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26 November 2001
Adjustment assessment
The Leicestershire Society sold a variety of standard and zero rated goods. It adapted the VAT retail scheme B to calculate its VAT. On 1 April 1995, the Society executed a transfer of the whole of its stock, property, and other assets and engagements to Midlands Co-operative Society pursuant to section 51, Industrial and Provident Societies Act 1965, and ceased to use the scheme. The transfer was of a business as a going concern, so it was not a supply for VAT purposes. Leicestershire Society ceased to be VAT registered on 2 April.
The Leicestershire Society sold a variety of standard and zero rated goods. It adapted the VAT retail scheme B to calculate its VAT. On 1 April 1995, the Society executed a transfer of the whole of its stock, property, and other assets and engagements to Midlands Co-operative Society pursuant to section 51, Industrial and Provident Societies Act 1965, and ceased to use the scheme. The transfer was of a business as a going concern, so it was not a supply for VAT purposes. Leicestershire Society ceased to be VAT registered on 2 April.
Adjustment assessment
The Leicestershire Society sold a variety of standard and zero rated goods. It adapted the VAT retail scheme B to calculate its VAT. On 1 April 1995, the Society executed a transfer of the whole of its stock, property, and other assets and engagements to Midlands Co-operative Society pursuant to section 51, Industrial and Provident Societies Act 1965, and ceased to use the scheme. The transfer was of a business as a going concern, so it was not a supply for VAT purposes. Leicestershire Society ceased to be VAT registered on 2 April.
The registrar cancelled Leicestershire Society's registration under section 51, Industrial and Provident Societies Act 1965, on the ground that it no longer existed, and the cancellation took effect on 30 April 1997. The society submitted a VAT return for the period, but although it had sold its zero-rated stock below the expected price, it did not make the necessary adjustment.
Customs assessed the VAT, and Leicestershire Society appealed. The tribunal found for Customs. Midlands Co-operative Society appealed arguing that Leicestershire Society was not obliged to make the adjustment because the transfer took effect simultaneously with the cessation of its retail trade and of its use of the scheme. Thus Leicestershire Society was not a retailer.
Mr Justice Lightman said that the provision for an adjustment at the end of each tax year in paragraph 22 of VAT Notice 727 was an integral element of the scheme, which was brought into play while the scheme remained in force by the transfer, whereas the provisions of paragraph 83 provided that someone no longer using the scheme should not of itself require an adjustment. In this instance, the sale of zero-rated goods at a price below the expected prices had triggered paragraph 22.
The judge said that it was common ground that the scheme assumed that the trader would replace zero-rated goods as they were sold, and this enabled the basic calculations required by the scheme to operate as an effective way of valuing taxable supplies. However, in this case, an adjustment was appropriate because otherwise, the Leicestershire Society would be entitled to offset against gross daily takings the expected selling prices of a lot of zero-rated stock which was not actually sold at those prices. Thus the value of the zero-rated stock would be understated.
The scheme may have some 'rough' edges, but it was fair and clear. Furthermore, any fair reading of the notice should make clear to the Leicestershire Society the need for the adjustment upon ceasing to use the scheme. It was possible for it to avoid the adjustment, if it postponed the transfer until after the cesser of the scheme.
The appeal was dismissed.
(Commissioners of Customs and Excise v Midlands Co-operative Society, Chancery Division, 15 November 2001.)
Insufficient reciprocity
The Church Schools Foundation and its parent company were both incorporated for charitable purposes only and were registered for VAT. In December 1994, the company approved a £1 million grant to the foundation. This money was used, as mutually agreed, in acquiring and carrying out improvements to properties let by the foundation to the company, and in which the company carried on its business of its schools.
Customs assessed the foundation to VAT on the sum at the standard rate. The foundation appealed, and the VAT tribunal allowed the appeal. In the High Court, the judge reversed the decision, so the foundation took the appeal to the Court of Appeal.
