FS Commercial Limited v The Commissioners for HMRC

The ultimate issue on this appeal is the nature of the jurisdiction of the First Tier Tribunal (“FTT”). The point is neatly encapsulated in Mr Watkinson’s skeleton argument filed on behalf of HMRC.

When (a) HMRC require a taxable person to produce the underlying VAT invoices as a condition of allowing the input tax claimed on the relevant VAT return (b) the taxable person does not produce them as required and (c) in the absence of sufficient alternative evidence to support the claim HMRC refuse the right to deduct the input tax claimed, does this mean that HMRC has exercised the discretion in regulation 29 (2) of the Value Added Tax Regulations 1995 (“Reg 29 (2)”) with the consequence that a statutory appeal against that refusal the jurisdiction of the FTT is supervisory; or is it a full appellate jurisdiction which would permit the taxable person to produce and rely on the underlying invoices that HMRC requested but which were not produced before the decision to refuse the deduction was made?

Both the FTT (Judge Geraint Williams) and the Upper Tribunal (“UT”) (Judges Rupert Jones and Anne Redston) decided that the jurisdiction was supervisory only. The UT’s decision is at [2025] UKUT 00013 (TCC), [2025] BVC 502.

Whether the FTT and the UT were right or wrong depends, in my view, in large part on characterising the decision by HMRC under challenge.

The question raised on this appeal arose in the context of preliminary issues decided by the FTT.

I can take the background facts largely from the summary given by the UT. On 21 September 2018 FS Commercial Ltd (“the Appellant”) submitted its 08/18 VAT return. On 2 October 2018 HMRC Officer Steve Mills requested records from the Appellant in order to clear the repayment claimed by it for that VAT period, including any purchase invoices with over £1,000 input tax.

On 8 October 2018, Mr Dave Clarke, a director of the Appellant, replied by sending Officer Mills bank statements, a “VAT report (detailed)”; a supplier/ customer list and eight supplier invoices, including one from Aspire Partnership Limited (“Aspire”), the Appellant’s representative at the time. The invoices that Mr Clarke supplied were described by him as “all invoices with input VAT exceeding £1k”. The bank statements showed numerous large transfers to an account “Ref: Verity”, for example: £560,000 on 2 August 2018. Verity Ltd appeared as a supplier on the supplier list but no invoices had been produced from Verity Ltd.

On 10 October 2018 Officer Mills asked the Appellant for the Verity invoices. The Appellant replied on 11 October 2018, saying that there were “no invoices” from Verity Ltd. Verity was just a code they used and entries referring to Verity related to a consolidated amount of invoices/VAT charged by its suppliers, and there could be “between 800 and 1000 invoices from different suppliers” in relation to each of the Verity amounts. Mr Clarke said that he was out of the office on annual leave until 22 October 2018 when he would be able to supply any required information including a sample of paper invoices.

On 18 October 2018, Officer Mills emailed the Appellant saying that he needed to see the invoices making up the Verity supplies and asking for them to be provided. Nothing further was provided at that time.

On 7 January 2019 Officer Mills wrote again. He said that he had requested information about the Appellant’s records but “as yet I hold insufficient information to evidence the input tax deducted for payments against these purchases.” He asked for more information including “a detailed makeup of the subsidiary companies that make up each Verity transaction and supporting invoices”. He said that in the absence of records to substantiate the input tax claimed he would have to disallow all input tax claimed since the commencement of the business. On 21 January 2019 Aspire replied to Officer Mills protesting at his request for information.

Officer Mills replied on 25 January 2019. Among the points he made was:

“As indicated within my letter of the 7th I would require evidence that a payment against a supply was made to the corresponding supplier. To date this has not been evidenced.”

Officer Mills wrote two letters on 6 February 2019. In the first of those, he said that HMRC believed that there were inaccuracies in the return. The return as submitted showed a repayment of VAT from HMRC to the Appellant in the sum of £62,000-odd. Following adjustment by Officer Mills, the adjusted return showed an amount of VAT due to HMRC of £2.9 million-odd. Thus the claimed credit was disallowed, and an assessment issued for the amount owing. On the same day Officer Mills made a further assessment for VAT periods stretching back to May 2016.

His reason for doing so was stated thus:

“I believe that you have not declared the correct amount of VAT due for the period shown on the enclosed schedule. I explained this in my letter dated 7 January 2019…”

The precise amount of the assessment is not relevant to this appeal.

On 8 February 2019 Aspire wrote to Officer Mills saying that the records were available, and requested a date and time when the records could be produced and reviewed. On 14 February 2019 Officer Mills replied:

“I note the suggestion of a visit to see the records at the premises.

As you are aware I initially enquired regarding a combined visit and the records in October. As such I would not wish to delay the production of the records any further. In the case of FS Commercial you will be aware assessments have been raised.

On any assessments issued, I would be happy to look at the evidence again should it be produced within the normal assessment time limits.”

Aspire challenged the assessment by requiring an internal review. The review decision dated 7 June 2019 upheld Officer Mills. The relevant part stated:

“Matters under dispute

A decision has been issued that determines the input tax claimed by the company cannot be recovered as sufficient evidence has not been presented to demonstrate an entitlement to recover input tax. Also there has not been evidence of payment provided to show that any input tax incurred has been paid by the company.

Your representatives have stated that sufficient alternative evidence has been presented to allow recovery of the input tax. Your representatives have also stated that evidence of payment by the company for supplies received has been provided. …

The facts

…

The records provided showed bulk payment details for the account “Verity” which you advised Officer Mills is a variety of labour providers and your representatives have stated is used for administrative purposes. Officer Mills has advised that the actual invoices that make up the “Verity” payments have not been provided meaning that the input tax relating to these supplies cannot be verified.

…

No further information or detail regarding the input tax claimed has been presented since the request for the review was received.

What I have considered in my review

…

Your representatives consider that there has been sufficient evidence presented in the form of alternative evidence for the input tax claimed to be allowed and that the assessments raised should be withdrawn. …

Regulation 29(2) allows for a claim to be made for input tax despite not having an invoice if other evidence, as allowed by the Commissioners, is held to show VAT was charged.

It is considered that the company does not hold a VAT invoice that is required to be provided as per Regulation 13 and that the information provided to date does not amount to sufficient alternative evidence to support any claim for VAT to be recovered as input tax of the company.

…

The lack of evidence to support the input tax claimed is sufficient to deny the claims that have been made. The decision made here is that HMRC does not have sufficient alternative evidence that can allow a claim to input tax to be made by the company.

