National Provident Institution v The Commissioners of Customs and Excise, V 18944

JurisdictionUK Non-devolved
JudgeDr A Nuala BRICE
Judgment Date18 February 2005
RespondentThe Commissioners of Customs and Excise
AppellantNational Provident Institution
ReferenceV 18944
CourtFirst-tier Tribunal (Tax Chamber)
$

18944




VALUE ADDED TAX – input tax –Appellant made exempt supplies of finance (the sale of securities) outside the member states with a right to recovery of input tax (specified supplies) as well as taxable and exempt supplies - no goods or services supplied to the Appellant were used exclusively in making specified supplies - whether the input tax on goods or services used in part in making specified supplies was to be attributed to specified supplies by first estimating the percentage of employees engaged in all dealings with securities; then applying that percentage to the amount of residual input tax; and then reducing that amount by a further percentage which was calculated by reference to the values of specified supplies in relation to the value of total supplies of dealing in securities – no – or by reference to the proportion which the value of the specified supplies bore to the value of total supplies – yes - appeal on this issue allowed but figures not yet determined - VATA 1994 Ss 24-26; VAT (Input Tax) (Specified Supplies) Order 1992 SI 1992 No. 3123; VAT General Regulations 1995 SI 1995 No. 2518 Regs 101 to 103.


VALUE ADDED TAX – time limits – whether an assessment to recover a repayment of tax had been made within three years after the end of the prescribed accounting period – no - whether some assessments of tax were made within one year after evidence of facts sufficient to justify the making of the assessments came to the knowledge of Customs and Excise – no – whether some assessments of interest previously paid by Customs and Excise to the Appellant were made within two years after evidence of facts came to the knowledge of Customs and Excise – no – appeals on this issue allowed – VATA 1994 S73(2) and (6); s 77(1)(a); and s 78A(2)

LONDON TRIBUNAL CENTRE


NATIONAL PROVIDENT INSTITUTION Appellant



- and -



THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents


Tribunal: DR A N BRICE (Chairman)

MR J N BROWN CBE FCA CTA ATII


Sitting in public in London on 12 – 16 July 2004 and 15 and 16 November 2004


Roderick Cordara QC with Paul Key of Counsel, instructed by Messrs Pricewaterhouse Coopers, Chartered Accountants, for the Appellant


Peter Mantle of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents




© CROWN COPYRIGHT 2005

DECISION



The appeal

1. National Provident Institution (the Appellant) appeals against:


(1) an assessment dated 14 July 2000 for tax of £366,308; recovery of interest which had been previously paid by Customs and Excise to the Appellant of £17,400; and default interest of £49,434 making a total of £433,142; the assessment was in respect of the accounting periods ending in March 1997 and June 1997 (the first assessment);


(2) an assessment dated 29 September 2000 for tax of £3,597,408 and default interest of £222,556 making a total amount assessed of £3,819,964; the assessment was in respect of the accounting periods from September 1997 to December 1999 (the second assessment); and


(3) an assessment dated 13 March 2001 for tax of £202,830 and recovery of interest which had been previously paid by Customs and Excise to the Appellant of £15,437 making a total amount assessed of £218,267; the assessment related to the accounting period ending in December 1996 (the third assessment). At the date of the hearing the assessment for the tax of £202,830 had been withdrawn and only the amount of £15,437 for the recovery of interest which had been previously paid by Customs and Excise to the Appellant remained in dispute.


2. The assessments were made because Customs and Excise were of the view that the Appellant had incorrectly calculated its input tax. The Appellant had included the value of exempt supplies of the sale of securities outside the member states with a right to recovery of input tax (specified supplies) in its normal partial exemption calculation as if they were taxable supplies. Customs and Excise were of the view that input tax on goods or services used in part in making specified supplies should be calculated by reference to use and specifically by first estimating the percentage of employees engaged in all dealings with securities; then applying that percentage to the amount of residual input tax; and then reducing that amount by a further percentage which was calculated by reference to the values of specified supplies in relation to the value of total supplies of dealing in securities.


3. The Appellant was also of the view that the first assessment, the second assessment in so far as it related to the four accounting periods ending in September 1997, December 1997, March 1998 and June 1998, and the third assessment had been made outside the statutory time limits.


The legislation


The legislation relating to partial exemption 4. Section 24 of the Value Added Tax Act 1994 (the 1994 Act) defines input tax as tax on the supply to a taxable person of goods or services used for the purpose of a business carried on by him. Section 25(2) provides that a taxable person is entitled at the end of each accounting period to credit for so much of his input tax as is allowable under section 26 and then to deduct that amount from any output tax that is due from him. Section 26 contains the provisions which describe the input tax allowable under section 25 and the relevant parts of section 26 provide:

26(1) The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period … as is allowable by or under regulations as being attributable to supplies within subsection (2) below.


(2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business: (a) taxable supplies;

(b) supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom;

(c) such other supplies outside the United Kingdom and such exempt supplies as the Treasury may by order specify for the purposes of this subsection.

(3) The Commissioners shall make regulations for securing a fair and reasonable attribution of input tax to supplies within subsection (2) above, … . (4) Regulations under subsection (3) above may make different provisions for different circumstances and, in particular… for different descriptions of goods or services; … . “

5. Thus section 26(2) makes it clear that the only input tax for which credit may be given is that attributable to taxable supplies, to supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom (called foreign or out-of-country supplies); and to such exempt supplies as are specified by order (specified supplies). This means that input tax attributable to exempt supplies does not give any entitlement to credit.


Specified supplies


6. At the relevant time the regulations made under section 26(2)(c) were the Value Added Tax (Input Tax) (Specified Supplies) Order 1992 SI 1992 No. 3123 (the 1992 Order). The 1992 Order specified the supply of services to a person who belongs outside the member states provided the supply was exempt or would have been exempt if made in the United Kingdom by virtue of any of the items 1-7 of Group 5 of Schedule 6 of the Value Added Tax Act 1983 (the 1983 Act). Items 1 to...

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