Supervisory-only FTT Jurisdiction over HMRC Regulation 29(2) VAT Evidence Decisions: No Reliance on “Fresh Invoices” First Produced on Appeal

1. Introduction

FS Commercial Ltd v Commissioners for His Majesty's Revenue and Customs [2026] EWCA Civ 29 is a Court of Appeal decision addressing a recurring VAT litigation problem: whether a taxpayer can cure a failure to provide invoices to HMRC during verification by producing those invoices later before the First-tier Tribunal (“FTT”).

The appellant, FS Commercial Ltd, claimed substantial input tax. HMRC repeatedly requested underlying VAT invoices (particularly those said to sit behind bulk payments coded as “Verity”). The taxpayer did not provide the requested invoices before HMRC disallowed the input tax and issued assessments. The taxpayer then sought to place thousands of documents (including invoices not previously provided) before the FTT.

The key issue was jurisdictional: where HMRC refuse input tax because invoices are not produced and alternative evidence is insufficient, is the FTT’s role a supervisory review of HMRC’s discretionary decision under regulation 29(2) of the Value Added Tax Regulations 1995, or a full appellate merits appeal allowing the taxpayer to rely on invoices produced for the first time in the tribunal?

2. Summary of the Judgment

The Court of Appeal dismissed the appeal. It held that:

• HMRC may lawfully require production of invoices as a condition of allowing input tax; if invoices are not produced, HMRC may refuse the deduction unless sufficient alternative evidence is provided.
• Where the dispute is in substance about HMRC’s refusal to accept alternative evidence under regulation 29(2), the FTT’s jurisdiction is supervisory only, confined to public law grounds and to the material before HMRC at the time of the decision.
• The taxpayer cannot transform the appeal into a full merits rehearing by producing invoices for the first time before the tribunal.
• The presence of a section 73 VATA assessment does not, of itself, convert the FTT’s role into a full appellate jurisdiction where the assessment merely gives effect to a regulation 29(2) evidence/discretion decision.
• More generally, the tribunal’s function depends on the nature and substance of the decision under challenge, not the procedural “gateway” (e.g., whether the appeal is framed as against an assessment under section 83(1)(p) or input tax credit under section 83(1)(c)).

3. Analysis

3.1 Precedents Cited

A. CJEU authorities on invoices, proof, and timing

The judgment’s EU-law analysis frames the invoice as central to VAT control: the right to deduct may “arise” earlier, but its “exercise” is conditional on holding (and, critically, producing when requested) appropriate documentation.

• Jorion née Jeunehomme v Belgian State (Joined Cases C-123/87 and C-330/87): the opinion cited the compliant invoice as the “ticket of admission” to deduction, supporting member state powers to prescribe invoice content needed for verification.
• Albert Collée v Finanzamt Limburg an der Lahn (Case C-146/05): formalities may be required to prevent evasion and ensure correct collection, but they must be proportionate. The Court accepted that denial is justified where non-compliance prevents “conclusive evidence” of substantive conditions.
• Barlis 06 — Investimentos Imobiliários e Turísticos SA v Autoridade Tributária e Aduaneira (Case C-516/14): invoices enable supervision and link deduction to the issuer’s VAT accountability; the judgment uses this to underline that invoices must be accessible to tax authorities.
• Senatex GmbH v Finanzamt Hannover-Nord (Case C-518/14): reinforces invoices (and VAT identification) as proof tools and anti-evasion mechanisms.
• Terra-Baubedarf-Handel GmbH v Finanzamt Osterholz-Scharmbeck (Case C-152/02): the right to deduct can only be exercised when both conditions are met—supply and possession of a valid invoice—supporting a system that can be effectively checked and avoiding retroactive administrative burdens.
• Reisdorf v Finanzamt Köln-West (Case C-85/95): directly supports HMRC’s position: member states can require production of the original invoice for supervision, and a taxpayer who refuses to produce the “ticket of admission” can be deprived of deduction; other evidence may be admitted only where the original is no longer held.
• Petroma Transport SA v Belgium (Case C-271/12): the decisive timing principle: where information to regularise invoices is provided after the refusal decision, EU law does not require the authority to revisit that decision. The Court of Appeal treats this as squarely undermining any claimed entitlement to succeed by producing documents late in tribunal proceedings.
• Dobre v Ministerul Finantelor Publice - ANAF - DGRFP Galati - Serviciul Solutionare Contestatii (Case C-159/17): denial of deduction can be disproportionate if it merely penalises formal failings, but refusal is justified where deficiencies prevent conclusive evidence of substantive entitlement—aligning refusal with evidential insufficiency rather than punishment.

