Fisher Hurst Limited v The Commissioners for HMRC

The Appellant appealed against the decision of HM Revenue and Customs (“The Respondents/HMRC” ), upheld on review on 21 February 2023, to issue a VAT assessment in the sum of £63,600 in relation to the VAT period 10/19, under Section 73 of the Value Added Tax Act 1994 (“VATA 1994”), which was made in respect of Output Tax on goods purported to have been dispatched to the Republic of Ireland (ROI) across the Irish Land Boundary by Fisher Hirst Limited (“FH”) to T&D Sales Limited, (“TD”), County Donegal, Ireland.

The documents to which the Tribunal (“the tribunal/we”) were referred were contained in a Bundle of documents and an Authorities Bundle both of 190 pages which contained Skeleton Arguments from both parties. We also had the Respondents’ ‘speaking notes’ and a corrected version of VAT Notice 725.

We heard evidence from Kieran Dynes (“KD”) the sole director of FH and Ritchie Hannan (“RH”) an Officer of HMRC, employed by them since 03 March 2003 and who had been working as a Civil Investigator for 6 years. Both witnesses were credible and were examined and cross-examined and answered questions from the tribunal.

FH is a scaffolding contractor which at the relevant time, between August and October 2019, had seven employees, one of whom was [Mr] Jean Alan (“JA”) a bookkeeper who also liaised with FH’s accountants, who was 75 years old. KD stated that, in March 2019, JA was diagnosed with cancer and he currently had no contact with him. At the relevant time JA was working from home and although ill, continued with bookkeeping for FH.

On 25 June 2020, RH wrote to the Appellant, following receipt of a formal request to HMRC from the ROI Revenue Commissioners, in relation to the supply of goods from Ireland West Plastics Limited (“IWP”) to FH and the onward sale of the goods, and requested information in relation to the transactions alleged to have taken place between FH and IWP between 10 June 2019 and 22 July 2019 (inclusive) to a value of £417,067.20.

The supply of goods related to plastic sheeting used by FH as a “wraparound” buildings for dust and other protections. A contact of KD, Gary O’Neil who worked as a sales representative at IWP, had suggested that it would be profitable for FH to purchase additional quantities of plastic sheeting, which would not be used for scaffolding projects carried out by FH, but which would be resold from Northern Ireland to the ROI. It was suggested that the difference between the buying and selling prices was 25%. The presumption was that the sale and purchase from an outside jurisdiction to and then from Northern Ireland to an outside jurisdiction would result in both the purchase and sale being zero rated.

FH ordered plastic sheeting(“the plastic sheeting”) and then arranged for the delivery of the plastic sheeting to TD although they requested that delivery be made to McLoughlin Transport at their address in Carrick-On-Shannon in the ROI, which KT explained was a lorry depot where goods were transferred from one lorry to another.

KD said that he had personally driven the lorry containing the plastic sheeting and had delivered it himself. This he said was supported by tachograph records which had been reviewed by a traffic consultant, as an expert in the field of tachograph analysis, Mr John Logue whose expert report was before the tribunal.

KD explained that he was primarily involved in the practical work for FH and left bookkeeping and a number of administrative matters to his bookkeeper and other members of staff but did acknowledge that as the sole director he was ultimately responsible for the affairs of the company. He confirmed that he had not read VAT Notice 725 and that he had written in pen the handwritten notes on the tachograph cards which included recording his name as the driver (KD),the starting destination, the route destination and the respective mileages between the two destinations. FH had previously traded between Northern Ireland and the ROI.

KD was unaware why there was a delay in providing the tachograph records which was nearly 5 years after the relevant date and explained that as he was paid in advance for deliveries he did not consider there was a need to have a delivery document or a CMR (Consignment of Management Record or Convention on the Contract for the International Carriage of Goods by Road) known in the UK and by VAT Notice 725, as an ‘International Consignment Notice’.

KD explained that when he arrived at the depot, TD had someone there with a crane to transfer the plastic sheeting from his lorry to another. KD said he had the relevant invoices signed by the recipient of the plastic sheeting. One invoice, dated 26 September 2019, showed a ‘tick’ against the quantity noted and an unidentified signature.

KD also confirmed that JA had not kept copies of the documents which he claimed to have sent to HMRC by Recorded Delivery, when the latter requested them, and he was unaware why the purchase and sale of the plastic sheeting had been omitted from FH’s relevant VAT return, as he relied on JA to provide FH’s accountants with the information to do this.

The 25 June 2020 letter asked a series of questions in relation to these transactions and additionally requested: Invoices- purchase and sales; Contracts; Orders; Proof of payment; Transport documentation and Bank statements for 01/06/2019 to 31/08/2019.

No response was received and by email dated 9 February 2021, a Schedule 36 information notice ( a Notice to produce documents) was issued to the Appellant. Byreturn the Appellant stated they had provided the information requested on approximately 10 August 2020. KD confirmed that he was now isolating due to COVID and was unable to confirm when he would be in a position to resend the outstanding information.

