Eurocent (Buckingham) Limited v The Commissioners for HMRC

This appeal concerns whether the Appellant is entitled to reclaim input tax in respect of fees incurred in connection with the purchase of a parade of let retail units known as Cornwall Place, Buckingham (“the Property”). The issues in the appeal are whether the Appellant had valid VAT invoices and (whether or not the Appellant had valid VAT invoices), whether HMRC were entitled to deny input tax recovery.

HMRC’s assessments as appealed to the Tribunal also included an assessment for undeclared output tax on rent apportioned as part of the purchase by the Appellant of the Property. Following a discussion in the hearing Ms Donovan for HMRC, rightly in our view, withdrew HMRC’s assessment in this point and accepted the Appellant was not liable for the output tax. We therefore do not need to consider this issue any further.

All statutory references are to the Value Added Tax Act 1994 and references to regulations are to the Value Added Tax Regulations 1995 unless specified otherwise. The relevant legislation and regulations are set out in the Appendix to this decision.

We were referred to a hearing bundle. Ms Kathryn Brickell, an HMRC compliance officer who had conduct of the compliance check, provided a witness statement and gave oral evidence. We accept her evidence and we find the facts as set out below.

On 3 October 2022 the Appellant applied for VAT registration on the basis of purchasing the Property as a transfer of a going concern. Registration was confirmed as effective from that date.

On 1 June 2023 the Appellant submitted its first VAT return late and for the period 3 October 2022 to 31 January 2023 (“the 01/23 Return”), which amounted to a VAT repayment claim of £53,075.60.

On 7 June 2023 HMRC opened a check into the 01/23 Return as it was a repayment claim being made by a newly registered trader. The details of the correspondence between the parties during the check is not relevant save that we find as set out below.

On 3 June 2024 HMRC issued a decision letter to the Appellant which denied the Appellant the recovery of £50,960 of input tax in the 01/23 Return in respect of;

On 30 August 2024, the decision letter was upheld by HMRC on internal review. In the case of the BHNV Invoice, this was on the basis of a replacement invoice obtained by the Appellants from BHNV and accepted by HMRC in place of the original. References to the BHNV Invoice in this decision is to the original or replacement invoice as the context requires (“the BHNV Invoice”).

On 4 January 2025, the Appellant appealed to this Tribunal.

It is worth setting out in brief the principal transactions entered into by the Appellant and other parties which relate to the purchase by the Appellant of the Property. This summary is not intended to be complete but serves as background to the issues in this appeal.

The Appellant was incorporated in April 2022 and originally owned by ABC Commercial Ltd which in turn was owned indirectly by two individuals, a Barry Glass and Avi Ratzersdorfer.

On 3 August 2022, solicitors Bude Nathan Iwanier Solicitors (BNI), acting for Jacob and Rivka Dreyfuss transferred £248,000 to Fladgates, appointed to act as the Appellant’s solicitors in the transaction.

On 5 August 2022, the Appellant entered into a contract to purchase the Property from an unconnected company, Marble Acquisitions Limited, for a price, according to the purchase contract, of £2.25m. Fladgates paid the £225,000 deposit to the seller’s solicitors Birketts LLP.

On 10 August 2022 Jacob Dreyfuss became the Appellant’s sole director.

On 6 October 2022 BHNV Development Ltd invoiced the Appellant £230,000 plus £46,000 VAT.

On 7 October 2022 the purchase of the Property was completed.

On 26 October 2022 Colridge Ltd invoiced the Appellant for £24,800 plus £4,960 of VAT.

The purchase price was paid by Eurocent Group Ltd (a company owned by Mr and Mrs Dreyfuss) to BNI. It also paid £276,000 to Fladgates which was used to pay Fladgate’s invoice and the (original) BHNV Invoice.

The compliance check run by Ms Brickell ran between June 2023 and June 2024. As part of the check, the Appellant was asked by HMRC to complete a questionnaire about its business activities and to provide information including bank statements, purchase/sale ledgers and copies of invoices. On a number of occasions HMRC considered the information provided to be insufficient and made further requests.

Once Ms Brickell had finished her enquiries she issued her decision letter of 3 June 2024. The decision letter sets out the reasons for rejecting the Appellant’s input tax claim. The letter starts out in general terms by advising that “As a result of our checks, we believe there are inaccuracies in this VAT Return...” but the body of the letter focuses on the BHNV Invoice and the Colridge Invoice and their non-compliance with Regulation 14(1). Under the heading “Alternative evidence” there is a discussion of Ms Brickell’s concerns about the nature of the services and the wider property arrangements, and the letter quoted Regulation 14(1). Ms Brickell’s conclusions in the letter were;

“Alternative evidence

Regulation 29(2) to the Value Added Tax Regulations 1995 (SI 1995/2518) gives HMRC discretion to allow claims for input tax where alternative evidence has been produced.

