written agreement about how much would be paid to the collectors; which would be necessary if the payments were being made on the Trust's behalf.
19. Also, the fact that the initial group of collectors were paid on a completely different basis than that alleged by Mr Hands to have been agreed is inconsistent with there being any such agreement, as we have already pointed out. Paragraph 5 which states unequivocally that Mr Hands will pay the fundraisers from the operational percentage supports the same conclusion.
20. Paragraphs 4 and 6, which deal with the operational percentage, make it clear that Mr Hands would receive 80% of the money collected and that it would be for him to defray expenses from that amount but those paragraphs leave it entirely up to him how to do that and, given that he was obliged to remit to the Trust 20% of the money collected regardless of what those expenses were, it was clear that he might operate at either a profit or a loss. That is consistent with the respondents' case because, at the very least, if the agreement had been that the appellant would be paid an amount other than the remaining 80% on the basis that he was simply defraying expenses on the Trust's behalf some mechanism for determining what that amount would be would have to have been incorporated in the agreement. Also the fact that Mr Hands might make a profit or a loss is consistent with his having a high degree of autonomy from the Trust.
21. Paragraph 9 of the agreement is in our view particularly significant. Mr Hands is declared to be independent of the charity and the fundraisers are described as "his" fundraisers.
22. Had this case turned only on the terms of the agreement we would have found that on balance the agreement, despite its ambiguities, was such that Mr Hands had agreed to provide services to the Trust in return for a payment that would consist of the payment to him of 80% of the collections leaving him free to make from that what he could. On that basis the value of the supply for VAT purposes would indeed be the 80%.
23. The manner in which the collections were made and handled by Mr Hands and his dealings with the Trust after entering into the agreement are not only consistent with that conclusion but also re-enforce it.
24. When Mr Hands decided to dismiss the initial collectors for suspected dishonesty he did so without reference to the Trust and without asking the trustees if they wanted the matter to be reported to the police.
25. The Charity Commission instructed the trustees that all money collected should be paid into the Trust's bank account and the trustees took steps to inform Mr Hands of that but for whatever reason he was reluctant to follow that instruction and continued only to remit 20% of the money collected. There was some dispute in the evidence about how effectively or forcefully the trustees conveyed this instruction but we find that it was conveyed to Mr Hands and that he did ignore it.
26. Mr Hands drew up tickets with wording not agreed with the trustees and containing a very misleading "solicitation statement". A solicitation statement is a statement which tells a donor how much of the money donated will be used for the charity's purposes. The statement claimed that 70% of the money collected would be used for the Charity's purposes. That was, of course, very misleading as Mr Hands knew that only 20% of the money was received by the charity. He claimed that what the solicitation statement meant was that 70% of the 20% of the money collected that was remitted to the charity was used for its charitable purposes. However, he admitted that he had estimated, without reference to the trustees or anyone else, that 30% of the money remitted to the charity would be used for its administration rather than for the benefit of the beneficiaries. He acted as if he had complete autonomy in respect of an important aspect of compliance with charity law and practice.
27. We find that Mr Hands was both reluctant and deliberately obstinate about sending the trustees information they legitimately requested. Again, we prefer the evidence of Miss Pears and Mrs Watson in this respect for the reasons already given.
28. When Mr Hands initially approached the Trust he described himself as having an existing team. Subsequently, when he ceased to collect for the Trust, he took all his collectors with him and they started to collect for another charity and indeed it seems that they had already started to collect for the other charity before they ceased to collect for the Summertime Trust; Miss Pears' evidence to that effect was unchallenged. Those facts also suggest that the collectors were acting for him not for the Trust. In particular, had the collectors really been working for the Trust, it is difficult to see why they accepted without question Mr Hands' instructions that they were to work for the new charity when he ceased working for the Trust. That Mr Hands did instruct rather than invite them to follow him to the new charity is confirmed by the collectors' evidence to us.
29. Those conclusions were not negated by the evidence of the collectors who gave evidence to the effect that they thought they were acting for the Trust not Mr Hands. Their understanding of the situation and therefore their evidence was partly influenced by letters they had received from accountants acting for Mr Hands but whatever they thought the position was we have concluded that they were acting for Mr Hands rather than directly for the Trust for the reasons already stated.
30. We hold that the terms of the agreement and the manner in which it was operated indicate without doubt that Mr Hands agreed to provide his services in return for 80% of the total amounts collected and that therefore the assessment is correctly raised and the appeal against it is dismissed. We hold that there is no reasonable excuse for the default giving rise to the penalty and the appeal is dismissed in respect of that as well.
31. We make no order as to costs.
Richard Barlow CHAIRMAN Release date: 1 September 2008

MAN/06/0602