The Respondents informed the Appellant that they had no record of having received the documentation purported to have been sent to them on 10 August 2020 and noted thatthe Appellant was unable to provide proof of postage.

On 20 April 2021, the Appellant emailed to say they would send the information in due course but as no further correspondence was forthcoming, the Respondents sent a furtherrequest for information by 06 October 2021, on 29 September 2021.

On 9 March 2022, a telephone call took place between RH and KD, during which the Appellant confirmed that FH had made the supplies to TD and that they had omitted the transactions from FH’s VAT return.KD stated that there was “little to no profit” and that he considered the enquiry was “nothing to do with his company but with the ROI company”. RH explained ‘Supply chain fraud’ to KD in simplistic terms and KD “confirmed he understood.”

By email dated 22 March 2022, KD confirmed that the original information had been sent to the Respondents by JA, by then a former employee, and that he would need to speak to the individual in question regarding the mater and would clarify the position of the documentation in relation to the Respondents’ requests in due course.

An undated letter was received by the Respondents on 04 April 2022 and the Appellant again confirmed that the sales had taken place and involved five sales and that, as all the transactions were zero rated, the overall VAT position remained the same even although they had not been recorded in the VAT return.

KD stated that the reason they had been omitted from the VAT return was because FH did not have a Euro account and the transactions were in Euros. Instead the sales were put through KD’s personal euro account with AIB. The five invoices were attached.

KD confirmed that actual delivery was made, by him, to Carrick-on Shannon as “the supplier to us arranged the delivery to our yard [t]here, there were no contracts, the boys arranged all via phone.”

KD reiterated that documentation in relation to these sales had been provided to the Respondents.

By letter dated 27 June 2022, RH issued a Penalty Notice to the Appellant in the amount of £300 for failure to provide the information requested on 9 February 2021, which was paid by FH.

By letter dated 27 June 2022, RH also requested that the Appellant provide copies ofthe documentation listed in this letter, by 8 July 2022, including evidence of who made the payments on the bank statements provided, as this was not shown.

By email dated 9 August 2022, the Appellant provided a response to the various questions posed by RH in his letter of 27 June 2022. This included a statement that “delivery docket/CMR were not required as we the seller were doing our own deliveries and did not require an outside haulier therefore keeping costs down as the profits were minimal”. KD confirmed that he was nowsuffering from long COVID, that the business was 3 years ago and that JA and Gary O’Neil were in charge of this and that he was no longer in contact with them.

By letter dated 1 November 2022, RH issued his pre-assessment decision because no further information beyond the five invoices and KD’s bank statements had been supplied. The letter confirmed the amount of VAT (Output Tax) considered due by the Respondents for the VAT period ended 10/19 as a consequence of the failure by the Appellant to retain valid commercial evidence that the goods in question had been removed from the UK within the requisite time limits.

By email dated 21 November 2022, the Appellant provided five tachograph cards (“the tachograph cards”) as evidenceto show the goods were removed from the UK.

The tachograph cards were obtained from a tachograph recorder which was of a type that did not record GPS locations and which would have provided corroboration to the dates and journeys which had been written in hand by KD.

The tachograph cards were also accompanied by a report by an expert who confirmed that they correctly demonstrated the distance/length of journeys which KD stated he had carried out when delivering the goods but his report relied upon the dates of the journeys and destinations which had been added by KD. HMRC challenged this evidence claiming that the dates and destinations were not conclusive, having been added by KD, and in any event the journeys referred to on the tachograph cars did not demonstrate that the goods had crossed the Irish Land Border.

By email dated 21 November 2022, RH explained to KD why theRespondents considered that the tachograph information provided was insufficient to evidence removal of the goods from the UK as it failed to meet the conditions detailed in VAT Notice 725 paragraphs 5.3, 5.4 and 5.5. This letter also stated: “If you have any other information that you would like me to consider by the deadline, please send it to me urgently.”

By letter dated 23 November 2022, RH issued his decision letter to the Appellant and raised an assessment in the amount of £63,600 in relation toVAT period 10/19.

On 24 November 2022, RH sent an email to KD stating: “my Pre--Assessment letter of 31/10/22 was initially replied to by you on 16/11/22, only to state you disagreed with my calculation and that you would have additional info the following week. On 21/11/22 you provided tachographs as evidence of removal, and I replied on 21/11/22 (effective 22/11/22) that I considered your information was not evidence of removal. The deadline passed without any further information and I made assessment accordingly.”

By email dated 16 December 2022, the Appellant’s representative requested an independent statutory review of Officer Hannan’s decision.

On 21 February 2023, the Respondents issued their review conclusion letter upholding the decision

On 16 March 2023, the Appellant submitted a Notice of Appeal to the First Tier Tax Tribunal.

