[2011] UKFTT 366 (TC)
TC01221
Appeal number
TC/2010/04306
Application
by HMRC to strike out appeal – Correction to VAT returns for 04/00, 07/00 &
10/00 – Whether appeal has reasonable prospects of succeeding – No –
Application allowed
FIRST-TIER TRIBUNAL
TAX
ENVIROENGINEERING
LIMITED Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)
RICHARD
CORKE FCA (MEMBER)
Sitting in public at Eastgate House,
Newport Road, Cardiff on 3 May 2011
William Lewis for the
Appellant
Jonathan Holl of HM Revenue
and Customs, for the Respondents
© CROWN COPYRIGHT
2011
DECISION
Background
1. Enviroengineering
Limited (the “Company”) was established in 1997 to act as the manufacturing arm
of Enviropower Limited and occupied a factory on the Severn Bridge Industrial
Estate in Caldicott.
2. On
15 May 2000 the Company was struck off the Register of Companies (the
“Register”) by Companies House. Despite the Company having been struck off the
Register, and therefore non-existent, on 28 August 2000 it submitted its VAT return
for the period ending 30 April 2000 (“04/00”) to HMRC. On 9 October 2000 its
VAT return for the period ended 31 July 2000 (“07/00”) was submitted and the
VAT return for the period ended 31 October 2000 (“10/00”) was submitted by the
Company on 10 January 2001. These returns showed substantial sums due to HM Revenue
and Customs (“HMRC”) and, as payment was not made on time penalties were
imposed and interest was charged which were subsequently paid by the Company.
3. The
Company was restored to the Register in May 2004 on the instigation of Mr Lewis
who, on examining the Company’s records understood the figures in these VAT
returns to have been derived from what he described as “false invoices”. Mr
Lewis only became aware of this on 27 May 2007 following his own investigation
into the Company’s affairs and correspondence with HMRC. An appeal was made to
the Tribunal on 5 May 2010 following a letter from HMRC dated 30 April 2010
saying HMRC could not adjust a return of 10 years ago.
4. On
16 June 2010 HMRC applied to the Tribunal for the appeal to be struck out on
grounds that the Company’s appeal had no reasonable prospect of success. This
application was listed for a hearing in Cardiff on 24 August 2010. Although Mr
Lewis was present at the hearing on behalf of the Company, HMRC were not
represented. In the circumstances the Tribunal Judge (Malachy Cornwell-Kelly) who
considered that HMRC had appeared to “have acted unreasonably in the conduct of
the appeal in failing to be represented, to explain their absence or to make
any further submission to the Tribunal”, dismissed the application and, in a
direction released on 1 September 2010, directed that the Statement of Case be
served within 60 days and that HMRC pay Mr Lewis £150 by way of wasted costs
and £22.50 travelling expenses.
5. On
17 September 2010 HMRC applied for direction released on 1 September 2010 to be
set aside and for a further hearing to be listed. On 4 November 2010 the
Company applied for a direction that, as a result of HMRC’s failure to comply
with the direction of 1 September 2010, the appeal be allowed. These matters
were considered at a hearing in Cardiff on 28 January 2011 where it was directed
(in a direction released on 4 February 2011) that:
(1)
The direction dated 1 September 2010 be set aside.
(2)
The application [of the Company] dated 4 November 2010 for the appeal to
be allowed is dismissed.
(3)
A preliminary hearing to determine the issues and any application by
HMRC for the proceedings to be struck out be listed in Cardiff at the first
available date.
(4)
HMRC shall be given an opportunity at the preliminary hearing to make
representations as to why they should not pay the wasted costs of Mr Lewis of £150
and £22.50 travelling expenses incurred in respect of the hearing before the
Tribunal on 24 August 2010.
6. The
reason for the final direction was that under rule 10(5) of the Tribunal
Procedure (First-tier)(Tax Chamber) Rules 2009 (the “Rules”) the Tribunal may
not make an order for costs against a party unless that person has had an
opportunity to make representations. As HMRC was not represented at the hearing
on 24 August 2010 it would not have possible for any representations to have
been made. Given that the Tribunal Judge was of the view that it had appeared
that HMRC had acted unreasonably in regard to that hearing a costs order seemed
appropriate. Accordingly, and in compliance with the Rules, it was right that HMRC
should be given an opportunity to make representations.
7. The
present hearing is therefore the preliminary hearing, as directed on 4 February
2011, to determine an application by HMRC, dated 16 June 2010, to strike out
the Company’s appeal or determine the issues and also to give HMRC an
opportunity to make representations as to why they should not pay the wasted
costs that Mr William Lewis incurred when he attended the hearing before the
Tribunal on 24 August 2010.
