DECISION
1.
The Appellant (“Chain”) appeals against an assessment dated 8 October
2009 disallowing input tax in the sum of £7,706 claimed by Chain in respect of
VAT period 04/09.
The facts
2.
The evidence consisted of a bundle of documents. In addition, Mr Tann (known
as Jay Tann) gave answers to questions put informally by Mr Bremner; these were
not given under oath, but we agreed that this information should be treated as
evidence. From the evidence we find the following background facts.
3.
Chain purchased the business and assets of a company called Globalink
International plc (“plc”) from its administrators in August 2008. There was
limited evidence to indicate the history of the transfer and the way in which plc
had itself either acquired or set up the business. No copy of the sale
agreement was included in the evidence. The other company involved was
Globalink Telecommunications International Ltd (“GTI”). Chain’s registration
for VAT had been a new registration, not on the basis of transfer of business
as a going concern. Mr Tann, who had previously been hired by a Globalink
company, had set up Chain to take up the operations of the Globalink business,
as a continuation of that business. Chain had been incorporated on 4 August
2008. Mr Tann owned the shares in Chain, and was a director; two other
directors had recently been appointed.
4.
As shown by a report dated 21 August 2009 by the Administrators of plc, plc
was put into administration on 27 July 2008; the Administrators referred to
having done so in their capacity as Joint Administrators of GTI. That report
does not establish the date on which they were appointed in the latter
capacity, but we find that it must have preceded their appointment as
Administrators of plc. Globalink was therefore already in administration as at
27 July 2008. Mr Tann’s understanding was that it would have commenced in
November 2007. (We note that the Administrators’ “Notice of statement of
affairs” dated 10 November 2008 relating to plc refers to the date of
administration of plc as being the slightly earlier date of 25 July 2008, but
we do not consider that this affects the position.)
5.
The 2009 report stated that the business and assets of “the Company”
(defined as “Globalink International plc”) were sold to Chain for the total sum
of £30,000. Completion of the sale had been on 11 August 2008 and a payment of
£15,000 had been made at that time. A further payment of £15,000 had been
deferred, to be paid on or before 31 October 2008. The report confirmed that
the Administrator had received the deferred consideration, but did not specify
the date of receipt.
6.
The corporate structure of the Globalink companies is not entirely clear
from the evidence. The position as understood by Mr Tann was that plc owned the
shares in GTI, which had been the trading company subsidiary. He explained that
the reason for setting up plc had been for the purposes of a flotation, which
had never happened. Its shares were owned by a number of individual
shareholders. Mr Fenwick was the majority shareholder. Mr Tann described plc as
a non-trading dormant company.
7.
If it is correct that plc owned all the shares in GTI, there is no
explanation why (as shown by the 2009 report relating to plc) the
Administrators of GTI in that capacity made an application for the appointment
of an Administrator of plc. It is possible that plc may have guaranteed the
indebtedness of GTI, but in the absence of further evidence, we are unable to
make any findings. Further, if plc was a non-trading company, the reason for
its Administrators being in a position to sell its business and assets to Chain
is far from clear. A possible explanation referred to in the questions put by
Mr Bremner to Mr Tann was that plc might have taken over the trade of GTI from
November 2007 until the administration in 2008. In the absence of further
evidence, we are unable to make findings as to these questions.
8.
Mr Tann referred to a continuing loan in respect of an amount borrowed
to pay HMRC outstanding PAYE of almost £23,000, as shown in the Administrators’
report in August 2009 concerning plc. That loan was to be repaid on the day of
the hearing; we assume (without specific evidence) that Chain had assumed the
PAYE liability as part of the acquisition of the business from plc. There was
no mention of this in the Administrators’ report, but Mr Tann and Mr Craen both
indicated that the arrangement to assume liabilities had been a separate one made
without the Administrators’ knowledge, in order to ensure the retention of
suppliers for the continuation of the business. Mr Tann and Mr Craen confirmed
that there was a separate commission arrangement between Chain and the
suppliers.
9.
