Commissioners of Customs and Excise v Rosner
| Jurisdiction | England & Wales |
| Judgment Date | 15 December 1994 |
| Date | 15 December 1994 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Latham J.
Melanie Hall (instructed by the Solicitor for Customs and Excise) for the Crown.
The taxpayer did not appear.
The following case was referred to in the judgment:
Child t/a Child and Co and Videoland VAT(LON/90/1239) No. 6827; [1992] BVC 1357
Value added tax - Input tax - Expenditure on legal services incurred in criminal proceedings - Test for recovery of input tax - Whether there was a sufficient connection between the criminal activity and the taxpayer's business - Whether supply of legal services used for the purposes of the business - section 14 subsec-or-para (3)Value Added Tax Act 1983, s. 14(3).
This was an appeal by Customs against the decision of the VAT tribunal ([1991] BVC 841) that legal expenses incurred by the taxpayer in defending criminal proceedings against him were deductible as input tax as expenditure incurred for the purposes of his business.
The taxpayer owned and ran a private educational establishment for foreign students, mainly from the third world, who required permits to enter the UK based on their attendance at the school.
In 1988 the taxpayer was charged with others with conspiracy to defraud in relation to the provision of false information under the Immigration Act 1971 and assisting persons in making false representations about whether they were genuine students or not. He received a suspended sentence on conviction and was ordered to pay £40,000 costs.
The taxpayer claimed credit for input tax of £17,090.55 under the section 14Value Added Tax Act 1983, s. 14 in respect of legal costs which was disallowed by Customs. The VAT tribunal allowed his appeal on the basis that the outcome of the criminal proceedings directly affected and was bound up with the purposes of the business and the taxpayer was therefore entitled to deduct at least part of the input tax claimed.
Customs contended that the tribunal had applied the wrong test. The effect of the outcome of the proceedings on a business was not relevant to the question whether input tax paid on legal services was recoverable. The proper test was whether there was a sufficient nexus between the criminal activity giving rise to the legal services and the nature of the business to satisfy the words, "goods or services used or to be used for the purpose of any business carried on or to be carried on by him" in section 14 subsec-or-para (3)s. 14(3)of the 1983 Act.
Held, allowing Customs' appeal:
The tribunal had erred in directing its attention to the outcome of the criminal proceedings and looking at the question of benefit to the business as opposed to determining the true question whether...
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