20962

VALUE ADDED TAX – Registration – Whether input tax incurred six months and two days prior to registration reclaimable – Rule 111(2)(d) of Value Added Tax Regulations 1995 applicable – Appeal dismissed

LONDON TRIBUNAL CENTRE

	GDI GAME DOMAIN INTERNATIONAL PLC (FORMERLY LTD)	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	MISS J C GORT (Chairman)
						MRS L M SALISBURY

Sitting in public in London on 23 January 2009

Mr R Walkden, managing director, for the Appellant

Mrs Gloria Orimoloye, advocate, of the solicitors office, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	This is an appeal against a decision of the Respondents contained in a letter dated 10 April 2008 not to amend the Appellant’s effective date of registration (‘EDR’) from 1 June 2006 to November 2006.  That decision was upheld in a letter dated 25 April 2008.

2.	The grounds of appeal as set out in the Appellant’s notice of appeal are as follows:

“When the Accountants audited the accounts, they discovered agreement and invoices dating back to 29 November 2006, and I was alerted to the incorrect VAT registration date.  It therefore became apparent that the company had begun trading much earlier than any of the new individual charged with running the company knew.  As employee number one, I believed no business had taken place prior to my arrival, but the opposite was the case.”

3.	The background to this appeal is that the Appellant (“the Company”), formerly a limited company, was set up on 19 January 2006 when it was registered at Companies House.  Its main business activity as stated on its application for VAT registration is the “sale of digital download services”.  The then owner of the Company had invented a piece of technology which was potentially worth large sums of money.  He entered into negotiation with Virgin.com Ltd and on 29 November 2006 concluded a Subscription Agreement.  By that agreement in the recital it is stated that:

“The consideration of  £750 payable by Virgin in return for the issue to it of the Subscription Shares is to be set-off against the consideration payable by the Company to Virgin for services already provided, and services to be provided in the future, by Virgin to the Company.”

4.	When the Company was set up it had an authorised share capital of £10m divided into 800 million A ordinary shares of nominal value of £0.01 each (the “A shares”) and 200 million B ordinary shares of nominal value of £0.01 each (the “B shares”), of which 300 million A shares had been issued and were fully paid or credited as fully paid.  By the Subscription Agreement Virgin stated that it wished to subscribe for the issue and allotment to it of 75 million B shares.  

5.	Mr Walkden was recruited by Virgin and started work for the Company on 1 April 2007.  At that time the Company had no bank account and was not registered for value added tax.  However a company of accountants had done some work for the Company.  There was only one director who was a director in name only.  Once Mr Walkden was appointed bank accounts were set up and on 11 May 2007 the VAT 1 was completed and sent to the Commissioners.  On the VAT 1, by which the Company was on the basis of compulsory registration, stating that it expected its taxable turnover to go over the threshold within the next 30 days, and to exceed the turnover on 1 June 2007.  The Company did not apply to backdate the registration.  The estimate of its taxable supplies in the next twelve months was £1m.  On several occasions prior to registering the Company as from 1 June 2007, the Commissioners wrote requesting further information from the Company.  It appears from notes in the file that they were suspicious as to the exact nature of the business and were investigating the possibility of MTIC fraud, given that on the VAT 1 it is stated that the Company did intend to enter into European trade.

6.	In the course of auditing the Company for the period ended 30 June 2007 the accountants uncovered two invoices issued by Virgin.com Ltd both of which were dated November 2006, one was in the sum of £468,000 with a VAT liability of £81,900, and the other was in the sum of £282,000 with a VAT liability of £49,350.  The invoices were respectively for management services as from 29 November 2006 to November 2008, and management services up until 29 November 2006.  

7.	After considerable correspondence and an assurance visit from the Commissioners, the Commissioners allowed the Company to reclaim as input the VAT on the larger of the two invoices, but would not accept the payment in respect of  management services prior to 29 November 2006, those services occurring two days prior to the six months backdating allowed.

