[2009] UKFTT 230 (TC)

TC00180

Appeal number LON/07/0800

Repayment Supplement: section 79 VATA - whether a written instruction to make payment was issued by the Commissioners within the relevant period: meaning of “issued”, burden of proof – whether an instruction issued to pay to the Appellant at a closed bank account was an instruction to make payment within the section. Appeal dismissed.

FIRST TIER TRIBUNAL

TAX

BEAST IN THE HEART FILMS (UK) LIMITED

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS (VAT)

Tribunal:CHARLES HELLIER (Tribunal Judge)

Sitting in public in Cardiff on 28 April 2009

Mr T Potter, director of the Appellant, for the Appellant

Richard Smith instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009

1

DECISION

Introduction

  1. The Appellant appeals against the Commissioners’ refusal to make a repayment supplement under section 79 VATA 1984. A supplement may be due if the Commissioners are slow in making repaymant of VAT.
  2. In the Appellant’s circumstances, such a supplement was payable only if the period from the receipt by HMRC of the Appellant’s return for the relevant period until the date that “ a written instruction directing the making of the payment or refund [was]…issued by the Commissioners” was greater than 30 days (after ignoring time spent dealing with reasonable queries) .
  3. The Appellant made a VAT reclaim in April 2006 which was paid to it in July 2006. The sole issue debated before me at the hearing was the determination of the date on which such a written instruction had been issued. The hearing proceeded on the basis that a supplement was payable only if that date was after 4 July 2006. I deal with a later argument on, and detail of, the timing in the final section of this decision.
  4. The Appellant said that the date was 31 July 2006, when a payable order was sent to it by the Commissioners, and therefore that a supplement was payable; the Respondents said that it was 27 June 2006, when inter alia a form of instruction was signed by one of its officers and sent to another officer, and therefore that no supplement was payable.
  5. This issue gave rise to three questions:

(i) what was the meaning of “issued” in this context: in particular could a document sent by one HMRC officer to another be the “issue” of such an instruction;

(ii) on whom did the burden of proof in relation to the facts fall?

(iii)on the evidence, and in the light of the answers to the preceding questions, what was the relevant date?

The Hearing and Thereafter

  1. Following the hearing I concluded, for the reasons set out below, that the form of instruction referred to inparagraph 4 above was not a “written instruction…issued by the Commissioners”. I recorded the evidence I had received and my initial conclusions in an Interim Decision and directed that the Respondents have leave to adduce further evidence of what happened after that form was signed. The Respondents provided further evidence and I directed that the Appellant have an opportunity to make submissions in relation to it. The Respondents sought to adduce further evidence in relation to this issue and the Appellant’s comments were sought thereon. I decided to admit the further evidence. This decision takes into account the later evidence, but first I set out the position following the hearing and then consider the later evidence. The Appelant provided further submissions dated 24 July 2009. these raised an issue in relation to the counting of the days: I address that issue in the final section of this decision.

The Statutory provisions

  1. Section 79 VATA 1994 providesso far as relevant (I have highlighted the phrases particularly at issue in this appeal) :

“(1) In any case where–

(a) a person is entitled to a VAT credit, or

(b) ….

and the conditions mentioned in subsection (2) below are satisfied, the amount which, apart from this section, would be due by way of that payment or refund shall be increased by the addition of a supplement equal to 5 per cent. of that amount or £50, whichever is the greater.

(2) The said conditions are–

(a) that the requisite return or claim is received by the Commissioners not later than the last day on which it is required to be furnished or made, and

(b) that a written instruction directing the making of the payment or refund is not issued by the Commissioners within the relevant period, and

(c) that the amount shown on that return or claim as due by way of payment or refund does not exceed the payment or refund which was in fact due by more than 5 per cent. of that payment or refund or £250, whichever is the greater.

(2A) The relevant period in relation to a return or claim is the period of 30 days beginning with the later of—

(a)the day after the last day of the prescribed accounting period to which the return or claim relates, and

(b)the date of the receipt by the Commissioners of the return or claim.

(3) Regulations may provide that, in computing the period of 30 days referred to in subsection (2A) above, there shall be left out of account periods determined in accordance with the regulations and referable to–

(a) the raising and answering of any reasonable inquiry relating to the requisite return or claim,

(b) the correction by the Commissioners of any errors or omissions in that return or claim, and

(c) in the case of a payment, the following matters…

(4) In determining for the purposes of regulations under subsection (3) above whether any period is referable to the raising and answering of such an inquiry as is mentioned in that subsection, there shall be taken to be so referable any period which–

(a) begins with the date on which the Commissioners first consider it necessary to make such an inquiry, and

(b) ends with the date on which the Commissioners–

(i) satisfy themselves that they have received a complete answer to the inquiry, or

(ii) determine not to make the inquiry or, if they have made it, not to pursue it further,

but excluding so much of that period as may be prescribed; and it is immaterial whether any inquiry is in fact made or whether it is or might have been made of the person or body making the requisite return or claim or of an authorised person or of some other person.