RH referred to the sale and purchase of the plastic sheeting as a supply chain and, following the approach by the Revenue Commissioners of the ROI, attempted to obtain further information. The process was protracted because of Covid 19 and also because of the documents, which the Appellant claimed it had sent were not received and furthermore there was no recorded delivery receipt nor had any copies of the documents been retained before they were allegedly sent. The Appellant only provided five invoices, bank statements and the tachograph cards.

The bank statements in relation to the payments by TD were not bank statements for FH but personal bank statements for KD who explained that because the payment was in euros and as FH did not have a euros account, the money had been paid to his personal account which did have a euros account. RH stated that he thought it was unusual for a company which traded with the ROI not to have a euro account. The bank statements, he said, in any event, did not show the names of the payees.

RH stated that FH had not completed their VAT returns correctly and under VAT Notice 725 a taxpayer must keep sufficient evidence which FH had not provided in relation to the plastic sheeting. RH stated that KD had stated the reason the sales had not been included in the VAT returns was because they had accrued “little profit”.

In his view, the absence of sufficient evidence meant that it was possible that goods did not move between the ROI, Northern Ireland and the ROI and so become entitled for zero rating for VAT. RH did not consider that FH had obtained valid evidence of removal three months from the time the goods left Northern Ireland. Accordingly, RH considered that FH must account for output VAT.

RH stated that he had suggested to KD that he obtain tachograph evidence but it appeared in evidence that at that stage he thought that evidence would be taken from a digital tachograph recorder with GPS capabilities to show every starting and ending destinations within 75metres. The tachograph recorder on FH’s lorry, however, did not have this facility. The tachograph recorders, therefore, only showed distance, speed and time of specific journeys. They did not show the date of the journeys and in any event they did not provide evidence that the goods were in the lorries at the time the tachograph recorded journeys were taken. RH did not consider that the tachograph cards were conclusive evidence that the conditions had been met to qualify for zero rating.

RH was asked to explain why he had based his assessment on the basis of invoices which he did not accept as evidence that the goods had been transported to the ROI. He explained that his methodology was to base the assessment on the five invoices he had received converting the euro amounts to sterling. RH stated it was not necessary for HMRC to use a system they had to calculate assessments because they had these invoices

He clarified that HMRC relied on the sale invoices as evidence that sales were made but that did not evidence that sales were made in such a way to meet the conditions for zero rating in terms of the legislation. RH confirmed that the invoices on which the assessments were based were provided by the Revenue Commissioners of the ROI and were the same as the sales invoices provided by FH.

RH emphasised that it was not a matter of the invoices being fraudulent but that they did not meet the evidential requirements required under VAT notice 725.

RH sated that he believed a CMR was one document, of many, used as evidence of despatch and was not restricted, in his opinion, to journeys over water.

See Appendix A

The Appellant says that the assessment is not “in time” in terms of section 73(6) VATA 1994 as it was not issued within one year after evidence of the facts sufficient in the opinion of HMRC to justify the making of their assessment came to their knowledge.

The Appellant says that evidence of the facts, sufficient to justify the making the assessment, came to HMRC’s knowledge when they received information from the Revenue Commissioners of the ROI. Instead, HMRC are incorrectly relying on the lack of response to that pre-assessment letter of 01 November 2022 as the point when sufficiency was reached.

The Appellant says that this is an objective test as to whether HMRC had sufficient information to raise an assessment and say that they could have raise an assessment on the Revenue Commissioners evidence.

Accordingly, the assessment was not made within the one year period.

The Appellant says that although the obligation on it was to produce documents within three months of June/July 2091, these were not requested by HMRC until June 2020.

The Appellant refers to the list of documents required under VAT Notice 725 and in particular refers to “any other documents relevant to the removal of goods in question which you would normally get in the course of your EU business”.

The Appellant says that this includes the tachograph cards, which are entirely objective particularly having been analysed by a tachograph expert and in the knowledge that HMRC did not have the tachograph cards reviewed by their own expert.

The Appellant says that HMRC’s claim that they did not know what was in the vehicles on the journeys evidenced by the tachograph cards is not, on the balance of probabilities, sustainable. The Appellant says that the journeys to the location driven by FH’s lorry is the best proof that the journeys were made, rather than a scrawled signature on the delivery note or invoice.

The Appellant says that as the traction transactions actually took place zero rating should be granted and that the failure by HMRC to accept the evidence is disproportionate and unreasonable. HMRC accept the invoices in relation to making the assessment but not in relation to the transportation of the plastic sheeting to the ROI.

The Appellant says that HMRC have taken a number of factors together, initiated by suspicions driven by the formal request from the Revenue Commissioners of the ROI, to reach their decision and that the HMRC officer, RH, is wedded to this decision and seeks to defend it.

The Appellant says that the Respondents’ assessments are not to best judgement. They have been calculated in a precise manner from material provided by the Appellant, namely the sale invoices. There has been no element of judgement involved in the raising of these assessments as the calculation is a simple mathematical addition of the sale price of the plastic sheeting evidenced by the invoices.