How they influenced the decision: The Court of Appeal drew from these cases a coherent rule-set: invoices exist to enable verification; that function is defeated if invoices are withheld; authorities may refuse deduction absent invoices unless adequate alternative evidence is provided; and authorities are not compelled to reopen refusals when evidence is produced only later. These points supported the conclusion that HMRC’s decision was an exercise of the regulation 29(2) evidential discretion and that the FTT could not convert the appeal into a de novo fact-finding exercise based on late-produced invoices.

B. Domestic authorities on supervisory jurisdiction under regulation 29(2)

• Tower Bridge GP Ltd v HMRC [2022] EWCA Civ 998: cited for identifying two discretions embedded in regulation 29(2): (i) whether to entertain alternative-evidence claims and (ii) what evidence to require. This underpinned treating HMRC’s decision as discretionary and therefore reviewable only on supervisory principles.
• Kohanzad v Customs and Excise Commissioners [1994] STC 967: the foundational domestic authority: where HMRC exercise regulation 29(2) discretion, the tribunal’s role is supervisory, not an original discretion, and (as noted) confined to the material before HMRC rather than later material.
• GB Housley Ltd v HMRC [2014] UKUT (TCC), [2014] STC 2733, HMRC v Boyce [2017] UKUT 177 (TCC), [2017] BVC 513, Scandico Ltd v HMRC [2017] UKUT 467 (TCC), [2018] STC 153: examples of continued application of Kohanzad’s supervisory approach to regulation 29(2) disputes.
• GB Housley v HMRC [2026] EWCA Civ 1299, [2017] STC 508: cited to show the consequences where HMRC fail to consider regulation 29(2): if the appeal succeeds, the assessment is discharged rather than remitted to allow HMRC to bolster a decision using later evidence—reinforcing the “time-of-decision materials” principle.
• John Dee Ltd v Customs and Excise Commissioners [1995] STC 941: cited for the key interpretive principle: tribunal powers depend on the nature of the decision appealed against, not labels.

How they influenced the decision: The Court treated the appeal as falling squarely within the Kohanzad line because the substance was HMRC’s regulation 29(2) evidential refusal. Scandico was particularly important in rejecting attempts to expand the tribunal’s inquiry merely because the appeal is brought through section 83(1)(c) and concerns an “amount”: the tribunal must not decide a different decision than the one HMRC actually made.

C. “Best judgment” assessment cases—and why they did not change the answer

• Pegasus Birds Ltd v Customs and Excise Commissioners [2004] EWCA Civ 1015, [2004] STC 1509: addressed section 73 “best judgment” assessments and contains statements suggesting tribunals may consider further material when deciding the correct amount. The Court of Appeal distinguished its relevance because Pegasus did not concern a regulation 29(2) discretion/evidence refusal.
• BUPA Purchasing Ltd v Customs and Excise Commissioners (No 2) [2007] EWCA Civ 542, [2008] STC 101: cited regarding what counts as an “assessment” under section 73 and the existence of different appeal routes, but not as changing jurisdictional character.
• Mithras (Wine Bars) Ltd v HMRC [2010] UKUT 115 (TCC), [2010] STC 1370 and Karoulla v HMRC [2018] UKUT 255 (TCC), [2018] BVC 518: confirm full appellate jurisdiction on quantum in best judgment output-tax contexts; again distinguished as not addressing regulation 29(2) discretionary refusals.

How they influenced the decision: These authorities were addressed principally to reject the taxpayer’s attempt to recharacterise the dispute as a section 73 “correct amount” appeal with a full merits rehearing. The Court accepted that some assessment appeals can involve full merits consideration, but held that where an assessment simply gives effect to a regulation 29(2) discretionary evidence decision (and there is no independent quantum issue), the jurisdiction remains supervisory.

