[2010] UKFTT 467 (TC)

TC00729

Appeal number:  TC/09/13841

Value Added Tax – cancellation of registration – whether reasonable – VATA 1994 Schedule 1 para 13(3) – Appeal Dismissed.

FIRST-TIER TRIBUNAL

TAX 

	SHADOW PHOTOGRAPHIC LTD	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL JUDGE: 	Mr Kenneth Mure, QC					
Members:			Mrs Eileen A Sumpter, WS
				Mr Ian G Shearer

Sitting in public at 126 George Street, Edinburgh on Wednesday 8 September 2010

No appearance for the Appellant

Mr Bernard Haley, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

Preliminary
1.	The Appellant’s accountant advised the Tribunal by phone that he did not intend to appear.  He was content that the matter should proceed in his absence.  The papers had been sent to him and he had been advised of the date, all of which was no doubt communicated to his client.  Mr Haley for the Respondents moved to proceed.
2.	The Tribunal had regard to Rule 33.  It appeared that the agent and, presumably, his client were aware of the diet and in the absence of any motion to adjourn, we considered it in the interests of justice to proceed with the Appeal.
The Issue
3.	The Appeal was in terms of Section 83(a) of the Value Added Tax Act 1994 (“the Act”).  Was the decision of the Respondents to cancel the registration of the Appellant for VAT in terms of Paragraph 13(3) of Schedule 1 of the Act reasonable?  This decision is set out in the Respondents’ letter dated 24 October 2008, as later confirmed by their letter dated 25 August 2009 (pages 72 and 78/79 of the Bundle).  This decision was on the basis that the Appellant company was not making taxable supplies.  
The Law
4.	Schedule 1, paragraph 13(2) of the Act provides –
“…      where the Commissioners are satisfied that a registered person has ceased to be registrable, they may cancel his registration with effect from the date on which he so ceased or from such later date as may be agreed between them and him”.
5.	Paragraph 13(3) provides –
“where the Commissioners are satisfied that on the day on which a registered person was registered he was not registrable, they may cancel his registration with effect from that day”.
6.	Moreover, Schedule 1 paragraph 9 provides –
“where a person who is not liable to be registered under this Act and is not already so registered satisfies the Commissioners that he – 
(a)  makes taxable supplies; or
(b)  is carrying on a business and intends to make such supplies in the course of furtherance of that business, 
they shall, if he so requests, register him with effect from the day on which the request is made or from such earlier date as may be agreed between them and him”.
The Evidence and Findings-in-Fact
7.	Mr Haley led one witness, Margaret Paton, an officer of HMRC, who had investigated the VAT affairs of the Appellant company.  She confirmed in evidence the terms of her Witness Statement (pages 62-65) to which we refer.
8.	The material aspects for purposes of the appeal bear to be as follows, viz:-
(i)	the Appellant company was incorporated on 27 February 2007 and registered for VAT later that Year.  Its directors and secretary were respectively Mark and Jane Cargill, both appointed on 27 February 2007 also.
(ii)	Mr and Mrs Cargill were also respectively secretary and director of another company, Shadow Audio Ltd, incorporated on 18 February 2005.  It also was registered for VAT.  They both resigned on 20 March 2007.  
(iii)	There was no evidence of trading on the part of the Appellant company.  It issued only one invoice dated 1 February 2008 to Shadow Audio Ltd for £180,247.75 plus VAT of £31,534.36 in respect of – 
“Provision of sales and marketing consultancy services for the period 18 Feb 2005 to 28 Feb 2006”.
We refer to page 66 of the Bundle.  This bears to be a supply by the Appellant prior to its incorporation.
(iv)	Payment of the invoice to the Appellant was made through the Directors’ loan account of Shadow Audio Ltd.  
(v)	Shadow Audio Ltd claimed repayment of the input tax on this invoice before the Appellant accounted for this amount as output tax to HMRC.
(vi)	The Appellant claimed repayment of only minor sums of input tax.
9.	In evidence Mrs Paton explained that the supply recorded in the invoice bore to have been made by the officers of the Appellant company prior to its incorporation to another company of which they were officers also.  It had been made via directors’ loan accounts.  It might reasonably be viewed as a payment representing income of the individual(s) concerned and accordingly potentially liable to income tax and NIC.  In regard to this we note the evidence of Mrs Paton at particularly paras 4 and 12 of her Witness Statement.
10.	We found Mrs Paton credible and reliable.  Indeed, she was able to deal readily with all matters raised about the company.  We find proved as matters of fact the contents of her Witness Statement and especially the matters referred to supra in this section of our Decision.

Submissions
11.	Mr Haley argued that the cancellation of the Appellant’s registration for VAT was justifiable.  There was no evidence of taxable activity.  The circumstances of the only transaction in respect of “sales and marketing consultancy services” were suspicious.  Mr and Mrs Cargill had been officers of both companies involved.  In any event the tax point of the supply was before the incorporation and registration of the Appellant company.  It seemed to be a “re-charging of remuneration”.
12.	In his submissions Mr Haley relied particularly on paragraphs 4 and 12 of Mrs Paton’s Witness Statement.  There was no evidence of sales by the Appellant even 2 years after its registration.  In such circumstances the actions of HMRC to cancel the registration were reasonable.  Mr Haley noted the terms of Paragraph 9 of Schedule 1 to the Act.  While this covered actual or intended supplies, this did not extend, in his view, to the present case.
13.	Finally, Mr Haley indicated that he was not seeking expenses.
Decision
14.	In addition to the oral submissions by Mr Haley for the Respondents we considered the terms of the Notice of Appeal submitted by the Appellant’s accountants and other correspondence sent by them to the Respondents (noting particularly pages 22, 26/27, and 30/31 of the Bundle).  The accountants stressed the Appellant company’s intention to trade and we noted that at one stage HMRC considered proceeding under paragraph 13(2) of Schedule 1 of the Act rather than seeking a retrospective cancellation of registration in terms of paragraph 13(3).  Ultimately HMRC confirmed the latter course.  We note the contrasting terms in their letters of 2 February 2009 and 25 August 2009 (pages 74/75 and 78/79 of the Bundle).
15.	We considered the stance of HMRC reasonable.  We agree with Mrs Paton’s view that it was appropriate to cancel the Appellant’s registration under paragraph 13(3), so operating retrospectively to the date of registration.  There is no evidence of it having ever traded or having made preparations to trade.  The terms of the one invoice are suspicious and in any event the purported supply pre-dates the Appellant’s incorporation.  We have to pay regard to Paragraph 9 of Schedule 1 which requires at least the intention to make taxable supplies in the course or furtherance of a business.  The practice of HMRC is to allow a reasonable opportunity to set up a business before expecting the issuing of invoices.  In the circumstances of the present case we consider that HMRC’s decision to de-register the Appellant company in terms of paragraph 13(3) was well-justified.  This bears to have been a considered decision and we note in this regard the 2 letters of Mrs Paton dated 2 February 2009 and 25 August 2009 (pages 74/75 and 78/79 of the Bundle).
16.	Accordingly we dismiss this Appeal.
17.	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.

MR KENNETH MURE, QC
TRIBUNAL JUDGE

RELEASE DATE:  4 OCTOBER 2010