The legislation

8.	The relevant legislation for the purpose of this appeal is as follows:

(a)	Schedule 1 paragraph 9 of the Value Added Tax Act 1994
(b)	Schedule 1 paragraph 1 of the Value Added Tax Act 1994
(c)	Regulation 111 paragraphs 1 and 2 of the Value Added Tax 	Regulations 1995 (SI 1995/2518)

Schedule 1 paragraph 1 of the Value Added Tax Act 1994

Liability to be registered

1-(1)	subject to sub-paragraphs (3) to (7) below, a person who makes taxable supplies but is not registered under this Act becomes liable to be registered under this Schedule – 
(a)	at the end of any month, if there are reasonable grounds for believing that the value of his taxable supplies in the period of one year ending has exceeded £61,000; or 
(b)	at any time, if there are reasonable grounds for believing that the value of his taxable supplies in the period of 30 days then beginning will exceed £61,000.

Schedule 1 paragraph 9 of the Value Added Tax Act 1994

Entitlement to be registered

9.	Where a person who is not entitled to be registered under this Act and is not already so registered satisfies the Commissioners that he –
(a)	makes taxable supplies; or
(b)	is carrying on a business and intends to make such supplies in the course of furtherance of that business,
they shall, if he so requests, register him with effect from the day on which the request is made or from such earlier date as may be agreed between them and him.

Regulation 111 paragraphs 1 & 2 SI 1995/2518 of Vlaue Added Tax Regulations 1995

Exceptional claims for VAT relief

(1)	Subject to paragraphs (2) and (4) below, on a claim made in accordance with paragraph (3) below, the Commissioners may authorise a taxable person to treat as if it were input tax – 

(a)	VAT on the supply of goods or services to the taxable person before the date with effect from which he was, or was required to be, registered, or paid by him on the importation or acquisition of goods before that date, for the purpose of a business which either was carried on or was to be carried on by him at the time of such supply or payment, and
(b)	in the case of a body corporate, VAT on goods obtained for it before its incorporation, or on the supply of services before that time for its benefit or in connection with its incorporation, provided that the person to whom the supply was made or who paid VAT on the importation or acquisition – 

(i)	became a member, officer or employee of the body and was reimbursed, or has received an undertaking to be reimbursed, by the body for the whole amount of the price paid for the goods or services,
(ii)	was not at the time of the importation, acquisition or supply a taxable person, and
(iii)	imported, acquired or was supplied with the goods, or received the services, for the purpose of a business to be carried on by the body and has not used them for any purpose other than such a business.

(2)	No VAT may be treated as if it were input tax under paragraph (1) above – 

(a)	in respect of – 

(i)	goods or services which had been supplied, or
(ii)	save as the Commissioners may otherwise allow, goods which had been consumed, by the relevant person before the date with effect from which the taxable person was, or was required to be, registered.

(b)	subject to paragraph (2A) below, in respect of goods which had been supplied to, or imported or acquired by, the relevant person more than 3 years before the date with effect from which the taxable person was, or was required to be, registered;
(c)	in respect of services performed upon goods to which sub-paragraph (a) or (b) above applies; or
(d)	in respect of services which had been supplied to the relevant person more than 6 months before the date with effect from which the taxable person was, or was required to be, registered.

9.	At the hearing of the appeal we announced our decision to dismiss the appeal for the following reasons.

10.	The legislation allows no discretion to either the Commissioners or this Tribunal in circumstances where a person has applied for compulsory registration and where the Commissioners have not themselves made any mistake as to the date from which they register the Company.  This is clear from regulation 111 paragraph (2)(d) of the Value Added Tax Regulations.  It is extremely unfortunate in the circumstances of this case where the officers of the Company were totally unaware of the existence of the invoices dated November 2006 at the time they applied for registration.  

11.	We made no order for costs.

MISS J C GORT
CHAIRMAN

RELEASED: 20 February 2009

LON 2008/1150