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Case Report: Dreams plc [2012] TC 02290

[2012] UKFTT 614 (TC)

Judge Colin Bishopp

Decision released 9 October 2012

Application for allocation to complex category – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 r. 23 – Whether criteria met – Capital Air Services considered – Application refused

Summary

The First-tier Tribunal decided that a taxpayer company's appeal, which involved the issue of the correct VAT treatment for the beds it sold, failed to satisfy the conditions under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (Tribunal Rules 2009), r. 23(4)(a). The Tribunal held that a hearing lasting three days could not be described as lengthy and the calling of several witnesses, including an expert, was not out of the ordinary. The appeal also failed to satisfy Tribunal Rules 2009, r. 23(4)(b) since the issue involved did not amount to complex or important principle or issue. Whilst the appeal satisfied Tribunal Rules 2009, r. 23(4)(c) since it involved a large financial sum, the appeal raised questions which were fairly routine for the Tribunal. Hence, it was more suitable for allocation to the Standard category.

Facts

The taxpayer company applied that its consolidated appeal be allocated to the Complex category pursuant to Tribunal Rules 2009, r. 23(4).

The taxpayer was a well-known high-street retailer of beds and bedding. The substantive issue on appeal involved the correct VAT treatment of the beds it sold. The taxpayer maintained that they were zero-rated under the Value Added Tax Act 1994 (‘VATA 1994’), Sch. 8, Grp. 12, item 2(b), as they were designed for invalids and were supplied to handicapped persons. HMRC argued that the conditions for zero rating were not all met; hence, the beds were standard-rated.

The taxpayer appealed against decisions based upon HMRC's view and the various output tax assessments for which HMRC said it should have accounted. When the appeal was first received by the Tribunal, they were allocated, administratively, to the Standard category. Later a judge, who thought that the parties had agreed on the matter, directed that it should be re-allocated to the Complex category. The parties accepted that there was a mistake about the supposed agreement. Thus, the Tribunal revisited the matter afresh.

The taxpayer contended that the appeal should be allocated to the Complex category. In relation to the Tribunal Rules 2009, r. 23(4)(a), it would be calling several witnesses, including an expert, and that the hearing would occupy two or three days. In relation to the Tribunal Rules 2009, r. 23(4)(b), its appeal was important not only for itself, but for its competitors. It raised issues of principle in as much as it would be necessary for the Tribunal to determine not merely how the relevant legislation applied to the beds in question, but how the Tribunal was to approach its interpretation. In relation to the Tribunal Rules 2009, r. 23(4)(c), the amount in issue, more than £5 million, was self-evidently a large financial sum.

Issue

Whether the taxpayer's appeal should be allocated to the Complex category pursuant to Tribunal Rules 2009, r. 23(4).

Decision

Held, refusing the taxpayer's application:

In relation to the Tribunal Rules 2009, r. 23(4)(a), the Tribunal held that a hearing lasting three days, whether one measured that length against some objective standard or against what might be usual for a case of this kind, could not be described as ‘lengthy’, in the sense intended by the rule. The calling of several witnesses, even including an expert, was not out of the ordinary. Most cases of that character were allocated to the Standard category. The determination of the correct VAT treatment of goods was not an unusual task for the Tribunal. The Tribunal did not perceive that the issues relevant to that gateway posed any unusual difficulty. Therefore, it was not persuaded that the description used in Tribunal Rules 2009, r. 23(4)(a) was apt in this case.

In relation to the Tribunal Rules 2009, r. 23(4)(b), the Tribunal held that the determination of the correct VAT treatment of adjustable beds did not amount to a complex or important principle or issue. On the contrary, it was the type of issue which the Tribunal resolved routinely, in appeals which had been allocated to the Standard category.

In relation to the Tribunal Rules 2009, r. 23(4)(c), the Tribunal considered the case of Capital Air Services Ltd v R & C Commrs [2010] BVC 1,574. In that case, the Upper Tribunal made it clear that it was necessary to leave out of account the fact that a large amount in the context of income tax might be modest in the context of revenue tax. From that decision, the Tribunal in this case concluded that an absolute standard, i.e. one which did not vary depending on the taxpayer or the tax, was to be adopted.

The amount involved in this case, more than £5 million, was a large sum for most people and for most small traders. The Tribunal concluded that the sum should be large by comparison with the median value of the cases which came before the Tribunal and were allocated to the Standard and Complex categories. The adoption of that approach represented a simple and straightforward means of applying the condition. Therefore, £5 million did meet that test; consequently, Tribunal Rules 2009, r. 23(4)(c) was satisfied. However, that conclusion did not quite dispose of the matter since passage of an appeal through one of the gateways was what gave rise to the discretion to allocate an appeal to the Complex category. The present appeal raised questions which were fairly routine. Its only distinguishing feature was that there was a sufficiently large sum in issue for it to pass through the Tribunal Rules 2009, r. 23(4)(c) gateway. The Tribunal concluded that the amount of tax in issue did not ‘trump’ the fact that, by reason of its failure to pass through the other gateways, the appeal was more suitable for allocation to the Standard category.


SOURCE: CCH Online

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