As HMRC has not been provided with such evidence I am satisfied that Officer Mills is correct to deny the input tax claimed.”

It will be noted that even though Officer Mills had been asking since October 2018, compliant invoices had still not been produced by the time of the review.

The Appellant then appealed to the FTT. It is necessary to quote the grounds of appeal to the FTT at some length:

“1.

These are the grounds on which the Appellant notifies its appeal to the Tribunal against the decision made by the Respondent on 7th January 2019.

2.

By that decision, the Respondent disallowed the Appellant’s input tax claimed since commencement of the business. The decision did not reference the legislative basis on which it was made.

3.

The Appellant appeals to the Tribunal on the grounds that the claim for input tax is valid and correctly due.

4.

The Respondent’s decision was issued on 7th January 2019 based on the Investigating Officer’s view that he had not been supplied with enough evidence of the input tax deducted for the entire trading history of the Appellant.

5.

The Assessment relevant to this decision is dated 6th February 2019 which related to periods 05/16 to 11/18.

6.

The Respondent has been invited to inspect the business records at the Principal Place of Business. This invitation was declined on the same day that the assessment for £34,185,989 was received in the post by the Appellant and again on 14th February 2019.

7.

It is the Appellant’s stated position that the Respondent’s decision to deny a VAT input tax claim is incorrect because there is evidence to demonstrate that:

a.

The Appellant correctly charges VAT on its supply made to customers. This charge meets the definition of output tax at Section 25 of the VAT Act 1994.

b.

The supply included VAT which meets the definition of input tax at Section 24 of the VAT Act 1994 and, therefore, the claim for a deduction should be allowed in full.

c.

The Appellant holds evidence to demonstrate that it receives payment for the supply that it makes to customers in the form of a bank account into which payments are deposited and has made this evidence available to the Respondent.

d.

The Appellant holds evidence that its supply chain is valid and has correctly been charged VAT relevant to the supply of labour services and has made this evidence available to the Respondent.

e.

The Appellant holds evidence that it received a supply of taxable services for which it made payment which included an element associated with VAT and has made this evidence available to the Respondent.

f.

The Respondent incorrectly states that “no evidence” has been provided which is absolutely not the case. The Appellant cooperated with providing information, however due to an unreasonable amount of records being requested the Appellant requested that evidence be reviewed at the Principle [sic] Place of Business.

g.

Having regard to these facts there are no valid grounds for the Respondent to deny the reclaim of VAT input tax.

8.

The Appellant requests the Tribunal to quash the Respondents’ decision for the reasons set out in these grounds of appeal.”

On 5 September 2022 the FTT heard a preliminary hearing in relation to the primary basis for the assessment (insufficient evidence to support the claims to input tax). The issues arose for determination at that stage because the Appellant wished to put thousands of documents before the FTT in its List of Documents that, if HMRC were correct on their analysis of the FTT’s jurisdiction in the case, were irrelevant to its task. Those included what the Appellant said were the invoices that it held but had not produced to HMRC when they were required.

In its decision of 12 July 2023, the FTT decided that its jurisdiction in relation to Officer Mills’ decision to make the assessment was supervisory rather than fully appellate. In consequence the Appellant was not entitled to rely on invoices that had not been presented to Officer Mills before he made his decision.

The UT dismissed the Appellant’s appeal.

The European source of legislation about VAT is the Principal VAT Directive “PVD”). Domestic law implementing the PVD is “EU-derived” legislation. EU-derived domestic legislation, as it had effect in domestic law, continues to have effect in domestic law after Brexit.

I therefore propose to start with a consideration of the EU framework.The supply of goods for a consideration within the territory of a member state by a taxable person acting as such, is subject to VAT: article 2. The VAT is payable by the taxable person carrying out a taxable supply of goods or services: article 193. Every taxable person who carries out supplies of goods or services in respect of which VAT is deductible must be identified by an individual number: article 214. Where a taxable person makes a taxable supply, he must issue an invoice: article 220.

The recipient of a taxable supply, if he is also a taxable person, is entitled to deduct the amount of VAT he paid in relation to that supply. The legislation and the case law of the ECJ and the CJEU (I will refer to both as the CJEU) distinguish between the accrual of the right to deduct and the exercise of the right to deduct. A VAT invoice is an essential component of the exercise of the right to deduct.

Article 167 provides:

“A right of deduction shall arise at the time the deductible tax becomes chargeable.”

That is the time of accrual of the right to deduct.

The exercise of the right to deduct is dealt with by article 178 which relevantly provides:

“In order to exercise the right of deduction, a taxable person must meet the following conditions:

(a)

for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238, 239 and 240 …

(f)

when required to pay VAT as a customer where Articles 194 to 197 or Article 199 apply, he must comply with the formalities as laid down by each Member State.”

Article 179 provides:

“The taxable person shall make the deduction by subtracting from the total amount of VAT due for a given tax period the total amount of VAT in respect of which, during the same period, the right of deduction has arisen and is exercised in accordance with Article 178.”

Article 180 provides:

“Member States may authorise a taxable person to make a deduction which he has not made in accordance with Articles 178 and 179.”

Article 182 provides:

“Member States shall determine the conditions and detailed rules for applying Articles 180 and 181.”

Article 242 provides:

“Every taxable person shall keep accounts in sufficient detail for VAT to be applied and its application checked by the tax authorities.”

Article 273 provides:

“Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.

The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.”

The importance of the invoice is stressed in a number of decisions of the CJEU. The purpose of the invoice is to enable the tax authorities to verify the accrual of the right to deduct. In Jorion née Jeunehomme v Belgian State (Joined Cases C-123/87 and C-330/87) for example, Advocate-General Slynn described a compliant invoice as the “ticket of admission” to the right to deduct. He also said:

“… it seems to me that the invoice which “must” be held by a taxable person in order to exercise his right to deduction is an important part of the machinery and that Member States are entitled, in the absence of further harmonizing rules, to adopt rules as to the content of an invoice which are reasonably necessary to allow adequate verification and fiscal control.” (Emphasis added)

A member state is entitled to impose additional requirements in order to serve that objective. Thus, in Albert Collée v Finanzamt Limburg an der Lahn (Case C-146/05), [2008] STC 757 Advocate-General Kokott said:

“If it is established that an intra-Community supply has in fact taken place, exemption from tax can still be refused where the requisite national formalities have not been adhered to, provided that they serve the purpose of the directive, namely the prevention of tax evasion and the correct levying and collection of the tax, in particular the correct and straightforward application of the exemptions. Moreover, such formal requirements may not go further than is necessary to attain those objectives.”

