Indirect tax news from the past week
KSM Henryk Zeman: legitimate expectation arguments in the First-tier Tribunal – UT
If a taxpayer legitimately expects that HMRC should act in a particular way, and they do not, then can the First-tier Tribunal adjudicate? The FTT is a creature of statute – it has the power to rule on matters listed in s.83(1) VATA 1994, but it does not have any general supervisory jurisdiction over HMRC. However, appeals against VAT assessments stem from s.73 VATA, under which HMRC may (but do not have to) assess a taxpayer. In KSM Henryk Zeman, the Upper Tribunal therefore concluded that any appeal against a VAT assessment involved consideration of HMRC’s discretion. In such cases, VATA does not exclude public law defences like legitimate expectation – indeed, the UT thought that such defences fell squarely within the subject matter which the FTT should consider. In the circumstances of this case (which related to a VAT assessment on a Polish company that installed a boiler in the UK for another Polish company) no legitimate expectation arose. However, in some other cases the UT’s conclusion could allow public law defences such as legitimate expectation to be considered by the FTT, rather than having to be dealt with exclusively by separate judicial review proceedings. (Contact: Oliver Jarratt).
Award Drinks: burden of proof in inward diversion fraud VAT appeal – CA
In 2011-12, £32m was deposited into Award Drinks Ltd’s bank account in cash, at 42 bank branches around the UK. To HMRC, the cash looked like the proceeds of inward diversion fraud (where multiple consignments of alcoholic drinks were illegally imported under a single administrative reference code, and then sold for cash). HMRC concluded that ADL had made taxable supplies in the UK and assessed it for VAT. On appeal, ADL failed to convince the FTT or UT that the cash was from selling alcohol to French retailers while it was still in bond (for resale to customers on “booze cruises” to France). The Court of Appeal has now confirmed that HMRC never conceded in their pleadings that ADL had sold the drinks while they were in France. The judgment confirms that the burden of proof on the taxpayer to prove its case does not change just because fraud is suspected. HMRC had made an assessment, to the best of their judgment, that the cash was consideration for sales that were subject to UK VAT. Thereafter, it was ADL’s task to show why the assessment was incorrect, and it had failed to provide any coherent explanation for why the money was not consideration for UK supplies. The CA dismissed its appeal. (Contact: Rob Holland).
Belkin: duty classification of wireless charging pads – FTT
Belkin Ltd imported wireless charging pads for mobile phones and tablets. One version plugged into the mains, while the other drew its power from a USB connection. The FTT has ruled that the pads, on their own, were classified for customs duty purposes as “static converters of a kind used with telecoms apparatus”. Even though the pads could charge any electronic device which met the Qi wireless charging standard, it was clear from the objective characteristics of the pads (which included their marketing material) that they were primarily intended for use with phones and tablets. However, the version that plugged into the mains would not have retained its characteristic properties if the power pack had been removed – the pack converted alternating current into the direct current that the pad required. The general interpretation rules therefore specified that the product should be classified by reference to the power pack, rather than the wireless charging pad, and to that extent Belkin’s appeal was dismissed. (Contact: Bob Jones).
Infinity Business Systems: invalid review request was no excuse for a late appeal – FTT
On 7 June 2019, HMRC issued two decisions to Infinity Business Systems Ltd relating to an alleged MTIC fraud. The company’s representative did not request a review of these decisions until 21 July (two weeks outside the 30-day time limit for review requests). In November, having been contacted by HMRC’s debt management unit, Infinity realised that the decisions had not been put on hold pending a review and appealed to the tribunal. In the FTT’s judgment, however, Infinity had not submitted a proper request for HMRC to review its decisions in July, as it had not completed a 64-8 appointing its agent, had not acknowledged that the review request was out of time, and had provided no reasons for the two-week delay. The FTT had to decide whether, in the absence of a valid request to HMRC for a review, it should grant permission for Infinity to submit a late appeal to the tribunal (by the time the appeal was submitted in November, it was over four months late). The FTT considered that the serious and significant delay (for which no reason had been provided) outweighed the prejudice to Infinity of not being able to continue its appeal, and refused permission. (Contact: David Walters).