VAT cases roundup: June 2020

Andrew Needham BA CTA

July 1, 2020

Virgin Media Ltd v Commissioners for Revenue and Customs [2020] UKUT 100 (TCC)

This was an appeal by the appellant against the decision of the First-tier Tribunal (FTT) concerning the operation of the prompt payment discount regime then in force.

The appellant provided telephony services to customers through fixed lines. These services included the rental of a fixed line together with broadband and telephony services. In the period 28 August 2012 to 30 April 2014 the appellant provided a fixed line rental (FLR) in return for either (i) monthly payments or (ii) a single payment for 12 months’ service. Those who paid monthly paid a high rate.

The appellant submitted its VAT returns for this period on the basis that the 12 month option was a ‘discount for prompt payment’, and that VATA 1994, Sch 6, para 4 applied to deem the monthly customers to have given consideration for the FLR supply made to them by reference to the lower yearly rate. It accounted for VAT at the lower amount.

HMRC concluded that para 4 did not apply in relation to the supplies to the monthly customers and assessed the appellant accordingly. The FTT dismissed the appeal and the appellant was given leave to appeal to the Upper Tribunal (UT).

In the FTT’s view, the effect of the contractual provisions, as interpreted having regard to the surrounding circumstances as regards the manner in which the appellant did business with its customers and commercial common sense, was as HMRC had argued. There were in effect two different sets of contracts with monthly and anual customers under which the parties had materially different entitlements and obligations.

Having examined the contract, the UT concluded that contractual terms for monthly and yearly customers were in fact different. As such there was no prompt payment discount because the monthly contracts did not permit payment of the yearly amount, so para 4 could not apply. The appeal was therefore dismissed.


F W Services Limited v Commissioners for Revenue and Customs [2020] UKFTT 143 (TC)

Did the appellant under-declare the output tax on sales of fuel, and was the assessment made to best judgment?

This was an appeal against assessments made for the periods 08/15 to 10/17 totalling £686,054.00. The assessments were in respect of under-declared fuel sales.

The appellant was a service station and argued that it returns were accurate and the assessments were baseless. The appellant’s accountants had prepared its VAT returns based on information supplied to them.

The appellant maintained that HMRC had simply extrapolated figures from an invigilation by HMRC of a constant sale of 350 litres per hour Monday to Saturday and 175 litres per hour on Sunday. This did not reflect the ebb and flow of trade. When HMRC had examined the recording of sales at the pumps they had found the sales were accurately reflected in the sales at the tills.

In the appellant’s view, if HMRC’s calculation of under-declared fuel sales at 60 per cent was correct, all such sales would have to have been in cash. This would require the assistance of the general public to purchase their fuel in cash. The appellant’s experience was that the use of debit/credit cards for the payment of goods and services had overtaken cash as a means of payment. HMRC’s tax assessment of £686,054 implied sales of diesel totalling £4,116,324 over the assessed quarters 08/15 to 10/17 – a period of 29 months or 792 days. This would require the appellant to receive an average of £5,197.38 every day in cash in addition to the declared takings.

The appellant employed four staff who confirmed that they had never been instructed not to record sales, and that all sales had been correclty recorded.

HMRC argued that as a result of the information provided by the company and the invigilations it was established that the average throughput of fuel was 360 litres per hour. The declared fuel sales were calculated to the average throughput, and where the declared sales figures were less than expected the shortfall was attributed to undeclared sales.

HMRC produced no evidence and made no claim that the appellant operated any other bank accounts other than the Santander bank account and Bank of Ireland debit/credit card account included in the papers before the First-tier Tribunal (FTT). HMRC stated that it had seen no evidence of a separate bank account and had not seen any evidence of the pumps being tampered with.

There was no explanation from HMRC why it calculated the average undeclared volume of fuel sales on the same basis for weekdays and Saturdays even though the filling station opened for a shorter period on Saturdays. Nor did it explain why estimated Sunday sales were exactly half of weekday sales.

While the three witnesses for HMRC all indicated their contracts of employment did not allow them to work in the evenings or at weekends, this did not mean that HMRC could simply rely on their observations made during permitted working hours. There was no evidence before the tribunal in relation to evening and weekend sales.

The FTT noted that it was necessary for it to find that HMRC’s assessment was a ‘spurious estimate or guess in which all elements of judgment are missing; or is wholly unreasonable.’ As HMRC had no evidence for the volume of fuel sales during the evenings or weekends, the tribunal found that an important element of the calculations was missing.

The appeal was therefore allowed in full.


Andrew Needham BA CTA, VAT Specialists Limited (andrew@vatspecialists.net)