Ward
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 September 1998 |
| Date | 15 September 1998 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
Georghiou VAT(LON/96/1193) No. 14,970; [1997] BVC 4120
R v Dealy VAT[1995] BVC 86
R v Ghosh UNK[1982] 2 All ER 689
R v McCarthy VAT(1981) 1 BVC 405
Woolwich Building Society v IR Commrs TAX[1992] BTC 470
Civil penalty - Dishonest evasion of VAT - VAT invoices issued by non-VAT registered company using third party's VAT registration number - Amount collected as tax was not paid to Customs - Company's conduct attributed to appellant's dishonesty as "named officer" - Whether company acted "for the purpose of avoiding VAT" - If so, whether conduct involved dishonesty - Whether conduct attributable to appellant's dishonesty - Value Added Tax Act 1994 section 60 section 61 subsec-or-para (1) section 61 subsec-or-para (3) section 67 subsec-or-para (1) section 67 subsec-or-para (2) section 67 subsec-or-para (3) section 76 subsec-or-para (1) section 76 subsec-or-para (3) section 76 subsec-or-para (4) section 96 subsec-or-para (1) schedule 11 subsec-or-para 5Value Added Tax Act 1994, ss. 60, 61(1) and (3), 67(1)(c), (2) and (3), 76(1)(b), (3)(b) and (4) and 96(1) and Sch. 11, para. 5.
The issues were (1) whether a company of which the appellant, W, was a director acted or omitted to act "for the purpose of evading VAT" (2) if so, whether its conduct involved dishonesty such as to render it liable to a civil penalty and (3) if it did, whether its conduct was attributable to W's dishonesty, so that a portion of the penalty was recoverable from him.
W was a registered insurance broker who, with C, became secretary and marketing director of BM, a company recently established by C. C was also a director of B which had been registered for VAT. BM's purpose was to sell products as aids to sporting achievement. In fact, it did no such trading, but it was agreed between C and W that W's wife should use BM's name for the trading purposes of her own sales promotion agency, "Team Spirits". In August 1995, a separate bank account was opened by W and C in the name of Team Spirits. Team Spirits issued invoices at the foot of which was recorded "Team Spirits is a division of BM", followed by B's VAT number. Acting through his accountant, W submitted a Form VAT 1 requesting the registration of BM and it was registered with effect from 5 January 1996. W submitted a return for the period 5 January to 29 February 1996 for BM but excluded VAT for the periods 1 August 1995 to 4 April 1996, although Team Spirits had throughout that period been issuing invoices and receiving moneys paid on the basis of those invoices, using B's registration number. On 30 April 1996, B was dissolved, although neither W nor the commissioners were made aware of this at that stage. In June 1996, W requested his accountant to settle the outstanding VAT returns for B and a meeting between W, C and the accountant also took place to discuss the VAT affairs of BM and B. On 17 July, shortly after becoming aware that Customs wished to visit B on account of its missing returns, W telephoned Customs and informed them of BM's VAT liability. Acting on Customs' advice, he also gave C two cheques drawn on Team Spirit's account in respect of the VAT liability of B and BM. On 17 December, W resigned as a director of BM, with effect from 1 June 1996. When interviewed by Customs in respect of the incorrect use of B's VAT number and the outstanding VAT, W denied any deliberate wrongdoing or dishonesty. On 4 August 1997, Customs issued a penalty assessment in respect of the alleged dishonest conduct of BM, the penalty mitigated by 75 per cent, with the amount apportioned equally between W and C as named officers on account of their dishonesty.
The appellant contended that Customs had not made out a case against him under Value Added Tax Act 1994 section 61 subsec-or-para (1)Value Added Tax Act 1994, s. 61(1)(b). He had believed he was entitled to apply B's number to Team Spirit's invoices, on the basis that BM was eligible for group registration, and at no time was there an intention to avoid VAT liability. He pointed out that he had initiated the registration procedure on behalf of BM and in doing so stated that taxable supplies had been made as from 5 August 1995. He had not subsequently accounted for the money collected by BM between August 1995 and January 1996 because the money was collected under B's registration number. He had repeatedly asked C to regularise the VAT position and at all times there were sufficient funds in Team Spirits' account to pay Customs. His knowledge of VAT was limited to the field of insurance and he had at all times consulted his accountant about the VAT position. Further, he had telephoned Customs on 17 July 1997 to inform them of the position and had paid cheques to C in settlement of the VAT liability of B and BM.
The commissioners contended that W had kept hold of money due to them long after he must have known that he was not entitled to do so, the deferral of payment of VAT being as much evasion as non-payment. It was irrelevant that he thought that what he was doing was right if most right thinking people would have regarded it as incorrect, and he must have concluded that he was being dishonest by those standards. Customs could not have known about the true position before 17 July, at which point he informed them, knowing that a visit was imminent. The deception was aggravated by the use of an existing VAT registration number.
In response to the issue, raised by the tribunal of its own motion, as to whether the money collected by Team Spirits could properly be called VAT, the commissioners argued that, if there was a dishonest intention,Value Added Tax Act 1994 section 60s. 60 applied equally to what a person believed to be VAT as to VAT properly so called. "Evading" was a general term and applied in circumstances where an action was calculated to lead to a loss of tax. The f act that the definition of "VAT" in Value Added Tax Act 1994 section 96 subsec-or-para (1)Value Added Tax Act 1994, s. 96(1)was "value added tax charged in accordance with this Act" did not mean that VAT purportedly charged on an unauthorised VAT invoice was not within the scope of Value Added Tax Act 1994 section 60s. 60 since, were it otherwise, an unauthorised person charging it would be entitled to retain it.
Held, allowing the taxpayer's appeal:
1. On the basis of the evidence that W had taken steps from August 1995 through to July 1996 to regularise the position, including keeping a record of amounts due, attempting to persuade C to regularise the situation, completing a registration form on behalf of BM and having sufficient money available to pay the amounts due, led to the conclusion that W had not acted dishonestly. With their knowledge of VAT, C and the accountant should have dealt with the matter, and it was accepted that W believed that he could properly use B's VAT number on the invoices. Moreover, W had given cheques to C in the belief that he would settle the outstanding VAT and W had rendered the return and paid the VAT due on behalf of BM for the period after registration. It was also accepted (1) that W could not have accounted for VAT on BM's return in respect of the period between August 1995 and January 1996, when money had been paid over by customers using B's number and (2) that he had acted in the mistaken belief that money collected in the period were due to B and not BM.
2. On the issue of whether Value Added Tax Act 1994 section 60s. 60 applied where an unauthorised person had issued invoices which included an amount attributable to VAT, the tribunal's finding was that it was not, since Parliament would not have used the language of Value Added Tax Act 1994 section 67s. 67 (penalty for unauthorised issue of invoice) andValue Added Tax Act 1994 schedule 11 subsec-or-para 5Sch. 11, para. 5 (recovery by Customs of amount shown on invoice as VAT) if it had not intended a proper distinction to be made between what was and what was not VAT properly so-called.
3. The tribunal was aided in reaching this conclusion by the definition of "VAT" in Value Added Tax Act 1994 section 96 subsec-or-para (1)s. 96(1).
[The tribunal set out the facts summarised above and continued as follows.]
38. Mr Ward submitted a document entitled "Statement in Defence" dated 18...
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