It is also unclear whether the only transaction into which Chain entered
was its purchase of the business and assets of plc, or whether there was any
additional transaction. Chain’s accounts for the period from 4 August 2008 to
31 March 2009 show acquisition of goodwill at a cost of £191,793, with a 100
per cent amortisation charge for the period and a net book value of nil at 31
March 2009. That goodwill acquisition cost was far in excess of the purchase
costs from plc as mentioned in the report of the Administrators of plc.
10.
Whatever the precise details of Chain’s purchase (or purchases), before
the time of the purchase three different firms of solicitors had raised
invoices against Globalink companies for the supply of various legal services
between November 2007 and July 2008. The details of these invoices were as
follows:
|
No.
|
Date
|
Supplier
|
Total amount
|
VAT
|
|
1
|
18 October 2007
|
PDT Solicitors
|
£6,203.63
|
£889.88
|
|
2
|
2 November 2007
|
PDT Solicitors
|
£6,193.75
|
£1,095.13
|
|
3
|
30 March 2008
|
Stevens & Bolton LLP
|
£24,844.79
|
£3,700.29
|
|
4
|
31 March 2008
|
Stevens & Bolton LLP
|
£936.48
|
£139.48
|
|
5
|
10 July 2008
|
Rawlison Butler LLP
|
£9,531.56
|
£1,668.03
|
|
6
|
15 July 2008
|
Rawlison Butler LLP
|
£1,431.39
|
£213.19
|
|
Total VAT
|
£7,706
|
11.
The second invoice from PDT solicitors referred to £4,112.50 having
already been paid on account. The first invoice from Rawlison Butler referred
to £8,000 having been received on account.
12.
The invoices from PDT Solicitors were addressed to Globalink
Telecommunications International Ltd, the subject matter being “Re: Gamma
Telecom Limited”. The invoices from Stevens & Bolton LLP were addressed to
Kim and Ian Fenwick at plc, the subject matter specified being “Globalink Telecommunications
Limited”. The invoices from Rawlison Butler LLP were addressed to plc, the
subject matter being “Administration Application”. (Mr Tann had made certain
annotations on some of the invoices; we consider these below.)
13.
The invoices set out in the table above were paid in full by Chain,
including the VAT charged by the three legal firms. An extract from Chain’s
Sage accounts for the period from 1 August 2008 to 31 March 2009 headed “Nominal
Activity” showed payment of the invoiced sums net of VAT. We find that this
accounting approach was based on the assumption that the amounts paid in
respect of VAT on the invoices would be deductible in computing Chain’s output
tax.
14.
Chain completed a VAT return for the period 04/09. In this return (of
which no copy was included in the evidence), a net repayment of £1,555.40 was
claimed. This claim included by way of input tax deduction the £7,706 paid in
respect of the invoices detailed above. The return was signed by Mr Tann.
15.
On 16 September 2009 Alison Pelling, an officer of HMRC, visited Chain’s
business premises to carry out a pre-arranged VAT audit. She discussed the
business generally with Mr Tann. He drew her attention to the invoices. He
explained that when Chain had purchased the business, the “Globalink” assets
and goodwill had also been transferred. The Directors of Chain had therefore
paid the invoices. Requests had been made to the firms supplying the legal
services to re-issue the invoices and address them to Chain, but they had
refused to do so on the basis that the contract for the winding-up settlement
had been with Globalink and not with Chain.
16.
Alison Pelling told Mr Tann that because the invoices were for supplies
to a third party, she would disallow the input tax relating to them.
17.
In a subsequent email exchange between Ian Fenwick (the former Director
of plc) and Alison Pelling between 16 September 2009 and 2 October 2009, Alison
Pelling referred to the request for a copy of the sale agreement between the
Administrators and Chain for the purchase of Globalink. She stated that if the
sale agreement stated categorically that the supply had been made to Chain and
not to plc, then that should be the end of the matter. As she had explained to
Mr Fleming, the question came down to who the supply was made out to.
18.
In her email dated 1 October 2009, Alison Pelling told Mr Fenwick that
she had consulted with colleagues, and that she remained of the view that the
claim for input tax relating to the invoices should be disallowed. Both the
colleagues consulted were of the opinion that the supply had clearly been made
to GTI [sic] and not to Chain. She commented:
“If you look at the invoices they are showing the supply
is made to Globalink for the winding up of the company, regardless of who
actually pays the fees or who purchased the assets and goodwill of the company
in administration.”
