TC00079
McNulty v Revenue & Customs [2009] UKFTT 111 (TC) (27 May 2009)
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McNulty v Revenue & Customs [2009] UKFTT 111 (TC) (27 May 2009)
VAT - ASSESSMENTS
Best judgment
[2009] UKFTT 111 (TC)
TC00079
Appeal number MAN/07/1360
Section 73 VATA – Assessment arising due to challenge of zero rating of supplies to customers in another EU state – Appeal dismissed
FIRST-TIER TRIBUNAL
TAX
ENDA McNULTY Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY'S
REVENUE AND CUSTOMS (VAT) Respondents
TRIBUNAL : IAN WILLIAM HUDDLESTON
A.F. HENNESSEY
Sitting in Belfast on 29th January 2009
Miss. Frances Lynch of Counsel, instructed by Messrs. Tiernans Solicitors for the Appellant
Mr. Josh Shields of Counsel, instructed by the General Counsel and Solicitors to HM Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2009
DECISION
The Appeal
- The Appeal is against HMRC's assessment in the sum of £23,161, together with additional interest, which was notified by way of Notice of Assessment dated the 19 October 2007 pursuant to Section 73 of the Value Added Tax Act 1994 ("VATA").
The Facts
- The Appellant is a sole proprietor and carries on the business of retailing motor vehicles from premises at 162 Ballynakelly Road, Dungannon, County Tyrone, BT71 6HG. He is registered for VAT under registration number 777825375 with an effective date of the 1 January 2001. This case concerns a number of vehicles supplied to business customers in the Republic of Ireland which were zero rated for VAT by the Appellant.
- By a letter dated the 22 December 2005 HMRC notified the Appellant of the conditions which must be met before supplies of goods to Customs in another member state can be zero rated for VAT. The relevant information is contained in Public Notice 725.
- On the 8 December 2005, 21 September 2005, 11 January 2006, November 2006, 15 February 2006 and 22 November 2006, officers of HMRC visited the Appellant, and according to HMRC on each visit the evidence required to support zero rating of vehicles despatched to another member state was discussed with the Appellant.
- The Appellant's VAT returns disclosed a substantial number of vehicles despatched to the Republic of Ireland, but HMRC felt that there was insufficient evidence to support the zero-rating of the particular supplies.
- Between February and August 2006 HMRC made enquiries with the Irish Revenue Authorities to ascertain if the particular vehicles had been delivered to customers within the Republic of Ireland. The responses to these enquiries showed that there was no evidence of the supplies having been made and in some cases the alleged customers denied ever having received the vehicles.
- By a letter dated the 20 February 2006, HMRC informed the Appellant that for the supplies of vehicles to be zero-rated:
(a) documents evidencing sales must be original (ie copies would not be sufficient);
(b) that a clear description of the goods (including the UK vehicle registration number) should be included on all sales invoices;
(c) where invoices were issued in a foreign currency the values must, for the purposes of VAT, be converted into sterling.
- Correspondence continued between the parties, again with HMRC emphasising the conditions which were required to be met in order to zero rate goods which are sold to another member state.
- By a letter dated the 11 September 2007 HMRC notified the Appellant of nine transactions made in accounting period 12/05 where enquiries with the Irish Revenue Authorities had shown that there was no evidence supporting the removal of the vehicles to the Republic of Ireland and one where the vehicle had been purchased for a private use and was not, therefore, eligible for zero rating.
- The Appellant's representatives, Messrs. Tiernans, replied by way of a letter dated the 21 September 2007 denying any such liability and suggesting that from the Appellant's personal investigations that registered VAT traders in the Republic of Ireland had received the relevant vehicles.
- By a Notice of Assessment dated 19 October 2007 HMRC notified the Appellant of an assessment of VAT in the sum of £23,161 plus interest. It is against that assessment that the Appellant now appeals.
- The Appellant's case, as disclosed in the Notice of Appeal dated the 17 November 2007, is that:
"I have no liability for this assessment."
- Legislation
- The legislative regime providing for zero rating of goods for VAT purposes within the European Union is as follows:
Section 30(8) of VATA provides as follows:
"Regulations may provide for the zero rating of supplies of goods or of such goods as may be specified in the regulation, in cases where:
(a) the Commissioners are satisfied that the goods have been or are to be exported to a place outside the member state, or that the supply in question involves both:
(i) the removal of the goods from the United Kingdom;
(ii) their acquisition in another member state by a person who is liable for VAT on the acquisition in accordance with the provisions of the law of that member state, corresponding in relation to that member state, to the provision of Section 10;
(b) such other conditions, if any, as may be specified in the regulation or the Commissioners may impose are fulfilled."
- Regulation 134 of the VAT Regulations 1995 ("the Regulations") provides that:
"134 Where the Commissioners are satisfied that:
(a) a supply of goods by a taxable person involves their removal from the United Kingdom;
(b) the supply is to a person taxable in another member state;
(c) the goods have been removed to another member state; and
(d) the goods are not goods in relation to whose supply the taxable person has opted, pursuant to Section 50(a) of the Act for VAT to be charged by reference to the profit margin on supply;
the supply, subject to such conditions as they impose, shall be zero rated."
