[2011] UKFTT 732 (TC)
TC01569
Appeal number: TC/2010/06571
VAT –
Zero rating of EU sales - invalid VAT number shown on invoices – did Appellant
take reasonable steps to verify the number – no – appeal dismissed.
Misdeclaration
penalty – reasonable excuse – no - mitigation – partial – appeal allowed in
part.
FIRST-TIER TRIBUNAL
TAX
JANE
LOUISE EYDMANN Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
LADY MITTING (TRIBUNAL JUDGE) DEREK
ROBERTSON (MEMBER)
Sitting in public in Manchester on 1 November 2011
Peter Scott for the Appellant
Wayne Conroy, instructed by
the General Counsel and Solicitor to HM Revenue and Customs, for the
Respondents
© CROWN COPYRIGHT
2011
DECISION
1. The
Appellant, Miss Eydmann, was appealing against (i) an assessment raised by the
Commissioners in the sum of £19,731 for tax periods 04/07; 07/07; 01/08 and
04/08 and (ii) a mis-declaration penalty issued on 15 January 2009 in the total
sum of £2,190. The assessment was raised to correct what the Commissioners
believed to have been an incorrect zero rating of a supply by Miss Eydmann of
kitchen carcasses to a customer in Spain, the Commissioners’ case being that
the conditions necessary to allow zero rating had not been satisfied.
2. On behalf
of the Commissioners, oral evidence was given by the assessing officer, Ms
Carol Hewitt and Miss Eydmann also gave oral evidence.
Legislation and Public Notice 725
3. The
law in question:
a) Section 30 (6) VAT Act 1994
“(6) A
supply of goods is zero-rated by virtue of this subsection if the Commissioners
are satisfied that the person supplying the goods –
(a) has exported them to a place outside the
member States; or
(b) has
shipped them for use as stores on a voyage or flight to an eventual destination
outside the United Kingdom, or as merchandise for sale by retail to persons
carried on such a voyage or flight in a ship or aircraft and in either case if
such other conditions, if any, as may be specified in regulations or the
Commissioners may impose are fulfilled.”
b)
Section 30 (8) VAT Act 1994
“(8) Regulations
may provide for the zero-rating of supplies of goods, or of such goods as may
be specified in the regulations, in cases where-
(a) the
Commissioners are satisfied that the goods have been or are to be exported to a
place outside the member States or that the supply in question involves both-
(i)
the removal of the goods from the United Kingdom; and
(ii)
their acquisition in another member State by a person who is liable for VAT on
the acquisition in accordance with provisions of the law of that member State
corresponding, in relation to that member State, to the provisions of section
10; and
(b)
such other conditions, if any, as may be specified in the regulations or the
Commissioners may impose are fulfilled.
4. Regulation
134 VAT Regulations 1995 provides as follows:
Regulation 134 of VAT Regulations 1995
“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 50A of the Act, for VAT to be charged by reference
to the profit margin on the supply.
The
supply, subject to such conditions as they may impose, shall be zero rated”
5. The
conditions imposed by the Commissioners, pursuant to Regulation 134 are to be
found in Paragraph 4.3 of VAT Public Notice 725, the relevant part of which
reads as follows
VAT
Notice 725, Section 4.3
A
supply from the UK to a customer in another EC Member State is liable to the
zero rate where:
·
You obtain and show on your VAT sales invoice your customer’s EC
VAT registration number, including the 2-letter country prefix code, and
·
The goods are sent or transported out of the UK to a destination in another EC Member State, and
·
You obtain and keep valid commercial evidence that the goods have
been removed from the UK within the time limits set out at paragraph 4.
These conditions have the force of law and are clearly
marked to that effect.
6. It
was accepted by the Commissioners that the goods had been removed from the UK and the sole point in issue concerned the first of the conditions, namely that Miss
Eydmann had not obtained and shown a valid EC VAT Registration number for her
customer.
