Constructive Solutions (Contractors) Ltd v Customs and Excise [2004] UKVAT V18930 (07 February 2005)

 18930
VAT – INPUT TAX  -  company in liquidation  -  claim for repayment of tax following deregistration for VAT  -  such claims by persons acting in a representative capacity discussed  -  held that claim properly rejected as time-barred  -  furthermore company dissolved since service of appeal by liquidator  -  liquidator lacking “locus standi” in any event  -  appeal dismissed   

MANCHESTER TRIBUNAL CENTRE

 
 	CONSTRUCTIVE SOLUTIONS (CONTRACTORS) LTD
	(In Liquidation) 	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal: Michael Johnson (Chairman)
							Marjorie Kostick FCA 

Sitting in public in Birmingham on 11 January 2005

Frank Simms, accountant, for the Appellant

Nigel Poole, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

	© CROWN COPYRIGHT 2005

DECISION
1.	In the somewhat unusual circumstances of this appeal, the tribunal has decided that it has no alternative but to dismiss the appeal.  The dismissal was orally announced at the conclusion of the appeal.  This document records the reasons for the dismissal.

2.	The background to the appeal is that, by the time that the notice of appeal was served, on 22 January 2004, the Appellant had been in liquidation for some time.  The notice of appeal was served on behalf of the Appellant by its joint liquidator, Mr Frank Simms, who represented the Appellant at the hearing of the appeal.  In the notice, the Appellant appealed against what was termed in the notice the “refusal to repay qualifying expenditure” by the Commissioners of Customs and Excise (“Customs”).   The notice advanced as the ground of appeal the fact that the Appellant had made its final VAT return and that Customs had not allowed “qualifying expenditure” to be taken into account against the tax owed.  The notice was completed and signed by Mr Simms in his capacity as joint liquidator.

3.	Mr Simms explained to the tribunal to what the “qualifying expenditure” related.  The Appellant had deregistered for VAT on 17 November 1998.  A VAT Form 426 (“Insolvent Traders: Claim for Input Tax after Deregistration”) was sent by Mr Simms’ firm to Customs dated 13 November 2002 (received 17 November 2002).  That form listed three invoices in respect of which the claim was made, relating to supplies for which the tax points were respectively 18 February 1999, 25 March 1999 and 3 June 1999.  All those supplies related to professional services rendered to the Appellant.  The input tax claimed totalled just £454.44.

4.	The Form VAT 426, which was a form designed for use by inter alia liquidators of businesses formerly registered for VAT, declared that –

“The above claim is for goods and services supplied to the claimant for the purpose of the registered business carried on before 17 November 1998 (effective date of deregistration)”.

It further stated –

“I understand that [Customs] are treating me as the taxable person for the purpose of this claim under regulations 11 and 63 of the VAT (General) Regulations 1985”.         

5.	The VAT (General) Regulations 1985 (“the 1985 regulations”) were superseded by the Value Added Tax Regulations 1995 (“the 1995 regulations”).  Regulations 9 and 30 of the 1995 regulations correspond to regulations 11 and 63 of the 1985 regulations respectively.

6.	With effect from 1 May 1997, the 1995 regulations were amended  to provide that Customs should not allow a person to make any claim for deduction of input tax in terms such that the deduction would fall to be claimed more than three years after the date by which the return for the prescribed accounting period in which the VAT became chargeable was required to be made. 

7.	The 1995 regulations as so amended applied to the claim in respect of the supplies referred to in the Form VAT 426.  In this instance, considerably over three years had elapsed since the supplies referred to in the form, by the time that the input tax claim was made.  It was a similar time or longer since the Appellant had last accounted for any output tax. 

8.	In answer to the claim, Customs took the point that they could not lawfully pay it.  They rejected the claim as invalid.  It is in respect of that rejection that this appeal has been brought.

9.	Mr Simms was not able to explain to the tribunal why it had taken so long to lodge the claim in Form VAT 426.  He made the point, which the tribunal appreciates, that the winding-up of limited companies can take considerable time.  However it is not clear why a claim in respect of professional fees due in 1999 should have taken until 2002 to be lodged. 