Accordingly, the case law relied upon to identify the burden upon any Appellant in best judgement cases is, therefore not applicable.

The Respondents rely on the contention that insufficient evidence was provided to show that the goods were removed to the ROI in accordance with the requirement of the relief provided under Section 30 VATA 1994 but they have failed to understand the significance and evidential value of the tachograph cards and the expert evidence of the journeys to the customer’s premises in the ROI where the Appellant contends the plastic sheeting was delivered.

The Appellant says that the expert report is highly objective technical evidence and is much more cogent than any other form of documentary proof.

The submission of the tachograph records and John Lougue’s expert report demonstrate that delivery was made, on the balance of probabilities, to the customer company in the ROI; which had ceased to trade prior to HMRC’s investigation which has made it impossible for the Appellant to receive delivery documentation from that ROI customer.

There is an overwhelming argument in favour of the appeal given the illogicality of HMRC’s position namely that they rely upon parts of the sale invoices and ignore other parts, in order to justify raising an assessment.

The evidence and its totality would satisfy any objective tribunal that the sales to the ROI customer were made and delivered as evidenced in the Appellant’s documentation.

The UK VAT Law pertaining to the zero rating of removal of goods for VAT purposes can be found in sections 30(8) and 30(10) VATA 1994 and Regulation 134 of the VAT Regulations 1995 (“the Regulations”).

Section 30 (8) states that a supply of goods is zero rated if the Commissioners are satisfied that the person supplying the goods has exported them or shipped them, thus mandating a requirement for evidence that the goods have been exported. It also allows other conditions to be specified in the Regulations or otherwise.

Regulation 134 similarly states…

The legislation provides little detail on the level of evidence required to prove goods have been exported to another state. However, under Regulation 31 (2)(b), the Commissioners may supplement the records required by any business by a notice published by them for that purpose. Published HMRC guidance in the form of VAT Notice 725 provides detail on the evidence required to zero rate goods. The notice makes it clear what the exact requirements are and when these requirements are legal requirements rather than advisory or interpretation.

Paragraph 4.3 states:

“You must get and keep valid evidence (under section 5) that the goods have been removed from the UK within the time limits set out at paragraph 4.4.”

Paragraph 4.4 also has force of law, and it states that where goods are removed from the UK, the time limit for getting valid evidence of removal is three months from the time the goods leave the UK.

The Respondents contend that this is the time limit applicable in the current appeal, and that the Appellant was required to get valid evidence of removal of the goods by 31 October 2019.

Paragraph 5.2 outlines that it can be presumed that the goods have been transported from the origin state if certain conditions are met. Those conditions require either 2 items of non-contradictory acceptable evidence from list A or a single item from list A together with any single item from List B. Notably, it is stated that the presumptions are met where the supplier arranges for the transport of the goods and possesses such documents that are issued by two different parties that are independent of each other, both the supplier and the acquirer.

Paragraph 5.3 states that a combination of the documents listed should be used to provide clear evidence that a supply has taken place, and that the goods have been removed from the UK.

Paragraph 5.4 lists what identifying items must be exhibited by the documents provided.

Paragraph 5.5 states that the evidence the claimant gets must clearly show that the goods have left the UK. For the purposes of this case, the relevant section is that which exhibits the evidence required if the goods are “removed in your own transport” (as has been claimed by the Appellant and via their tachograph evidence) – it states that a copy of the delivery note showing your customer’s name, address, EU VAT number and actual delivery address in the Republic of Ireland if different, and a signature of your customer, or their authorised representative, confirming receipt of the goods is required.

The Respondents contend that the only evidence received to validate the zero-rating of goods by the Appellant is the following:

The Appellant has stated it sent the requested documents on 10 August 2020, but upon checking their systems, the Respondents had no record of these documents having been received from the Appellant. The Appellant claims the records were sent via Recorded Delivery but the receipt to evidence proof of postage has been misplaced.

The Appellant has not provided any proof of posting or alternative evidence to support the assertion that the documentation was posted to the Respondents. The Respondents contend that the burden of proof rests with the Appellant to evidence that the records have been sent to the Respondents, and that without evidence to show documentation was issued, this should not be considered.

The Respondents have reviewed all of the evidence provided by the Appellant and have concluded that they do not meet the evidentiary requirements of the prevailing legislation and guidance to mandate the zero-rating of the supplies in question.

In response to the information notice issued on 9 February 2021, the Appellant provided five sales invoices and corresponding purchase orders to evidence the supplies that they made to TD between 8 June 2019 and 09 July 2019. The Respondents submit that these invoices do not qualify as valid evidence of removal as set out in the VAT Notice 725.