In the course of its judgment the CJEU said:

“In the main case, therefore, since it is apparent from the order for reference that there is no dispute about the fact that an intra-Community supply was made, the principle of fiscal neutrality requires—as the Commission of the European Communities also correctly submits—that an exemption from VAT be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements. The only exception is if non-compliance with such formal requirements would effectively prevent the production of conclusive evidence that the substantive requirements have been satisfied. However, that does not appear to be so in the main case.”

In Barlis 06 — Investimentos Imobiliários e Turísticos SA v Autoridade Tributária e Aduaneira (Case C-516/14) legal services had been supplied to the taxable person, but the invoices were said by the Portuguese tax authorities to contain an inadequate break-down and description of them. Advocate-General Kokott described the purpose of the invoice as follows:

“[32] An invoice is intended first to enable a check on whether the person issuing the invoice has paid the tax.

[33] This follows from Article 178(a) of the VAT Directive. It provides that in order to exercise the right of deduction, the recipient of a supply must hold an invoice. According to the case-law, this requirement is intended to ensure that VAT is levied and supervised. This is because, pursuant to this provision, deduction of input tax is allowed only if, in the form of the invoice, the tax authority can at the time obtain access to a document which, because of the particulars required by Article 226 of the VAT Directive, contains the information necessary to ensure the corresponding payment of VAT by the person who issued the invoice. This access to the person who issued the invoice is supported by Article 203 of the VAT Directive. According to it, the VAT shown in an invoice is payable by the person who issued it, regardless of whether a liability to tax has actually arisen, and in particular of whether any supply has actually been made. In such cases this saves the tax authority from requiring other evidence.” (Emphasis added)

The important point for present purposes is that in order for the invoice to serve its function the tax authorities must have access to the invoice.

To like effect in Senatex GmbH v Finanzamt Hannover-Nord (Case C-518/14), [2017] STC 205 Advocate-General Bot said:

“[43] …I do not dispute the importance of the invoice in the common system of VAT. It is a form of proof which permits the collection and deduction of VAT. Thus, a trader who invoices the sale of goods or the supply of a service issues an invoice with VAT and collects that VAT on behalf of the state. Similarly, that invoice will enable a taxable person who has paid VAT to provide proof of this and thus to deduct the VAT. More specifically, the VAT identification number allows the tax authorities to levy VAT more easily, by identifying the taxable person concerned, and to verify that the transactions actually occurred, in order to prevent evasion.”

An invoice cannot serve its function of proof if, following a request by the tax authorities, it is not produced to them. In my judgment this is confirmed by the case law.

The centrality of the invoice, and its timely production, is underlined by the decision of the CJEU in Terra-Baubedarf-Handel GmbH v Finanzamt Osterholz-Scharmbeck (Case C-152/02) [2005] STC 525. In that case the taxable person incurred VAT on services supplied to it in 1999; but it did not receive invoices until 2000. Although the right to deduct arose in 1999, the question was whether it could be exercised in relation to 1999 or only in relation to 2000 when it had the invoices. The CJEU, disagreeing with the Advocate-General, held that the right to deduct could only be exercised when both conditions were satisfied; i.e.

Since the taxable person did not receive the invoice until 2000, the right to deduct was to be exercised in relation to that period. In my view the court was influenced by the practical consequences of the alternative interpretation which it summarised thus:

“[24] In addition, a retroactive right to deduct would result in significant additional work for both taxable persons and the tax authorities. Through the retroactive deduction of input VAT, provisional returns filed for a tax period would in fact have to be adjusted, in certain circumstances even several times in the same tax period, and the tax authorities would have to draw up correction notices.

[25] By contrast, the interpretation upheld by the German government guarantees a VAT system that can be applied and checked effectively as regards the deduction of input VAT.”

In Reisdorf v Finanzamt Köln-West (Case C-85/95), [1997] STC 180 the question was whether the German tax authorities were entitled to refuse to permit a deduction where the taxable person did not present the original invoice but only a copy of it. On the facts found by the national court, the original invoices were available and accessible. The German court referred three questions to the CJEU. Question 2 was:

“Does the term “hold” within the meaning of Article 18(1)(a) of the Sixth Directive 77/388 signify that the taxable person must at all times be in a position to present the invoice to the tax authorities?”

At [18] of his opinion Advocate-General Fennelly described the invoice as “pivotal” in the operation of the VAT system. At [27] he said:

“In my opinion, it would be perfectly reasonable for national fiscal authorities to take the view, as the German authorities appear from the order for reference to have done in this case, that a taxable person who simply refuses to produce his invoice or “ticket of admission” when requested should be deprived of the deduction claimed.”

The CJEU, as it often does, considered the three questions together. At [19] the court said:

“… it is necessary to distinguish the provisions of the directive relating to exercise of the right to deduct input tax from those concerning proof of that right after a taxable person has exercised it. The distinction between exercise of the right and proof of it on subsequent inspections is inherent in the operation of the VAT system.”

It went on to consider the question of proof and said:

“[29] However, it follows from the provisions mentioned above, conferring on the Member States the power to require additional information as regards invoices and to impose any other obligation necessary for the correct levying and collection of the tax and for the prevention of fraud, that the Sixth Directive gives Member States the power to determine the rules relating to supervision of the exercise of the right to deduct input tax, in particular the manner in which taxable persons are to establish that right. As indicated by the Advocate General in paragraphs 26 and 27 of his Opinion, that power includes the power to require production of the original invoice when tax inspections are carried out and also, where a taxable person no longer holds it, to allow him to produce other cogent evidence that the transaction in respect of which the deduction is claimed actually took place.

[30] Accordingly, in the absence of specific rules governing proof of the right to deduct input tax, Member States have the power to require production of the original invoice in order to establish that right, as well as the power, where a taxable person no longer holds the original, to admit other evidence that the transaction in respect of which the deduction is claimed actually took place.

[31] The answer to the national court's questions must therefore be that Article 18(1)(a) and Article 22(3) of the Sixth Directive permit the Member States to regard as an invoice not only the original but also any other document serving as an invoice that fulfils the criteria determined by the Member States themselves, and confer on them the power to require production of the original invoice in order to establish the right to deduct input tax, as well as the power, where a taxable person no longer holds the original, to admit other evidence that the transaction in respect of which the deduction is claimed actually took place.”

It can be seen from this that at [29] the CJEU specifically approved what the Advocate-General had said at [27] of his opinion.

