A First Tier Tribunal (FTT) has ruled that a different HMRC officer must review and evaluate an £80,000 VAT claim made by a building company, after finding that HMRC had not considered the evidence adequately in the first instance
GMK Building Contracts Ltd (GMK), which supplied construction services in Northern Ireland, could not produce a valid VAT invoice to support its claim for certain input tax. The tribunal heard that HMRC rejected alternative evidence, on the grounds that there had been no supply as recorded in the invoice, or because HMRC had recorded that the supplier was a ‘missing trader’.
The tribunal heard the case concerned £80,511 relating to 32 invoices spanning the VAT accounting periods 05/11, 08/11, 11/11, 02/12, 05/12, 08/12, 11/12 and 02/13. [GMK Building Contracts Ltd and Her Majesty’s Commissioners for Revenue and Customs, [2016] UKFTT 0651 TC05394].
The FTT considered whether GMK had discharged the burden of proof of showing that the invoices in question were valid VAT invoices, and whether HMRC’s decision not to allow a deduction as claimed, on the basis of alternative evidence, was unreasonable.
Certain invoices produced by GMK related to ‘self-billing’ and failed to meet the requirements for invoices supporting an input tax deduction, because none of them was provided pursuant to a prior agreement entered into between the supplier of the goods or services to which it related and the customer, as required. Some invoices were invalid for other reasons, such as lacking a VAT registration number, a unit price, a serial number or a description that is sufficient to identify the goods or services provided or the quantity of the goods or the extent of the services.
Alternative evidence behind the prime documents included bank statements, time sheets, insurance policies, associated charges, quotations, contracts and tenders.
The tribunal held that ‘the lack of evidence of labour actually being provided – for example in the form of diaries or timesheets – and the lack of detailed evidence of the materials charged for in the invoices does suggest that GMK conducted its business in an unusually lax fashion.’
The HMRC officer responsible for the case told the FTT that he had no doubt that the work which the payments on the invoices in dispute represented, had actually been done, but that he could not be satisfied that the traders named on the invoices did in fact do the work which was paid for.
While the FTT accepted that HMRC’s scepticism about the invoices was reasonable, it held that apparently the ‘schedule of payments’ provided by GMK had not been considered adequately, or at all, by HMRC. However, this document did, in fact, go some way to explaining the VAT claims.
Using its supervisory jurisdiction, the FTT directed that the input tax claim must be re-examined by a different review officer of HMRC and make a fresh decision on whether to allow input tax on the basis of alternative evidence. GMK must be given the opportunity to make further submissions, which must also be taken into account, and a fresh decision should be made and communicated to GMK by 1 February 2017 at the latest.
CCH tax writer said: ‘Apparently, HMRC suspected that tax fraud was taking place, which involved paying illegal workers in cash, not paying HMRC the PAYE or national insurance contributions, and reclaiming VAT by means of fraudulent invoices. This may have affected their decision to reject the claim for input tax.’
