Benridge Care Homes Ltd and Others v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 April 2012 |
| Neutral Citation | [2012] UKUT 132 (TCC) |
| Date | 26 April 2012 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2012] UKUT 132 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Judge Malcolm Gammie QC, Judge Charles Hellier.
Nigel Gibbon (Solicitor, instructed by Andrew Needham, VAT Specialists Ltd) for the appellant.
Richard Chapman (instructed by the Solicitor to HM Revenue and Customs) for the respondents.
The following cases were referred to in the decision:
Barclays Bank plcVAT No. 18,410; [2004] BVC 2,064
Birmingham Hippodrome Theatre Trust LtdTAX [2011] UKFTT 117 (TC); [2011] TC 00993
BUPA Purchasing Ltd v R & C CommrsVAT [2007] BVC 603
Glaxo Group Ltd v IR CommrsTAX [1995] BTC 429
Heiser v Finanzamt InnsbruckECAS (Case C-172/03) [2005] ECR I-1627
Kingscrest Associates Ltd v C & E CommrsECASVAT (Case C-498/03) [2007] BVC 528; [2005] ECR I-4427
R (on the application of UK Tradecorp Ltd) v C & E CommrsVAT [2005] BVC 128
Sunningdale Golf ClubVAT [1997] BVC 2,400; [1997] V & DR 79
University of Sussex v C & E CommrsVAT[2004] BVC 151
Uudenkaupungin kaupunki, ReECASVAT(Case C-184/04) [2009] BVC 755; [2006] ECR I-3039
Value added tax - Input tax - Repayment - Claim for repayment of input tax - HMRC indicating by letter that figures in returns reduced to nil after taking output tax into account - Whether HMRC having power to act as they did - Whether letters amounting to assessments - Not permissible for taxpayer to under-assess output tax in order to make claim to recover input tax - Taxpayer's appeal dismissed - Value Added Tax Act 1994, Value Added Tax Act 1994 section 25 section 83ss. 25, 83 - VAT Regulations 1995 (SI 1995/2518), reg. 29.
This was an appeal by the taxpayers against a decision of the First-tier Tribunal ([2010] UKFTT 493 (TC); [2011] TC 00751) that HMRC had been entitled to reduce the taxpayers' VAT repayment claims to nil and that it was not open to the taxpayers to reclaim input tax without bringing into account the whole of the relevant output tax.
The taxpayers operated a residential care home and applied to register for VAT on a voluntary basis in order to claim input tax credit following the decision in Kingscrest Associates Ltd v C & E Commrs (Case C-498/03) [2007] BVC 528; [2005] ECR I-4427. They submitted VAT returns showing net VAT reclaimed of £66,922.
The input tax figures had been extracted from the annual accounts but no equivalent figure had been reconstructed for output tax. HMRC considered that if the accounts had been used to estimate the output tax it would have shown that an amount was due to them rather than the reverse. Accordingly, HMRC informed the taxpayers by letter that the return figures were to be reduced to nil.
The taxpayers accepted that their returns understated the amount of output tax. They explained that it had not been possible to agree a figure with the councils to which the care services in question had been supplied. The councils did not have the records to show the amount of care home fees that they had paid and were unwilling to agree "best estimate" figures. The taxpayers said, however, that there was no risk to HMRC because any output tax accounted for could have been reclaimed by the councils to which it would have been charged. Accordingly, on the basis that HMRC accepted that the input tax figures were reasonably calculated, it was not open to them to disallow the input tax.
The First-tier Tribunal disagreed, holding that it was not open to the taxpayers to claim to recover input tax by deliberately under-assessing the output tax ([2010] UKFTT 493 (TC); [2011] TC 00751). The taxpayers appealed.