After considering the further information provided by Mr Silver, I have been unable to identify any material evidence to substantiate or corroborate the supply of services, set out on the disputed invoices, issued by Colridge and BHNV to Eurocent (Buckingham Ltd).

Conclusion regarding input tax denial

VAT is a transaction-based tax. Input tax is deductible in so far as it is incurred on supplies that are cost components of transactions which carry the right to deduct associated input tax.

To address the deficiencies in your supplier invoices, I have attempted on several occasions to obtain further evidence to support your claim by requesting documentary evidence, such as email exchanges or documents evidencing the interactions between you and your suppliers and the timing of the supply of services. No documents have been produced relating to services provided by either Colridge or BHNV.

I have therefore found it impossible to determine exactly when, where or by whom the services were supplied, and whether they were supplied to the taxable person claiming the input tax.

As the Buckingham property was sourced by Barry Glass, at the time of incorporating Eurocent (Buckingham) Ltd in April 2022, it follows that the property could not be introduced to the company for a second time prior to completion of the purchase in October 2022.

After completion of due diligence work and exchange of contracts, the property deal was transferred to Rivka Dreyfuss, as nominee shareholder, via the acquisition of the company’s issued share capital on 10 August 2022. On the same date, Jacob Dreyfuss became the sole director and took over the day-to-day control of the business.

I have therefore concluded, in the absence of alternative evidence, that fees and commissions relating to the introduction and presentation of a viable property deal were incurred by non-taxable person(s) in furtherance of an exempt supply (transfer of shares). Input tax incurred by non-taxable person(s) is not deductible.

I have therefore been unable to exercise my discretion under Regulation 29(2) of the Value Added Tax Regulations 1995 (SI 1995/2518) to allow the input tax deduction.”

Ms Brickell confirmed in the hearing in response to a specific question that her decision was reached under HMRC’s powers under Regulation 29(2) and expressly stated that it was not in the exercise of more general powers.

On 30 August 2024 HMRC upheld Ms Brickell’s decision letter. That review outcome letter quoted section 24(6)(a), Regulation 13(1) and Regulation 14(1) and set out the points in issue (omitting the now agreed output tax issue):

“Points at issue

The points at issue are:

• Whether satisfactory alternative evidence under Regulation 29(2) of the VAT Regulations 1995 has been provided in respect of invoices from Colridge Ltd (Colridge) and BHNV Developments Ltd (BHNV)…”

The review letter reviewed the reasons why the two invoices did not comply with Regulation 14(1) and the exercise of HMRC’s discretion under Regulation 29(2) and concluded as follows:

“Conclusion

The decisions are upheld.

Satisfactory alternative evidence under Regulation 29(2) of the VAT Regulations 1995 has not been provided in respect of invoices from Colridge and BHNV. As such, Officer Brickell’s decision to deny VAT credit on these invoices is appropriate.”

HMRC summarised in their Statement of Case the issues in the appeal as follows (again omitting the output tax issue):

“POINT AT ISSUE

29.

Whether the invoices from BHNV Ltd and Colridge Ltd were invalid for VAT purposes and;

30.

Whether HMRC was correct to refuse to exercise its discretion in the Appellant’s favour to accept alternative evidence.”

The Statement of Case considered in respect of each of the BHNV and Colridge Invoices first whether the invoice was valid, that is whether it met the conditions in Regulation 14, and then the exercise of HMRC’s discretion to accept alternative evidence under Regulation 29(2) referencing decisions including C & E Commrs v Peachtree Enterprises Ltd [1994] BVC 209GB Housley Ltd v R & C Commrs [2017] BVC 4.

The Statement of Case concluded:

“38.

For the reasons given above HMRC respectfully request that the Tribunal find that

a)

the decision to disallow the input tax on the invoices in dispute is correct;

b)

The assessment was made to best judgement.

c)

The assessment is in time”

Even if all other conditions for the recovery of input tax are satisfied, it is a pre-condition for recovery that a trader has a VAT invoice (Regulation 29(1) and (2)):

The VAT invoice is the document required to be issued by the supplier in accordance with Regulation 13. That document must contain the information and otherwise comply with the conditions set out in Regulation 14.