In Petroma Transport SA v Belgium (Case C-271/12), [2013] STC 1466 the Belgian tax authorities denied the exercise of the right of deduction on the ground that the relevant invoices were defective. Petroma provided intra-group services to other companies, employing staff for that purpose. The invoices were defective in that they did not include a break-down of the unit price or the number of hours worked by the staff of the service-providing companies, thereby making it impossible for the tax authority to determine the exact amount of tax collected. Although additional information was subsequently provided, the tax authorities did not regard it as sufficient partly because it was submitted late, and partly because of its informal character. At [21] the court formulated the question as being whether the Sixth Directive precluded national legislation under which the right to deduct VAT might be refused to taxable persons who were recipients of services and were in possession of invoices which were incomplete, in the case where those invoices were then supplemented by the provision of information seeking to prove the occurrence, nature and amount of the transactions invoiced. The court set out the general principles as follows:

“[25] With regard to the rules governing the exercise of the right to deduct, art 18(1)(a) of the Sixth Directive provides that the taxable person must hold an invoice drawn up in accordance with art 22(3) of that directive.

[26] Under art 22(3)(b) of the Sixth Directive the invoice must state clearly the price exclusive of tax and the corresponding tax at each rate, as well as any exemptions. Article 22(3)(c) provides for member states to determine the criteria for considering whether a document serves as an invoice. Furthermore, art 22(8) allows member states to impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion.

[27] It follows that, with regard to the exercise of the right to deduct, the Sixth Directive does no more than require an invoice containing certain information, and member states may provide for the inclusion of additional information to ensure the correct levying of VAT and to permit supervision by the tax authority (see, to that effect, Jorion (neé Jeunehomme) v Belgium (Joined cases 123/87 and 330/87) [1988] ECR 4517 , para 16).

[28] However, the requirement that the invoice should contain particulars other than those set out in art 22(3)(b) of the Sixth Directive, as a condition for the exercise of the right to deduct, must be limited to what is necessary to ensure the levying of VAT and to permit supervision by the tax authority. Moreover, such particulars must not, by reason of their number or technical nature, make the exercise of the right to deduct practically impossible or excessively difficult (Jeunehomme and EGI, para 17).”

Again the CJEU emphasised the role of the invoice in ensuring the correct levying of VAT and effective supervision by the tax authority. It is, in my judgment, self-evident that if the taxable person holds an invoice but refuses to produce it to the tax authorities when asked, the refusal undermines the very reason for the invoice. I reject the argument that the mere fact that the taxable person “holds” an invoice entitles that person to exercise the right to deduct if, following a request by the tax authorities, he fails to produce it.

That led on to the second point in Petroma, namely whether the national tax authorities were still entitled to refuse the deduction where evidence was submitted after the tax authority had made its decision. As to that the CJEU said:

“[34] It should be noted that the common system of VAT does not prohibit the correction of incorrect invoices. Accordingly, where all of the material conditions required in order to benefit from the right to deduct VAT are satisfied and, before the tax authority concerned has made a decision, the taxable person has submitted a corrected invoice to that tax authority, the benefit of that right cannot, in principle, be refused on the ground that the original invoice contained an error.

[35] However, it must be stated that, with regard to the dispute in the main proceedings, the information necessary to complete and regularise the invoices was submitted after the tax authority had adopted its decision to refuse the right to deduct VAT, with the result that, before that decision was adopted, the invoices provided to that authority had not yet been rectified to enable it to ensure the correct collection of the VAT and to permit supervision thereof.

[36] Consequently, the answer to the first question is that the provisions of the Sixth Directive must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, under which the right to deduct VAT may be refused to taxable persons who are recipients of services and are in possession of invoices which are incomplete, even if those invoices are supplemented by the provision of information seeking to prove the occurrence, nature and amount of the transactions invoiced after such a refusal decision was adopted.”

Paragraph [36] was repeated in the dispositif. This ties in with Terra in which the taxable person was not entitled to a retrospective deduction of input tax, but could only claim to exercise the right to deduct input tax during a period in which it held the invoice.

The importance of the invoice as a source of proof was again underlined in Dobre v Ministerul Finantelor Publice - ANAF - DGRFP Galati - Serviciul Solutionare Contestatii (Case C-159/17) in which the court said (omitting citations):

“[34] Furthermore, the Court has held that penalising the failure on the part of the taxable person to comply with the obligations relating to accounts and tax returns by denial of the right to deduct clearly goes further than is necessary to attain the objective of ensuring the correct application of those obligations, since EU law does not prevent Member States from imposing, where necessary, a fine or a financial penalty proportionate to the seriousness of the offence….

[35] The position could be different if the effect of breach of failure to satisfy formal requirements is to prevent the production of conclusive evidence that the substantive requirements have been satisfied... Refusal of the right to deduct depends more on the lack of information necessary to establish that the substantive requirements have been satisfied than it does on failure to comply with a formal requirement….”

These cases show, in my judgment:

The PVD is transposed into domestic law by the Value Added Tax Act 1994 (“VATA”) and regulations made under it. The relevant regulations for the purposes of this appeal are the VAT Regulations 1995 (“VATR”). The administration of VAT was formerly under the care of the Customs and Excise Commissioners. It is now administered by HMRC. Except where quoting, I will refer to both as “HMRC”.

Section 24(6)(a) VATA provides that regulations may provide for VAT to be treated as input tax:

“…only if and to the extent that the charge to VAT is evidenced and quantified by reference to such documents or other information as may be specified in the regulations or the Commissioners may direct either generally or in particular cases or classes of cases”

Connected with this is paragraph 4 of Schedule 11 to VATA which provides:

“(1)

The Commissioners may, as a condition of allowing or repaying input tax to any person, require the production of such evidence relating to VAT as they may specify.”

Section 73 (1) provides:

“Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.”

The amount assessed under section 73 (1) is, subject to any appeal, deemed to be an amount of VAT recoverable from the taxable person from the time that he is notified of the assessment.

Section 83 (1) contains the right of appeal. Among the matters which may be the subject of an appeal are:

“(c)

the amount of any input tax which may be credited to a person

…

(p)

an assessment—

(i)

under section 73(1) or (2) in respect of a period for which the appellant has made a return under this Act, or

(ii)

under subsections (7), (7A) or (7B) of that section,

or the amount of such an assessment”

Section 83G lays down time limits for the bringing of an appeal.

The VATA is supplemented by the VATR. Regulations 13 and 14 provide that, in general and subject to exceptions, a person registered for VAT who makes a taxable supply must provide a VAT invoice containing prescribed particulars. Reg 29 relevantly provides:

“(1)

… save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25(2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT became chargeable save that, where he does not at that time hold the document or invoice required by paragraph (2) below, he shall make his claim on the return for the first prescribed accounting period in which he holds that document or invoice.