Held, dismissing the appeal:
1.Section 25(2) of VATA 1994 entitled the taxpayer to credit input tax for the prescribed accounting period and to deduct that amount from any output tax that was due. The language of the subsection indicated that input tax was a credit entry in the calculation of the tax that finally had to be paid for the period. However, the right of deduction arose by reference to the output tax that was properly due and not some deliberate understatement of that amount. Section 25(3) was also explicit that the amount that a taxpayer could claim to be paid was not the input tax per se but only that amount of input tax net of the output tax due at the end of the period.
2.HMRC had no general power to revise or adjust VAT returns. The most that they could do was to require the taxpayer to do so under reg. 35 of the VAT Regulations 1995 (SI 1995/2518). What HMRC had done, by reducing the output tax and input tax figures to nil, was no more than an attempt to put into a simple framework the outcome that the amount of output tax exceeded the input tax claimed. Read as a whole, HMRC's letters reflected their decision not to seek all the VAT due and instead to treat the net amount of VAT due as nil. The issues that then arose were whether that was a course that HMRC were entitled to adopt without raising an assessment, whether the letters were in fact assessments and whether in fact there was any relevant right of appeal under s. 83 of VATA to deal with the circumstances that had arisen in this case.
3.HMRC had never disputed the amount of input tax that was creditable, in contrast to the amount that should be repaid, and the letters did not amount to decisions that no amount of input tax was creditable. Accordingly, the taxpayers had no grounds to appeal the letters as decisions against the amount of input tax that was creditable under s. 83(1)(c).
4.To the extent that the taxpayers' appeal was against a decision "with respect to … the VAT chargeable on [supplies] of services" within s. 83(1)(b), it had to fail. They admitted that their returns understated the amount of output tax actually due for the period in question and that if they had properly estimated their output tax, the output tax figure in the return would have exceeded the input tax figure, so that no amount would have been due to be repaid.
5.The letters did not purport to be assessments, but reflected a conclusion that no assessment was required or should be made because no net amount of VAT was sought. The First-tier Tribunal was in error if and to the extent that it arrived at its decision on the basis that the letters constituted assessments. There was no need to assess where no amount of tax was due. HMRC were entitled to deal with the matter as they did in their letters, in effect notifying the taxpayers that they considered that the output tax due was at least equal to the amount of the creditable input tax claimed, so that the practical effect was that all amounts in the return netted off to nil.
1.This is an appeal from a decision of the First-tier Tribunal (Tax Chamber) (Chairman: John Dent) of 24 September 2010 ([2010] UKFTT 493 (TC); [2011] TC 00751). The relevant facts can be briefly summarised. The second appellants, Mr and Mrs McLoughlin, operated in partnership a residential care home for the elderly from November 1980 until September 1986. At that point they incorporated their business and from September 1986 the care home was operated by the first appellant, Benridge Care Homes Limited. We shall refer to the business as conducted by the second appellants as "the Partnership" and the business as conducted by the first appellant as "the Company". We refer to the business as conducted by both as "Benridge".
2.Following the decision in Kingscrest Associates Ltd v C & E CommrsECAS (Case C-498/03) [2007] BVC 528; [2005] ECR I-4427, Benridge applied to be registered for VAT. The Company was registered on 30 October 2008 with effect from 15 September 1986. The Partnership was also registered on 30 October 2008 but with effect from 30 November 1980. The Partnership submitted a final VAT return for the period 30 November 1980 to 14 September 1986 showing net VAT reclaimed of £19,209.43. The Company submitted a final VAT return for the period 15 September 1986 to 31 March 1992 (when the Company ceased to trade) showing net VAT reclaimed of £47,713.34.
3.The returns prompted the Respondents to inspect Benridge's records, following which they wrote to the Appellants purporting to reduce the repayment claims to nil. Their justification for this action was that the returns did not correctly record amounts due as output tax for the periods in question. The input tax figures had been extracted from the annual accounts but no equivalent figure had been reconstructed for output tax. Furthermore, the Respondents considered that if the accounts had been used to estimate Benridge's output tax it would have shown that an amount was due to the Respondents rather than the reverse.
4.The Appellants accepted that their returns understated the amount of output tax. Indeed, in their grounds of appeal to this...
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