Input Tax Disallowed Absence of Valid Tax Invoices Absence of Evidence of Payment Of

Input Tax Disallowed Absence of Valid Tax Invoices Absence of Evidence of Payment Of

[2009] UKFTT 112 (TC)


Appeal number Man/08/0856

Input tax disallowed – absence of valid tax invoices – absence of evidence of payment of

goods supplied – appeal dismissed




- and -



Tribunal:Ian Huddleston, Chairman

J. Adrain, FCA, Member

Sitting in public in Belfast on 19th February 2009

Mr. B Haley instructed by the General Counsel and Solicitor to HM Revenue and Customs for HMRC



The Appeal

  1. This Appeal arises out of the disputed Decision of HMRC to refuse to give credit for input tax. The disputed tax was included on quarterly tax returns for the periods 02/05 to 08/06. The amount of tax involved relates to the input tax claimed by the Appellant relative to one particular trader, FMG Fuels, totalling an amount of £891,969. The denial of input tax and, therefore, the amount of tax assessed, was detailed in six letters (each referring to a specific tax period) all dated 18th October 2007 and one subsequent letter dated the 21st May 2008 for the tax period 08/06.
  2. A letter from the Appellant’s accountants dated the 1st November 2007 was treated by HMRC as a request for a review. That review upheld the original assessments on the basis that the Appellant had failed to supply sufficient evidence of the entitlement to input tax credit.
  3. The Appellant’s accountant appealed against that decision citing the grounds appeal as follows:

“The disputed input VAT arose from supplies by FMG. We shall obtain copy paid cheques (front and reverse side) showing that FMG were paid amounts consistent with those recorded on purchased invoices from FMG.”

  1. The Appellant neither appeared in person nor was represented, but the Tribunal elected to proceed pursuant to Rule 26(3) of the Tribunal Rules (as then in force), it having first satisfied itself that the notice of listing had been sent to the Appellant’s representatives, namely Conn & Co., Accountants, 7 Seven Houses, Upper English Street, Armagh.

The Facts

  1. Evidence was given on behalf of HMRC by Mr. Damian McCloskey. He visited the Appellant’s premises on two VAT assurance visits in May and June 2005. During those visits Mr. McCloskey gave evidence that he noticed a large number of purchases from two particular suppliers, one of whom was FMG Fuels, a trader with whom Mr. McCloskey was already familiar. He had acted as the client officer for that trader for some three years prior to his visit to the Appellant. On inspecting the invoices, Mr. McCloskey realised that the invoices which were attributed to FMG by the Appellant did not conform with that firm’s normal standard invoices. As a follow up to the VAT assurance visits to the Appellant, Mr. McCloskey approached FMG and spoke to its proprietor, Mr. McGleenan who, firstly, denied any trading relationship with the Appellant and, secondly, confirmed that the 34 invoices which purported to have been raised by FMG were, in fact, false. A signed witness statement from Mr. McGleenan to that effect dated the 25th June 2007 was accepted in evidence and included the following statement:

“I have been shown 34 invoices headed “FMG Fuels – Sales Invoice” and all marked out to Banbridge Fuel Services, 5 Huntley Road, Banbridge. I can state that these are not FMG Fuel invoices and have not been issued by myself. I also add that FMG Fuels has never made any fuel supplies to Banbridge Fuel Services Limited.”

  1. The Tribunal was informed by HMRC that a copy of this witness statement had been served on the Appellant’s representatives on the 8th October 2008 and, to date, no objection had been raised in relation to it.
  2. Copies of samples of both the authentic invoice manually raised by FMG, and copies of those taken from the Appellant were produced to the Tribunal for inspection. It was clear that the invoices were very different, although both included details of FMG’s VAT registration number.
  3. Mr. McCloskey also gave evidence that he had enquired of the Appellant as to how payment of the invoices had been made. In response, the Appellant had produced a number of encashed cheques, where the payee on the cheque appeared to have been amended to read “McGinn” and/or “FMcGill”. Some were made to cash. Some of the cheques were traced to have been cashed in bank accounts or bureaux de change in the Republic of Ireland. HMRC took the view that these did not constitute sufficient evidence to confirm to whom payment was made.
  4. Mr. McCloskey gave evidence, and indeed produced a copy of a letter which he wrote to the Appellant on the 28th August 2007 indicating that he proposed a further visit in September 2007 and seeking further substantiation of the Appellant’s claim for input tax in relation to these accounts. This was followed by further correspondence seeking further evidence of the veracity of the purchases and seeking the originals of the cheques relating to the payments made to FMG.
  5. In due course this led to the review referred to at paragraph 2 above. Prior to finalising that review, the review officer, Mrs. Sharon Spence, wrote to the Appellant’s representatives on the 16th January 2008 pointing out that:

