Brian David Webb v The Commissioners for HMRC

On 31 October 2023, the Tribunal directed that:

“The appeals by Brian David Webb against a decision to reduce a VAT repayment claim to nil [TC/2022/11104], and a VAT assessment for the VAT periods 05/17 to 11/20, Schedule 24 penalties for the same period and a decision to deregister Mr Webb [TC/2022/13869] are hereby consolidated under appeal number [TC/2022/11104]”.

The appeal [TC/2022/13869] to the Tribunal was late but HMRC had no objection to the late appeal.

The right to appeal falls within section 83 Value Added Tax Act 1994 (“VATA”).

With the consent of the parties, the hearing was conducted by video link using the Tribunal's video hearing system. Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

The documents to which we were referred comprised a Bundle consisting of 478 pages.

At the outset of the hearing, Ms Brown very helpfully confirmed that there were a number of inaccuracies in HMRC’s Statement of Case and those included what had been described as matters under appeal. We therefore record here the amended version.

The matters in dispute are the decisions by the Respondents:

In summary, in relation to the first issue, HMRC had found that the supplies were exempt from VAT and that Mr Webb was not entitled to a VAT repayment relating to those supplies. That being the case, HMRC then sought to recover the VAT repayments for the earlier periods, deregistered Mr Webb for VAT and issued the penalty assessments.

As far as the assessments and penalties are concerned Ms Brown conceded that the assessments for periods 05/17 to 02/18 inclusive had not been issued timeously and therefore both they and the related penalties were not valid. The assessment for 05/18 had never been issued so it too was not valid and nor was the associated penalty.

Accordingly, the VAT returns and penalties for periods 08/18 to 02/21 inclusive, together with the decision relating to period 02/21 and the decision to deregister were now the only subject matter of the appeal.

The quantum is as set out in this table which is derived from the Alternative Dispute Resolution (“ADR”) Record of Outcome as amended by deletion of the admittedly invalid assessments and penalties:

Mr Webb has been registered as a builder for VAT with effect from 16 October 1979.

Mr Webb stopped providing building services to third parties in 1995. He continued in business as a self-employed builder for his own purposes, albeit he did not enjoy good health. For a period, he let out accommodation.

On 14 May 2004, the, then, Inland Revenue opened an enquiry in terms of section 9A Taxes Management Act 1970 (“TMA”) into the tax return for the year 2001/02 and that encompassed the building accounts for the period 6/4/01 – 5/4/02 and the Letting Income Accounts for the period 6/4/01 – 5/4/02. A Code of Practice had been issued with the notice of enquiry.

Insofar as relevant to this appeal, the notes of meeting between Mr Webb, his accountant and HMRC on 28 September 2005 disclose, amongst other things, that:

On 12 December 2005, the Inspector of Taxes, Mrs Nazari, wrote to Mr Webb’s accountants (the “2005 Letter”) and insofar as relevant stated:

9 Dolphin Close (“Dolphin”) was purchased on 23 November 2006 and was not rented out because there were dangerous trees. The rationale for the purchase was because it adjoined the Builder’s Yard and Mr Webb hoped to develop both.

On 23 March 2013, Mr Webb, having sought advice from a Chartered Town Planner, was told that in relation to Windfield, the planning application had allowed the “Erection of a single storey dwelling and detached garage following demolition of existing dwelling and garage”. By that time the dwelling on the land had been demolished. The land was cleared of trees etc after the demolition and in any event by 2015/16.

The freehold of the cleared land at Windfield was eventually sold at a loss in September 2018 with the purchasers taking entry then, albeit they paid the balance of the purchase price being £40,000, in instalments over the following four years.

Weyside had been rented out between 2001 and 2009. It was not inhabited after 2009 as there had been a major land slip. It was sold at a loss in March 2020.

On 15 April 2021, HMRC wrote to Mr Webb intimating that a compliance check of the VAT return for the period 02/21 (and the records for that return) would be carried out before the VAT repayment of £1827.61 was authorised.

On 20 April 2021, Mr Webb telephoned HMRC and the record of that conversation states that:

The HMRC officer advised him to list all invoices to include the date, reference, description, VAT and net amounts. He was also asked to provide information about three properties that he owned.

On 22 April 2021, referring to the telephone call, Officer Kumar wrote formally to Mr Webb reiterating the requests for information.

On 17 May 2021 the officer wrote to Mr Webb referring to the telephone call and letter requesting that the information be provided by 28 May 2021 which failing the input tax claimed would be reduced to nil.

In an undated, handwritten, letter Mr Webb furnished details of three properties that had been owned by him being Weyside, Windfield and Dolphin and provided a schedule of invoices for which he was making a claim in the 02/21 period. That schedule referred to invoices dated between 2 September 2000 and 24 March 2021 and reads as follows:

On 24 May 2021, the officer replied asking for copies of a number of those invoices and copies of bank statements. A reply was requested by no later than 21 June 2021.