19.
A penalty would not, however, be imposed , because Chain had been
proactive in seeking advice from both the HMRC National Advice Service and
Chain’s accountant before making the claim.
20.
On 8 October 2009 Alison Pelling raised an assessment for VAT plus
interest of £65.94, and in a letter of the same date notified Chain of the
assessment.
21.
On 3 January 2010, Chain was successful in its second attempt to give
Notice of Appeal to the Tribunal, as its initial form dated 3 November 2009 had
not included a request for an extension of time. (It is not clear to us, from
the information which we have, why this would have been necessary; there is no
indication of the date on which the original form was received by the Tribunals
Service.) As the Notice of Appeal had been lodged, HMRC did not carry out any
departmental review.
22.
In email exchanges during April and May 2011 between Mr Craen and the
three firms which had supplied the services, each firm confirmed that it had
accounted for output tax in its relevant VAT returns.
Arguments for Chain
23.
The grounds of appeal set out in Chain’s Notice of Appeal were as
follows (subject to minor editorial corrections):
“Chain Telecom purchased Globalink Telecom from the
administrators in August 2008, to secure the future of the company’s success
Chain had to pay several law firms for invoices raised to Globalink as the
Directors were personally responsible for the debts.
Chain are paying the invoices which include the VAT,
I also confirm the VAT was not claimed by Globalink prior to the
administration. We have requested the law firms [to] re-invoice Chain but they
refused as the debt is secured by the directors of Globalink and they wish to
novate the responsibility of the debt.
We were always aware that this is a grey area so we
contacted the VAT advice service prior to submitting the claim for VAT, we also
made the company’s auditors aware of the situation and the advice from both
parties was to claim the VAT. We then had an inspection from an Officer of
[HMRC] Alison Pelling, we brought this to her attention and provided her with
all information, she was satisfied we had taken due care in claiming the VAT.
Although she disallowed the input tax claim, she advised us of our right to
appeal (re letter 8 October).
Our appeal is based on the fact Chain are paying the
VAT and I assume the law firms are claiming the input tax on their VAT returns,
therefore with the professional advice we have taken it appears correct for us
to claim the input tax.”
24.
Mr Tann maintained that the continuation of the business demonstrated
that there was a continuation of the supply to Chain. Most of the companies
mentioned in the precedents referred to in HMRC’s skeleton argument had not been
supplied by the supplier of a third party. In Chain’s case, he submitted that
the solicitors had been supplying services to Chain for the continuation of the
business. Following the new VAT registration, there had been a continuation
into Chain carrying out the business. He conceded that perhaps some of the
supplies had been for the “Globalink” business and some for Chain; he would
like this to be considered if Chain’s appeal was completely dismissed.
25.
The solicitors had accounted for output tax on their supplies. The
supplies had only been used for business purposes. A proportion should be
allowed to Chain on the continuation. He thought that the solicitors should
probably have submitted more than one invoice, but the invoicing had been based
on the way in which their files had been opened.
26.
It had been stated in HMRC’s skeleton argument that Chain had not
obtained any benefit from the services supplied. Mr Tann submitted that Chain
had been able to benefit, as it had been able to survive for the first six months
from it having been set up, and was still surviving.
27.
Mr Tann acknowledged that he did not have the expertise of a
professional adviser such as Mr Bremner. He emphasised that he approached
matters as a layman, seeking to survive on cash flow. In relation to the
submissions relating to Customs and Excise Commissioners v Redrow Group plc
[1999] STC 161 (HL), if Chain had not accepted liability to pay for the
services which had been supplied, Chain would not have continued to exist; the
question was quite “black and white”. The payments had been made to protect the
asset of Chain’s day to day business. In particular, Gamma Telecoms Ltd had
been hostile, and it had taken a significant amount of money to deal with the
dispute. He submitted that the payments made in respect of the invoices had not
resulted in such a loose benefit as HMRC were contending.
Arguments for HMRC
28.