7. Miss
Eydmann accepted, in the circumstances which we set out below, that she had not
complied with this condition but maintained that she should not be liable to
repay the tax, her case being that she had taken all reasonable steps to ensure
the number she did quote was correct and she had no reason to doubt its
validity. Her case was, in effect, based on paragraphs 4.10 to 4.12 of pubic
notice 725 which read as follows:
“4.10 Will I have to account
for VAT if my customer’s VAT number turns out to be invalid?
No. but only if you:
·
have taken all reasonable steps to ensure that your customer is
registered for VAT in the EC
·
have obtained and shown your customer’s EC VAT number on your VAT
sales invoice, and
·
hold valid documentary evidence that the goods have left the UK
4.11 What is meant by ‘reasonable steps’?
We will not regard you as
having taken reasonable steps, as mentioned at paragraph 4.10, to ensure your
customer is VAT registered in the EC if, for example:
·
the VAT number you quote does not conform to the published format
for your customer’s Member State as shown at paragraphs 16.19, or
·
you use a VAT number which we have informed you is invalid, or
·
you use a VAT number which you know does not belong to your
customer
4.12 Will VAT be chargeable
if reasonable steps are not considered to have been taken?
Yes. You will have to
account for VAT at the appropriate rate on the goods in the UK.”
8. Also
relevant to Miss Eydman’s case is paragraph 4.9. The link to paragraph 4.9
begins in paragraph 4.3 which concludes “paragraph 4.9 covers the checks that
you must undertake to ensure that your customer’s EC VAT number is valid.”
Paragraph 4.9 is concerned with and is entitled “Checking the validity of an EC
customer’s VAT Registration number.” This paragraph gives the means of
verification and concludes with the advice that a trader should regularly check
their customer’s number to ensure the details are still valid and the number
has not been de-registered.
The Facts
9. The
following facts were not challenged. Miss Eydmann’s father traded as Maelstrom
Lancaster (“Maelstrom”), manufacturing and supplying melamine kitchen
carcases. Miss Eydmann was employed by her father full time on a PAYE basis.
One of Maelstrom’s customers had for some years been a Mr Robert Bradbury. In
late 2006/early 2007, Mr Bradbury moved to Spain where he commenced trading as
Contract Kitchens SL (“Contract Kitchens”), continuing to purchase his carcases
from Maelstrom. It was decided by Mr Eydmann and Mr Bradbury, for commercial
reasons, that Miss Eydmann would set up her own business which was to be called
Kitchen Logistics. Mr Bradbury would put his orders in to Kitchen Logistics
(Miss Eydmann) who would process the order, receiving the necessary goods from
Maelstrom and then completing the order by supplying them to Contract Kitchens.
Mr Eydmann and Mr Bradbury had agreed that they would split any trading
profits which Kitchen Logistics made on a 50/50 basis with Miss Eydmann taking
no drawings as she did the paperwork in her spare time. Miss Eydmann set up
her business in December 2006 and ceased trading in August 2008. During this
period, orders were received from Contract Kitchens, were processed as
described above and invoiced, in a somewhat haphazard and belated fashion, by
Kitchen Logistics.
10. On her invoices to Contract
Kitchens, Miss Eydmann quoted a VAT number which had been given to her in
circumstances which she could not recall, but not in writing, by Mr Bradbury.
It later transpired following an inspection by Ms Hewitt that this number was
valid only in respect of internal Spanish transactions and not for dealing with
EU sales for which a separate number was required.
11. When Mr Bradbury left the UK for Spain, he left Maelstrom with a debt of £10,000 plus which Maelstrom wrote off as a bad debt
in period 01/08. Mr Bradbury also at some stage closed down his business in Spain, leaving Miss Eydmann with unpaid invoices totalling almost £38,000. Miss Eydmann
saw herself as a victim of a deliberate fraud by Mr Bradbury.
