This case examined whether input credit could be claimed in the absence of a purchase invoice and whether the HMRC in this instance could use its discretion to accept alternative evidence.

Following an appeal from a decision of the First-Tier Tribunal in favour of the taxpayer, the Upper Tribunal Tax and Chancery Chamber heard the case of HMRC v James Edwin Boyce which involved a claim for repayment of input tax in the sum of £100,663 in the absence of purchase invoices.

Background

Mr Boyce traded as Glenwood and this business was involved in the purchase, supply and export of new and used motor vehicles. Most of the vehicles were prestige vehicles and they were exported by a customer of Mr Boyce, Great Harvest Ltd (GHL) to Singapore. Mr Boyce also sold vehicles to other customers who similarly exported them.

The manufacturers of the vehicles and the owners of the dealerships would not have approved of GHL or Mr Boyce purchasing the vehicles in the UK for the purpose of export in this way.

To solve this problem, GHL arranged for Mr Boyce to purchase the vehicles and sell them the GHL, thus disguising GHL’s involvement. On the other side, Mr Boyce’s involvement was disguised by individuals purchasing the vehicles from the dealerships for him. These were known as the “Named Purchasers” and some were employees or contacts of the dealerships. The dealerships were aware of what was happening and actively sought out Mr Boyce to become involved.

A written agreement was entered into between the Named Purchasers and Mr Boyce for each transaction. Therefore the dealership invoices referred to the Named Purchaser rather than Mr Boyce as the purchasers of the vehicles. Bank statements showed funds moving from Mr Boyce to the Name Purchasers and from Mr Boyce’s customers to him.

HMRC disallowed Mr Boyce’s vehicle purchase input tax claims in the absence of satisfactory purchase invoices.

Mr Boyce had a number of VAT assurance visits over a 6 month period and this resulted in an assessment being raised on him for £100,663. This represented the repayment of input tax disallowed in the absence of satisfactory purchase invoices.

Decision

The Court looked at the decision of the First Tier Tribunal which found that the fact that it was virtually impossible or excessively difficult for Mr Boyce to obtain valid VAT invoices meant that there had been a breach of the principle of effectiveness as a result of HMRC’s decision not to accept alternative evidence.

The Court however found that the First Tier Tribunal had erred in law. Mr Boyce was attempting to exercise a right of deduction of input tax but was unable to do so as he did not hold the correct VAT invoices. This situation did not arise because of anything in UK VAT law. Article 180 and 192 of the Principal VAT Directive gave Member States the power to authorise the deduction of input tax without VAT invoices but also gave HMRC discretion to accept alternative evidence in certain circumstances (which it did not in this case).

However in this case, Mr Boyce could not obtain a valid VAT invoice because of the nature of the transactions he entered into by choice, and therefore nothing to do with the UK rules. Even if it was virtually impossible or excessively difficult for Mr Boyce to obtain valid VAT invoices, the refusal by HMRC to accept alternative evidence of his purchases did not amount to a breach of the principle of effectiveness. It was found that the FTT had misapplied the principle of effectiveness.

There is a real risk of fraud in this case in that the VAT invoices made out to the Named Purchasers could be used in order to make duplicate VAT claim.

Going back to basics, as a rule in both UK and EU VAT law, without a valid invoice, there can be no input deduction for VAT. Using discretion and accepting alternative evidence is an exception to this rule and it is reasonable for a tax authority to abide by the rules until and unless the taxpayer can demonstrate why an exception should be made.

The Court held that there was nothing unreasonable in the HMRC’s decision to adhere to the ordinary rule of EU and UK law. HMRC did not suggest that Mr Boyce had done anything wrong; rather he chose to enter into transactions which meant that he did not get proper VAT invoices and therefore was unable to claim input tax.

HMRC’s appeal was therefore allowed.

Full judgement can be found at http://www.bailii.org/uk/cases/UKUT/TCC/2017/177.html