B J Rice & Associates (A Firm) v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 07 February 1996 |
| Date | 07 February 1996 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Staughton and Ward L JJ and Sir Ralph Gibson.
The taxpayer, Mr Rice, appeared in person.
Melanie Hall (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment:
Broadwell Land plc VAT(LON/92/1294) No. 10,521; [1994] BVC 503
C & E Commrs v Thorn Electrical Industries LtdWLRVAT[1975] 1 WLR 1661; (1975) 1 BVC 63
Value added tax - Time of supply - Continuous supplies of services made before registration - Payment received by taxpayer after registration - Whether time of supply when services performed or when paid for - Whether liability for tax - Value Added Tax Act 1983, s. 2, 4, 5 (Value Added Tax Act 1994Value Added Tax Act 1994, ss. 4, 6) - Value Added Tax (General) Regulations 1985 (SI 1985/886), reg. 23(1) (SI 1995/2518Value Added Tax Regulations 1995 (SI 1995/2518), reg. 90).
This was an appeal by the taxpayers against a decision of Macpherson J ([1994] BVC 165) upholding a decision of the tribunal ([1992] BVC 880) that VAT was payable where a taxpayer was paid for professional services after he was registered for VAT for work done before registration.
The taxpayers, who were tax consultants, were registered for VAT on 21 October 1986. At some time before that date they had raised an invoice for £150 in respect of work done for a client. As they were not registered at that time the invoice was not a tax invoice and no VAT was or could have been charged.
The client did not pay and the taxpayers wrote off the debt as a bad debt. In 1991 the same client wanted further services from the taxpayers to which they agreed only on receipt of payment for the pre-registration work. On 3 March 1991 the taxpayers received a cheque for the amount invoiced in 1986. No new invoice had been issued to include VAT.
The taxpayers appealed to the tribunal against a ruling by Customs that tax was payable in respect of the receipt. The tribunal dismissed the appeal holding that, by virtue of Value Added Tax Act 1983, s. 4(1) and 5, and reg. 23(1)(a) of the Value Added Tax (General) Regulations 1985 ("the regulations"), the time of supply of continuous service, was to be treated as the time when payment was received.
The High Court upheld the decision of the tribunal and the taxpayers appealed to the Court of Appeal contending that they were not a "taxable person" within the meaning of Value Added Tax Act 1983, s. 2(1) when the services were performed. One of the requirements of s. 2(1), was that a trader must be a "taxable person", no tax was payable and therefore they were not within the scope of the charge to tax. The words "for the purposes of the charge to tax" in Value Added Tax Act 1983, s. 4(1) were only applicable if a charge to tax was established within s. 2(1).
Customs contended that the Value Added Tax Act 1983, s. 4 and 5 and the regulations determined conclusively and for all purposes when a supply was to be treated as taking place. There was no injustice because either a trader should foresee that he might cross the threshold and word his invoice accordingly or he could require the customer to pay the tax on top of the bill of £150 on the basis that late payment had brought the transaction within the VAT net.
Held, allowing the taxpayers' appeal by a majority, Sir Ralph Gibson dissenting:
The existence of a charge to tax had to be determined at the time when a supply was actually made. Common sense and justice pointed to that result. Whether there was a liability for tax was determined by Value Added Tax Act 1983, s. 2. But presupposing that a liability already existed, when that liability arose was determined by and s. 4 and 5.
Staughton LJ: BJ Rice and Associates are described as a firm which supplies tax consultancy and accounting services. I shall refer to them, perhaps with some degree of accuracy, as Mr Rice; he appeared as a litigant in person on their behalf.
At some time before 21 October 1986 Mr Rice did work for a client, whose name, (as we have been told) was Mr Partridge. He also sent out an invoice for £150. It was not and could not be a tax invoice under the Value Added Tax Act 1983 ("the 1983 Act"). Mr Rice was not at the time registered for VAT, since his turnover had not reached the level where he was required to register. But Mr Rice's bill for £150 was not paid, and he wrote if off as a bad debt in his accounts.
Then there came a time when he did register for VAT, on 21 October 1986. There is no finding and no evidence as to how long before that date the work was done and the invoice issued. We know only that it was before that date. For the purpose of our task in interpreting the 1983 Act we do not need to know precisely when those events happened.
Over four years later, in March 1991, Mr Partridge had a further need for the services of Mr Rice. He was told that he must first pay the fee of £150 which was still due for the earlier work, and he did so. Customs say that, as Mr Rice was now registered, he must pay VAT on the supply of services comprising that earlier work. I am not sure whether he is said to owe that percentage of £150 which represents the VAT rate prevailing in March 1991, or whether the £150 is treated as a gross sum including tax at the appropriate rate; there was no discussion of that point, and it is immaterial for us.
The VAT tribunal (chairman His Honour Stephen Oliver QC) decided in favour of Customs, that the tax was due. The same conclusion was reached by Macpherson of Cluny J on appeal to the High Court. There is now a further appeal. The issue depends entirely on the interpretation of theValue Added Tax Act 1983, but it is by no means easy.
Section 2(1) of the Act provides:
Tax shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.
It is said, as far as I can see correctly, that there are four elements in that subsection: there must be:
(2) a supply of goods or services in the UK,
(3) which is a taxable supply (in other words, not exempt),
(4) by a taxable person (someone who is or ought to be registered for VAT),
(5) in the course or furtherance of any business carried on by him.
It is not disputed that elements (1), (2) and (4) were fulfilled when Mr Rice did work for Mr Partridge at some time before 21 October 1986. But element (3) was not.
The answer of Customs is that the relevant date is not when the work was done, but in March 1991 when the £150 was paid. They reach that result by referring to reg. 23 of the Value Added Tax (General) Regulations 1985 as amended by the Value Added Tax (General) (Amendment) Regulations 1989:
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(1) … where services are supplied for a period for a consideration the whole or part of which is determined or payable periodically or from time to time, they shall be treated as separately and successively supplied at the earlier of the following times-
(a) whenever a payment in respect of the supplies is received; or
(b) whenever the supplier issues a tax invoice relating to the supplies.
It is common ground that the work which Mr Rice did for Mr Partridge came within the description provided by that regulation. It is not altogether clear to me why that should be the case - presumably there was something continuous in the nature of the work. The services of a professional man, if no fee is agreed in advance, are in general by implication to be remunerated with a reasonable fee. That will be "determined", in the language of the regulation, either by subsequent agreement of the parties or by judicial decision. In this case there was subsequent agreement, when Mr Rice submitted his invoice and Mr Partridge sent his cheque. Section 5(9) of the Act, which provides the vires for reg. 23, says-
The Commissioners may by regulations make provision with respect to the time at which … a supply is to be treated as taking place in cases where it is a supply-
(a) of goods or services for a consideration the whole or part of which is determined or payable periodically, or from time to time, or at the end of any period …
For some reason the words "or at the end of any period" are not carried forward into the regulation. Nevertheless, as I have said, it is common ground that the work was within the description of reg. 23.
Customs thus conclude that the supply in this case is to be treated as occurring, in point of time, when Mr Rice's bill was paid in March 1991. (The alternative provided by reg. 23(l)(b) was not applicable because Mr Rice never did issue a tax invoice, and could not lawfully have done so while he was not registered for VAT.) At the time when the bill was...
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