(5) …

(6) In this section"requisite return or claim" means–

(a) in relation to a payment, the return for the prescribed accounting period concerned which is required to be furnished in accordance with regulations under this Act, and

(b) in relation to a refund, the claim for that refund which is required to be made in accordance with the Commissioners' determination under section 33.

(7) If the Treasury by order so direct, any period specified in the order shall be disregarded for the purpose of calculating the period of 30 days referred to in subsection (2A) above.”

  1. The Value Added Tax Regulations 1995 provide:

“Computation of period

198.In computing the period of 30 days referred to in section 79(2)(b) of the Act, periods referable to the following matters shall be left out of account—

(a)the raising and answering of any reasonable inquiry relating to the requisite return or claim,

(b)the correction by the Commissioners of any errors or omissions in that requisite return or claim, and

(c)in any case to which section 79(1)(a) of the Act applies, the following matters, namely—

(i)any such continuing failure to submit returns as is referred to in section 25(5) of the Act, and

(ii)compliance with any such condition as is referred to in paragraph 4(1) of Schedule 11 to the Act.

“Duration of period

199.For the purpose of determining the duration of the periods referred to in regulation 198, the following rules shall apply—

(a)in the case of the period mentioned in regulation 198(a), it shall be taken to have begun on the date when the Commissioners first raised the inquiry and it shall be taken to have ended on the date when they received a complete answer to their inquiry;

(b)in the case of the period mentioned in regulation 198(b), it shall be taken to have begun on the date when the error or omission first came to the notice of the Commissioners and it shall be taken to have ended on the date when the error or omission was corrected by them;…”

The Evidence and the Facts

  1. At the hearing I had before me witness statement from Helen Carus-McDonald, Ian McGinnigle, Graham Sheldon and Ann Reading, all of whom were HMRC officers. Miss Reading was the officer who had been involved in examining that Appellant’s repayment claim. None of the statements had been objected to. There was also a bundle of correspondence and other documents. I heard oral evidence from Mr Potter and from Karen Murphy who had been responsible for some of the administration of the Appellant. I deal with the additional evidence adduced by the Respondents later. I find the following facts by way of background. There was no dispute about them

(1)The Appellant’s business was the making of a film. The production of the film was completed by April 2006.

(2)On 25 April the Commissioners received a VAT return in which the Appellant claimed repayment of £117,340.97. Miss Reading wrote to the Appellant on the day the return was received requesting various documents to assist in the verification of the return.

(3)The Appellant replied to that letter on 11 May 2006. A hard copy of that reply was received by the Respondents on 15 May 2006 (although an electronic copy was received earlier). On 31 May (which is 17 days after 15 May if one counts both 15 May and 31 May) Miss Reading wrote again to the Appellant setting out her concerns with the information and documents provided, and explaining that the Commissioners were considering disallowing the Appellant’s claim.

(4)An appointment was made for Miss Reading to visit the Appellant on 8 June 2006. That appointment was postponed, at the Appellant’s request, to 20 June. On that day Miss Reading visited the Appellant and satisfied herself that the claim should be paid.

(5)On 26 June 2006 Miss Reading made, electronically, a recommendation for the repayment to be made. That recommendation was electronically approved by a senior officer, Mr Sheldon, who forwarded the approved recommendation to the Credibility team in Liverpool at about 4pm on 26 April.