Mr Bremner referred to s 24(1) of the Value Added Tax Act 1994 (“VATA
1994”):
“(1) Subject to the following provisions of this
section, “input tax”, in relation to a taxable person, means the following tax,
that is to say—
(a) VAT on the supply to him of any goods or
services;
(b) VAT on the acquisition by him from another member State of any goods; and
(c) VAT paid or payable by him on the
importation of any goods from a place outside the member States,
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.”
29.
He also referred to ss 25 and 26 VATA 1994. The latter provided:
“26 Input tax allowable under section 25
(1) The amount of input tax for 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 subsection (2) below.
(2) The supplies within this subsection are the
following supplies made or to be made by the taxable person in the course or furtherance
of his business—
(a) taxable supplies;
(b) . . .
(c) . . .”
30.
He stressed the key principle following from the words of s 24(1) VATA
1994; VAT must be on the supply to the taxable person. Where a payment was
“third party consideration”, the VAT paid by that person was not in his hands
input tax in the relevant sense.
31.
He referred to various passages in Redrow, and to comments by
Neuberger LJ in WHA Ltd and another v Customs and Excise Commissioners [2004] STC 1081 (CA). Mr Bremner explained that the approach in these cases was
currently the subject of a challenge by HMRC. The application of the judgment
of the ECJ in Revenue and Customs Commissioners v Loyalty Management UK Ltd;
Baxi Group Ltd v Revenue and Customs Commissioners [2010] STC 2651 was due
to be considered by the Supreme Court in October 2012. Further, the approach
set out in Redrow was to be the subject of argument in WHA, which
was to be heard by the Supreme Court in January 2013. HMRC had permission to
join in the appeal from the judgment of the Court of Appeal given by Neuberger
LJ in the first of the WHA cases.
32.
Mr Bremner submitted that, whatever the position in relation to Redrow,
Chain’s appeal could not succeed.
33.
He referred to two Tribunal decisions. In DIY Conservatory Centre v Revenue
and Customs Commissioners (2005) VAT Decision 19290, which had similarities
to the present case, the Tribunal had examined four questions derived from the
Redrow case. He stressed the comments of the Tribunal at paragraph 12 of its
decision.
34.
The second case was ASR Consultants Ltd v Commissioners of Customs
and Excise (2004) VAT Decision 18600. The Tribunal had concluded that there
was no supply to the appellant, ASR. ASR had paid two outstanding debts which
were owed by another company (IWW) to its supplier (U-Net) and claimed the VAT
in respect of such debts as input tax. At paragraph 12 the Tribunal commented:
“In my view the Vat paid to U-Net was not Vat on the
supply to the Appellant of any goods or services used or to be used for the
purposes of a business carried on by the Appellant. The payment was merely
payment of Vat already owed by IWW to U-Net in respect of services it had
provided to IWW.”
35.
The four questions put in DIY Conservatory were set out at
paragraph 7 of that decision:
“. . . Mr Ferrington argued that, in Redrow,
the Court posed four questions for a person claiming to deduct input VAT,
namely:
(i) Did that person instruct the supplier to do
something?
(ii) Was something done for or obtained by that
person?
(iii) Did that person use that something in the
course of [sic] furtherance of its business?
(iv) Did that person pay consideration for the
something which included VAT?”
36.
Applying these tests, Mr Bremner commented:
(1)
The solicitors had been instructed by plc; Chain had not yet been
incorporated at that stage. The invoices had been nothing to do with Chain.
(2)
Nothing was done for Chain. The services were for GTI and plc, as Chain
had not yet been incorporated. The services had been provided between 18
October 2007 and July 2008; Chain was incorporated on 4 August 2008, as shown
by the Director’s Report included in its unaudited financial statements for the
period from that date to 31 March 2009. There could have been no question of
Chain authorising the work done by the three firms of solicitors, or of the
work being done for it.
(3)
None of the services were used by Chain. It could be said that payment
of the invoices enabled Chain to trade, but Mr Bremner submitted that this was
not enough for input tax recovery. It was a non sequitur to say that the
payments of the invoices had been made in order to secure the future of Chain.
In a loose sense it did assist Chain’s position, but this was confusing the
position of the former plc directors in their personal capacities.