…

(2)

At the time of claiming deduction of input tax in accordance with paragraph (1) above, a person shall, if the claim is in respect of—

(a)

a supply from another taxable person, hold the document which is required to be provided under regulation 13…

… provided that where the Commissioners so direct, either generally or in relation to particular cases or classes of cases, a claimant shall hold, or provide, such other evidence of the charge to VAT as the Commissioners may direct.”

As I pointed out in Tower Bridge GP Ltd v HMRC [2022] EWCA Civ 998, [2022] STC 1324 at [123] there are two discretions embedded within the proviso to regulation 29 (2):

“The first is whether to entertain an application to establish the right to deduct otherwise than by a compliant invoice (“where the Commissioners so direct”). The second, if the first discretion is exercised in the taxable person’s favour, is the discretion to specify the documentary evidence that HMRC require in order to prove that the input tax has been incurred (“such other documentary evidence of the charge to VAT as the Commissioners may direct”).”

It is well established that where HMRC refuse to allow the deduction of input tax by exercising its discretion under Reg 29 (2), the role of an appellate tribunal is supervisory only. In Kohanzad v Customs and Excise Commissioners [1994] STC 967 the taxable person was arrested at Dover attempting to smuggle gold and Krugerrands into the UK. A customs officer seized his papers at the time of his arrest. An officer subsequently examined the taxable person’s records and accounts, which were held in London following their seizure. The taxable person subsequently alleged that further documents had been seized from him, but HMRC denied that. The taxable person was asked to contact his suppliers with a view to obtaining copy invoices and he said that he would. His accountants also said that he was doing his best to obtain them. But no invoices were produced to HMRC, although the taxable person said in the course of his appeal that he had something at home. Because HMRC had refused to credit the taxable person with input tax, they issued an assessment on the basis that no input tax could be deducted. The taxable person appealed against the assessment.

Schiemann J said:

“…a registered taxable person is not entitled to any credit in respect of input tax unless at the time of claiming such a credit he holds a tax invoice in relation to that supply, and the commissioners, as is well known, will from time to time send somebody to look at these invoices to see that they add up. But none the less, the second effect of the provision is that the commissioners have a discretion to allow credit for input tax, notwithstanding that the registered taxable person does not hold such a tax invoice. So, they do have that discretion. In essence, this case is about the exercise of that discretion. As we shall see, they exercised that discretion against the appellant.”

He next referred to the rights of appeal which at that time were contained in section 40 (1) of the VAT Act 1983. Those rights included a right of appeal against:

“(c)

the amount of any input tax which may be credited to a person ...

(m)

an assessment—(i) under sub-paragraph (1) or (2) of paragraph 4 of Schedule 7 to this Act, in respect of a period for which the appellant has made a return under this Act.”

Since the appeal was formally an appeal against an assessment, both rights were engaged. Nevertheless, Schiemann J went on to explain the jurisdiction of the tribunal thus:

“Now, that is the formal position of the tribunal. It is established that the tribunal, when it is considering a case where the commissioners have a discretion, exercises a supervisory jurisdiction over the exercise by the commissioners of that discretion. It is not an original discretion of the tribunal, it is one where it sees whether the commissioners have exercised their discretion in a defensible manner. That is the accepted law in this branch of the court’s jurisdiction, and indeed it has recently been decided that the supervisory jurisdiction is to be exercised in relation to materials which were before the commissioners, rather than in relation to later material.”

Kohanzad has been followed and applied many times. The examples we were shown included GB Housley Ltd v HMRC [2014] UKUT (TCC), [2014] STC 2733; HMRC v Boyce [2017] UKUT 177 (TCC), [2017] BVC 513; Scandico Ltd v HMRC [2017] UKUT 467 (TCC), [2018] STC 153 and Tower Bridge GP Ltd.

In Housley there was a second hearing before the UT, which was the subject of an appeal to this court: GB Housley v HMRC [2026] EWCA Civ 1299, [2017] STC 508. That appeal arose out of the FTT’s finding that HMRC had not even considered whether to exercise the discretion under Reg 29. The UT held that the matter should be remitted so as to give HMRC the opportunity to reconsider their decision. It was that which this court held was wrong. The essential point is encapsulated by Gloster LJ at [80]:

“But, in my judgment, it follows from the approach in John Dee that, if the appellant’s appeal against the assessment is to be allowed, on the grounds that HMRC wrongly failed even to consider the exercise of the regulation 29(2) discretion, then necessarily – since the appeal is against the assessment itself – the assessment falls to be discharged, leaving HMRC, if they wish to do so, to consider the proper exercise of their discretion on the correct legal basis and, if they are able (given the statutory time constraints), to issue a new assessment if so advised.” (Emphasis added)

One reason why it was wrong to remit the question of discretion, as Gloster LJ explained at [81], was that it would wrongly enable HMRC to support the correctness of their decision by reference to subsequent factual materials which in itself was not legitimate.

In that case, therefore, confining the enquiry by the FTT to the materials before HMRC at the time of the impugned decision worked in the taxable person’s favour, whereas in previous cases it had worked in HMRC’s favour.

Mr Brown’s argument for the Appellant is this. First, the formal requirement for a claim to deduct input tax is that the taxable person holds a compliant invoice. If in fact the taxable person holds such an invoice then input tax may be deducted, whether or not he produces it to HMRC when requested. Second, Reg 29 gives HMRC a discretion to permit the deduction of input tax if the taxable person provides “such other evidence of the charge to VAT as the Commissioners may direct”. “Other” means “other than a compliant invoice”. Thus it is implicit in any exercise by HMRC of its discretion under Reg 29 that it asserts that the taxable person does not hold a compliant invoice. If the taxable person disputes that implicit assertion, he must have the right to do so in the FTT by producing a compliant invoice. To deny the exercise of the right to deduct on the ground that a taxable person who in fact holds a compliant invoice failed to produce it on request goes beyond the objective of ensuring that VAT is correctly paid. There are other, lesser, options open to the tax authorities, such as the imposition of a financial penalty.

In each of the cases about HMRC’s refusal to exercise its discretion under Reg 29 (2) in favour of the taxable person the challenge to the underlying assessment was that HMRC had wrongly exercised its discretion under Reg 29 (2) (or in Housley had failed to consider whether to exercise it). Mr Brown pointed out, correctly, that in none of them did the taxable person assert that it actually had compliant invoices. That, he said, made all the difference.