  1. Mr Smith indicated that the Respondents accepted that the delay of 17 days referred to at (3) above was unreasonable and should count against them. In my view that was a somewhat generous concession. The issues raised in Miss Reading’s letter were complex and it would not have been reasonable to expect the Respondents to “raise” their inquiry – to consider the documentation, and articulate and explain their concerns by return of post. It was not unreasonable to take a day in raising the inquiry. I do not however consider that it is open to me to upset the Respondents’ concession since the facts were not debated before me.
  2. Thus far no argument before me at the hearing turned on the specific facts. There had been a delay of 63 days between the receipt of the claim (25 April) and Mr Sheldon’s action (26 June), of which at the hearing it was not disputed that 40 days had been spent on dealing with reasonable queries so that the “net” delay was at that stage 23 days.
  3. I now turn to the period after 26 June 2005. Here I must discuss the evidence and the conclusions I draw from it.
  4. Mr Smith showed me copies of three forms. The first was a Prepayment Credibility Report dated 3 May 2006 which had separately been generated by the Commissioners’ Credibility team, and which inhibited the payment of the claim. This bore a reference number 20693.
  5. The second was a copy of a form entitled “Repayment Authority”. The form plainly originally had 10 or more single line entries on it of which 9 had been redacted. It was not clear whether anything else had been redacted. The remaining entry bore the Appellant’s VAT number, the period in respect of which the repayment was sought, the dates “24/4” and “26/6” (which reflect the date of the receipt of the VAT return and the date of Mr Sheldon’s action), the reference 20963 from the Credibility report, and an unexplained number. The form was signed by Mr Manson and stamped 27 June 2006. It seemed likely to me that this form authorised the making of the repayment to the Appellant of its claim for £117k odd.
  6. The third was a form headed “Instruction to Make VAT Repayments”. I call this the “Instruction form”. This form had been faxed on 27 June 2006 by the Liverpool Authorising Officer in the Credibility team to the VAT shift leader at the Commissioners’ Shoebury Computer Complex, and faxed back on the same day confirming receipt. The Credibility Team Authoring Officer had signed under the following legend:

“In accordance with section 79(2)(b) of the VAT Act 1994, you are hereby directed to make payment of all sums due under section 25(3) of that Act, and of all refunds due under section 33 or 33A of that Act which are authorised by the computer processing system scheduled for 27 June 2006.”R” Date for run is 27th June 2006”

  1. There was nothing else on this Instruction form to link it to the Repayment Authority, but I think that it is likely that the earlier form gave rise to a computer input and the recording of its contents on the computer system, so that at some time the entries on the Repayment Authority form would become “scheduled for” particular dates and thus payment of them would have been directed by the Instruction form. That left the question of whether the payment which appeared to me to be authorised to be made to the Appellant on the Repayment Authority form was “scheduled” for payment on 27 June 2006 rather than on some other day. Mr Smith told me that he was instructed to say that it was scheduled for payment on 27 June.
  2. Given that for the reasons I set out below the burden of proof in this matter must be on the Respondents I ask myself, assuming at this stage that the answer is relevant, whether the Respondents have provided evidence sufficient to enable me to conclude that the payment due to the Appellant was indeed directed to be paid by the Instruction Form. The only other evidence before me at the hearing was

(i)a statement in Helen Carus-McDonald’s statement that Mr Manson had “arranged the necessary documentation forms to be input and repayment…was authorised to the trader’s Bank Account on the same date”. Helen Carus-McDonald does not state how she knew this and she was not part of the Credibility Team or the Shoebury Team. I was therefore unwilling to place much weight on that evidence; and

(ii) a statement in Mr McGinningle’s witness statement that “repayment documents were input on 27 June 2006 by Credibility to release the claim to the Appellant via payable order”. That statement is seemingly at odds with that of Helen Carus-McDonald.

However, taking into account the later evidence provided by the Respondents, I find that it is likely that the Instruction form of 27 June 2005 directed that payment be made to the Appellant.

  1. That of course is not an end of the matter. The question is whether (or when) a written instruction was “issued” by the Commissioners. I now turn to the circumstances surrounding the eventual receipt of the repayment by the Appellant.
  2. Mr Potter showed me a remittance advice from the Commissioners dated 31 July 2006 – some 34 days after the date of the Instruction form. I accept that a payable order repaying the VAT due to the Appellant had been sent with that advice and find that it is likely that it had been created on the same date.The order, I find, was banked by the Appellant on about 7 August.
  3. The only other relevant document before me at the hearing to which I should refer was an email dated 7 July 2006 (7days after the Instruction form) from Kimberley Murphy to the Commissioners setting out the “current bank account details” of the Appellant. Miss Murphy said that this email was possibly sent in response to a telephone enquiry from the Respondents. I was told by Mr Potter and Miss Murphy, and I accept, that the Appellant had operated two bank accounts. In the production phase of its activity (which finished before 5 April 2005) one account (the Production Account) was used, and that this would have been closed at some stage. Neither Mr Potter nor Miss Murphy could say when it was closed. The other bank account was that whose details Miss Murphy had notified to the Commissioners on 7 July, and I believe was that mainly used after the end of the production phase. VAT repayments had been made to the Appellant in respect of periods before that to which this appeal relates. I find it likely that they were made to the Production Account.

The Parties’ contentions at the hearing

  1. Mr Potter said that:

(1)Section 79(2)(b) requires an instruction to pay a specified amount to a specified person. The Instruction form did not satisfy that test.

(2)Even if the Instruction form were an instruction directing the payment it had not been “issued” by the Commissioners. “Issued”, he says connotes something more than one arm of the Commissioners asking another to do something: it must involve a third party who is directed to make a payment.