The Court of Appeal said that section 5(2), VAT Act 1994 and Article 2 of the Sixth Directive required that in order to be subject to VAT a supply should be for a consideration. In this instance, it was clear that there was a legal relationship between the foundation and the company, and there was a link between the donation and the building projects. However, it could not be said that the building works were for a consideration in the form of donations. The facts showed that the donation went towards the finance for the works, but this was not distinguishable from the interest free loan made by the company to the foundation.
The reality was that the foundation improved the properties with finance acquired from a variety of sources, of which the company's donation was but one.
The appeal was allowed.
(Church Schools Foundation Ltd v Commissioners of Customs and Excise, Court of Appeal, 20 November 2001.)
No extension
In April 2000, the General Commissioners made a decision regarding the taxpayer, and stated its case on 23 April 2001. Any appeal was required to be lodged within 30 days, together with a notice of appeal. The taxpayer failed to lodge the notice of appeal although he did submit a case stated within the time limit. The court returned the taxpayer's documents, telling him that he needed to submit a notice of appeal. He did not respond for a further three months, claiming that he had received wrong advice. However, he was out of time, and so claimed an extension.
Mr Justice Jacob said that the rules relating to time limits had to be obeyed, unless there were exceptional circumstances, which in this case there were not. Furthermore, strictly, the taxpayer had no personal interest in the appeal.
The court refused to extend the time to appeal.
(Gurney v Spence, Chancery Division, 15 November 2001.)
Document dispute
The appellant was an accountant, and the Revenue investigated one of his clients for tax fraud. Using section 20(3), Taxes Management Act 1970, the Revenue required the appellant to produce certain documents relating to the client. The appellant informed the Revenue that his records had recently been moved to a depositary and that the documents there had been searched, but that the requested material could not be traced. He did not say who conducted the search, how long it took, or describe the methodology used. The Revenue began penalty proceedings under section 100(C)(1), and imposed the maximum penalty. The primary reason for so doing was that the appellant was aware of the responsibility to retain papers, and the Revenue did not accept that the requested material could not be traced. The appellant appealed under section 100(C)(4), contending that the Revenue had erred in law by reaching a decision that was irrational.
Mr Justice Jacob said that the nature of the documents requested was that of documents that would be held by an accountant. It was therefore up to the appellant to demonstrate that he did not have the requested documents. Evidence that the requested material had been destroyed or that a complete search had failed to find that material, if believed, would be an end to the matter. In the instant case, however, the Inspector did not accept that the material requested could not be traced, and, based on the information provided by the appellant concerning the search, this conclusion was reasonable. There was no error of law, and the appeal was dismissed.
(Fox v McKay and another, Chancery Division, 21 November 2001.)
The Leicestershire Society sold a variety of standard and zero rated goods. It adapted the VAT retail scheme B to calculate its VAT. On 1 April 1995, the Society executed a transfer of the whole of its stock, property, and other assets and engagements to Midlands Co-operative Society pursuant to section 51, Industrial and Provident Societies Act 1965, and ceased to use the scheme. The transfer was of a business as a going concern, so it was not a supply for VAT purposes. Leicestershire Society ceased to be VAT registered on 2 April.
The registrar cancelled Leicestershire Society's registration under section 51, Industrial and Provident Societies Act 1965, on the ground that it no longer existed, and the cancellation took effect on 30 April 1997. The society submitted a VAT return for the period, but although it had sold its zero-rated stock below the expected price, it did not make the necessary adjustment.
Customs assessed the VAT, and Leicestershire Society appealed. The tribunal found for Customs. Midlands Co-operative Society appealed arguing that Leicestershire Society was not obliged to make the adjustment because the transfer took effect simultaneously with the cessation of its retail trade and of its use of the scheme. Thus Leicestershire Society was not a retailer.
Mr Justice Lightman said that the provision for an adjustment at the end of each tax year in paragraph 22 of VAT Notice 727 was an integral element of the scheme, which was brought into play while the scheme remained in force by the transfer, whereas the provisions of paragraph 83 provided that someone no longer using the scheme should not of itself require an adjustment. In this instance, the sale of zero-rated goods at a price below the expected prices had triggered paragraph 22.