10.	Mr Poole, appearing for Customs, submitted that there is nothing in the 1995 regulations or elsewhere that caters in this context for protracted liquidations.  On the contrary, he said, regulation 29(1A) of the 1995 regulations prescribes a period beyond which no claims of the kind made by the Appellant in this case can be lawfully entertained.  That regulation, he said, appears designed to preclude such claims in respect of liquidations of indefinite length.

11.	In answer to this, Mr Simms submitted that regulation 29(1A) of the 1995 Regulations applied only to trading companies and not to companies in liquidation.   He said that the claim in dispute corresponded to established practice, so that he was surprised that it had been rejected.  He said that the rejection was a matter of concern for the profession to which he belonged, who would be concerned to know their position in consequence.

12.	We note, however, that the 1995 regulations expressly provide for liquidators, including so far as claims for input tax are concerned.  Their position is addressed in regulation 30, headed Persons acting in a representative capacity.  That is the regulation which replaced regulation 63 of the 1985 regulations, referred to in the Form VAT 426 in this case.  Regulation 30 is concerned with the requirements under Part V of the 1995 regulations.  Regulation 30 stipulates that the representative person, including the liquidator in control of a company, shall, “ … if [Customs] so require and so long as he has such control, comply with these requirements … ” – that is to say, the requirements of Part V, which includes regulation 29.

13.	It does, therefore, appear to us that the 1995 regulations cover the Appellant’s situation.  It is true that compliance with regulation 29 by the liquidator is only prescribed if Customs so require under regulation 30, but they have so required in this case, mindful of the mandatory terms of regulation 29(1A).   It seems to us to be implicit in regulation 30 that the requirement can be made after the time-limit has expired, otherwise the capping provision might be ineffectual in such a case, which cannot have been the intention.  In that regard, we observe that the wording in regulation 30 is, “ … if [Customs] so require”, and not, “ … shall have required”.   The requirement can therefore, as we see it, be retrospective.   

14.	We have therefore felt compelled to reject Mr Simms’ argument that he should be unaffected by regulation 29(1A) and that the Appellant should be allowed the claim contained in the Form VAT 426.  Accordingly we have found against the Appellant on the merits of the appeal.   

15.	In addition, however, it seems to us that there is another, fundamental reason why the appeal should not succeed.  That reason is that, as we were informed by Mr Simms, the Appellant has been dissolved since the appeal was commenced.

16.	It frequently happens that limited companies enter into liquidation following the commencement of an appeal, so that, if the appeal proceeds, the interests of such an appellant are represented by its liquidator rather than by its directors.   However, if the liquidation proceeds to the point where the appellant company is dissolved, it ceases to exist, and any residual assets that have not been the subject of distribution – including extant choses in action – devolve upon the Crown as bona vacantia.

17.	In those circumstances, in the absence of a direction under rule 13(2) of the Value Added Tax Tribunals Rules 1986 (as amended), the appeal could not proceed.  The joint liquidators would no longer have a role in representing the Appellant.  It seems to us that, for the tribunal to have jurisdiction, the Crown would have to have adopted the proceedings, as rule 13 envisages.

18.	That would then, however, produce the nonsensical situation where the Crown is appealing against Customs – one of its own organs.  A moment’s reflection is enough to appreciate the absurdity of that situation.  The appeal would never proceed, because it would not be adopted.  The rules of the tribunal provide a means whereby unadopted appeals can in such circumstances be summarily dismissed – see rule 13(3).

19.	For the above reasons, we decided that the Appellant could not succeed in the appeal.  That being so, Mr Poole applied for a small sum by way of costs, quantified at £250.  Seeing that the appeal was without foundation, we conclude that Customs should have their costs, summarily assessed in the reasonable amount of £250, and we so award.

MICHAEL JOHNSON
CHAIRMAN
RELEASE DATE: 7 January 2005

MAN/2004/0053