Edebiri (t/a TT Trading)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 January 2021 |
| Neutral Citation | [2021] UKFTT 4 (TC) |
| Date | 07 January 2021 |
| Court | First-tier Tribunal (Tax Chamber) |
[2021] UKFTT 4 (TC)
Judge Anne Redston, Miss Patricia Gordon
Value added tax – Gig economy worker registered for VAT by courier company – Below threshold and did not understand VAT – Failed to charge output tax – Life-Threatening health conditions including loss of use of a limb following coronavirus – Assessments totalling £20,021 – Appeal allowed in part – Assessments totalling £3,408 upheld and other assessments set aside.
[1] Mr Edebiri appealed against VAT assessments made by HM Revenue and Customs (“HMRC”) of £20,021 for periods 07/14 to 01/18.
[2] The Tribunal has cancelled all the assessments other than those for 07/16 to 04/17.
[3] As a result, the total of the VAT assessments is reduced to £3,408 and Mr Edebiri's appeal is allowed in part.
[4] The facts of the case, in summary, are as follows:
- Mr Edebiri was registered for VAT by DHL when he was a courier working in the gig economy, and he did not understand how VAT worked.
- He was told that because he was self-employed, the VAT on his franchise fee and petrol could be claimed back. He provided DHL with a record of the money he had spent on petrol.
- He left DHL in 2013 and began working as a driving instructor. He was well below the VAT threshold and his customers could not reclaim input VAT. Had he understood the VAT rules, he would have deregistered when he left DHL.
- Instead, he went on claiming VAT on his petrol costs. He did not charge VAT to his customers.
- HMRC repaid all his claimed VAT until 2018, when an HMRC officer visited his premises and explained how VAT worked. She issued an assessment to recover the output tax and some of the input tax.
- The Tribunal has set aside all but four of the assessments because HMRC failed to exercise their discretion to consider alternative evidence of input tax, see G B Housley Ltd v R & C Commrs [2017] BVC 4 (Housley).
- Mr Edebiri is seriously ill. He is on daily dialysis as the result of Chronic Kidney Disease (CKD). During 2020 he was in hospital for two months with coronavirus, including three weeks on a ventilator. Although he has now been discharged, he has lost the use of one of his legs. He is unable to work. His mental health is suffering because of the stress caused by these assessments.
- He has always been entirely honest and straightforward in his dealings with HMRC, and this situation came about as the result of an innocent mistake. Had Mr Edebiri understood VAT he would have deregistered, and the output tax (which formed the bulk of each assessment) would never have arisen.
[5] The Tribunal was provided with the evidence in the Bundle, which included:
- the correspondence between the parties, and between the parties and the Tribunal;
- Mr Edebiri's VAT returns and HMRC's assessments; and
- the invoice for the car which Mr Edebiri purchased to carry out his trade.
[6] Mr Edebiri gave oral evidence, was cross-examined by Ms Donovan and answered questions from the Tribunal. He was an entirely honest and credible witness. We had to take several breaks during the proceedings as he was too distressed to continue. We offered an adjournment, but Mr Edebiri said he was determined to keep going in the hope of resolving the financial difficulty he was facing.
[7] On the basis of the evidence in the Bundle and Mr Edebiri's oral evidence, the Tribunal makes the following findings of fact.
[8] In 2010 Mr Edebiri began working as a franchisee courier driver for DHL. He understood that he was self-employed and that he had to provide his own vehicle. He paid DHL a franchise fee for working as a courier.
[9] DHL registered him for VAT, although his turnover was well below the relevant threshold. He was instructed to provide DHL with the monthly amount he had spent on fuel and he did this, keeping a record in his notebook.
[10] Mr Edebiri did not understand VAT. He thought the self-employed could claim VAT back on money they had spent in their business, such as fuel and franchise fees, because he knew DHL claimed that VAT. However, he did not realise that DHL had used their own information about the income he made from his journeys to include output VAT on his returns.
[11] In 2013 Mr Edebiri left DHL and retrained as a driving instructor. He continued to purchase his own fuel and paid franchise fees to a succession of driving schools. From early 2014 to May 2016 he paid £197.50 a week to a school called Bill Plant Ltd; from June 2016 for about a year he paid £100 a week to a school called RED, and he subsequently paid £52.50 a week to a school called D Johns.