The judge said that it was common ground that the scheme assumed that the trader would replace zero-rated goods as they were sold, and this enabled the basic calculations required by the scheme to operate as an effective way of valuing taxable supplies. However, in this case, an adjustment was appropriate because otherwise, the Leicestershire Society would be entitled to offset against gross daily takings the expected selling prices of a lot of zero-rated stock which was not actually sold at those prices. Thus the value of the zero-rated stock would be understated.
The scheme may have some 'rough' edges, but it was fair and clear. Furthermore, any fair reading of the notice should make clear to the Leicestershire Society the need for the adjustment upon ceasing to use the scheme. It was possible for it to avoid the adjustment, if it postponed the transfer until after the cesser of the scheme.
The appeal was dismissed.
(Commissioners of Customs and Excise v Midlands Co-operative Society, Chancery Division, 15 November 2001.)
Insufficient reciprocity
The Church Schools Foundation and its parent company were both incorporated for charitable purposes only and were registered for VAT. In December 1994, the company approved a £1 million grant to the foundation. This money was used, as mutually agreed, in acquiring and carrying out improvements to properties let by the foundation to the company, and in which the company carried on its business of its schools.
Customs assessed the foundation to VAT on the sum at the standard rate. The foundation appealed, and the VAT tribunal allowed the appeal. In the High Court, the judge reversed the decision, so the foundation took the appeal to the Court of Appeal.
The Court of Appeal said that section 5(2), VAT Act 1994 and Article 2 of the Sixth Directive required that in order to be subject to VAT a supply should be for a consideration. In this instance, it was clear that there was a legal relationship between the foundation and the company, and there was a link between the donation and the building projects. However, it could not be said that the building works were for a consideration in the form of donations. The facts showed that the donation went towards the finance for the works, but this was not distinguishable from the interest free loan made by the company to the foundation.
The reality was that the foundation improved the properties with finance acquired from a variety of sources, of which the company's donation was but one.
The appeal was allowed.
(Church Schools Foundation Ltd v Commissioners of Customs and Excise, Court of Appeal, 20 November 2001.)
No extension
In April 2000, the General Commissioners made a decision regarding the taxpayer, and stated its case on 23 April 2001. Any appeal was required to be lodged within 30 days, together with a notice of appeal. The taxpayer failed to lodge the notice of appeal although he did submit a case stated within the time limit. The court returned the taxpayer's documents, telling him that he needed to submit a notice of appeal. He did not respond for a further three months, claiming that he had received wrong advice. However, he was out of time, and so claimed an extension.
Mr Justice Jacob said that the rules relating to time limits had to be obeyed, unless there were exceptional circumstances, which in this case there were not. Furthermore, strictly, the taxpayer had no personal interest in the appeal.
The court refused to extend the time to appeal.
(Gurney v Spence, Chancery Division, 15 November 2001.)
Document dispute
The appellant was an accountant, and the Revenue investigated one of his clients for tax fraud. Using section 20(3), Taxes Management Act 1970, the Revenue required the appellant to produce certain documents relating to the client. The appellant informed the Revenue that his records had recently been moved to a depositary and that the documents there had been searched, but that the requested material could not be traced. He did not say who conducted the search, how long it took, or describe the methodology used. The Revenue began penalty proceedings under section 100(C)(1), and imposed the maximum penalty. The primary reason for so doing was that the appellant was aware of the responsibility to retain papers, and the Revenue did not accept that the requested material could not be traced. The appellant appealed under section 100(C)(4), contending that the Revenue had erred in law by reaching a decision that was irrational.
Mr Justice Jacob said that the nature of the documents requested was that of documents that would be held by an accountant. It was therefore up to the appellant to demonstrate that he did not have the requested documents. Evidence that the requested material had been destroyed or that a complete search had failed to find that material, if believed, would be an end to the matter. In the instant case, however, the Inspector did not accept that the material requested could not be traced, and, based on the information provided by the appellant concerning the search, this conclusion was reasonable. There was no error of law, and the appeal was dismissed.
(Fox v McKay and another, Chancery Division, 21 November 2001.)