(a) Mr. McCloskey had found that the invoices provided by the Appellant were not in line with the invoice system used by FMG;

(b) Mr.McCloskey, following further checks, had been unable to find any evidence to support the Appellant’s contention that the fuel in question had been supplied by FMG; and

(c) the Appellant had failed to provide any alternative evidence to support the supplies in question.

Mrs. Spence concluded that letter by indicating that if she had not heard from the Appellant by the 14th February 2008, that she would proceed with her reconsideration based on the evidence to hand. The Appellant’s representatives asked for a two week extension to that period which duly granted. On the 22nd February 2008 the Appellant’s representatives did respond to Mrs. Spence’s letter. In that letter the Appellant’s representatives suggested a practice whereby the Appellant gave orders to a supplier’s representative who called on site. Payment was made against the invoices produced to Mr. McCloskey by way of the returned cheques – which also had been produced to the Tribunal. It was indicated that the Appellant did not have any other documentation such as delivery documents etc. and relied solely on those invoices. In her evidence, as in her opinion, no new information was forthcoming, Mrs. Spence issued her review letter on the 30th May 2008 upholding the earlier assessments to tax. That letter emphasised that the Appellant had been given ample opportunity to explain and/or produce sufficient evidence of its trading activities in relation to the input tax claimed and yet none had been produced.

HMRC’s Case

  1. HMRC, therefore, maintain their stance that the documents purporting to be purchase invoices upon which credit is sought are not bona fide, and that they were correct to deny the reclaim to input tax.


  1. The primary legislation concerning credit for input tax is contained in sections 24 and 25 of the Value Added Tax Act 1994. Section 24(1) provides:

“Subject to the following provisions of this Section, “input tax” in relation to a taxable person means the following to tax, that is to say:

(a) VAT on the supply to him of any goods or services;

being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him.”

  1. Section 24(6)(a) provides:

“Regulations may provide:

(a)for VAT on the supply of goods or services to a taxable person …….. to be treated as his input tax only if and to the extent that the charge to VAT is evidenced and quantified by reference to such documents (or other information) as may be specified in the Regulations or the Commissioners may direct either generally or in particular cases or classes of case.”

  1. Section 25(2) provides:

“Subject to the provisions of this section, he is entitled at the end of each prescribed 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.”

  1. Section 26(1) provides:

“The amount of input tax 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 (that is input tax on supplies, acquisitions and importations in the period) as is allowable by or under regulations as being attributable to supplies within sub-section (2) below.”

  1. The Value Added Tax Regulations (SI1994/2518) (Regulation 29(2)) provides as follows:

“At the time of claiming deduction of input tax in accordance with paragraph (1) above, a person shall, if the claim is in respect of

(a) a supply from another taxable person, hold the document which is required to be provided under Regulation 13;

(b) a supply under S8(i) of the Act hold the relative invoice from the supplier [? – doesn’t make sense]

provided that where the Commissioners so direct either generally or in relation to particular cases or classes of case, a claimant shall hold (or provide) such other evidence of the charge to VAT as the Commissioners may direct.”


  1. Based on the evidence produced by the Tribunal and applying the legislative provisions set out above, this Tribunal finds that the Appellant has not provided adequate documentation or information sufficient to justify the reclaim of input tax and that accordingly HMRC have acted appropriately in denying that input tax and assessing the Appellant accordingly. The appeal, therefore is dismissed.
  2. HMRC made an application to the Tribunal for costs in the amount of £500 as a contribution to their overall costs, and the Tribunal grants that application and awards costs in their favour in that amount, to be paid within twenty eight days of the release date of this Decision.

Under rule 26(3) of the Value Added Tax Tribunal Rules 1986 (as amended) (as in force at the time of this Hearing) the Tribunal may set aside any decision or direction given in the absence of a party on such terms as it thinks just, on the application of that party, or of any other person interested, served at the appropriate Tribunal Centre within 14 days after the date when the decision or direction of the Tribunal was released.

Ian Huddleston

Release Date : 27 May 2009