Infinity Distribution Ltd ((in Administration)) v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE SIMON,Mr Justice Simon |
| Judgment Date | 11 June 2010 |
| Neutral Citation | [2010] EWHC 1393 (Ch) |
| Docket Number | Case No: HC09C00978 |
| Court | Chancery Division |
| Date | 11 June 2010 |
[2010] EWHC 1393 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Before: The Hon Mr Justice Simon
Case No: HC09C00978
Mrs Penny Hamilton (instructed by Thomas Cooper. Solicitors) for the Claimant
Mr Philip Woolfe (instructed by The Solicitor HMRC) for the Defendant
Hearing dates: 11–12 May 2010
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Simon
Introduction and background
This is the trial of issues ordered to be tried by Chief Master Winegarten on 16 July 2009.
The Claimant was a company carrying on business in the wholesale supply of mobile telephones. The Defendants ('the Commissioners') are responsible for the collection and management of revenue from Value Added Tax ('VAT') pursuant to powers under the Value Added Tax 1994, as amended, (' VATA').
The Commissioners took various decisions in relation to the Claimant between 18 August 2006 and 22 June 2007.
First, the Commissioners made decisions as to what they considered to be the correct VAT in relation to certain transactions.
i) They refused claims made by the Claimant for credit for input tax on the grounds that (the Claimant knew or should have know that the transactions were connected with fraud; and (ithe transactions claimed by the Claimant to have taken place could not in fact have occurred.
ii) They decided that supplies claimed by the Claimant to be zero-rated for VAT purposes were properly to be treated as standard-rated and accordingly the Claimant should account for additional amounts by way of output tax.
Secondly, the Commissioners took steps which were designed to ensure that their view of the correct VAT treatment of those matters was reflected in a process of accounting and enforcement.
i) In respect of four VAT periods for which the Claimant had submitted 'repayment' returns but in respect of which the Commissioners had not yet made payments to the Claimant, they revised the amounts that they considered to be payable on the VAT returns so as to take account of the decisions in respect of input tax and output tax. In respect of three of those periods the Commissioners assessed a balance as being payable by the Claimant; and in respect of one period they considered a net balance was payable to the Claimant;
ii) They issued other assessments to the Claimant to recover amounts due to the Commissioners as a result of the decisions in respect of input tax and output tax;
iii) They issued an assessment to the Claimant to recover a mis-declaration penalty which the Commissioners considered was payable under s 63 VATA.
The Claimant appealed against each of those decisions. In respect of some of the decisions, the Claimant made applications under then s.84(3) of VATA that the appeal should be entertained notwithstanding that the amount in question had not been paid or deposited with the Commissioners ('hardship applications').
One of the appeals, MAN/07/740, was allowed by the VAT & Duties Tribunal on 24 July 2008 as a result of the Commissioners' failure to comply with an 'unless' order previously made by the Tribunal. As a result of that appeal being allowed, the Commissioners were bound to credit the Claimant for input tax in the sum of £12,957,628.25 (I shall refer to this sum as £12.95m for convenience) in respect of VAT periods 02/06 to 05/06 ('the MAN/07/740 Input Tax Credit'). The other appeals ('the Unresolved Appeals') remain pending before what is now the First Tier Tribunal (Tax Chamber).
In order to account for the MAN/07/740 Input Tax Credit, the Commissioners revised the amounts which they considered to be due to the Claimant in respect of VAT periods 02/06 to 05/06, while maintaining their other decisions which were under appeal by the Claimant. On that basis the Commissioners calculated their net liability to the Claimant in respect of VAT periods 02/06 to 05/06 to be £5,807,396.71.
The Commissioners also set off against that liability other sums which it considered to be due from the Claimant. These included sums due as a result of assessment decisions appealed by the Claimant. Having set off these sums, the Commissioners calculated their net liability to the Claimant as £2,401,304.83, which they paid to the Claimant on or about 10 November 2008.
