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purchases for personal use
purchases for personal use
HMRC argued that £4,921.89 of the input tax claimed related to expenditure by Mr Joseph for personal use. This argument had two aspects, First the costs had been incurred by Mr Joseph personally and not the Appellant and, second, they were expenses of a kind which could not be claimed as input tax.
In the hearing Mr Joseph argued that the Appellant did have a bank account but accepted that the Appellant only made transfers from that account to the Appellant of funds in lump sums and did not reimburse Mr Joseph for specific expenses. Mr Khan argued that HMRC had never been sent any details of the Appellant’s bank account or relevant bank statements. From the correspondence between the parties I understand Mr Joseph’s position to be that he had an account in his name that he used for the Appellant’s business.
As to the type of expenditure incurred there were a large number of purchases but adopting HMRC’s categorisation:
Retail stores: the claims included the purchase of a variety of goods including home ware (for example, a lamp) and equipment (for example, lap top connection cables) from a variety of shops including Matalan and Currys. HMRC argued this was personal expenditure and could not be the subject of an input tax claim. Mr Joseph argued that it was necessary to equip the office premises.
Takeaways, restaurants and food delivery apps: Mr Joseph argued it was necessary for the business to incur costs on food for client meetings and also during long meetings and extended working days. HMRC pointed out these claims were being made for every other day during the period of claim. There must come a point when the costs are simply the Appellant feeding its employee.
Telecoms companies: this group consisted of Now TV and Shell (now Tik Tok) broadband subscriptions. Mr Joseph accepted that the Now TV claim was made in error.
Financial institutions: the Appellant had made input tax claims in respect of Capital One credit card bills and payments on PayPal. Mr Joseph accepted he could not remember or show what these purchases were for.
Betting establishments: Mr Joseph accepted that this claim was made in error.
Personal Care: this category included purchases of clothes and shoes or trainers from a variety of stores for Mr Joseph (for example from JD Sports, Hugo Boss and John Lewis). HMRC argued these were personal and, even had the Appellant incurred the VAT, it could not have recovered it. Mr Hamza accepted that taxable traders can recover VAT on certain types of purchases of clothes for employees, for example uniforms, but that was very different from the position here. A barrister required to wear formal suits could not recover the VAT in buying them. Mr Joseph argued that as he was in a creative industry it was important that he dressed well for business meetings.
Mr Joseph argued that there was a broad test for what amounted to business expenditure. Further, home based creative businesses have complex boundaries for business and personal expenses. Even if there was an element of personal use, this would need to be the subject of a partial recovery (section 24(5)). All of these issues required a full hearing at which the Tribunal could examine the evidence.
The test to be applied from Fairford is whether there is “a realistic, as opposed to a fanciful prospect of succeeding on the issue at a full hearing” and the Tribunal must avoid a mini trial.
Mr Joseph conceded in the hearing that some claims, specifically the Now TV, betting, credit card and PayPal claims were not valid. We agree and these claims should be treated as withdrawn or otherwise struck out.
On the balance of these claims, in my view the Appellant does not have a realistic chance of winning in a full appeal. It may be (and this should not be taken as expressing any view on substantive merits) in some cases arguable that the nature of the purchases are such that the Appellant could in principle recover the associated input tax, for example computer equipment. However, it is clear that the costs of all these claims were incurred by Mr Joseph and never reimbursed by the Appellant. For pre-incorporation supplies I note Regulation 111(b)(i) but the point must also be the case generally that the purchases were not by the Appellant and the Appellant did not incur the VAT. On that basis I cannot see how the claims could realistically succeed.