I do not agree. Schedule 11 paragraph 4 of VATA gives HMRC a statutory power to require the production of evidence as a condition of allowing or repaying input tax to any person. Plainly, that includes producing a compliant invoice. The legitimacy of such a power, and a denial of the right to deduct if the condition is not complied with, is expressly sanctioned by Reisdorf. The requirement that the invoice be produced before HMRC makes a decision under Reg 29 (2) is expressly sanctioned by Petroma.

Like all decision-makers exercising a discretionary power HMRC is entitled, after making reasonable inquiries to acquaint itself with the relevant facts, to take the decision on the basis of the materials presented to it at the time when it makes its decision. If, for whatever reason, the taxable person does not produce compliant invoices following a proper request, whether he in fact holds such invoices cannot impugn HMRC’s decision.

Where the FTT is exercising a supervisory jurisdiction over a discretionary decision made by HMRC, it may uphold a challenge on any grounds that would justify a challenge on public law principles. Those grounds could include for example:

In the present case, the UT correctly said at [124]:

“We also observe that in exercising its statutory jurisdiction, the FTT is well able to decide whether or not the HMRC Officer acted unreasonably, for instance by requesting information which was irrelevant, or by refusing to accept an invoice was valid. However, that was not this case.”

It is, in my judgment, clear from the correspondence between the Appellant and HMRC that what was in dispute was Officer Mills’ exercise of discretion under Reg 29. That could not be more clearly stated than in the opening part of the review decision which, for convenience, I quote again:

“A decision has been issued that determines the input tax claimed by the company cannot be recovered as sufficient evidence has not been presented to demonstrate an entitlement to recover input tax. Also there has not been evidence of payment provided to show that any input tax incurred has been paid by the company.

Your representatives have stated that sufficient alternative evidence has been presented to allow recovery of the input tax.” (Emphasis added)

In my judgment, therefore, the substance of the decision challenged in this case was HMRC’s decision under Reg 29(2) to disallow the deduction of input tax on the basis of the evidence that had been presented to them. The assessment was no more than the formal record of that decision and the financial consequences of it.

I agree with the way the UT put it in Scandico at [43] (quoted by the UT in this case at [91]):

“In appeals of this kind, the First-tier tribunal should address only the decision which is before it, namely HMRC’s decision that, in the absence of the VAT receipts, they were not prepared to exercise their discretion to accept the alternative evidence provided by the taxpayer as to whether there had been a taxable supply. The test that the First-tier tribunal applies in reviewing that decision is the test set out in Kohanzad.”

I agree also with what the UT said in Scandico at [56]:

“In our judgment Petroma is authority for the proposition that where the Member State tax authority adopts a decision refusing the right to deduct VAT because the information provided by the taxpayer is incomplete or irregular, the Sixth VAT Directive did not require the tax authority to revisit that decision when further information was provided after the decision has been taken. The position should be no different where the further information is provided to a tribunal in the context of an appeal against the initial refusal. This must apply equally to the PVD as to the Sixth VAT Directive. The fact that the FTT did, despite its misgivings about the relevance of the exercise, actually examine the facts in detail and conclude that there was a supply does not allow Scandico to sidestep the exercise of HMRC's discretion, or to require that discretion to be exercised by reference to the later information before the FTT.” (Emphasis added)

Mr Morse argued this part of the Appellant’s case. This was not a point that was argued before the UT, so we do not have their view about it. Nevertheless, permission to advance it was granted by Falk LJ on 13 November 2025.

Mr Morse argued that the fact of an assessment made all the difference; and that an appeal against an assessment engaged the FTT’s full appellate jurisdiction which went beyond a merely supervisory jurisdiction. He summarised his argument in four propositions. Three were general propositions; and the fourth was specific to this case. I will therefore deal with the fourth proposition separately.

First, he said, that as a matter of fact and law HMRC issued assessments for all VAT periods under section 73. Although there was some initial doubt, during the course of the hearing it became common ground that HMRC had issued an assessment for all the relevant VAT periods in issue.

Second, he said, as a matter of law, the appeal engaged section 83 (1) (p) of VATA, that is to say an appeal against the assessment and its amount.

Third, any assessment made under section 73 must be made (a) to the best judgment of HMRC and (b) for the correct amount. Finding the correct amount of tax due is the primary function of the FTT.

As I have said, in Kohanzad the formal position was that the taxable person brought his appeal against an assessment, yet the jurisdiction of the Tribunal was supervisory only. In the majority of the cases that have followed and applied Kohanzad the appeal was formally an appeal against an assessment: Housley at [38]; Boyce at [8]; Tower Bridge (see the decision of the UT in that case: [2021] UKUT 30 (TCC), [2021] STC 522 at [1]). In Scandico there was no assessment, but simply a refusal to allow a deduction of input tax. But in each case the relevant question was whether HMRC had exercised its discretion in a defensible manner on the basis of the materials before it at the time when its decision was made. Each case proceeded on the basis that the FTT’s jurisdiction was supervisory only.

Mr Morse referred us to BUPA Purchasing Ltd v Customs and Excise Commissioners (No 2) [2007] EWCA Civ 542, [2008] STC 101. At [38] Arden LJ said:

“Section 73(1) states that an assessment under that section is of 'the amount of VAT due'. Accordingly, unless the assessment determines the net amount of VAT due it cannot be an assessment for the purpose of s 73(1). Similarly, in s 73(6) the assessment is described as an assessment 'of an amount of VAT due'. Thus there cannot be an appeal against an assessment under s 73(1) unless it assesses that there is a net amount of VAT due. If the taxpayer contends that he is entitled to a repayment of VAT, he will have to appeal on some other ground, such as against the amount of input tax allowed, and VATA makes express provision for this in s 83.”

The “other ground” to which Arden LJ referred is section 83 (1) (c). But there is no suggestion in that case that the nature of the FTT’s jurisdiction differs according to which “gateway” gives the taxable person the right to appeal.

If Mr Morse’s argument is correct then Kohanzad, and the cases that have followed it, were wrong despite having been consistently applied for over 30 years and never having been criticised. It would also lead to capricious results. In a case where an assessment was made (because money was owed by the taxable person to HMRC) the FTT’s jurisdiction was a full appellate jurisdiction. But where no assessment was made (as in Scandico) the jurisdiction would be supervisory only. Moreover, in the case of a single taxable person the nature of the FTT’s jurisdiction might differ from VAT period to VAT period, depending on where the eventual balance ended up. Indeed, in this very case, part of the decision was to deny the Appellant a claimed deduction and part was to make an assessment for the balance.