Where the trader does not hold a Regulation 14 compliant invoice then, under Regulation 29(2), HMRC may direct that a taxpayer should hold evidence other than a VAT invoice. If HMRC decline to exercise their discretion then the trader’s input tax claim fails because it has not satisfied the evidential requirements in Regulation 29.

The issues in this appeal are as follows:

The burden of proof is on the Appellant in this appeal. However, where HMRC’s exercise or failure to exercise its discretion under Regulation 29(2) is appealed to this Tribunal the Tribunal’s jurisdiction is a supervisory one. It is for the taxpayer to show, on the balance of probabilities that on the basis of the material before HMRC, no body of Commissioners could reasonably have come to the conclusion that it did (R&C Commrs v Boyce [2017] UKUT 177 at [14], GB Houseley Ltd v R&C Commissioners [2017] BVC 4 at [70] ).

An important preliminary issue arose just before and at the hearing, namely as to the nature and scope of HMRC's assessment and so the issues in this appeal.

Mr Levine raised this issue initially just before the hearing as an objection to HMRC adding an additional authority to the bundle (Block-Aid limited v HMRC [2024] UKFTT 00339) some 8 days before the hearing which in his view, indicated HMRC wished to run wider arguments than the validity of the invoices and whether HMRC should have refused to exercise its discretion under Regulation 29(2). During exchanges in the hearing there was revealed a fundamental difference between the parties as to the scope and nature of HMRC’s denial of the input tax in this appeal.

HMRC’s position during the hearing was that HMRC is entitled to deny input tax recovery in this appeal even if the invoices on their face satisfied the conditions in Regulation 14(1). Ms Donovan pointed out that the Appellant had had notice of these arguments as it was clear in the correspondence that HMRC doubted that any supply had taken place and/or believed that the supplies were attributable to an exempt supply of shares by third parties. For example, in their letter of 14 November 2023:

“To date, no tangible documentary evidence has been provided to substantiate the above services. If we cannot be satisfied that a supply has taken place, in accordance with VATA94 section 24(1), the VAT will be denied on these invoices, as no supplies will be deemed to have been made on which input tax is deductible.”

Further, HMRC relied on a decision of this Tribunal in Block-Aid where Judge McGregor said:

“46.

While we agree with the Appellant that this is not a circumstance where a taxpayer is seeking to rely on alternative evidence because they do not have a VAT invoice, we do not agree that this prevents HMRC from arguing that a taxpayer needs to show evidence in addition to an invoice that supports the conclusion that a supply has been made”

Mr Levine objected to this argument principally because the Appellant had no notice that this argument was part of the appeal. Throughout the check, correspondence, assessment and appeal the issue had been whether the VAT invoices were correct and whether HMRC should have exercised its discretion to accept alternative evidence. The Appellant had prepared for the hearing on the basis that HMRC’s decision and the appeal concerned the adequacy of the invoices not wider issues around the purchase of the Property and connected supplies.

We have set out above HMRC’s decision-making process and statement of case in this appeal. Ms Brickell specifically confirmed during the hearing that her decision to refuse part of the input tax claim was an exercise of the discretion afforded to HMRC under Regulation 29(2) and not under any wider powers.

We accept that Ms Brickell conducted a wide-ranging check into the structuring of the purchase of the Property and the associated supplies, invoices and flows of monies. Further, HMRC raised their concerns about issues more fundamental than the adequacy of the invoices with the Appellant during the enquiry and those concerns are set out in the decision letter, review letter and the statement of case. However, it is clear to us that the decision made by Ms Brickell which was confirmed by the internal review and appealed by the Appellant, concerned just two issues, whether the BHNV and Colridge invoices were valid and, if not, whether HMRC was unreasonable in declining to exercise its discretion under Regulation 29(2) to accept alternative evidence.

We reject Ms Brickell’s attempt in the hearing to explain her position by saying that whilst she may not have drafted her decision letter in the right order, she had said in effect that HMRC was entitled to deny the input tax claim even if the relevant invoices were on their face valid. We find her decision letter very clear and, further, at no point after that decision (for example in the review conclusion letter) did HMRC clarify any such allegedly poor drafting.

The fact that HMRC had reflected the findings of its investigation and concerns about wider issues in correspondence with the Appellant is, in our view, irrelevant. HMRC could, if it considered it appropriate, have denied input tax recovery on more general grounds but it did not do so.

Ms Donovan referenced Treer Baubedort- Handel GmbH [2005]STC 525:

“34…In other words, the goods must have been delivered or the services performed and the taxable person must be in possession of the invoice or the document which, under the criteria determined by the Member State in question, may be considered to serve as an invoice.”

