Local authority's property business
The appellant local authority applied for and received a grant to assist in the refurbishment and improvement of a site comprising various canalside buildings known as 'the Wharf'. The total cost of the work was about £830,000, of which £720,000 was provided by the authority out of its funds with the benefit of the grant.
Local authority's property business
The appellant local authority applied for and received a grant to assist in the refurbishment and improvement of a site comprising various canalside buildings known as 'the Wharf'. The total cost of the work was about £830,000, of which £720,000 was provided by the authority out of its funds with the benefit of the grant.
The authority entered into an agreement with a company under which the company provided an additional £130,000, and in consideration of the payment of that sum the council undertook to carry out works of the conversion as specified in the building contract. The company also agreed to enter into an underlease of the Wharf 14 days after practical completion of the works for a term of 35 years at a peppercorn rent , but with full repairing covenants.
The building contractors invoiced the authority for the work done and the authority made various deductions in respect of input tax charged on the invoices. Customs and Excise disallowed the deductions of input tax on the grounds that they were not attributable to a taxable supply of services, the only relevant supply being a grant of the underlease which was exempt.
The authority appealed to a VAT tribunal which upheld Customs' decision. The authority appealed against the tribunal's decision on the grounds that the tribunal was wrong to conclude that the VAT refund provisions for local authorities and the like under section 33, VAT Act 1994 were unavailable, and that the assessment failed to comply with section 73(2) of the Act.
In the High Court, Mr Justice Patten observed that the scheme of VAT legislation, like the Sixth Directive, was to concentrate on the nature of the transaction or activity carried out. In order to rely on section 33, a local authority needed to demonstrate that the input tax related to an inward supply of services which was not made for the purpose of any business carried on by the authority. In relation to a local authority, the question whether a particular activity constituted a 'business' had to take into account, not merely the profitability or otherwise of the undertaking, but also the statutory basis for it.
In the current case the grant of the underlease concerned a means to put into operation an arts centre for the public benefit, but nevertheless the means adopted involved a business transaction under which the authority was able to raise an additional £130,000 which was essential to the scheme. Accordingly, the VAT tribunal had correctly directed itself and no grounds had been made out for interfering with its conclusions.
As regards section 73(2), VAT Act 1994, the procedure laid down by that subsection was not mandatory, and although the power contained therein was exercisable in any case where there had been an incorrect credit or refund of VAT in a prescribed accounting period, that subsection could not be read as requiring Customs and Excise to proceed under that power in every such case.
They could, if they wished, exercise the power contained in section 73(1) on the basis that the returns that were being made were incomplete or incorrect. In those circumstances an assessment made under that power was not limited to any one prescribing period. It followed that the two provisions were not mutually exclusive and, if the assessment could be justified under either part of section 73, it would be upheld. Accordingly, that ground of appeal also failed. The appeal as a whole was therefore dismissed.
(West Devon Borough Council v Commissioners of Customs and Excise, Chancery Division, 31 July 2001.)
Scale of confiscation
The defendant, a market trader, who had understated his income when making tax returns and self assessment returns, was charged with cheating the Revenue and making false statements with intent to defraud. He pleaded guilty and was sentenced to nine months' imprisonment. The Crown submitted that the whole of the defendant's undeclared profits from his business, some £386,584, were liable for confiscation. The judge disagreed, and instead made a confiscation order of £190,000 which represented the defendant's underpayment of tax and interest.
The attorney general applied for leave to appeal against this confiscation order on the ground that it was unduly lenient. He contended that statutory provisions enabled forfeiture of undeclared profits where there had been a systematic and persistent non-disclosure, because the whole enterprise could be construed as fraudulent.
The Court of Appeal said that while Parliament had intended that the court should be invested with draconian powers to deprive wrongdoers of their ill-gotten gains, the Act should be interpreted purposively but not oppressively. The wording of the Act allowed the judge to make a confiscation order in respect of a pecuniary advantage which included interest or investment on that sum, it did not include the balance of profits which were the product of lawful trading. Furthermore, section 102(5) suggested that Parliament had envisaged confiscation of pecuniary advantage which stemmed from activities connected with the crime, but had not gone so far as to encompass such profits as in the instant case.
The application would be refused.
Common sense ruled supreme in this case. As the Court of Appeal said, the powers of confiscation are indeed draconian, and it is therefore even more important that they be applied correctly and to the letter of the law. The pecuniary advantage obtained by the defendant in this instance was that he did not pay any tax, he would have retained the profits after tax regardless. The attorney general's argument that the entire profit should be confiscated is outrageous, and perhaps indicative of an over-anxiety to dance to the tune of his political masters rather than the strict application of the legislation.
(Attorney General's Reference (No 25 of 2001), Court of Appeal, Criminal Division, 27 July 2001.)