These invoices provide details of the supplies made to TD, however the Respondents assert that these documents do not provide evidence to show the goods have been removed from the UK to the ROI as required at Paragraph 4.3 of the VAT Notice which has force of law and states:

“The following sentence is a condition that has force of law. You must get and keep valid evidence (section 5) that the goods have been removed from the UK within the time limits set out at paragraph 4.4.”

Under paragraph 5.3, copies of sales invoices are listed as a relevant document in providing evidence that a supply has taken place. However, this paragraph requires a combination of documents to provide clear evidence not only that a supply has taken place but that the goods have been removed from the UK. [emphasis added]

The Respondents, therefore, contend that the sales invoices provide no evidence to show that the goods were actually transported and removed from the UK.

The Appellant also provided bank statements for KD’s personal Euro account with AIB

Bank statements are listed as a relevant document under paragraph 5.3 for proving that a supply has taken place. However, the Respondents note that the bank statements provided by the Appellant do not identify the account holder nor the account details from which the payments were made.

The Respondents therefore contend in the absence of any details of who made the payments, these bank statements hold little evidential value.

In any case, the Respondents still note that the bank statements (in the same vein as the sales invoices) provide no evidence to show that the goods have been transported and subsequently left the UK, as is required under paragraphs 5.3 and 5.5.

In response to the Respondent’s pre-assessment letter, the Appellant provided five tachograph cards as evidence to show the goods were removed from the UK. Transcribed on the tachograph cards is information, showing that the driver of the vehicle was KD, the dates of the journeys, the start and end destination and total distance of each journey. The Respondents consider that tachograph cards do not provide any evidence of the nature of the goods transported on the journeys, and do not conclusively show that the goods have been removed from Northern Ireland as is required under paragraph 4.3 of VAT Notice 725.

Paragraph 5.5 requires evidence that clearly shows that the goods have left the UK.

Under Paragraph 5.5, taxpayers transporting the goods themselves across the Irish Land Boundary, are advised to obtain “a copy of the delivery note showing the customer’s name, address, EU VAT number and actual delivery address in the Republic of Ireland, as well as a signature of your customer, or their authorised representative, confirming receipt of the goods.”

The Respondents contend there is a logical reason for this last requirement. A signature from the receiver provides evidence that the customer has received the goods listed on the delivery note (proving both that the nature of the goods is as listed and that they have been transported and received in the ROI).

Alternatively, the tachograph evidence supplied by the Appellant does not evidence that the goods were in the lorry nor that they were received by the customer in the ROI.

Additionally, the Respondents would note that much of the information on the tachographs is handwritten, and thus subject to manipulation.

The tachographs merely record the vehicle’s speed, distance and driving time.

The additional information recorded, pertaining to the start and end locations of the journey and the corresponding date of the journey is merely transcribed, and does not provide reliable tangible evidence of where the vehicle ceased its journey, nor from where it began.

The Respondents contend that this does not provide the auditable and verifiable documentation required to show the vehicle did arrive in the ROI.

The Respondents would also note that the dates provided for the tachographs (being June 2019) is handwritten and not verifiable. The Respondents would contend that the Appellant has also not provided satisfactory evidence to prove this tachograph evidence was obtained within three months of the supply, as is required under paragraph 4.4 of VAT Notice725.

Under paragraph 5.5, the Appellant was advised to get the signature of their customer (or authorized representative). However, the purchase orders provided are not signed and, therefore, there is no evidence to confirm the goods were ever received in the ROI.

The Appellant has also provided a statement from Mr John Logue who sets out his interpretation of the tachographs and whether the trace recordings on the cards provided are commensurate with journeys from FH’s premises to the haulage site. Mr Logue believes the tachograph readings are commensurate with these journeys.

However, the Respondents maintain that still does not provide tangible evidence that the goods were aboard the lorry and were transported to the ROI, as is required under paragraph 4.3 and 5.5.

Additionally, the Respondents would note that the report is based on contemporaneous tachograph records, the analysis of which was conducted five years after the relevant VAT period and involves interpretative conclusions, based on the Appellant’s unsubstantiated beginning and end points of the delivery.

No tangible evidence has also been provided to show that the beginning location and the destination are as purported by KD as the driver.

The Respondents therefore contend that the Appellant did not meet the requisite conditions to zero rate the goods, that being a requirement to have valid evidence of removal within three months of the supply, and consequently, under paragraph 4.6, the Appellant should have accounted for VAT on their Return for the VAT period 06/19.

Section 73 VATA 1994 is the primary legislation for VAT best judgment assessments, stating:

In this case, the Appellant did not account for the acquisitions from IWP, nor for the onward sale of these acquisitions to TD. On 9 March 2022, KD, when questioned by the Respondents in relation to the supplies in dispute, confirmed that the supplies had been made and added that little profit was earned, adding that he was unable to explain the omittance of the sales/supplies from the VAT return.