There was no reply so the officer sent a further reminder on 1 July 2021 requesting a response by no later than 21 July 2021 stating that if there was no reply the input tax claimed would be reduced to nil.

On 12 July 2021, Mr Webb replied by recorded delivery confirming that he had sent the requested items on 18 June 2021 and included a proof of posting receipt. He enclosed further copies.

On 3 August 2021 the officer wrote to Mr Webb referring to a telephone call with him that day (in fact the previous day). He recorded that Mr Webb had told him that:

The officer asked for confirmation as to which year Mr Webb intended to claim for the maintenance of the property or whether that would be ongoing until the property was sold. He confirmed the advice given on the telephone that the sale of the property might give rise to a tax liability and Mr Webb might therefore need a self-assessment tax form. He recommended that Mr Webb got advice from an accountant. He requested a reply by 23 August 2021 confirming that that could be done by telephone. There is no record of a response.

On 7 September 2021, the officer wrote to Mr Webb stating that the amounts declared in the VAT return had been checked and that HMRC believed that there were inaccuracies in the return. He confirmed that VAT is exempt on residential properties and therefore no refund of VAT was possible. Accordingly, Mr Webb was not entitled to a VAT credit and the reduction in the VAT account would be made under section 73 VATA.

On 8 September 2021, the officer wrote to Mr Webb explaining that since all of the supplies are exempt he had never been eligible to claim VAT repayments for any of the work undertaken on the residential properties. Therefore, an assessment would be issued to reclaim all VAT repayments received from period 05/17 through to period 11/20. The consequence of that would be an assessment in the sum of £31,258.

He then asked for information in relation to how the error had occurred namely: –

He explained that penalties might be issued. He also intimated that since all of the supplies made by Mr Webb were exempt for VAT purposes he would be deregistered for VAT from 28 February 2021.

On 30 September 2021, Mr Webb wrote to the officer arguing that the three properties in question were all trading properties purchased for commercial reasons in connection with his business as a builder. He enclosed a copy of the 2005 Letter. He argued that all were commercial business assets. He again said that he had relied on Inspector Nazariand his then accountant.

The officer replied on 21 October 2021 stating that:

On 19 November 2021, Mr Webb replied requesting a review. He again relied on the 2005 Letter. He explained that:

On 11 February 2022, HMRC issued their Review Conclusion letter upholding the original decision.

The key points in that letter include:

Thereafter, HMRC notified Mr Webb:

On 23 May 2022, those penalty assessments were issued by HMRC.

On 9 August 2022, HMRC deregistered Mr Webb for VAT with effect from 28 February 2021.

Mr Webb had lodged the first of the two appeals with the Tribunal on 11 March 2022. The second, and late, appeal was lodged with the Tribunal on 26 September 2022.

On 6 December 2022, Mr Webb’s application for ADR was accepted.

The Record of Outcome of ADR dated 13 February 2024, insofar as relevant, stated that:

Mr Webb’s oral evidence was that although he had originally prepared VAT returns when they were submitted in paper form, his friend George who was a retired mortgage broker had prepared and submitted the electronic returns because he had a computer and could use it. He had no tax knowledge. Mr Webb would take the invoices to him each quarter and they would sort them out and the return would be filed.

In 2021, George had been 72 and he had told Mr Webbthathe could not continue doing the returns so Mr Webb had thought that he would either have to find someone else to help or he would have to deregister for VAT. Unfortunately, George had died after filing the 02/21 return.

He said that he had only given George invoices relating to the three properties.

When asked about the petrol station receipts in 02/21 and how he accounted for private mileage he confirmed that he did not keep mileage records so what he did was only give George some of the petrol receipts. On 5 August 2025, after the hearing, Mr Webb wrote to the Tribunal stating that the petrol and diesel receipts for period 02/21 were not just for the Builder’s Yard but also for all three of the properties, ie Windfield, Dolphin and Weyside.

In his oral evidence he had said that the invoices and receipts in respect of every period with which we were concerned related to what he described as maintenance of the properties such as repairs to fences and walls, clearing brambles, replacing locks etc. He would travel to the properties approximately once a week to check that they were secure. If necessary, he would pick up rubbish if there had been fly tipping. He would spend approximately one day a month on maintenance but perhaps more if there had been vandalism.

Mr Webb told the Tribunal that he no longer had copies of the invoices relating to any period other than 02/21 but they would have related to materials for repairs and replacements, tools, the purchase of a digger and tractor, planning and structural engineer’s fees etc.