We agree, there must have been a supply to the taxpayer and (separately) it must be in possession of a VAT invoice.

We would also distinguish the decision in Block-Aid. That appeal appears to be concerned with wider issues than Regulations 14 and 29. A more representative extract from the decision provides:

“45.

HMRC’s position has been very clear from the outset that the source of the challenge is, or at least includes, the assertion that the supplies reported on the identified invoices were not in fact made to the Appellant.

46.

While we agree with the Appellant that this is not a circumstance where a taxpayer is seeking to rely on alternative evidence because they do not have a VAT invoice, we do not agree that this prevents HMRC from arguing that a taxpayer needs to show evidence in addition to an invoice that supports the conclusion that a supply has been made.

47.

The wording in section 26 of VATA 1994 is very clear that there must be a supply to the trader before an input tax credit can even be contemplated. The dispute is not about the invoice, but centres on an earlier stage in input tax deduction – was there a supply?”

The Tribunal does not set out the nature of the decision being appealed save to say:

“11.

The matter in dispute is whether HMRC were correct in disallowing the input tax.”

However, in our view paragraph 47 makes clear that appeal was concerned not only with the administrative condition in Regulation 29(2) but also with the wider more substantive question as to whether there was a supply. In that context it is not surprising HMRC and the Tribunal on appeal concerned itself with wider issues.

In our view HMRC’s original decision in the current appeal is different in that it is concerned solely with HMRC’s decision that the invoices did not comply with Regulation 14(1) and its refusal to exercise its discretion under Regulation 29(2) to allow alternative evidence. HMRC’s discretion in Regulation 29(2) is the ability to direct that a taxpayer should or is permitted to hold evidence other than VAT invoices. That discretion only applies where the taxpayer does not hold documents “required to be provided under regulation 13”, that is valid VAT invoices complying with Regulation 14(1). Importantly, in our view where a trader does hold Regulation 14(1) compliant VAT invoices HMRC has no discretion under Regulation 29(2) and it cannot be used as a route to deny input tax for other reasons.

Finally, we would also note that were HMRC right and Regulation 29(2) entitled HMRC to challenge input tax recovery more generally it would distort the burden of proof. The Tribunal’s jurisdiction in Regulation 29(2) matters is supervisory. On an appeal the taxpayer must show on a balance of probabilities that HMRC unreasonably refused to accept alternative evidence. Where HMRC is exercising a discretion that higher threshold is appropriate but cannot be the case in a normal substantive appeal on entitlement to input tax.

We therefore reject HMRC’s wider argument.

Having rejected HMRC’s wider argument, the issues in this appeal are therefore

We consider each invoice separately.

On 6 October 2022 BHNV Development Ltd invoiced the Appellant £230,000 plus £46,000 VAT. As described above the Appellant obtained a replacement invoice at the time of the internal review and that invoice is the subject of this appeal.

This invoice purports to be in respect of the provision of services to the Appellant relating to the purchase of the Property. The body of the invoice provided as follows:

Following the outcome of the internal review on 30 August 2023, HMRC accepted that the BHNV Invoice complies with Regulation 14(1) save in two respects:

The Appellant argued that it was unnecessary to show separately the time of supply and the date of the invoice where this was the same date. HMRC’s internal guidance at VATREC5040 provides;

“The date of issue must always be shown on a VAT invoice. If this is also the time of supply (tax point), then the time of supply need not be shown separately.”

The Appellant argued that the supply was part of a single supply of services which ended on completion of the purchase of the Property and so that was the time of supply and the date of the invoice.

As to the description of the services, the Appellant argued that the description was very detailed. It is only necessary for the description to provide HMRC with a means of understanding the essential nature of the supply and a means of identifying it in correspondence with the taxpayer. It was not necessary for the invoice to contain sufficient information to enable HMRC to draw definitive views as to the VAT treatment of the supply (Fount Construction TC/2022/11373 at [13] - [14]).

Ms Donovan argued that the conditions in Regulation 14(1) were not met and that the invoices lacked sufficient detail regarding the individual services provided. This deficiency prevented HMRC from verifying whether the supplies were made for VAT purposes and whether the VAT was accurately charged. In the hearing when pressed Ms Donovan suggested the invoices should have referenced the underlying contracts or perhaps exchange of e mails from which the supply derived. It might also have described the period over which the services were provided. Ms Donovan accepted there was no specific requirement to do so, each invoice needed to be seen in context and the extent of the requirement to provide a description of the services supplied varied accordingly.