Wasted Costs
8. Mr
Holl accepted that HMRC had been notified of the hearing on 24 August 2010 but
explained that neither he nor the office manager to whom the notice of hearing
was also addressed had seen any correspondence from the Tribunal advising them
of the date of the hearing. Also no telephone calls from the Tribunal had been
logged that day suggesting that there had not been an attempt to ascertain why
HMRC were not represented. He also submitted that the Tribunal had misdirected
itself at the 24 August 2010 hearing by not addressing the issues before
dismissing the strike out application.
9. Mr
Lewis explained that the Tribunal clerk had made several telephone calls but
did not know whether these were to HMRC or to the Tribunals central
administration but contended that he should not be out of pocket as a result of
HMRC’s failure to attend the hearing at which, he said, the judge did consider
the issues before making directions.
10. As the
directions made following the hearing on 24 August 2010 and released on 1
September 2010 were set aside by the directions released on 4 February 2011, the
issue of whether or not the judge considered the issues in relation to the
strike out application does not arise. However, having regard to the
circumstances of the case and considered the representations of Mr Holl for
HMRC, like the judge on 24 August 2010 we consider that the failure by HMRC to
attend that hearing was unreasonable.
11. We therefore consider
that it is appropriate to direct that HMRC pay the wasted costs of Mr Lewis of
£150 and £22.50 travelling expenses that he incurred in respect of the hearing
before the Tribunal on 24 August 2010.
Application to Strike out the Appeal
12. We now turn to
the application by HMRC for this appeal to be struck out on the grounds that
the Company has no reasonable prospects of success.
13. In his submissions
before us Mr Holl contended that in this case there was no decision to enable us
to determine what was under appeal and even if there was such a decision any
appeal against it was out of time. He referred to the fact that the issues
revolve around VAT returns filed during the period when the Company was struck
off but pointed out that the effect of its restoration on the Register was that
the Company is treated as though it had always been in existence. Therefore, he
submitted the returns had been correctly submitted in 2000 and it was too late
for these to be changed.
14. Mr Lewis made
much of the fact that the VAT returns were based on false invoices and were
submitted at time when the Company was struck off the Register and therefore did
not exist. He also contended if the invoices had been genuine, as they had
never been paid they would have been treated as a bad debt by the Company and
any output tax repaid. Mr Lewis also referred to output tax having been paid by
the Company and said that as no corresponding input tax had been claimed by
recipients of invoices HMRC had made a profit out of the transactions.
15. He submitted
that as he had been unable to establish the invoices were “false” until he received
information from HMRC on 27 May 2007 the appeal, which was made on 5 May 2010
was therefore in time.
16. Assuming that
the appeal was made in response to the letter from HMRC dated 30 April 2010 the
appeal itself is in time. However, the issue for us to determine is not
whether the appeal was made on time but whether or not we consider that there
is any reasonable prospect of the Company’s case succeeding (see rule 8(3)(c)
of the Rules).
17. As the Company,
by its restoration to the Register, is deemed to have continued in existence as
if it had not been struck off the Register (see s 1028 Companies Act 2006) it
must follow that the VAT returns filed for the periods 04/00, 07/00 and 10/00
were properly submitted by the Company and are valid returns for those periods
irrespective of whether input was or was not claimed by the recipient of the
invoices.
18. If Mr Lewis is
correct and these returns were based on “false” invoices they would clearly
overstate the Company’s liability to VAT. However, Regulation 34 of the VAT
Regulations 1995 (the “Regulations”) limits the period during which any
overstatement in a return may be corrected to four years from the end of the
prescribed accounting period for which the return was made.
19. Similarly any
claim for bad debt relief must be made within the period of four years and six
months of the date when the consideration became due or the date of the supply
in accordance with Regulation 165A of the Regulations and any entitlement to a
refund ceases if there is a failure to make a claim within this period.
20. In this case the
most recent of the three accounting periods concerned ended on 31 October 2000.
Therefore, the time limit to correct the return, or for the Company to make a
claim for bad debt relief, would have long since expired.
21. Given that the
Company is out of time to either correct any overstatement of VAT or make a
claim for bad debt relief we consider that, having heard the representations
from Mr Lewis on its behalf, there is no reasonable prospect of the Company’s appeal
succeeding.
Conclusion
22. We therefore direct
that:
(1)
HMRC pay the wasted costs of Mr Lewis of £150 and £22.50 travelling
expenses that he incurred in respect of the hearing in Cardiff on 24 August
2010 within 28 days of the release of this decision.
(2)
The appeal be struck out.
23. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
JOHN BROOKS
TRIBUNAL JUDGE
RELEASE DATE: 2 June 2011