In the earlier periods with which we are concerned being 08/18 until 11/20 the returns recorded no output tax, ie there were no supplies and the input tax claimed was:

That is a total of £21,970.60. That would suggest that in a period of two years and three months, quite apart from his own time and labour on what he described in his grounds of appeal as “maintenance and bits and pieces”, he had expended approximately £109,853 on maintenance of the three properties.

He had made no self-assessment tax returns in that period or indeed since 2008/09.

Mr Webb has consistently argued that he has never stopped being self-employed and that he always hoped to make a profit by selling the properties. He had been very unlucky. Only the Builder’s Yard still remained to be sold. Nothing had changed since the 2005 Letter in terms of how he operated other than that his rental income had ceased by 2010.

He had never claimed benefits because he was not entitled to do so given the ownership of the properties.

He had acted in good faith relying on the 2005 Letter. He asserts that Officer Nazari “was satisfied with the way the business was run and claiming VAT on the properties etc.”

In summary, HMRC argue that

The burden of proof rests with Mr Webb to establish that he is entitled to the VAT credits claimed on the VAT returns and with HMRC to demonstrate that the penalties were timeously and competently issued. The standard of proof is on the balance of probabilities.

Section 24(1) VATA defines input tax as being:

“VAT on the supply to him of any goods or services … being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him.”

Section 25 VATA allows for the credit of input tax against output tax, and where there is no output tax due, or the amount of credit exceeds that of the output tax, to credit for input tax as is allowable under section 26.

Section 26(2) VATA allows for input tax under section 25 where there are “supplies made or to be made by the taxable person in the course of furtherance of his business.”

Regulation 29(1) of the VAT Regulations 1995 states that input tax shall be claimed in the prescribed accounting period in which the VAT became chargeable. This is unless the required evidence is not held, in which case input tax shall be claimed on the return for the first prescribed accounting period in which the evidence is held. This is, however, subject to the time limit for claiming in Regulation 29(1a), being within four years of the due date by which the return for the first accounting period in which the taxable person was entitled to claim that input tax was required to be made.

In terms of Schedule 9, Group 1, item 1, VATA the grant, assignment or surrender of interest in, right over or licensed to occupy land is exempt from VAT.

Section 73(2) VATA provides as follows:

“(2)

In any case where, for any prescribed accounting period, there has been paid or credited to any person—

(a)

as being a repayment or refund of VAT, or

(b)

as being due to him as a VAT credit,

an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly.

Section 73(6) VATA provides as follows:

“73(6) An assessment under sub-section (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 sub-section, in addition to any earlier assessment.”

Section 77 VATA provides, in as far as is relevant:

“(1)

Subject to the following provisions of this section, an assessment under sections 73, 75 or 76, shall not be made–

(a)

more than 4 years after the end of the prescribed accounting period or importation or acquisition concerned, …”.

As can be seen, at every stage, Mr Webb has relied upon the 2005 Letter. In the course of the hearing we went through that letter with him because we had explained that Mrs Nazari was an Inspector of Taxes with the Inland Revenue and she was concerned only with Income Tax and CGT. When the enquiry was opened in 2004, Customs and Excise, which was completely separate from the Inland Revenue, dealt with VAT. HMRC was only formed by a merger of the two entities on 18 April 2005.

As we have recorded in paragraph 16 above, Mrs Nazari merely noted that Mr Webb had been reclaiming VAT. We do not accept that Mrs Nazari had investigated Mr Webb’s VAT records or sanctioned what he did in that regard.

We also explained that what constitutes a taxable business for income tax purposes does not now, or in 2005, necessarily constitute a taxable business for VAT purposes or vice versa.

Mr Webb’s business in 2001/02, which was the year with which Mrs Nazari was concerned, was very different from his activities in the periods with which we are concerned.

Although the enquiry had focussed on exempt supplies and, of course, that is a crucial point, for both parties at the heart of this appeal, was the issue as to whether or not Mr Webb was carrying on an economic activity through a business. If he was not, then he was not entitled to be registered for VAT or to reclaim VAT.

Mr Webb argued that it sufficed that he was self-employed, albeit he had filed no tax returns in that regard. However, being self-employed is not the test for VAT or for eligibility to be registered for VAT.

The Bundle included Babylon Farm Limited v HMRC [2021] UKUT 0224 (TCC) (“Babylon”) although there was no reference to it in HMRC’s Statement of Case or Review Conclusion letter. We allowed an adjournment so that Ms Brown could consider the case as she was not familiar with it and we then heard her submissions.