It would be an incoherent intention to attribute to Parliament an intention that the FTT would be called upon to exercise two different types of jurisdiction in relation to the same issue applied to a single taxable person in a single VAT period, or, for that matter, in multiple VAT periods.

Moreover, as Mr Watkinson submitted, it is not necessary for HMRC to issue an assessment in all cases where it disallows a claim to deduct input tax. It may, for example, carry out an extended verification of a VAT return, disallow the input tax claimed, and leave the taxable person to appeal under section 83(1)(c). In such a case it is plain beyond argument that the FTT’s jurisdiction is supervisory only. In other cases, the VAT will already have been paid, in which case there will be no VAT due from the taxable person, with the consequence that no assessment may be issued. In the present case HMRC issued assessments for the periods 05/16 to 05/18 but issued no assessments for the periods 08/18 or 11/18 because the VAT returns had already been adjusted. The nature of the appeal cannot differ as between these different periods.

It is an important principle of the tax system that taxpayers in similar situations are treated alike. Mr Morse’s argument would amount to a major breach of that principle on purely procedural grounds.

Mr Morse relied heavily on the decision of this court in Pegasus Birds Ltd v Customs and Excise Commissioners [2004] EWCA Civ 1015, [2004] STC 1509. Since that decision was at the forefront of the Appellant’s case, it is necessary to examine it in some detail. Mr Hammond, a director of Pegasus, pleaded guilty to offences under VATA. During the course of their investigation HMRC acquired a mass of material. Following the conclusion of the criminal proceedings, HMRC issued an assessment under section 73 (1) of VATA (I will use the shorthand “best judgment” assessment). There is no indication in the report that HMRC had exercised any discretion under Reg 29. Pegasus appealed against the assessment on the grounds that it was “excessive and not in accordance with information provided”. The VAT tribunal set aside the assessment on the ground that it was not made to the best of HMRC’s judgment; but HMRC’s appeal was allowed by Patten J. He held that the tribunal had applied the wrong test. The test of validity of an assessment made by HMRC under section 73 was not whether it met some objective standard of reasonableness but whether there was a genuine and honest attempt to arrive at a reasoned assessment. This court dismissed an appeal from Patten J. Carnwath LJ gave the leading judgment. At [10] he said that a best judgment assessment was simply an assessment to the best judgment of HMRC on the information available. He said in terms at [62] that the judge had applied the correct test; and that that was enough to dispose of two of the grounds of appeal. The remaining discussion may well be obiter.

Carnwath LJ referred to his earlier decision in Rahman v Commissioners of Customs and Excise [1988] STC 826 in which he summarised the agreed approach to an appeal against a best judgment assessment. There were two stages: (1) whether the assessment had in fact been made to the best judgment of HMRC and (2) if so, whether the amount of the assessment should be reduced “by reference to further evidence or further argument” available to the tribunal. Undoubtedly, this observation contemplates that evidence may be adduced before the FTT which was not available to HMRC when it made the best judgment assessment. He did, however, have reservations whether that two stage approach was correct. A further appeal in Rahman came to this court, following a further decision on quantum by the tribunal in which it reduced the amount of the assessment: [2002] EWCA Civ 1881, [2003] STC 150 (“Rahman (2)”). In Rahman (2) Chadwick LJ explained the reduction (quoted by Carnwath LJ at [21]):

“The explanation may be that the tribunal, applying its own judgment to the same underlying material at the second, or ‘quantum’, stage of the appeal, has made different assumptions — say, as to food/drink ratios, wastage or pilferage — from those made by the commissioners….Or the explanation may be that the tribunal is satisfied that the commissioners have made a mistake — that they have misunderstood or misinterpreted the material which was before them, adopted a wrong methodology or, more simply, made a miscalculation in computing the amount of VAT payable from their own figures.” (Emphasis added)

This observation suggests that the FTT should reach its decision on the same material as that considered by HMRC. In Pegasus Birds itself Chadwick LJ gave a concurring judgment. In the course of that judgment at [87] he quoted from his earlier judgment in Rahman (2):

“In the usual case the tribunal will have the material before it from which it can see why the commissioners made the assessment which they did; and may have further material which was not available to the commissioners when the assessment was made. In such cases, as it seems to me, a tribunal would be well advised to concentrate on the question “what amount of tax is properly due from the taxpayer?”; taking the material before it as a whole and applying its own judgment… ” (Emphasis added)

This observation also suggests that the taxable person may adduce evidence in the FTT which was not available to HMRC. At [38] Carnwath LJ gave general guidance, the relevant part of which is as follows:

“i)

The Tribunal should remember that its primary task is to find the correct amount of tax, so far as possible on the material properly available to it, the burden resting on the taxpayer. In all but very exceptional cases, that should be the focus of the hearing, and the Tribunal should not allow it to be diverted into an attack on the Commissioners’ exercise of judgment at the time of the assessment.

ii)

Where the taxpayer seeks to challenge the assessment as a whole on “best of their judgment” grounds, it is essential that the grounds are clearly and fully stated before the hearing begins.”

What this guidance does not state in terms is what material is “properly available” to the tribunal. In fact in the Pegasus case, it appears that all the material placed before the tribunal had been available to HMRC at the time of the assessment and was therefore in principle relevant to the question whether the assessment was a best judgment assessment: see Carnwath LJ at [45].

It is important to appreciate that even in a case which is wholly concerned with input tax, HMRC may deny the right to deduct for a number of different reasons entirely unconnected with the form of the documentation that the taxable person produces in support of the claimed right of deduction. They may, for example, deny the deduction on the ground that the taxable person knew or ought to have known that transactions were connected with fraud. They may deny deduction on the ground that, despite the production of a valid invoice, there was in fact no underlying supply. They may deny the claimed deduction on the ground that a particular supply was an exempt supply rather than a standard rated one. Or they may, as in this case, deny the claimed right to deduct as a result of the exercise of its discretion under Reg 29. I see no objection to the nature of the FTT’s jurisdiction being different depending on the underlying decision being challenged.

Mithras (Wine Bars) Ltd v HMRC [2010] UKUT 115 (TCC), [2010] STC 1370 also concerned a best judgment assessment. Again, there is no indication in the report that HMRC had exercised any discretion under Reg 29. The UT (Sir Stephen Oliver QC) reviewed the authorities and concluded at [23]

“The authorities cited above show that in considering an appeal against the amount of an assessment raised by the Commissioners, the tribunal has a full appellate jurisdiction and is able to decide for itself the correct amount of the tax due.”

