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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Genry v Revenue & Customs [2009] UKVAT V20929 (16 January 2009) URL: http://www.bailii.org/uk/cases/UKVAT/2009/V20929.html

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20929

VAT – ASSESSMENT – FLAT RATE SCHEME – The Respondents refused authorisation of flat rate scheme – Appellant continued to use flat rate scheme to compute his VAT liability – assessments raised to recover the excess VAT – Appellant contended refusal unreasonable – refusal based on Appellant's poor compliance record – Tribunal jurisdiction limited to reasonableness of Respondents' refusal – decision reasonable – Appeal dismissed

LONDON TRIBUNAL CENTRE

PETER TERENCE GENREY Appellant

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

ANGELA WEST FCA (Member)

Sitting in public in Bristol on 30 October 2008

Michael R Berry FCA CTA FABRF Maxwell Chartered Accountants for the Appellant

Richard Smith Counsel instructed by the Solicitor's office of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2008


 


DECISION

The Appeal

1. The Appellant was appealing against assessments for unpaid VAT dated 25 April 2006 and 3 May 2007 in the respective sums of £3,241 and £2,409. There was a further assessment dated 13 March 2008 in the sum of £3,134 which was not formally included in the Appeal.

Issue in Dispute

2. The issue in dispute concerned the Appellant's continuing operation of the flat rate scheme to calculate his VAT liability after the Respondents' refusal to authorise use of the scheme by the Appellant.
3. The assessments of 25 April 2006 and 3 May 2007 related to the VAT that would be additionally due if the Appellant applied the standard method for calculating VAT rather than the flat rate scheme.
4. The question to be determined by the Tribunal was whether the amount of the assessments was correct in the light of the Respondents' refusal to authorise the use of the flat rate scheme by the Appellant. Under section 84(4ZA) of the VAT Act 1994 the Tribunal's appellate powers where the assessment was based on the Respondent's refusal to use the flat rate scheme was limited to whether the Respondents exercised their discretion reasonably.
5. Thus the issue to be decided by the Tribunal in this Appeal was whether the Respondents' refusal to authorise the use of the flat rate scheme by the Appellant was a decision which no reasonable body of Commissioners could have arrived at. In order for the decision to be reasonable the decision maker must have considered all relevant matters and must not have taken into consideration irrelevant matters.

The Hearing

6. We heard evidence from the Appellant and Andy Sayers for the Appellant. Mr Sayers was an Inspector of Taxes who conducted the investigation in the Appellant's direct tax affairs. Alan Miles and Les Bingham gave evidence for the Respondents. Mr Miles was the officer who made the original decision refusing use of the flat rate scheme, whilst Mr Bingham conducted the review into Mr Miles' decision. We received a bundle of documents in evidence.
7. At the outset of the hearing, Miss West, a member of the Tribunal, declared that she worked with Mr Berry, the Appellant's representative, in a firm of accountants in the 1980's. The parties raised no objections to Miss West hearing the Appeal.
8. There was no dispute between the parties regarding the background facts to the Appeal.

Summary of the Background Facts

9. The Appellant had been running the Tynte Arms public house in Enmore Bridgewater as a sole trader since 1 September 2002. Prior to that date the public house was ran by a company which was controlled by the Appellant's daughter and a Mr Bennett. The company was registered for VAT which had been submitting nil returns since period 08/02. The nil returns prompted a visit from the Taunton VAT office on 15 November 2005. The Appellant at the visit acknowledged that he should have been registered for VAT from an earlier date which was later agreed to be 1 January 2003. The Appellant's reason for not registering for VAT was that when he took over the business he did not intend to run it for very long. In September 2002 the Appellant was also running a second public house, the Enmore Inn, which ceased trading on 30 August 2003.
10. In respect of the Tynte Arms public house the Appellant submitted a return for the long period from the effective date of registration, 1 January 2003 to 31 January 2006, and instructed his accountant to apply to join the flat rate scheme backdated to the effective date of registration and to negotiate a settlement. The Appellant issued further instructions to his accountant to submit subsequent quarterly returns based on the flat rate scheme. All quarterly returns since 31 January 2006 have generally been prepared and submitted timely with the appropriate remittance of VAT due derived from the flat rate scheme.
11. On 9 January 2006 the Respondents refused the Appellant's request to use the flat rate scheme retrospectively. Since 9 January 2006 the Respondents have issued letters at regular intervals advising the Appellant not to use the flat rate scheme to compute his VAT liability.
12. At the same time of the VAT review, the Appellant was involved in an enquiry into his income tax in respect of his earnings from the Tynte Arms and the Enmore Inn for the years ending 31 August 2003, 2004 and 2005. The enquiry was settled by negotiation with the result that the Appellant accepted additions to the profits for income tax purposes in the sum of £19,930 covering the three years under enquiry.

The Respondents' Refusal

13. The decision under Appeal was set out in Mr Bingham's letter dated 20 February 2008. Mr Bingham pointed out that regulation 55(B(1) of the VAT Regulations 1995 gave the Respondents discretion to authorise a taxable person to use the flat rate scheme with effect from either the beginning of the next accounting period following the application to join the scheme or from such earlier of later date that may be agreed between the parties. Further regulation 55(B)(3) enabled the Respondents to refuse authorisation if they consider it was necessary for the protection of the revenue.
14. Mr Bingham in reaching his decision considered the Appellant's representations, Mr Miles' original decision and advice from the Respondents' policy section.
15. Mr Bingham considered that the decision to refuse authorisation of the flat rate scheme by the Appellant was justified because it was necessary for the protection of the revenue. In reaching his decision he placed particular weight on the Appellant's failure to register for VAT, and the inaccuracies in tax declarations made by the Appellant which were uncovered in the investigations conducted by Mr Miles and Mr Sayers.
16. Mr Bingham did not place weight on the perceived monetary benefits for the Appellant from using the scheme and the Appellant's compliance record since January 2006.