The Appellant latterly stated that a previous employee failed to enter the transactions on the VAT account but reasoned that the overall position remained the same as all transactions were zero rated. The Respondents submit that although these transactions may have been dealt with by former employees, it is ultimately the responsibility of FH’s director, KD, to ensure that all sales and acquisitions are accurately accounted for on the VAT returns submitted to the Respondents.

The Respondents have raised their assessment based on the information provided by the Appellant in relation to the sales made to TD. As the invoices were in euros, the Respondents converted the euro costs to sterling using a currency converter which allows you to obtain the values on a specific date.

The Respondents contend that the figures from the rejected invoices provide evidence of taxable transactions that were not reported and should have been. HMRC’s use of these figures in a best judgment assessment is necessary to correct the tax position on the true taxable value of the transactions.

The invoices represent valid and verifiable business transactions, which are viable in correcting a tax discrepancy via an assessment, but in of themselves do not provide adequate evidence that goods were transported from the UK to the ROI.

Since the Appellant did not account for these figures, the Respondents submit that their decision to use the available evidence is valid to ensure the correct tax is paid.

When arriving at RH’s assessment, the Respondents have taken into consideration the fact that the company had three months in which to obtain the documentation to evidence that the goods had been removed from the UK. As the evidence had not been produced, the assessment was raised in the VAT period after the evidence was due i.e. VAT period 10/19.

The meaning of the phrase ‘to the best of their judgement’ and principles inherent in the Respondents requirement to exercise best judgement were considered in a High Court ruling given by Woolf J, in the appeal case Van Boeckel v C & E QB Dec 1980 (“Van Boeckel”).

This case set the benchmark for best judgement. In summary, the principles adopted in Van Boeckel are as follows:

In the case of CA McCourtie LON/92/191, the tribunal considered the principles set out in Van Boeckel and put forward three further propositions:

Later cases have refined the meaning of the term “best judgement” extending the tests in Van Boeckel. In particular, the Respondents submit that the decision of the Court of Appeal in Customs and Excise Commissioners v Pegasus Birds Ltd is relevant. The Court of Appeal found that:

The Respondents have considered all documentation provided by the Appellant in response to the information notice issued, namely the invoices, bank statements and tachograph cards.

After having given these due consideration, the Respondents submit that the evidence provided does not support the Appellant’s assertion that goods in dispute were removed from the UK to TD based in the ROI.

Consequently, the Respondents raised a VAT assessment in the amount of £63,600. Details of the proposed assessment and the facts pertaining to the issue of same were provided to the Appellant in both the Respondents pre assessment letter of 1 November 2022 and their final decision letter of 23 November 2022.

The Respondents, therefore, submit that the VAT assessment has been made to “Best Judgement”

The relevant time limits for assessments are prescribed in section 73(6) VATA 1994 which states:

“An assessment under subsection (1), (2) or (3) above of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following —

(a)

2 years after the end of the prescribed accounting period; or 

(b)

one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge,

but (subject to that section) where further such evidence comes to the Commissioners’ knowledge after the making of an assessment under subsection (1), (2) or (3) above, another assessment may be made under that subsection, in addition to any earlier assessment. “

Section 77 VATA 1994 sets out further time limits :

Section 73(6)(b) VATA 1994, allows the Respondents to make an assessment up to one year after the last piece of material evidence comes to their attention. This is when the information received in the opinion of the assessing officer provides sufficient facts to justify the raising of the assessment.

Sufficient facts means having the necessary information to ensure the assessment is made to best judgement.

The pertinent question therefore is, “When was the piece of information received by the Respondents that was critical to the assessment which was made?”

In this case, the “piece” of evidence obtained, on which to make the assessment notified on 21 November 2022, was received after RH issued his pre-assessment letter on 1 November 2022, requesting that the Appellant provide any evidence to support their contention that they had removed the goods in question from the UK to the ROI ,being the submission of the tachographs.

No satisfactory evidence was provided and the Respondents subsequently issued the assessment on 23 November 2022. It is therefore the Respondents submission that the assessment was issued in time under the provisions of section 73(6)(b) VATA 1994.

In their grounds of appeal, the Appellant states, “Further, the Respondent herein has acted in an entirely unlawful matter in withholding VAT returns from the Appellant in circumstances where the assessment is disputed and presently under appeal.”

The Respondents are unsure exactly what the Appellant is referring to in this contention. However, in any event, the Respondents submit that they have acted in a lawful manner in raising this assessment in accordance with the relevant legislation and case law as set out above.

The Respondents respectfully request the Tribunal to find that the Appellant has failed to provide satisfactory evidence to show that the goods have been removed from the UK to TD in the ROI.

The Respondents respectfully request that the appeal be dismissed, and the Tribunal find that the assessment for VAT has been calculated on the basis of Best Judgement and issued within the legislative time limits.

The law relating to the zero rating of the removal of goods for VAT purposes is set out at sections 30(8) and 30(10) VATA 1994 and Regulation 134 of the Regulations set out at Appendix A.

