Revenue and Customs v Boyce (t/a Glenwood) (VAT - input tax - absence of purchase invoices)

Factual and Procedural Background

The appeal concerns a decision of the First-Tier Tribunal (Tax) allowing an appeal by the Respondent against a decision of the Commissioners for Her Majesty's Revenue and Customs ("HMRC") to disallow a claim for repayment of input tax amounting to £100,663 due to the absence of purchase invoices.

The Respondent operated a business trading in new and used prestige motor vehicles, which were mostly exported by a customer entity to Singapore. The arrangement involved the Respondent purchasing vehicles through intermediaries ("Named Purchasers") who entered into written agency agreements to buy vehicles on behalf of the Respondent. Dealership managers were aware and complicit in this arrangement, which was designed to disguise the true purchaser from manufacturers and dealerships.

Invoices from dealerships were issued to the Named Purchasers rather than the Respondent. The Respondent was unable to obtain VAT invoices in his own name and HMRC refused to accept alternative evidence of the purchases. Following routine VAT assurance visits, HMRC issued an assessment disallowing the input tax claim. The Respondent appealed to the First-Tier Tribunal, which allowed the appeal, finding that it was virtually impossible or excessively difficult for the Respondent to obtain proper VAT invoices and that HMRC had acted unreasonably in refusing alternative evidence.

Legal Issues Presented

1. Whether the refusal by HMRC to accept alternative evidence in the absence of valid purchase invoices breached the principle of effectiveness under European Union law by rendering the exercise of rights under the Principal VAT Directive virtually impossible or excessively difficult.
2. Whether HMRC’s exercise of discretion under regulation 29(2) of the Value Added Tax Regulations 1995 to refuse acceptance of alternative evidence was open to legal challenge on the basis that no reasonable body of Commissioners could have reached that decision.

Arguments of the Parties

Appellant's Arguments (HMRC)

• The Respondent’s difficulty in obtaining valid VAT invoices arose from the nature of the transactions he chose to enter into, not from the national rules implementing the Principal VAT Directive.
• The Principal VAT Directive and UK regulations provide an unfettered discretion to HMRC to accept alternative evidence, and refusal to do so in this case did not breach the principle of effectiveness.
• There was a real and obvious risk of fraud because invoices were made out to Named Purchasers, who could potentially make duplicate VAT recovery claims.
• The burden was on the Respondent to demonstrate that all relevant invoice details were present in the alternative evidence; HMRC was not required to identify missing details.
• Previous investigations by HMRC regarding different supplies were irrelevant to the exercise of discretion in this case.
• The general rule is that without a valid invoice there can be no input tax deduction; exceptions to this rule are to be applied strictly and only when justified by the taxpayer.

Respondent's Arguments

• The Respondent argued that it was virtually impossible or excessively difficult to obtain valid VAT invoices due to the arrangements designed to conceal his involvement.
• The agency agreements and bank statements provided sufficient alternative evidence to establish the supplies and justify input tax deduction.
• HMRC acted unreasonably in refusing to accept the alternative evidence presented.
• The Respondent maintained he had done nothing wrong and had taken professional advice.

Table of Precedents Cited

Court's Reasoning and Analysis

The court identified that the First-Tier Tribunal erred in law primarily by misapplying the principle of effectiveness. The difficulty faced by the Respondent in obtaining valid VAT invoices was due to the transactional arrangements he had chosen, not due to the UK's national VAT rules. The Principal VAT Directive allows Member States discretion to accept alternative evidence, which the UK implemented through regulation 29(2) of the 1995 Regulations.

The court reasoned that HMRC's refusal to accept alternative evidence did not breach the principle of effectiveness because the discretion to accept such evidence is unfettered and properly exercised in this case. The court emphasized the real and obvious risk of fraud inherent in the invoices being issued to Named Purchasers rather than the Respondent.

The burden was on the Respondent to prove that all relevant invoice details were present in the alternative evidence, which was not sufficiently demonstrated. The court rejected the First-Tier Tribunal’s presumption that HMRC had been satisfied in previous investigations as irrelevant to the current discretion.

The court reiterated that the general rule under EU and UK law requires a valid invoice for input tax deduction, and exceptions must be justified strictly. The Respondent’s choice to engage in transactions that obscured invoice issuance justified HMRC’s decision to adhere to the ordinary rule.

Consequently, the court allowed HMRC’s appeal, remade the decision of the First-Tier Tribunal, and dismissed the Respondent’s appeal.

Holding and Implications

The court's final ruling was to ALLOW THE APPEAL, remake the First-Tier Tribunal's decision, and dismiss the Respondent's appeal.

The direct effect of this decision is that the Respondent's claim for repayment of input tax without valid VAT invoices or acceptable alternative evidence was properly disallowed. No broader legal precedent was established beyond confirming the lawful exercise of HMRC's discretion under regulation 29(2) and the correct application of the principle of effectiveness in this context.