The issues to be tried
Chief Master Weingarten ordered the following issues to be tried:
i) Whether, pending the resolution of the appeals before the First Tier Tribunal (Tax Chamber) under appeal references MAN/06/643, MAN/07/136 and MAN/08/724 and of the Claimant's hardship applications in any of those appeals, the Defendants' net VAT liability to the Claimant for VAT periods 02/06 to 05/06 is to be deemed to be that set out in paragraph 8.11 of the Amended Defence and Counterclaim dated 13 March 2009 and, in particular, whether the Commissioners had any right in law,
a) to notify the Claimant that the amounts shown on the Claimant's VAT returns as output tax and input tax for the VAT periods 02 to 05/06 should properly be amended as set out in letters dated 28 June 2007 and 9 July 2007 and/or
b) to set off against their VAT liability to the Claimant for periods 02/06 to 05/06 the amounts which are subject to those appeals.
ii) Whether, pending the resolution of the appeals before the First Tier Tribunal (Tax Chamber) under appeal references MAN/06/642, MAN/07/136, and MAN/08/724 and of the Claimant's hardship applications in any of those appeals, the Defendants are entitled to set off against their VAT liability to the Claimant for periods 02/06 to 05/06 those amounts set out at paragraph 8.13 of the Amended Defence and Counterclaim dated 13 March 2009 which are not admitted by the Claimant to be due to the Commissioners, namely the officer's assessments for VAT accounting period 01/06 and a mis-declaration penalty for period 1/06.
The Claimant contends that the answers to questions (1) and (2) are, no. The Commissioners contend that the answer to each question is, yes.
For reasons which will become apparent later in this judgment, the parties agreed these issues could be expressed differently.
The provisions of VATA which apply
The relevant statutory regime is that which existed as at 8 December 2008.
The UK legislation relating to Value Added Tax is contained in VATA (as amended) and the subordinate legislation made under the Act.
In summary, VAT is charged on taxable supplies of goods and services in the United Kingdom made by a taxable person in the course or furtherance of any business (s.4).
A taxable person is required to make VAT returns for accounting periods which account for VAT on supplies made by the taxable person ('output tax') and claim credit for VAT on supplies made to the taxable person ('input tax') (ss.24 and 25). If the amount of input tax exceeds the amount of output tax the Commissioners are required to pay the excess to the taxable person as a VAT credit (s.25(3)).
Obligations in relation to the accounting, payment and records which must be kept in relation to VAT are set out in Part V of the Value Added Tax Regulations 1995: S.I. 1995/2518 ('the 1995 Regulations'). A taxable person must make a return in accordance with regulation 25. Returns are normally made every three months but the Commissioners may allow or direct a taxable person to make monthly returns (regulation 25(1)(a)).
Regulations 34 and 35 deal with corrections of errors. Regulation 34 permits correction by the taxable person to his account subject to a financial limit. Regulation 35 provides that:
Where a taxable person has made an error —
(a) in accounting for VAT, or
(b) in any return made by him,
then, unless he corrects that error in accordance with regulation 34, he shall correct it in such manner and within such time as the Commissioners may require.
Regulation 39 deals with the way in which the return must be completed by the person making the return; and regulation 39(4) provides,
Where any correction has been made and a return calculated in accordance with these Regulations then any such return shall be regarded as correcting any earlier returns to which regulations 34 and 35 apply.
Regulation 40(2) requires the person to pay the amount of VAT payable.
The Commissioners have the power under s. 63 of VATA to impose a penalty for a mis-declaration.
Section 73 deals with failures to make returns.
(1) Where a person has failed to make any returns required under this Act … or where it appears to the Commissioners that 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.
Section 73(9) of the Act provides (so far as is relevant),
Where an amount has been assessed and notified to any person under subsection (1), (2), (3)… above it shall, subject to the provisions of this Act as to appeals, be deemed to be an amount of VAT due from him and may and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced.
Section 74 confers the Commissioners with the power to charge interest on VAT recovered or recoverable on assessment.
The Commissioners have powers under s.76 to raise assessments in relation to amounts due by way of penalty, interest and surcharge.
(1) Where any person is liable –
(a) to a surcharge under s.59 …, or
(b) to a penalty …
(c) for interest under s.74 …
…
The Commissioners may … assess the amount due by...
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