The Appellant's Case

17. The Appellant contended that he had been unfairly prejudiced by the Respondents' repeated denial of his application to join the flat rate scheme. The Respondents' denial had prevented him from taking advantage of the administrative and monetary benefits from the scheme. The administrative benefits included simplification of the record keeping and preparation of returns for VAT which would have significantly eased the administrative burden upon the Appellant. Under the scheme the Appellant would pay less VAT than under the standard method of accounting.
18. The Appellant acknowledged his fault in not registering for VAT on time. The Appellant accepted an effective date of registration from January 2003, and was meeting his liabilities on the best and fairest basis of calculation available to him. The Appellant had also accepted settlement of income tax liabilities on a negotiated basis designed to minimise time, effort and costs which was to the benefit of himself and the Respondents.
19. The Appellant contended that he had now discharged his liabilities, and was fully complying with his VAT responsibilities, albeit he was calculating his VAT liability on the basis of the flat rate scheme. In those circumstances the Appellant considered that the Respondents were acting unreasonably in denying him use of the flat rate scheme throughout the whole period since the effective date of registration. At the very least they should consider authorisation from 1 February 2006 on the basis that no further adjustments to his VAT liability have been sought and the direct taxes review ended at 31 August 2005.

Reasons

20. The flat rate scheme was introduced with effect from 25 April 2002. The scheme was a simplification measure, allowing taxpayers within specific turnover limits to pay VAT as a percentage of turnover instead of working out the VAT on sales and purchases (standard accounting). The taxpayer applied to join the scheme.
21. The legislative authority for the scheme was section 26B of VATA 1994 which enabled the Respondents to make regulations dealing with the operation of the scheme. The relevant regulations were 55A to 55V of the VAT Regulations 1995. The Respondents have issued VAT Notice 733 which gave practical guidance on the workings of the scheme but carried no force in law.
22. The Respondents accepted that the Appellant was eligible for the flat rate scheme. They, however, exercised their discretion to refuse him admittance to the scheme on the ground that he posed a risk to the protection of the revenue in accordance with regulation 55B(3) of the VAT Regulations 1995.
23. Under section 84(4ZA) of VATA 1994 our powers on Appeal were limited to considering the reasonableness of the Respondents' refusal to authorise use of the scheme by the Appellant. We were not permitted to substitute our own judgment for that of the Respondents. The issue for the Tribunal was whether the Respondents' refusal was a decision which no reasonable body of Commissioners could have arrived at. In order for the decision to be reasonable the decision maker must have considered all relevant matters and must not have taken into consideration irrelevant matters.
24. The Respondents placed particular weight on two sets of facts in arriving at their conclusion that the Appellant posed a risk to the protection of the revenue. First, the Appellant's failure to register for VAT. In the Respondents' view the Appellant's failure was not an oversight. He had been running the public house for three years before the VAT inspection in November 2005. The Appellant knew that the company which ran the public house prior to him taking over as sole proprietor was registered for VAT, and that the annual turnover for the public house whilst under the Appellant's control was in the region of £70,000. The Appellant's explanation for not registering for VAT was that he did not expect to be running the public house for a long period of time. Based on those facts the Respondents believed the Appellant would have continued to ignore his VAT obligations, had he not been found out by the VAT inspection in November 2005. Second, the Appellant's under-declaration of the takings from the public houses. Mr Sayers who conducted the direct tax investigation found that the Appellant persistently under declared trading receipts, in particular he omitted credit card and cheque receipts from the daily record of takings.
25. We find that the Respondents were correct to place weight on these two sets of facts in assessing the risk posed by the Appellant to the protection of the revenue. The facts demonstrated the Appellant's blatant disregard of his responsibilities in respect of income tax and VAT, and his inclination to remain below the Respondents' radar until found out by formal enquiries into his tax affairs.
26. The Appellant contended that the Respondents' refusal to authorise his use of the flat rate scheme denied him the administrative and monetary benefits that came with the scheme. In the Appellant's view the Respondents were acting unreasonably and contrary to the spirit of the legislation. The Appellant, however, overlooked the fact that the flat rate scheme was introduced not only to simplify the VAT affairs for taxpayers but also to lessen the compliance burden for the Respondents. Thus the Respondents were right in placing emphasis on the Appellant's compliance record and disregarding the benefits of the scheme for the Appellant because his record went to the very heart of the simplification aim of the legislation. The Appellant's abysmal compliance record showed that he was not to be trusted with the light touch compliance regime of the flat rate scheme.
27. The Appellant challenged the Respondents' characterisation of him as untrustworthy by pointing to his compliance record from January 2006. The strength of the Appellant's challenge, however, was undermined by his flagrant disobedience of the Respondents' instructions not to use the flat rate scheme for computing his VAT liability. The Appellant's disobedience of direct instructions provided further proof of the risks posed by him to the protection of revenue, and rendered his compromise of starting the flat rate scheme from February 2006 unmeritorious.

Decision

28. We are satisfied for the reasons given above that the Respondents considered all relevant matters and disregarded irrelevant matters in their decision to refuse authorisation of the flat rate scheme by the Appellant. We, therefore, find the Respondents' refusal reasonable and dismiss the Appeal. We make no order for costs.
29. As a result of our decision we uphold the assessments dated 25 April 2006 and 3 May 2007 in the respective sums of £3,241 and £2,409. The other assessment dated 13 March 2008 in the sum of £3,134 was not part of the Appeal.

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 16 January 2009

LON/