Best Buys Supplies Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 January 2010 |
| Neutral Citation | [2010] UKFTT 304 (TC) |
| Date | 01 January 2010 |
| Court | First-tier Tribunal (Tax Chamber) |
[2010] TC 00591
[2010] UKFTT 304 (TC)
John Brooks (Tribunal Judge) (Chairman); Dr Caroline Small (Member)
Timothy Brown, counsel, instructed by the VAT Consultancy for the Appellant
Richard Smith, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
VAT - Whether R & C Commrs were unreasonable in the exercise of their discretion not to allow claims for input tax in absence of valid tax invoices - Yes - Whether the decision to refuse claims for input tax have been the same had R & C Commrs acted reasonably - Yes - Appeal dismissed - Value Added Tax Regulations 1995 (SI 1995/2518), reg. 29(2)
Input tax - Deficient VAT invoices - Whether commissioners' decision to refuse claims were reasonable - The appellant carried on business as a wholesaler of alcoholic drinks - It had been advised by the commissioners that because this trade sector contained a high incidence of fraud it should take great care and exercise due diligence checks on suppliers - The appellant was informed by the commissioners that a supplier, Samson Traders (UK) Ltd, had deregistered from VAT in April 2006 and while inspecting the appellant's purchase records the commissioners noted that many of the 43 invoices from this supplier were dated after the date of deregistration - These, as well as five issued before the deregistration date, did not show the supplier's VAT registration number and, as such, were invalid invoices - The commissioners issued an assessment in the sum of £110,324 to disallow input tax claimed on the invalid invoices - The appellant initially contended that the invoices were valid, but at the commencement of the appeal hearing, it conceded that this was incorrect - The remaining sole ground of appeal was that the commissioners had acted unreasonably in not exercising their discretion to allow the input tax claims under reg. 29(2) of the Value Added Tax Regulations 1995 (SI 1995/2518) - The first question for the tribunal was whether the supplies shown on the disputed invoices had actually taken place - The commissioners submitted that there was insufficient evidence to establish that any supplies had been made - However, the tribunal considered that since the commissioners accepted that supplies had been made in respect of the transactions shown on the valid invoices, there were sufficient grounds for concluding that supplies had also been made in respect of the goods shown on the invalid invoices - Having found that the supplies took place, the tribunal was required to decide whether the commissioners were unreasonable in the exercise of their discretion not to allow the deduction of input tax by the appellant - Held, applying the terms of the then current Statement of Practice titled "Input Tax Deduction Without a Valid VAT Invoice", that for such high risk goods the business, in the absence of valid VAT invoices, should be able to provide satisfactory answers to the list of questions at Appendix 2 of the Statement regarding alternative supporting evidence and information concerning the supplier - In the opinion of the tribunal, the appellant was not able to answer sufficient questions to justify the exercise of discretion by the commissioners to allow the input tax claims - Assessment upheld and appeal dismissed.
1. This is an appeal by Best Buys Supplies Limited (the "Company") against an assessment, dated 28 July 2006, in the sum of £110,324 disallowing a claim for input tax made in the Company's VAT return for the period ended 31 May 2006 on the basis that it was made in reliance on invoices that were invalid by reason of showing no VAT registration number and/or being issued by a deregistered trader.
2. Although in its amended grounds of appeal the Company contended that the invoices on which it relied were valid, at the commencement of the hearing Mr Brown, for the Company, conceded that this was not the case and that the sole ground of appeal was that, in the absence of valid tax invoices, the Commissioners ("HMRC") were unreasonable in not exercising their discretion to allow the claims for input tax under Regulation 29(2) of the Value Added Tax Regulations 1995.
3. We heard oral evidence from the Company's managing director, Monoj Patel, and Mark Peneron, the managing director of Checkprice UK Limited ("Checkprice") for the Company and Mohamed Aniz Abdul-Karim, Robert Lamb and Alan Crombleholme for HMRC. There was a joint bundle of documents. Although there was no agreed statement of facts, the underlying facts were not disputed.
4. Mr Patel, whose family been involved in the retail business for many years, became bored after several years running an off licence and saw greater potential in the wholesale alcohol business. In 2005 the Company was incorporated as a vehicle for this purpose and was registered for VAT. Within a year its turnover had grown to over £2 million. The Company did not have any warehouse facilities of its own and only purchased goods after a customer placed an order with it. The goods were then delivered directly to the customer by the Company's supplier as its margins did not allow for the cost of haulage. Customers were found by Mr Patel who was, as he told us, a trader always looking for a deal in this high volume business. Mr Patel found customers through the contacts he had made at wholesalers and during the time he ran the off licence in addition to contacting alcohol traders listed Yellow Pages and other directories.