In Karoulla v HMRC [2018] UKUT 255 (TCC), [2018] BVC 518 HMRC had made a best judgment assessment on the basis that the taxable person had underdeclared sales and hence had underdeclared output tax. It was not a case concerning input tax; and thus, once again, HMRC had not exercised any discretion under Reg 29. The UT approved a statement of principle by the FTT in an earlier case:

“[15] The first stage is for the tribunal to consider whether, at the time such an assessment was made, it was made to the best judgment of the Commissioners. At this stage, the tribunal’s jurisdiction is akin to a supervisory judicial review jurisdiction….

[17] Where the tribunal is satisfied that the Commissioners have used their best judgment in making the assessment, the second stage for the tribunal is to consider whether the amount assessed is correct. As Mithras makes clear, in relation to this second stage the tribunal has a full appellate jurisdiction. It can therefore consider all available evidence, including material not available to HMRC at the time when the assessment was made, in substituting its own judgment as to the correct amount of the assessment.”

In fact in Karoulla the UT admitted fresh evidence on appeal from the FTT which underlines the point.

Mr Morse also referred to a series of decisions of the FTT. They were Rich Couture Ltd [2024] UKFTT 1077, [2024] TC 09368; 3KH Ltd [2025] UKFTT 748 (TC), [2025] TC 09555 and Noonan [2025] UKFTT 67 (TC), [2025] TC 09412. Each of them concerned a best judgment assessment; but none of them concerned the exercise by HMRC of their discretion under Reg 29.

Mr Morse stressed the point that the appeal in this case was against the “amount” of the assessment; and that that opened up the FTT’s full appellate jurisdiction in line with Pegasus Birds. But I do not consider that that argument is sound. An appeal brought under section 83(1)(c) is an appeal against the “amount” of any input tax credited to a taxable person. Yet, as Mr Morse acknowledged, an appeal against HMRC’s exercise of discretion under Reg 29 refusing to credit a claimed “amount” of input tax is a supervisory jurisdiction. So, the presence of the word “amount” does not change the nature of the FTT’s jurisdiction.

In my judgment, the nature of the FTT’s jurisdiction does not depend on which “gateway” gives the taxable person a right of appeal. Rather, it depends on the nature and substance of the decision under challenge, and not the form that the decision takes. The point was well put by Neill LJ in John Dee Ltd v Customs and Excise Commissioners [1995] STC 941, 952:

“In my judgment it is necessary in each case to examine the nature of the decision against which the appeal is brought…. in my view the function and powers of a tribunal in each case will depend in large measure on the nature of the decision appealed against and of course on any special statutory provisions.”

The UT made a similar point in Scandico at [41]:

“Mr Pickup submitted that the fact that the appeal is brought under s 83(1)(c) VATA means that the issue before the tribunal is the broad issue of the amount of input tax which may be credited to Scandico. That, he said, requires or entitles the tribunal to examine all issues which go to that question, including here whether there has in fact been a taxable supply to Scandico. We do not agree. This confusion arises from the fact that the result of HMRC’s exercise of discretion in these circumstances is to disallow the deduction. But the refusal to allow a deduction of input tax is the potential result of two different decisions. The first is a decision that for some reason, for example that there has been no taxable supply or that the supply is exempt, the taxpayer is not entitled to input tax credit. The second decision is that HMRC is not satisfied on the evidence presented to it that there has been a taxable supply. Although both kinds of decision lead to the same result—the refusal of input tax deduction—they are different decisions. The fact that the challenge to both kinds of decision comes to the tribunal through s 83(1)(c) VATA does not, in our judgment, expand the jurisdiction of the tribunal to consider a decision that has not in fact been made by HMRC.”

Mr Morse did not challenge the correctness of the decision in Scandico. In the quoted passage the UT rejected the argument that an appeal against the “amount” of input tax credited opened up the FTT’s full appellate jurisdiction; and in my judgment, the UT was correct to do so.

As Mr Watkinson correctly submitted, where HMRC has issued assessments under section 73 in order to give effect to a decision taken under Reg 29, and there are no other challenges to the assessment itself, the jurisdiction in relation to that challenge remains supervisory.

In short, I consider that the UT in this case came to the right conclusion for the right reasons.

There is a further reason why the appeal must fail. The grounds of appeal to the FTT do not assert that the Appellant did in fact hold compliant invoices. Paragraph 4 correctly states that HMRC’s decision was based on Officer Mills’ view that “he had not been supplied with enough evidence of the input tax.” The grounds go on to assert that HMRC’s decision was wrong because there was “evidence” that the Appellant correctly charged VAT; and that it held “evidence to demonstrate that it receives payment for the supply that it makes to customers in the form of a bank account into which payments are deposited and had made this evidence available” to HMRC. In other words, the grounds of appeal rely on the material that the Appellant had already supplied to HMRC: not on fresh material in the shape of compliant invoices. There are further assertions in the grounds of appeal all of which relate to evidence that the Appellant said that it had already supplied to HMRC.

The UT held that the scope of the appeal was limited by those grounds; and that they did not include an assertion that the Appellant in fact held compliant invoices. Permission to appeal against that finding was refused both by the UT and by Newey LJ. As Newey LJ correctly observed, the Appellant listed three matters on which it relied; and there was no suggestion in that list that the Appellant held compliant invoices.

I come now to Mr Morse’s fourth proposition which is specific to this appeal. He argued that properly understood the appeal challenges the assessment on “best judgment grounds” and on quantum which therefore engages the FTT’s appellate rather than supervisory jurisdiction. I will assume in his favour that this argument is not an illegitimate attempt to outflank the refusal of permission to appeal against the UT’s interpretation of the grounds of appeal. Even so, in my judgment this argument is erroneous. First, the question whether the assessment was in fact made to the best of HMRC’s judgment is a question that engages the supervisory jurisdiction. Second, I do not consider that, fairly read, the grounds of appeal do mount a challenge on quantum. HMRC, in pursuance of its power under Schedule 11 paragraph 4 required production of compliant invoices in order to establish the Appellant’s right to deduct. The Appellant failed to provide them. It is open to the Appellant to argue (under the FTT’s supervisory jurisdiction) that the requirement or the assessment was vitiated for some public law reason (as discussed above). But the failure to provide compliant invoices was a wholesale failure. If the requirement to produce invoices was lawful, the Appellant has simply not complied with it in respect of any of the input tax it claims to deduct. There is no room for a separate challenge to quantum.

I would dismiss the appeal.

I agree.

I also agree.