Section 30(8) provides that HMRC must be satisfied that the goods have been or are to be exported “to such places as may be specified in the regulations”, and that such other conditions, if any, as may be specified in the regulations, or which the commissioners may impose, are fulfilled.

Regulation 134 provides that where HMRC are satisfied that a supply of goods by a taxable person involves the removal from the United Kingdom, that supply, subject to such conditions as they may impose, shall be zero rated. Regulation 31(2)(b) permits HMRC to “supplement the records required” by any business “by a notice published by them for that purpose”. The relevant notice in relation to this appeal is VAT Notice 725 which provides details on the evidence required to zero rate goods.

Paragraph 4.3 of VAT notice 725, which specifically is said to have the force of law, outlines the type of evidence that should be obtained in order to zero rate the supply within set time limits, and paragraph 4.4, which also has the force of law, requires that where goods are removed from Northern Ireland the time limit, for getting evidence of removal, is three months from the time the goods leave Northern Ireland. The Appellant’s case is that the goods left Northern Ireland and so this date was 31October 2019.

Although the Appellant claimed to have the necessary evidence by this date, that evidence was purportedly sent by JA on 10 August 2020 but was never received by HMRC nor copies were kept by the Appellant and there was no evidence that the documents had been posted to HMRC and the tachograph cards were submitted on 21 November 2022.There was no evidence to support the fact that the Appellant had obtained the necessary evidence by 31 October 2019.

Paragraph 5.2 of the Regulations states that the goods can be presumed to have been transported from the origin state if certain conditions are met. Those conditions require other two items of non-contradictory acceptable evidence from list A or a single item from list A together with a single item from list B.

This presumption is met where a supplier arranges for the transport of the goods, which the Appellant did, and possesses such documents that are issued by two different parties that are independent of each other, both the supplier and the acquirer.

List A includes a signed CMR document or note, a bill of lading, and airfreight invoice, an invoice from the carrier of the goods. We had before us only invoices from FH.

List B includes an insurance policy with regard to the dispatch or transport of the goods or bank documents proving payment for the dispatch or transport of the goods, official documents issued by a public authority, such as a notary, confirming the arrival of the goods in the destination member state and, a receipt issued by a warehouse keeper in the destination member state, confirming the storage of the goods in that member state. We had before us bank statements which were in the name of KD which did show the name of the payer.

The principal issue in this case is the quantity and quality of the evidence put forward by the Appellant to satisfy the legislative requirements for zero rating on the sale of the plastic sheeting to TD and in particular the requirement to evidence the removal of goods to the ROI, across the Irish Land Boundary, from Northern Ireland.

Notwithstanding the date at which the evidence requires to have been obtained, under regulation 4.4, the Appellant, as noted, retained no copies of the documentation sent to HMRC which they say they never received and of which there was no proof of posting. Evidence was given by KD that the Appellant’s employee, JA, was ill and had cancer but there was no further evidence in relation to this and contact with him had been lost.

We had before us five invoices in relation to the sale of the plastic sheeting relating to the sale to TD but we did not have any delivery notes either from the Appellant’s records or from IWP’s records to establish that the goods had been delivered from the ROI to Northern Ireland to allow for the onward sales.

There were no delivery notes in relation to the sale, other than one invoice which had an unidentified signature and a tick against the quantity but in itself we did not consider this was conclusive evidence of delivery to the ROI.

We had the tachograph cards and the expert report which clearly showed that journeys had been made between two destinations which accorded to where KD stated that the plastic sheets were delivered from and to, but there was no corroborating evidence, other than the written detail provided by KD on the tachograph cards, that the plastic sheeting had been delivered on the relevant dates,

Critically, in our view, this was not evidence that the plastic sheeting was contained within the lorry that made those journeys. The tachograph cards only showed the speed, distance and driving time of a lorry. In this respect, therefore, we considered that the strength of the Appellant’s evidence was weak, not sufficiently definitive and, therefore, unsatisfactory.

In addition, the purchase and sales had not been recorded through the Appellant’s relevant VAT return and the reason given for this, on 09 March 2022, was that it was because the transactions made “little profit”.

The payments which it was said were received for the sales of the plastic sheeting were not recorded through the Appellant’s bank account but instead through KD’s personal AIB account because it was claimed, the Appellant did not have a euro account. We agree with HMRC that given the Appellant had traded with the ROI previously it was unusual that it had no euro account of its own. The payment amounts did not accord exactly with the amounts shown on the invoices and the detail on KD’s bank statements did not clearly identify the payer.

We, therefore, find that the strength of this evidence was also weak, not sufficiently definitive and, therefore, unsatisfactory.

Paragraph 5.5 of VAT Notice 725 requires a taxpayer to have evidence of removal of goods to the ROI, across the Irish Land Boundary which “must clearly show that the goods have left the UK”. The types of documentary evidence required are set out at paragraph 5.3 which states “a combination of these documents must be used to provide clear evidence that a supply has taken place, and the goods have been removed from the UK.”