(4)
Chain had made the payments. Even if it were possible to conclude that
the supplies had been made to Chain – which, for the reasons given, was not
possible on the evidence and for the reasons given – there was no basis for
concluding that the supplies were used or to be used for the purposes of any
business carried on by Chain as required by s 24(1) VATA 1994. The payments
appeared to have been made by Chain in order to discharge liabilities owed by
the directors of plc in their personal capacities, as referred to in Chain’s
grounds of appeal. It was clear that payment by Chain would result in good
relationships with the firms concerned, but Chain had not existed at the time
when the services had been provided. Mere payment of the invoices was not
enough, nor reflection of Chain’s payments in its accounts. Nor was the
position affected by the solicitors having accounted for output tax on the
supplies which they had made.
37.
The result of the invoicing was that Chain did not hold the relevant VAT
invoices, as referred to in Regulation 29(2)(a) of the Value Added Tax
Regulations 1995.
38.
In Chain’s second ground of appeal, it had referred to requesting the
firms to re-invoice Chain. Mr Bremner commented that there had been no such
re-invoicing. Even if this were to have been done, this would not have altered
the position, as the basis on which the services had been provided would not
have changed. He referred to Realm Defence Industries (2000) VAT
Decision 16831 at paragraph 18-20, which showed that new invoicing made no
difference to the VAT analysis.
39.
Mr Bremner also made submissions on the question whether it was possible
for the right to deduct to be transferred. This was not what had happened here,
and in any event would not have affected Chain’s right to deduct.
40.
Such a transfer could be a transfer of an asset, as indicated in Midlands Co-Operative Society v Revenue and Customs Commissioners [2007] EWHC 1432 (Ch). HMRC’s 2010 guidance on Fleming claims showed that a transfer
was possible.
41.
In Chain’s case, there was no evidence whatsoever of any assignment.
There was no evidence of transfers from GTI to plc, not any reference in the
Progress Report of plc’s Administrators. The position might have been different
if all the assets had been transferred, or if there had been a reference to all
claims being transferred.
42.
On the facts, even if there had been an assignment, this would not in
any event have been of assistance. Mr Bremner referred to s 133 of the Finance
Act 2008 (“FA 2008”), introduced following the Midland Co-Operative case.
He submitted that this section took the matter beyond doubt. HMRC were entitled
to a set-off even in cases where there was a claim. Section 130(8) FA 2008,
which said that the section was without prejudice to any other power of HMRC to
set off amounts, meant that s 81 VATA 1994 applied. The amount owing from plc
in respect of unpaid VAT had been £8,305. Section 131 FA 2008 did not preclude
set-off, because the “insolvency event”, ie the appointment of the
Administrator[s] of plc, occurred on 25 July 2008, and all the supplies related
to matters occurring at time before that, so did not give rise to any
post-insolvency credit.
43.
Thus even if the Tribunal were to be against HMRC on the evidence, HMRC
were entitled to set off the outstanding VAT against the claim; the VAT debt
exceeded the amount being claimed by way of input tax.
44.
An additional point was that if there had been an assignment, by that
time more than six months had passed since the dates of the invoices, so that s
26A VATA 1994 would have disallowed the right to deduct. That section did
contain a right to reinstatement, but it did not fit a “third party” case.
45.
Mr Bremner summarised the fundamental point of HMRC’s case. The question
was whether the supplies were made to Chain, following the questions in DIY
Conservatory. The answer was that the supplies had been made to plc and not
to Chain. This was an insurmountable obstacle to Chain’s appeal. He submitted
that the appeal should be dismissed.
Discussion and conclusions
46.
As we have mentioned above, the evidence before us was limited. In
particular, we did not have any copy of the agreement for the transfer of the
business from plc to Chain, nor was it apparent whether the business previously
carried on by GTI had been transferred to plc when GTI had been put into
administration. The absence of the formal documentation means that we have to
decide the case on the limited evidence available to us. In this respect, the
position is similar to that in the ASR case.
47.