5. On 13 December 2005 the Company received a visit from HMRC officers Mr Abdul-Karim and Mr Paul Simpson. The purpose of the visit, as stated in Mr Abdul-Karim's report was "to verify [the] supply chain for a new supplier" to another company. During this visit Mr Patel was informed that because the Company was involved in the supply of alcoholic drinks, a trade sector with a high incidence of fraud on the Revenue, it should take great care when entering into transactions and should perform due diligence checks on any potential suppliers to ensure that they were bona fide traders and that goods for which it paid were actually being supplied. Mr Abdul-Karim also told Mr Patel that one of the Company's suppliers, Speedex Freight UK Limited, had failed to submit VAT returns and that any subsequent claim for input tax for of supplies made by Speedex would be disallowed. This was confirmed in writing by Mr Abdul-Karim in his letter to the Company of 15 December 2005 and as a result the Company stopped dealing with Speedex.
6. The Company had previously been approached by a Mr Anthony Rajah Samson of Samson Traders UK Limited ("Samson"), which became its main suppliers from March 2006. However, before any transactions took place Mr Patel undertook due diligence checks on Samson obtaining details of its registration and a copy of its Certificate of incorporation from Companies House on 21 February 2006 and contacting the National Advice Service of HMRC on 1 March 2006 by telephone to verify its VAT registration number. Although Samson's VAT registration number was confirmed by HMRC as valid, Mr Patel was told that this "confirmation cannot be regarded as authorisation by the Department for you to enter into commercial transactions with the trader. Any input tax claimed you make may be subject to further verification by us."
7. Mr Patel described a typical transaction between the Company and Samson which, insofar as it involved Checkprice, was confirmed by Mr Peneron. After receiving an order, usually by telephone from Checkprice, Mr Patel would contact Samson by telephone and order supplies of wines and beers which Samson would then deliver to Checkprice. The Company would invoice Checkprice for these goods and receive payment either by an exchange of goods or in cash. Payment would then be made to Samson in cash by Mr Patel at Samson's office in Edgware. Although the Company had agreed credit terms of 7 to 14 days with Samson Mr Patel explained that, in practice, credit was usually given for a longer period. Mr Patel informed the tribunal that Samson used a serviced office in Edgware without warehouse facilities which was different to its registered address and that he did not consider it necessary to ask about the location of the warehouse or how Samson obtained its stock. He accepted that it did not appear to make commercial sense for Samson to supply Checkprice via the Company, when it could have cut Company out of the deal and supplied directly to Checkprice, but said that this is what happened.
8. In addition to its trade in alcohol Samson had also been involved in transactions concerning computer chips, hardware and mobile phones. It had failed to submit VAT returns and there was no evidence of it trading from its registered address. As a result Mr Robert Lamb, the HMRC officer who visited Samson's premises on 21 April 2006, posted a VAT deregistration notice through the door. Similarly there was no-one available from Samson on 4 May 2006 when HMRC visited the serviced office in Edgware. In addition, its director and accountant failed to attend a pre-arranged meeting with HMRC on 16 May 2006 at the Edgware office. A missing trader assessment in excess of £36 million was issued to Samson on 9 May 2006. No appeal has been made against this assessment.
9. On 6 June 2006 Mr Abdul-Karim contacted Mr Patel by telephone to arrange an inspection of the Company's books and records the following day. During the telephone conversation, when informed by Mr Patel that the Company was receiving supplies from Samson, Mr Abdul-Karim told Mr Patel that he had concerns with these supplies as Samson appeared to have been deregistered for VAT from April 2006. Mr Abdul-Karim said that he would make further enquiries in this regard and advise Mr Patel accordingly. However, rather than wait for Mr Abdul-Karim, Mr Patel made his own enquiries and contacted...
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Best Buys Supplies Ltd v HM Revenue and Customs
...Added Tax Regulations 1995 (1995/2518), reg. 29(2). This was an appeal by the taxpayer from a decision of the First-tier Tribunal ([2010] UKFTT 304 (TC); [2010] TC 00591) dismissing its appeal against a VAT assessment in the sum of £110,324. The taxpayer carried on business as a wholesaler ......