3.2 Legal Reasoning

The Court’s reasoning proceeds in three connected steps:

1. Identify the true nature of HMRC’s decision. On the correspondence and review decision, HMRC were not deciding (for example) that the supplies never occurred, were exempt, or were connected with fraud. They were deciding that input tax could not be recovered because adequate evidence (invoices or sufficient alternative evidence) had not been produced. That is quintessentially a regulation 29(2) discretionary/evidential decision.
2. Apply the correct tribunal role for that decision type. Once characterised as a regulation 29(2) discretion refusal, the Kohanzad line applies: the FTT reviews the decision on supervisory (public law) grounds and does so by reference to what HMRC had before it when deciding.
3. Reject “gateway-driven” jurisdiction and the assessment-based reframe. The Court held that jurisdiction does not expand merely because HMRC also issued assessments (section 73) or because the statutory appeal route uses the language of “amount”. Otherwise, outcomes would become arbitrary (e.g., differing by whether a net payment is due or whether HMRC chooses to assess).

The Court also emphasised statutory power for the evidential demand: Schedule 11 paragraph 4 VATA empowers HMRC to require production of evidence as a condition of allowing input tax; this sits naturally with EU principles (especially Reisdorf v Finanzamt Köln-West (Case C-85/95)) and supports the conclusion that “holding” an invoice while failing to produce it cannot, by itself, undermine HMRC’s decision.

Finally, the Court noted an additional, case-specific procedural point: the taxpayer’s grounds of appeal to the FTT did not actually plead that it held compliant invoices and wished to rely upon them. The appeal was framed around the adequacy of evidence already provided and the alleged unreasonableness of HMRC’s requests—consistent with a supervisory dispute.

3.3 Impact

• Evidence discipline in VAT disputes: Taxpayers cannot treat the FTT as a forum to “start again” with invoices and documentation withheld during verification. Where HMRC’s decision is that deduction is refused due to insufficient evidence and regulation 29(2) discretion is in play, late production will generally not change the outcome.
• Clearer boundary between merits appeals and supervisory review: The decision reinforces a taxonomy: where HMRC decide “you are not entitled” (e.g., no supply, exempt supply, Kittel-type fraud), the tribunal may determine the facts and law; where HMRC decide “you have not evidenced entitlement and we refuse to accept alternatives,” the tribunal reviews the defensibility of that discretionary decision.
• Reduced scope for jurisdictional forum-shopping: By rejecting assessment-driven arguments, the Court prevents procedural happenstance (or HMRC’s choice whether to assess) from determining whether the taxpayer gets a full rehearing.
• Litigation strategy consequences: Taxpayers and advisers must frontload invoice production and alternative evidence during the HMRC decision-making window. Once HMRC refuse, the tribunal will usually ask whether HMRC acted lawfully, rationally, and fairly on what it had—not what can be assembled later.

4. Complex Concepts Simplified

• Accrual vs exercise of the right to deduct: A right to deduct may “arise” when VAT becomes chargeable (substantive entitlement), but it is generally “exercised” only when formal conditions are met—principally holding (and being able to present) a compliant invoice.
• Regulation 29(2) discretion: Regulation 29(2) normally requires the claimant to hold the regulation 13 invoice. The proviso allows HMRC to accept “other evidence” if they so direct. Whether to accept alternatives, and what alternatives suffice, involves discretion; disputes about refusal are therefore reviewed, not re-decided, by the tribunal.
• Supervisory vs full appellate jurisdiction: “Full appellate” means the tribunal decides for itself the correct outcome on the evidence (including, in some contexts, new evidence). “Supervisory” means the tribunal asks whether HMRC’s decision was legally and procedurally defensible (e.g., lawful, rational, fair), usually on the material HMRC had at the time.
• Section 73 “best judgment” assessments: These are HMRC assessments where returns are incorrect/incomplete or records insufficient. In some output-tax cases, tribunals may determine the correct amount using wider evidence. This case clarifies that where the assessment merely reflects a regulation 29(2) evidence refusal on input tax, that does not automatically trigger a full merits rehearing.

5. Conclusion

FS Commercial Ltd v Commissioners for His Majesty's Revenue and Customs cements a practical and jurisdictional rule for VAT appeals: where HMRC deny input tax because invoices were not produced and alternative evidence is rejected under regulation 29(2), the FTT’s role is supervisory, focused on whether HMRC’s refusal was defensible on the material available at the time. The taxpayer cannot ordinarily rehabilitate the claim by producing invoices for the first time on appeal, and the mere fact that HMRC issued a section 73 assessment does not change that analysis. The decision promotes administrative finality, evidential compliance, and coherence in the tribunal’s jurisdiction across differing procedural routes.