[12] It was Mr Edebiri's evidence that the franchise fees were paid via his bank account by direct debit and were identifiable as such on the bank statements, and that he had provided HMRC with his bank statements for 2014 to 2018. However, those statements had not been included in the Bundle. Ms Donovan did not challenge his evidence, and said she was willing to locate the bank statements, although this would require an adjournment.
[13] We decided that it was not in the interests of justice to adjourn, and we accepted Mr Edebiri's unchallenged evidence that he had provided the bank statements to HMRC and as to the amounts of the franchise fees, and as to the method of payment, for the following reasons:
- Mr Edebiri was able to provide precise figures for the weekly fee paid to each school, no doubt reflecting the size of the payments as a percentage of his weekly earnings;
- it made commercial common sense for driving schools to require their drivers to pay the franchise fees on a regular basis via direct debit;
- HMRC had asked him for the bank statements (see §26), and it was extremely unlikely that Mr Edebiri would have failed to provide them; and
- an adjournment to require HMRC to add the bank statements to the Bundle, or for Mr Edebiri to obtain further copies, would further delay the resolution of Mr Edebiri's appeal.
[14] After the issuance of the assessments Mr Edebiri contacted the schools to obtain further evidence, but only RED responded. Bill Plant Ltd had gone into liquidation and no reply was received from D Johns. Mr Edebiri forwarded the letter from RED to HMRC. There was no copy of that letter in the Bundle, but the HMRC review officer, Ms Coster, confirmed receipt and said that the VAT included in the figure provided was £671. The total paid inclusive of VAT must therefore have been £4,026. Given that the franchise fee was £100 a week, we find that Mr Edebiri worked for that school for around 40 weeks.
[15] Mr Edebiri's annual turnover was between £20,250 and £26,060, so less than one-third of the VAT threshold. His customers were all individuals who were not VAT-registered. He charged between £20 and £22 per hour.
[16] Mr Edebiri remained registered for VAT when he left DHL, but because he did not understand how VAT worked, he continued to reclaim the VAT on his fuel and his franchise fee as he knew this was what DHL had done, but he did not know he had to charge VAT to his customers. As a result, his VAT returns were all repayment returns. HMRC repaid him the VAT he had claimed, without question.
[17] In June 2016, Mr Edebiri purchased a Ford Fiesta for £14,900 including VAT of £2,475. He used the vehicle to give driving lessons and to some extent privately.
[18] In 2017 Mr Edebiri was diagnosed with kidney problems and advised to change his work because it was contributing to the deterioration in his health. He decided to try and earn money by letting out rooms. He borrowed to carry out a property conversion so that individual rooms could be let to students. He knew that letting rooms was a business and assumed he would be continuing to work on a self-employed basis and so could reclaim the VAT on the conversion costs. He included input tax of £11,766 on his VAT return for the period 04/18.
[19] On 25 June 2018, Mrs Watkins, an HMRC Officer, visited Mr Edebiri at home. She identified that he had not been charging or collecting output tax. Although he had written down each purchase of fuel in a notebook, as he had done when he worked for DHL, he was unable to locate the related receipts. Mrs Watkins also explained to Mr Edebiri that letting rooms is exempt from VAT, and so he could not claim that input tax.
[20] On 28 June 2018, Mrs Watkins wrote to Mr Edebiri, saying that:
- she had disallowed the input VAT relating to the property;
- he owed VAT of £16,380.28 on his outputs for the period from 07/14 to 04/18; and
- she had disallowed most of the input tax claimed in relation to his driving school work for the same period, but allowed £130 per week for fuel, adjusted for a private use scale charge, with the result that input VAT of £8,120 was owed.
[21] HMRC deregistered Mr Edebiri with effect from 25 May 2018. We were not provided with the related documentation but have inferred that he was deregistered from that date because he was no longer working as a driving instructor and so had ceased to make taxable supplies.
[22] On 17 July 2018, HMRC issued Mr Edebiri with a document headed “Notice of VAT assessment(s) or overdeclaration(s)”. The opening paragraph read:
Examination of your records has shown that the correct amounts of Value Added Tax have not been declared or, where appropriate, assessed for the period(s) shown. The Commissioners for HM Revenue & Customs have made assessments for tax and interest, where appropriate, and/or adjusted for overdeclaration(s) for the period(s) shown.
[23] The total assessed was £23,176.78, plus interest of £1,289.31, for periods 07/14 through to 01/18, so excluding the period in which Mr Edebiri had claimed VAT on the property renovation costs. That period's return was amended by HMRC to show an amount payable of...
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