We are satisfied on the evidence that Chain paid the full amount of all
six invoices, including the VAT. As Mr Bremner submitted, the fundamental
question is whether Chain fulfilled the conditions laid down by s 24(1) VATA
1994 in order to treat the VAT paid as input tax, namely that the supplies of
services were made to Chain within s 24(1)(a), and that the services were
“. . . used or to be used for the purpose of any
business carried on or to be carried on by him [ie Chain].”
48.
We acknowledge the comments which Mr Bremner made concerning Redrow
and the further issues to be considered by the Supreme Court later this year
and in 2013 in the respective cases of Loyalty Management and WHA.
Pending the future judgments of the Supreme Court, we continue to be bound by Redrow,
whatever challenges HMRC may wish to pursue in those other proceedings.
49.
In Redrow, Lord Hope commented at p 165 g-h:
“The question then is whether there is a direct and
immediate link with an exempt supply or with a supply which is not taxable.
Where, as in this case, all the supplies which the taxable person makes in the
course or furtherance of its business are taxable supplies, the only question
which has to be addressed is whether the supplies on which it seeks to deduct
input tax have been used or are to be used for the purposes of the business.
The relevant test is that laid down in Belgium v Ghent Coal Terminal NV (Case C-37/95) [1998] STC 260, [1998] ECR I-1. Was the supply received in
connection with the business activities of the taxable person, for the purpose
of being incorporated within its economic activities?”
50.
At p 166 he said:
“Questions such as who benefits from the service or
who is the consumer of it are not helpful. The answers are likely to differ
according to the interest which various people may have in the transaction. The
matter has to be looked at from the standpoint of the person who is claiming
the deduction by way of input tax. Was something being done for him for which,
in the course or furtherance of a business carried on by him, he has had to pay
a consideration which has attracted VAT? The fact that someone else, in this
case, the prospective purchaser, also received a service as part of the same
transaction does not deprive the person who instructed the service and who has
had to pay for it of the benefit of the deduction.”
51.
Lord Millet expressed a similar view at p 171:
“Once the taxpayer has identified the payment the
question to be asked is: did he obtain anything—anything at all—used or to be
used for the purposes of his business in return for that payment? This will
normally consist of the supply of goods or services to the taxpayer. But it may
equally well consist of the right to have goods delivered or services rendered
to a third party. The grant of such a right is itself a supply of services.”
52.
Following the approach of Neuberger LJ in WHA at [46] and that of
Lord Hope in Redrow, was anything “done for” Chain by the solicitors in
the present case? Did Chain obtain anything used or to be used for the purposes
of its business in return for its payment of the invoices? It is clear on the
evidence that Chain was not in existence when any of the services were
provided. This renders it unlikely that anything was “done for” Chain. Further,
the nature of the services must be considered.
53.
In analysing the position, we bear in mind the four questions derived
from Redrow and considered by the Tribunal in DIY Conservatory,
as set out above.
54.
The first invoice from PDT Solicitors, covering the period from 26
September 2007 to 18 October 2007, concerned resisting a winding-up petition;
the “matter heading” on the invoice was “RE: HM Revenue & Customs”.
Ignoring for the present the annotations made by Mr Tann, the addressee was
GTI.
55.
The matter heading on the second invoice from PDT Solicitors was “Re:
Gamma Telecom Limited”. This concerned an application for injunctive relief.
The invoice covered the period from 19 to 21 November 2007. This invoice was
also addressed to GTI.
56.
The third invoice (which was the first from Stevens & Bolton LLP)
was addressed to Kim and Ian Fenwick at plc. It covered the period to 30
November 2007; the commencement date was not specified. It was headed
“Globalink Telecommunications Limited”, and covered two matters. The first was
“Advice on purchase agreement”. The second, to which the main bulk of the charges
related, was “Advice on dispute with Gamma Telecoms Limited”.
57.
The fourth invoice (being the second from Stevens & Bolton LLP)
carried the same address and heading as their previous invoice. It covered the
period from 1 to 31 December 2007, and the narrative was; “To our professional
services in connection with the above-mentioned matter”.
58.
The fifth invoice (the first from Rawlison Butler LLP) was addressed to
plc and covered charges for the period 1 to 8 July 2008. The heading was
“Administration Application”. It referred to “attached narrative”; no narrative
was included in the evidence.