12. Miss Eydmann and her father
made a series of telephone calls to the Commissioners’ helpline seeking advice
on how to deal with the exports to Mr Bradbury. In a call dated 5 April 07,
Miss Eydmann was referred to public notice 725, section 4.3. She confirmed in
the call that provided she met the conditions she could zero rate. She was
told she needed “their VAT number with a 2 code letter country code prefix”. A
call of 29 May 2007 from Mr Eydmann was concerned in the main with the removal
and shipping of the goods. A further call from Mr Eydmann dated 28 November
2007 was concerned with late invoicing but again he was referred to paragraph
4.3. A call of 30 May 2008, again from Mr Eydmann, was concerned again with
late invoicing and more specifically with tax points.
Evidence
13. In addition to the
unchallenged evidence which we set out above, Miss Eydmann also gave evidence
as to the checks which she had made on the VAT number given to her by Mr
Bradbury. The evidence she gave was in part contradictory. She told the
Tribunal that she had referred to paragraph 4.3 but looked no further than the
boxed conditions which she believed she could satisfy. Mr Bradbury had given
her a VAT number which she took at face value, believing no further checks were
necessary. She also said that she had checked in paragraph 16.19 that the
format of the number was consistent. However, she later said that she may well
have not made this check until after Ms Hewitt’s visit. We find that Miss
Eydmann did read the boxed conditions of paragraph 4.3 but at no time took any
steps to verify the number she had been given. Had she done so she would have
known immediately that it was, for her purposes, invalid.
The Appellant’s Submissions
14. Mr Scott took us to
paragraph 4.9 of the Public Notice which begins “if you are uncertain whether
the number you have been given is valid you can do a preliminary check…..” His
contention was that Miss Eydmann was not uncertain. She therefore had no
reason to carry out any further or even preliminary checks. She had been given
what she believed to be a valid number and took Mr Bradbury at his word. Mr
Scott further submitted that in the wording of paragraph 4.10, Miss Eydmann had
taken all reasonable steps to ensure that Contract Kitchens was registered and
that the number she was given and displayed on her invoices was correct.
Conclusions
15. It was common ground, as we
have said, that the number Miss Eydmann was quoting was not valid for the
supplies she was making. The supplies could not therefore properly have been
zero rated but should have been standard rated and the issue before us is
whether Miss Eydmann should now have to account for the tax. She need not,
following paragraph 4.10, if she took reasonable steps to ensure the validity
of the number. We conclude that she did not take such steps. In fact she took
no steps. Paragraph 4.3 would have lead her directly to paragraph 4.9 which
sets out very simply the verification checks which any trader could and should
make. Instead she relied only on having known Mr Bradbury for some four
years. We do take issue with her assertion that she had no reason to doubt
him. He had already reneged on a debt to her father, leaving him with unpaid
invoices of £10,000 which had to be written off. This should have been, at the
very least, an indication to her that it was unwise to rely, without more, on
his word. We therefore find that Miss Eydmann did not take reasonable steps to
verify the validity of the VAT number and she is therefore liable for the tax
as assessed and her appeal against the assessment is dismissed.
The Misdeclaration Penalty
16. The position over this
penalty is unsatisfactory to say the least. Neither party made any reference
to it whatsoever in their presentation of their cases. We therefore asked for
confirmation that a penalty had been issued and Ms Hewitt confirmed that it
had. No mention of the penalty was made in the Notice of Appeal so we asked Mr
Scott if it was under appeal. He confirmed that it was. However, despite
these confirmations by both parties, still neither party addressed it or made
any representations with regard to it.
17. We will therefore take it
that neither party wished to make any representations and we will deal with it
as we think fit. In the light of our findings as above and in the absence of
any representations from Mr Scott that Miss Eydmann had a reasonable excuse for
the misdeclaration, we find that she did not. However, it does appear to us
from the Penalty Notice that no mitigation had been allowed by the
Commissioners. Notwithstanding this, it is open to the Tribunal to give such
mitigation as they think fit provided it falls within the statutory
guidelines. There is no suggestion Miss Eydmann offered anything other than
total co-operation in all her dealings with Ms Hewitt and we therefore conclude
that the penalty should be mitigated by 50% and we allow her appeal against the
penalty in part.
18. 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.
TRIBUNAL JUDGE
RELEASE DATE: 14 November 2011
