G B Housley Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Gloster,Mr Justice Baker,Lord Justice Patten |
| Judgment Date | 21 December 2016 |
| Neutral Citation | [2016] EWCA Civ 1299 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 December 2016 |
| Docket Number | Case No: A3/2015/1183 |
[2016] EWCA Civ 1299
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
MR JUSTICE WARREN, CHAMBER PRESIDENT
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Gloster
Lord Justice Patten
and
Mr Justice Baker
Case No: A3/2015/1183
Michael Thomas (instructed by Croner Taxwise) for the Appellant
Vinesh L Mandalia (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondent
Hearing dates: 21 June 2016
Approved Judgment
Introduction
This is an appeal by the appellant taxpayer, G B Housley Limited ("the appellant" or "the taxpayer") against a judgment 1 of the Upper Tribunal (Tax and Chancery Chamber) (Warren J) dated 13 February 2015 ("the second judgment") following the hearing of an appeal by the respondents, the Commissioners for HM Revenue and Customs ("the respondents" or "HMRC"), to the Upper Tribunal. The appeal relates to a disputed assessment dated 25 March 2009 ("the assessment") and made by the respondents under section 73 of the Value Added Tax Act 1994 (" VATA") in the sum of £337,381 plus interest representing VAT arrears for the periods 1 March 2006 to 31 August 2008.
The judge had given an earlier decision 2 on the respondents' appeal ("the first judgment") in which he had held in favour of the taxpayer, and against HMRC, and affirmed the First-tier Tribunal's ("FtT") decision 3 dated 15 February 2015 ("the FtT decision") insofar as it held that the failure of HMRC in July 2009, to consider exercising their discretion under regulation 29(2) ("regulation 29(2)") of the VAT Regulations 1995, Statutory Instrument 1995/2518 ("the regulations"), to accept, in the absence of proper self-billing invoices, alternative evidence in support of input tax deductions, was unreasonable. The FtT had held, as a result, that the assessment which had been raised against the appellant was invalid and that it should be discharged. Accordingly, the FtT had allowed the appellant's statutory appeal. However, in the course of the first judgment the judge had raised the issue as to what were the consequences of HMRC's failure properly to exercise their discretion; in particular, whether the assessment should be discharged or should stand. Because he had not heard argument on the point he adjourned the hearing for further argument.
The second judgment addressed this issue. The judge held (disagreeing in this respect with the FtT) that the FtT should not have allowed the appellant's statutory appeal. He concluded that the appellant's statutory appeal should be allowed only in one of the two following circumstances:
i) HMRC revisited the exercise of their discretion under the regulation and decided to exercise it in favour of the appellant; or
ii) the FtT (or the Upper Tribunal) decided that no reasonable body of commissioners could reach a decision not to exercise the discretion under regulation 29(2) in favour of the appellant.
He expressed the view that the correct course was as follows:
i) that the appellant should within a particular period of time (to be determined by the FtT) provide any further material to HMRC which the appellant wished HMRC take into consideration when exercising its discretion;
ii) that HMRC should within a particular period of time (to be determined by the FtT) revisit the issue of the exercise of their discretion upon the basis of all the materials then available to it;
iii) for the FtT thereafter, and, if necessary, in the light of any decision made by HMRC, to decide whether HMRC would be acting within the proper exercise of their powers to decide not to exercise their discretion under regulation 29(2) in favour of the appellant.
Accordingly, he allowed HMRC's appeal and remitted the matter to the FtT for it to make a further decision in accordance with the principles set out in the second judgment. The appellant's appeal challenges that order.
On the appeal before us, as before the Upper Tribunal, Mr Michael Thomas appeared as counsel on behalf of the appellant and Mr Vinesh Mandalia appeared as counsel on behalf of the respondents.
The relevant legislative provisions
The following is a summary of the relevant legislative provisions.
The relevant charging provisions are found in section 29 and schedule 11 of VATA and in regulations 13 and 29 of the regulations. Paragraph 2B of schedule 11 to VATA establishes the self-billing regime. Paragraph 2B essentially provides that where conditions imposed by HMRC, either in regulations or in a VAT Notice, are complied with, then a taxable person can provide to himself a self-billing invoice which is treated as if it were the VAT invoice which would otherwise be required to be provided by his supplier.
The regulations contain provisions governing the self-billing regime. Regulation 13(3) provides that "a self-billed invoice", which is provided by a taxpayer who is a registered person to himself, is treated as a VAT invoice if it complies with both the conditions set out in regulation 13(3A) and any further conditions that may be contained in a VAT Notice published by HMRC. A "self-billed invoice" must purport to be a VAT invoice in respect of a supply of goods and services to him by another registered person. Regulation 13(3A) in turn sets out the three conditions which must be complied with if a self-billed invoice is to be treated as a VAT invoice:
i) first, it must have been provided pursuant to a prior "self-billing agreement" entered into by the supplier of the goods or services and their recipient which satisfies the requirements in paragraph (3B);
ii) second, it must contain the particulars required under regulation 14( 1) or (2);
iii) third, it must relate to a supply or supplies made by a supplier who is a taxable person; in that context, section 3 of VATA provides that a person is a taxable person "while he is, or is required to be, registered…".
Regulation 13(3B) sets out the conditions for a self-billing agreement. regulation 13(3C) provides that a self-billing agreement is treated as having expired when the supplier ceases to be registered for VAT.
Regulation 29(2) provides that at the time of claiming deduction of input tax a person shall, in respect of a supply from another taxable person, hold the document which is required to be issued under regulation 13. In the case of supplies to the appellant by the four suppliers concerned in the present case, the document was the one which is required under regulation 13, that is to say either an ordinary VAT invoice from the supplier or a self-billed invoice satisfying the three conditions mentioned above. However, regulation 29(2) is subject to this proviso ("the proviso"):
"provided that where the Commissioners so direct, either generally or in relation to particular cases, a claimant shall hold or provide such other evidence of the charge to VAT as the Commissioners may direct."
As was common ground between the parties, the effect of regulation 29(2) is that HMRC have a discretion to allow a credit for input tax notwithstanding that the taxable person does not hold a valid tax invoice: see Kohanzad v Customs and Excise Commissioners [1994] STC 967 at 969 per Schiemann J, followed in Best Buys Supplies Ltd v Revenue & Customs Commissioners [2012] STC 885 at [48].
Section 73 of VATA deals with the power of HMRC to make assessments. In so far as material it provides as follows:
"73. Failure to make returns etc.
(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.
(2) In any case where, for any prescribed accounting period, there has been paid or credited to any person—
(a) as being a repayment or refund of VAT, or
(b) as being due to him as a VAT credit,
an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly.
(3) ……
(4) ……
(5) ……
(6) An assessment under subsection (1), ( 2) or (3) above of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following—
(a) 2 years after the end of the prescribed accounting period; or
(b) one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge,
but (subject to that section) where further such evidence comes to the Commissioners' knowledge after the making of an assessment under subsection (1), ( 2) or (3) above, another assessment may be made under that subsection, in addition to any earlier assessment."
Section 77 sets out the various time limits applying to the making of assessments. In so far as material it provides as follows:
"77 Assessments: time limits and supplementary assessments.
(1) Subject to the following provisions of this section, an assessment under section 73, 75 or 76, shall not be made—
(a) more than 3 years after the end of the prescribed accounting period or importation or acquisition concerned, or
(b) in the case of an assessment under section 76 of an amount due by way of a penalty which is not among those referred to in subsection (3) of that...
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