59.
The sixth invoice (and the second from Rawlison Butler LLP) was
similarly addressed and headed. It specified the charges as a final bill for
the period to14 July 2008. It also referred to attached narrative; none was
attached to the copy in the bundle.
60.
Leaving aside the question of the identity of the particular companies
mentioned in these invoices, we are not satisfied on the evidence of the nature
of the services supplied that there is any possibility of those services being
regarded as provided to, or “done for”, Chain. Not only was Chain not in
existence until August 2008, after the performance of the work covered by the
latest of the invoices; the services related to matters which were specifically
related to companies other than Chain.
61.
Thus the answer to the question, under s 24(1)(a) VATA 1994 (whether the
services were supplied to Chain) is that they were not. Failure of that
precondition means that the VAT paid by Chain as part of its payment of the
invoices does not constitute input tax, and is sufficient to determine the
result of Chain’s appeal. However, we go on to consider whether Chain met the
remaining condition in s 24(1) VATA 1994; were the services used or to be used
for the purpose of any business carried on or to be carried on by Chain?
62.
Again, we do not think that the services relating to the other companies
can possibly be described as having been used by Chain for the purpose of its
business. The further condition in s 24(1) VATA 1994 is therefore not
fulfilled, so that if for any reason our finding in the previous paragraph were
to be considered incorrect, Chain’s claim for input tax deduction would still
fail.
63.
We accept Mr Tann’s evidence that for Chain to be able to carry on the
business previously carried on by plc (and by GTI, if it is correct that GTI’s
business was ultimately transferred to Chain, however this was achieved), Chain
felt it necessary to pay the invoices. The commercial logic for doing so is
entirely understandable. However, the commercial justification is not in itself
a basis for satisfying the requirements of s 24(1) VATA 1994 and the associated
sections and applicable Regulations. Chain may be described as having benefited
from accepting the liability to pay the invoices, but this is not the same as
using the solicitors’ services for the purposes of its business.
64.
In respect of the four questions as put in DIY Conservatory, we
therefore agree with Mr Bremner’s comments as set out above.
65.
In summary, we find that the services of the solicitors were not
supplied to Chain, and that Chain did not use those services for the purpose of
its business.
66.
We have referred to the annotations made by Mr Tann on nearly all the
invoices. He explained at the hearing that he had made the annotations during
the meeting with Alison Pelling, except for the alteration of the tax point on
the third invoice. The latter had been written in as March before the meeting
with Alison Pelling, as it had been received at the end of March.
67.
We are satisfied that there was no intention on Mr Tann’s part to
mislead HMRC by these annotations; it is entirely clear from the copies in
evidence that they were rendered as indicated by the original typescript. In
any event, we have found that the invoices do not enable Chain to claim the VAT
element of the invoice payments as input tax, and thus the annotations have
been shown to be irrelevant.
68.
On the basis of our findings of fact and our conclusions as to the
applicable law, we agree with Mr Bremner’s submission that the position would
not have been affected if the three firms had rendered new invoices against
Chain; it would still have been unable to treat the VAT paid on the replacement
invoices as input tax. The position is clear from the decision of the Tribunal
in Realm Defence Industries Ltd.
69.
As noted above, Mr Bremner made submissions concerning the issue of
transferring the right to deduct. As there is no evidence of any such transfer
in Chain’s case, and as our findings are in accordance with Mr Bremner’s case
as presented on behalf of HMRC, we do not find it necessary to consider in any
further detail these interesting submissions in order to arrive at our
conclusions as to the result of Chain’s appeal.
70.
As the payments by Chain do not meet the conditions set out in s 24(1)
VATA 1994, we find that its payments in respect of VAT on the six invoices do
not constitute input tax. Its appeal must therefore be dismissed. We find no
grounds on which any part of that VAT can be regarded as input tax in Chain’s
hands, and therefore there is no basis for any revised attribution as suggested
by Mr Tann in the course of his argument before us.
Right to apply for permission to appeal
71.
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 CLARK
TRIBUNAL JUDGE
RELEASE DATE: 8 May 2012