- That secondary legislation therefore permits HMRC to impose conditions which are then set out in tertiary legislation and are, in fact, contained within Public Notice 725 (the Single Market) ("Notice 725"). Notice 725 has force of law.
- By virtue of paragraph 18.5 of Notice 725 (update 1 issued April 05) provision is made that a tax payer may zero rate a supply of goods to VAT registered customers in another member state of the EU provided all of the stipulated conditions are met. These conditions are that:
(a) the customer's VAT registration, including the two letter country prefix code, is obtained and shown on the VAT sales invoice;
(b) the goods are sent or transported out of the UK to a destination in another member state;
(c) satisfactory commercial documentary evidence is obtained as proof that the goods have been removed from the UK.
- Paragraph 18.7 of Notice 725 emphasises to tax payers that in the event that they are not able to meet all of those condition they must account for VAT at the correct rate for the supply of those goods in the UK.
- Paragraph 18.9 of Notice 725 describes the detail which must clearly be identified on the documents used to prove removal. These are the supplier, consignor, customer, goods, an accurate value, the mode of transfer and route of movement of the goods and EU destination. Vague descriptions of goods, quantities or values are not acceptable.
- The relevant information must be made available to HMRC within three months of the date of supply.
HMRC's Case
- Following the VAT compliance visit on the 22 November 2006, HMRC wrote to the Appellant on the 23 November 2006 identifying twenty various transactions over a period from April 2004 to June 2006 in respect of which they sought evidence entitling those transactions to be zero rated. That was followed by a more detailed letter on the 11 September 2007 (immediately before the assessment for VAT) in which HMRC notified the VAT periods in which the relevant transaction took place, the alleged Irish customer and ROI VAT number, the outcome of the enquiries which the Respondents had undertaken with the Revenue Commissioners in the Republic of Ireland and, finally, the amount of VAT in question.
- It is necessary to set out some of these examples:
(a) in the case of Eamonn Orohoe, it appeared that he had, according to the Appellant's records, received seven vehicles with a total potential VAT in dispute of £5,287. HMRC's investigations with the Revenue Commissioners (who in turn contacted the customer) resulted in a denial that Mr. Orohoe ever received the vehicles;
(b) in another case, the investigations of a trader, Zippy Print Limited, elicited the response that the vehicles had been bought for a private as opposed to a business use, and therefore were not eligible for zero rating;
(c) in the case of C&L Builders and Landscape Gardeners, the response to HMRC's enquiries was that both directors confirmed that they did not import vehicles and had no evidence of ever having received them;
(d) in the case of Fox & O'Ruarke Windows, the response was that documents said to have been provided by EP Motors (the Appellant's trading name), to support the exporting of two vehicles was not produced by them, and they denied purchasing the vehicles;
(e) in the case of Nippon Imports, the trader said he had not seen the vehicles and that he was in Australia at the relevant time. Again, no paperwork could be produced to support the receipt of these vehicles.
- It is clear to this Tribunal that the purpose of the letter of the 11 September 2007 was to allow the Appellant the opportunity of producing such other information as he might have in support of his zero rating of the vehicles in question.
- The Appellant's response, through Messrs. Tiernans Solicitors, was a blanket denial of liability and an unsupported suggestion that:
"Traders in the Republic of Ireland have confirmed receipt of these vehicles."
- There followed a debate between Messrs. Tiernans and HMRC as to whether the former had been given the appropriate authority by Mr. McNulty to deal with his VAT affairs, which possibly did nothing to foster good relationships between the parties, but is not relevant for the purposes of this Appeal.
- The Tribunal reviewed the paperwork that was commonly generated in relation to a sale. The Appellant issued a standard invoice which contained the date and was stamped with his trading stamp, "EP Motors" and contained his VAT registered number. The invoice had a section suggesting to whom the goods were sold and, on the Appellant's evidence, he would have completed the invoice detailing the vehicle registration, value and then inserted the customer's Irish VAT registration number. In the case of the alleged supply to Eamonn Orohoe, we inspected an invoice dated September 2005 and a second document which had Eamonn Orohoe's name, address and VAT registration number, then a simple list of GB registration numbers (eight in number) which was reportedly signed by Mr. Orohoe. Neither the makes nor any other details of the vehicle were included. We did note that, whereas the invoice was dated September 2005, the second document – which purported to be in the nature of a receipt was dated 21 March 2006 – some six months later. For each of the alleged trades the Tribunal were briefed with a copy of the exchange of information form under Article 5 of Regulation 2003/1798/EC, under which the Respondents had requested information from the Revenue Commissioners in the Republic of Ireland. In the case of the alleged supply to Eamonn Orohoe, the response was:
"Eamonn Orohoe purchased only one vehicle from EP Motors, vehicle registration number Y248YOK which was subsequently re-registered 01LD1852 on the 20 July 2006.
Eamonn Orohoe could not produce a purchase invoice, but thought he paid €3,400 for the vehicle. He did not appear surprised that McNulty had used his VAT number."