Paragraph 5.4 states that “the documents you use as proof of removal must clearly identify: the supplier, they consignor (where different from the supplier), the customer, the goods, an accurate value, the mode of transport and route of movement of the goods, and the EU destination.” It also states that if the evidence is found to be unsatisfactory the supplier could become liable for VAT due.

The Appellant stated that the plastic sheeting was removed in its own transport and Paragraph 5.5 states that in that case that the commercial evidence should include “a copy of the delivery note showing your customer’s name, address, EU VAT number and actual delivery address in the ROI, if different, and a signature of your customer, or their authorised representative, confirming receipt of the goods. The Appellant was unable to provide the tribunal with such a delivery note or notes.

Counsel for the Appellant referred to the list of documents at paragraph 5.3, in relation to evidence of removal under VAT Notice 725, which included “any other documents relevant to the removal of goods in question which you would normally get in the course of your inter-EU business” with reference to the documents submitted to HMRC by the Appellant.

The burden of proof is, however, on the Appellant and we were provided with no evidence to show that this evidence would ‘normally’ be obtained in the course of the Appellant’s inter-EU business. The only evidence was five invoices for the sales made to TD, four pages of KD’s bank statements and five tachograph cards with a corresponding report interpreting the tachograph cards.

We were not persuaded the Appellant had obtained and kept sufficient valid evidence to establish that the plastic sheeting had been removed from the UK.

As is evident from the chronology of events leading to the issuance of RH’s assessment on 23 November 2022 and taking into account at the effect on all businesses as a result of the Covid 19 pandemic and the fact that KD was suffering from long Covid, HMRC were attempting to obtain information following a formal request from the ROI Revenue Commissioners from 25 June 2020.

A penalty notice was issued on 27 June 2022 for failure to provide information requested on 9 February 2021. On 9 August 2022, the Appellant provided responses to the various questions put by HMRC in their letter of 27 June 2022.

As at 01 November 2022, the only evidence provided to HMRC by the Appellant were the five invoices and KD’s bank statements. The tachograph cards were then sent by email on 21 November 2022 and on that date HMRC advised the Appellant that this information was insufficient evidence of removal of the goods from the UK as it failed to meet the conditions detailed in VAT notice 725 paragraphs 5.3, 5.4 and 5.5.

The tribunal disagreed with the Appellant’s contention that HMRC had sufficient information in which to raise an assessment when they received information from the Revenue Commissioners of the ROI in June 2022, notwithstanding that this information included the invoices which were the same ones that were supplied by the Appellant and used to calculate the assessment by HMRC. Section 73(6) of VATA 1994 permits HMRC to issue an assessment one year after evidence, sufficient in the opinion of the commissioners to justify the making of the assessment comes to their knowledge”.

We consider that HMRC were entitled to and attempted to obtain further information before issuing an assessment, and that they were not in a position to so justify making an assessment until they had attempted to receive all the evidence they requested and then latterly acknowledge a failure to respond to their requests. Accordingly, we find that HMRC’s assessment was “in time” in terms of section 73(6) VATA 1994

We consider that HMRC were entitled to rely on the figures in the invoices, as the only evidence of the sales that were provided as, in terms of Van Boeckel, the ‘material on which they can base their best judgement in the circumstances where the sales, and the purchases, had not been reported in the Appellant’s VAT return for the period 10/19.

Accordingly, we find that HMRC, in exercising “best judgement” in making the assessment on the Appellant, complied with the principles set out in Van Boekel, and performed their function honestly and above board, fairly considered all the material before them and on that material came to a decision which is reasonable and not arbitrary. KD had confirmed that the sales, and purchases had taken place and resulted in ‘little profit’.

The Appellants had three months from the time the plastic sheeting purportedly left Northern Ireland in which to obtain the evidence of removal. We find that that the invoices in themselves do not provide adequate evidence that the plastic sheeting was transported from the UK to the ROI.

As set out in Customs and Excise Commissioners v. Pegasus Birds Ltd [2004] STC 1509, the primary task of the tribunal is to establish the correct amount of tax and we find on the balance of probabilities, that there is insufficient evidence to establish that the plastic sheeting was transported from Northern Ireland to the ROI and so that that zero rating does not apply and WVAT is due.

Consequently we find that HMRC were compliant in terms of section 73(1) VATA 1994 in circumstances where the Appellant failed to make a correct VAT return required under VATA 1994 and keep the required documents to assess, to the best of their judgement, the amount of VAT due.

We do not accept that the Respondent acted in an unlawful manner in withholding VAT returns from the Appellant in circumstances where the assessment is disputed and under appeal.

For the reasons stated the appeal is dismissed and we find that the assessment of for VAT has been calculated on the basis of best judgement and issued within the legislative time limits.

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.