Given that time was short as the appeal was listed for the morning only, we suggested that she commenced with what are known as the six indicators derived from Customs and Excise Commissioners v Lord Fisher [1981] STC 238 (“Fisher”) as the analysis in Wakefield College v HMRC [2018] EWCA Civ 952 (“Wakefield”)deals with what Babylon described as “opaque” European authorities. Babylon cites not only Fisher and Wakefield but also numerous other authorities. Further, as the Tribunal in Babylon indicated at paragraph 53, the six indicators have a role to play and they do in this appeal.

For the avoidance of doubt, we have adopted the approach in Babylon which in turn adopts the approach in Wakefield (see paragraph 44 of Babylon).

We were not referred to it but, of course, Babylon refers to Article 9(1) of the Council Directive 2006/112/EC (the Principal VAT Directive or PVD) which defines both a taxable person and economic activity. It reads:

“'Taxable person' shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as 'economic activity'. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.”

Firstly, we considered whether there was a supply for a consideration, albeit that is not a sufficient condition for an economic activity.

The only supply made by Mr Webb was the sale of the three properties. Mr Webb argued that that supply did not have to be at a profit and he is correct.

We find that there was a supply for a consideration but the issue to be addressed is whether, objectively considered, the supply is made for the purposes of obtaining income therefrom on a continuing basis.

In principle, of course, the sale of residential properties can certainly be a source of income but as Ms Brown pointed out there were only the isolated sales of the three properties.

Windfield had been demolished at some point before 2013 and the ground cleared by no later than 2016 and possibly considerably earlier. It had been sold in September 2018. Dolphin had not been occupied at any stage between its purchase in 2006 and its eventual sale. Weyside was not occupied or indeed habitable between 2010 and its sale in March 2020.

Mr Webb has made significant VAT repayment claims over the years but we have some difficulty with his evidence. For example, as we narrate at paragraph 50 above, Mr Webb claimed that the petrol and diesel receipts in 02/21 related to all three properties and not just the Builder’s Yard. That is quite simply inaccurate. They were dated February and March 2021. Windfield and Weyside had been sold in 2018 and 2020 respectively.

As we have noted at paragraphs 54 and 55 above the scale of the VAT repayments claimed by Mr Webb indicate very significant expenditure of in excess of £100,000 on maintenance and that does not include the periods where the assessments were out of time.

Mr Webb told the Tribunal that he did not think that the invoices underpinning the returns for 08/18 to 11/20 would have been similar to those for period 02/21, ie not for the relevant period but he could not explain why 02/21 was so badly adrift. He was clear he no longer had any of the invoices for 08/18 to 11/20 as he said that he had given them all to George and could not now recover them. Quite why he still had the earlier invoices that he submitted for 02/21 is not clear.

Looking at Mr Webb’s own description of his activities in relation to the “maintenance and bits and pieces” (see paragraph 51) above we do not find it credible that such a large level of expenditure would have been incurred.

Although Mr Webb had intended to develop Dolphin and the Builder’s Yard that had never materialised and nor had the joint venture. There was no evidence in that regard other than Mr Webb’s indication that that had been his intention and as can be seen that intention, since at least 2005 and 2006 (see paragraphs 15(i) and 17 above) had come to nothing. The extract from Wakefield at [55] in paragraph 44 of Babylon makes it clear that subjective factors such as intention do not come into play when considering Article 9 of the PVD (see paragraph 78 above).

Looking at all of the circumstances, we do not find that Mr Webb has established that he was carrying on an economic activity through a business during the relevant period. Accordingly in terms of the relevant provisions of VATA he was not entitled to be registered for VAT and nor was he entitled to reclaim VAT.

Furthermore, the only supplies made by him were exempt in terms of Schedule 9, Group 1, item 1 VATA so as to no tax is payable. Mr Webb was not entitled to any of the input tax he has claimed regardless of the date on which it was incurred.

For all these reasons we uphold HMRC’s decision to deregister Mr Webb for VAT, deny the repayment for 02/21 and issue the assessments for the periods 08/18 to 11/20.

The 02/21 VAT return was very inaccurate. On the balance of probability, quite apart from the fact that, as we have found, Mr Webb was eligible to reclaim input tax, we find that the earlier returns will also have been inaccurate. We find that HMRC have established that the penalties for the periods 08/18 to 02/21 were timeously and competently issued on the basis of Mr Webb’s careless behaviour in failing to take reasonable care to establish the correct position before making claims for input tax.

We also find that, in the circumstances, HMRC’s 91% reduction in the amount of the penalties for the quality of the disclosure is generous and should not be increased.

There are no special circumstances in this case.

Lastly, the penalties cannot be suspended in whole, or in part, because Mr Webb has been deregistered for VAT.

For all these reasons, the appeal is dismissed, the assessments and penalties set out in the table at paragraph 11 above are upheld, the decisions to deregister for VAT and deny the repayment claim for 02/21 are confirmed.

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.