- HMRC's request form in respect of C&L Builders and Landscape Gardeners contained the response from the Irish Commissioners:
"I have carried out a full audit on the IE Trade of C&L Builders Limited. Both directors have confirmed that they did not import the said vehicles into this country. There is no evidence of having received said vehicles …………. I am satisfied with the results of the audit and the vehicles were not received by the IE Traders."
- In another case (Fox & O'Ruarke) the response from the Irish Revenue Authorities was as follows:
"The vehicles indicated on the invoice dated 6/12/05 from EP Motors Dungannon to Fox & O'Ruarke were not purchased by Fox & O'Ruarke, Longford. Gerry O'Ruarke, the Company Director, purchased a transit van in late 2005 from EP Motors through Finn Motors, Ballymahon, County Longford, an authorised dealer. This vehicle also had an Irish registration ………. but the sale was not completed and Gerry O'Ruarke took over the purchase. The bill was invoiced by EP Motors to Fox & O'Ruarke, invoice number 0436 refers, amount paid €10,500 (VAT, nil). The invoice shown at the end of these papers was not produced by Fox & O'Ruarke."
- HMRC produced invoices and copies of the reports from the Revenue Commissioners in relation to all disputed transactions. It was based on this series of events and investigations that HMRC considered that the documentation produced by the Appellant for the zero rating of the various supplies was insufficient and assessed the Appellant pursuant to Section 73 VATA in the sum now in dispute.
The Appellant's Case
- The Appellant gave evidence to the effect that he generally advertised his vehicles quite widely across Ireland. Often following a telephone query on the back of one of those advertisements, customers would come to his premises, would inspect vehicles and often purchase them. In terms of documentation, he would obviously issue an invoice, but in terms of the evidence that he sought from his customers as to their VAT status, the Appellant gave evidence that he would normally rely on bill heads to establish the Irish VAT numbers. Aside from that, it appeared that the Appellant relied on the fact that often those customers drove Republic of Ireland registered vehicles and had Irish accents to justify his conclusion that the vehicle, when sold, would be exported to the Republic of Ireland.
- It would appear that payments were made either in cash (euros or pounds sterling), by way of cheque or drafts. The euro amounts he lodged in an account in Castleblaney in the Republic of Ireland.
- Mr. McNulty explained that the invoices / sales would be completed by either he or his son or his wife, as the case may be.
- In relation to the results of the investigations with the Irish Revenue Commissioners, Mr. McNulty appeared to be of the view that there had been a misunderstanding. He gave evidence that in some cases he supplied vehicles to an authorised third party dealer in the Republic of Ireland who would act as a "front" and would arrange sales on the Appellant's behalf, but that the sales themselves would be invoiced directly between EP Motors and the actual customer.
- In relation to some of the suppliers named above, letters were handed to the Tribunal for consideration. The first was dated the 6 January 2009 and was from Nippon Imports Limited. The letter purported to confirm that that company had received three transit vans on the 9 and 10 October 2005, and further confirmed that that information had been made available when the Irish Revenue Authorities had queried the transactions – presumably on the back of the queries which they had received from HMRC.
- The second letter proffered in support was undated and was produced by Fox & O'Ruarke Windows Limited. It simply stated:
"The purchase of 2# vans; returned 1; van not satisfactory"
The document contained an illegible signature.
- The third was from a Mr. Gilchriest dated the 28 January 2009 (ie the day before the hearing) and was in the following terms:
"This is to certify that the above purchased a transit van off Joey Fahy and the cheque was made payable to EP Motors. No VAT was claimed by us on the van (01LD1742)."
The Decision
- The decision for this Tribunal is if HMRC assessed to best judgment in the circumstances of this case, pursuant to Section 73 of VATA.
- On that specific point we find that they did and the appeal, therefore, is dismissed.
- Our reasons for coming to that decision are as follows:
(a) on a careful review of the documentation which was submitted to us, there is no doubt that the information which the Appellant has produced is scant. It was suggested to us by Miss. Lynch, the Appellant's Counsel, that Notice 725 and the correspondence from Customs was confusing and that the Appellant could not be expected to comply with it strictly. With respect that is not an argument which we find convincing. The rules (which have the force of law) applicable to one trader are applicable to all, and we see no reason why they should be relaxed in the particular instance of this case;
(b) there is no doubt that there may be a degree of confusion as to how the Appellant operated his business, particularly with reference to the third party seller which he also used in the Republic of Ireland. That may, conceivably, have to led to some degree of confusion in the Irish Revenue Commissioner's approach to the various customers to whom EP Motors advised that they had made sales. Nonetheless, Mr. McNulty had been given more than ample opportunity to provide explanatory evidence – not least because as a result of the fact that those allegations had been specifically put to him in HMRC's letter of 11 September 2007;
(c) the letters which were produced to the Tribunal on the day of the hearing were helpful to a point, but they did not, of themselves, provide all of the information required under Notice 725. In any event, even if they did, being dated some two to three years after the original supplies, they clearly fall outside the three month time limit as required by that Notice.
- For those reasons we uphold the assessment and DISMISS the Appeal.
- No order as to costs.
IAN HUDDLESTON
RELEASE DATE: 27 May 2009
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