An alarming VAT decision
In a surprising case decided by the First Tier Tribunal, Sacutia Healthcare Ltd (TC06844) was prevented from claiming input VAT due to shortfalls in the supplier’s accounting procedures. This seems like an alarming shift in responsibilities surrounding VAT. Not only now does a customer need to make sure their supplier is correctly dealing with their VAT obligations including registration, they also need to make sure that the supplier’s sales invoice procedure is all that it should be.
Quite how a customer is supposed to achieve this is a mystery to me. Sacutia’s problems stemmed from paying a deposit to their supplier, Sigma. Unfortunately, Sigma made a complete mess of invoicing the deposits, issuing manual invoices and often reusing invoice numbers used on other invoices. It might also have been that Sigma only accounted for VAT when the supply was delivered but even so, how was Sacutia supposed to know?
The tribunal said: “The legislation is clear that the obligations arise on both the supplier to produce a VAT invoice that complies with Regulation 14 in relation to a supply and on the purchaser to hold a VAT invoice that complies with Regulation 14 in order to claim an input tax deduction in relation to that supply. That is, there is an obligation on a purchaser to confirm that they have proper evidence in order to claim a deduction; they cannot simply rely on the supplier’s obligation to produce a proper document.”
It then got worse for Sacutia when the tribunal considered rate of penalties and whether the company had acted deliberately. Sacutia was run by a Mr Barnes, who entrusted his VAT returns to his accountant. So you might think that by that single action he had acted reasonably in making sure VAT was being dealt with correctly. Not so! By simply sending information to his accountants without checking any of it the tribunal considered that Barnes acted deliberately and as a result was liable to a higher penalty rate in the 35-70% band.
The tribunal’s view was that “a taxpayer cannot be regarded as simply careless where they take no steps to ensure accuracy or check the accuracy or completeness of information as that taxpayer cannot have a reasonable belief that the information provided is accurate.
“Engaging an accountant does not automatically ensure accuracy, and so such engagement cannot [not] on its own amount to taking adequate steps to ensure accuracy, particularly where the taxpayer does not ensure that the accountant is provided with accurate information and does not check the information that is then produced by the accountant.”
It concluded: “Penalties cannot be escaped simply because a taxpayer (or the person acting on their behalf, in the case of a company) is not a ‘detail person’.”
This case seems to create yet more quicksand for any unwary businesses.
• Melanie Lord is a Director of AVS VAT – working to stop VAT from being a problem. Please call 01438 716176 if you ever need help dealing with VAT.
By Melanie Lord