There may have been questions as to nature of the services apparently supplied but the issue in this appeal is whether the requirements of Regulation 14 have been satisfied, a much more limited exercise. In our view the BHNV invoice does so. We do not think it necessary to show separately the time of supply and the date of the invoice when they are the same date. Further, we find the description of the services is detailed and sufficient to identify the services being supplied as required by Regulation 14(1). HMRC may need further information to satisfy themselves that a supply has taken place but that is not the test.

Where the trader does not hold a Regulation 14 compliant invoice then, under Regulation 29(2) HMRC may direct that a taxpayer should hold evidence other than a VAT invoice. The Tribunal’s jurisdiction is a supervisory one, and it is for the taxpayer to show on the balance of probabilities that on the basis of the material before HMRC, no body of Commissioners could reasonably have come to the conclusion that it did.

Ms Brickell, having decided that the BHNV Invoice did not meet the requirements of Regulation 14, declined to exercise HMRC’s discretion to accept alternative evidence. Ms Brickell had a large number of reasons for doing so, which centred on the credibility of the fees charged between the parties which were owned by individuals who knew or were otherwise in a broad sense connected to each other. For example:

The overall conclusion reached by Ms Brickell was that the Appellant had provided insufficient and unsatisfactory alternative evidence and she declined to exercise her discretion under Regulation 29(2).

Mr Levine sought to address in brief some of the concerns raised by HMRC. For example, there being two solicitor firms engaged was explainable in that Fladgates had been instructed but when Mr and Mrs Dreyfuss acquired the Appellant they wanted their solicitors BNI to be involved from the company perspective rather than the purchase. Further, it was not unusual for a group of property companies to have one company that operates a central banking function. However, overall Mr Levine was not in our view able to address the structural issues, particularly in the absence of witness evidence.

As we have said it is unnecessary for us to decide whether HMRC were unreasonable to decline to exercise its discretion under Regulation 29(2) in respect of the BHNV Invoice. However, for completeness had the BHNV Invoice not met the conditions in Regulation 14(1), we would have declined to interfere in HMRC’s decision. We find that HMRC had identified a large number of issues concerning the transactions. Whilst some answers had been provided, we cannot say that the Appellant has shown on the balance of probabilities that on the basis of the material before HMRC, no body of Commissioners could reasonably have come to the conclusion that it did.

On 26 October 2022 Colridge Ltd invoiced the Appellant for £24,800 plus £4,960 of VAT.

HMRC accepts that the Colridge Invoice complies with Regulation 14(1) save in three respects, again with reference to the requirements in Regulation 14:

Whilst still maintaining the argument that the invoices should have been accepted by HMRC Mr Levine accepted in the hearing that it was a weaker argument than the BHNV Invoice and did not pursue the point with any vigour.

In our view the Colridge Invoice does not meet the conditions in Regulation 14(1), specifically it does not include the address of the customer and there is not an adequate description of the services provided.

We must therefore consider whether HMRC unreasonably declined to exercise its discretion in Regulation 29(2), noting the burden of proof as set out above.

Ms Brickell objected to the Colridge Invoice for several reasons. In addition to the general concerns summarised above as to the BHNV Invoice, Ms Brickell had specific concerns in respect of the Colridge Invoice, including:

Mr Levine repeated some of the same points he had raised in connection with the BHNV Invoice, including that it was not unusual for a group company to have group banking role but did not have much to add.

We find that HMRC was not unreasonable in declining to exercise its discretion under Regulation 29(2) in respect of the Colridge Invoice. As with the BHNV Invoice the Appellant has provided some answers but we cannot say that the Appellant has shown on the balance of probabilities that no body of Commissioners could reasonably have come to the conclusion that it did.

We reject HMRC’s wider argument and specifically that in purely exercising its discretion under Regulation 29(2) (as opposed to wider powers) HMRC were entitled to reject a VAT registered trader’s claim for input tax even if the invoice satisfied the conditions in Regulation 14(1).

We find for the reasons set out above that the BHNV Invoice satisfied the conditions in Regulation 14(1) and the Appellant is entitled to claim the associated VAT as input tax.

However, we find that the Colridge Invoice did not satisfy the conditions in Regulation 14(1) and HMRC were not unreasonable in declining to exercise their discretion under Regulation 29(2). The Appellant is therefore not entitled to claim the associated VAT as input tax.

For completeness, HMRC accepted in the hearing that the Appellant is not liable for the £4,891.12 of assessed output tax, and so we allow the Appellant’s appeal on that issue.

Accordingly, the Appellant’s appeal is allowed in part.

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.