TC09603 - [2025] UKFTT 00931 (TC)

I agree with Mr Way that, since the Respondents made no decision as to whether the supplies in question were exempt or taxable, the FTT has no jurisdiction to entertain an appeal under Section 83(1)(b) of the VATA – see Earlsferry.

However, when it comes to the appeal under Section 83(1)(c) of the VATA, I do not agree with Mr Way that the FTT has no jurisdiction to consider whether the supplies in question were exempt or taxable. I say that because it is clear from the decision of the UT in Scandico that the jurisdiction of the FTT extends to a consideration of all the decisions which were made by the Respondents in the particular case. In Scandico, the only decision which was being challenged was the reasonableness of the Respondents’ refusal to exercise its discretion under Regulation 29(2). As such, if the only basis for the Respondents’ denial of the claims in this case had been the second reason set out in each of paragraphs 28 and 37 above, then I would agree with Mr Way that it would be clear from Scandico that any consideration of whether the supplies in question were exempt or taxable would be outside the scope of the FTT’s jurisdiction.

However, in this case, the first reason given by the Respondents for denying the claims was that no VAT had been charged. As Mr Brown pointed out at the hearing, this was not a decision which related to the exercise of the Respondents’ discretion under Regulation 29(2). Instead, it was a self–standing decision which the FTT is both entitled and obliged to address in the context of the appeal. It is impossible to determine whether that decision was right or wrong without addressing the question of whether the supplies were exempt or taxable because the payments made by the Appellant to the Suppliers were expressed to be VAT–inclusive. Consequently, even though Officer Ross, because of her misapprehension in relation to the similarity of the present facts to those in Zipvit, did not herself reach a decision as to whether the supplies in question were exempt or taxable, it is a question which the FTT must necessarily decide before it can reach a conclusion as to whether Officer Ross’s decision to the effect that no VAT had been charged was right or wrong.

The present circumstances are therefore distinguishable from those pertaining in Scandico where the relevant decision – the reasonableness or otherwise of the Respondents’ decision not to exercise their discretion under Regulation 29(2) – did not require any consideration of whether the appellant had received taxable supplies.

They are also distinguishable from those in Zipvit, where any payment in respect of VAT, if required, would have been made in addition to the amounts that had actually been paid by the appellant in that case. Here, since the payments made by the Appellant were inclusive of any VAT that arose, it is impossible for the FTT to determine whether the Respondents’ decision to the effect that no VAT had been charged was right or wrong without addressing the question of whether the supplies in question were exempt or taxable.

It follows from the above that, contrary to Mr Way’s submissions, I consider that the FTT does have jurisdiction to address the question of whether the supplies in this case were exempt or taxable, in addition to its consideration of whether the Respondents’ decision not to exercise their discretion under Regulation 29(2) was reasonable.

The conclusion which I have reached in paragraphs 42 to 47 above means that the Respondents’ application to strike out the appeal necessarily fails because they have not at any stage suggested that the Appellant’s prospects of succeeding in establishing that the supplies in this case were taxable fail the threshold laid down in Fairford and First De Sales as described in paragraphs 17 and 18 above. On the contrary, the application is based entirely on the proposition that the FTT has no jurisdiction to consider whether the supplies in question were exempt or taxable and, for the reasons I have given, I do not consider this to be the case. As for the question of whether the supplies in this case were taxable, in accordance with the guidance set out in First De Sales, I have not conducted a “mini–trial” of it but I see no reason to think that the Appellant’s prospects in succeeding on it are fanciful, as opposed to realistic – and the Respondents have made no submissions to that effect.

There is one further point which I should make in this context.

Even if I am wrong to have reached the conclusion set out in paragraphs 42 to 47 above, it is common ground that the FTT has the jurisdiction to consider the reasonableness or otherwise of the refusal by the Respondents to exercise their discretion under Regulation 29(2). That is something which the UT in Scandico went on to do after reaching its conclusion to the effect that the FTT had no jurisdiction to determine whether the appellant in that case had received taxable supplies. It follows from this that, in my view, even if the FTT in this case were to be precluded from considering whether the supplies made to the Appellant by the Suppliers were exempt or taxable, the Appellant might still be able to succeed in its appeal against the decision by the Respondents to refuse to exercise their discretion under Regulation 29(2). Whilst its success on that point might have limited value to the Appellant in that instance given that, on this hypothesis, it would have no means of obtaining a ruling from the FTT to the effect that the supplies in question were taxable, it would be up to the Appellant to decide whether to pursue the appeal on that basis. It would not be something which required the appeal to be struck out under Rule 8(3)(c) of the Tribunal Rules, in the same way that, in Scandico, having reached the conclusion that it had no jurisdiction to address the question of whether the taxable supplies in that case had been received by the appellant, the UT did not simply dismiss the appeal but went on to consider the reasonableness of the Respondents’ decision under Regulation 29(2).

In relation to this issue, Mr Way said that, in Scandico, there was a clear distinction between the issue which the UT had held that the FTT did not have the jurisdiction to consider – namely, the question of whether the taxable supplies which were agreed to have been made had been received by the appellant – and the issue which the UT had held the FTT did have jurisdiction to consider – namely, the question of whether the Respondents had acted unreasonably in refusing to exercise their discretion under Regulation 29(2). However, no such clear distinction arose in the present case because, here, the issue which the FTT did not have the jurisdiction to consider was not whether supplies which were agreed to be taxable had been received by the Appellant but rather whether the supplies themselves were taxable. If those supplies were not taxable, then there was no evidence on which the Appellant could rely as evidence of the receipt of taxable supplies. That was because the foundation for the Appellant’s claim was that the contracts between it and the Suppliers provided that the contract price was inclusive of all relevant statutory charges and taxes. As such, the taxability or otherwise of the supplies inevitably “infected” any consideration of whether the Respondents had acted reasonably in refusing to exercise their discretion under Regulation 29(2). An inability on the part of the Appellant to establish that the supplies were taxable – because of the jurisdictional limit on the FTT – inevitably meant that the Appellant could not establish that the Respondents had acted unreasonably in refusing to exercise their discretion under Regulation 29(2) and therefore the Appellant had no reasonable prospect of success on that issue.

I do not agree with that submission.

In the first place, I see no meaningful distinction between the issue which was held to be outside the jurisdiction of the FTT in Scandico and the issue which, on the hypothesis that I am now making, is outside the jurisdiction of the FTT in the present case. In both cases, the issue which is outside the jurisdiction of the FTT boils down to the same thing – namely, has the appellant in question received taxable supplies.

In addition, it is apparent from paragraphs [46] and [47] of the SOC that the Appellant has provided the Respondents with evidence other than VAT invoices of the amounts of VAT which it claims to have paid in this case. That evidence was in the form of a spreadsheet and it is that evidence which the Respondents took into account in refusing to exercise their discretion. I can see no reason why, even if the FTT were to be unable to determine whether the supplies in question were exempt or taxable, the Appellant would have no reasonable prospect of persuading the FTT that the Respondents’ refusal to accept that evidence to justify the exercise of their discretion under Regulation 29(2) was unreasonable. The two questions are entirely unrelated, as was demonstrated by the UT’s decision in Scandico.

If the taxability or otherwise of the supplies went to the question of the reasonableness of the Respondents’ decision to refuse to exercise their discretion under Regulation 29(2), then Scandico would not have been decided in the way it was. The UT would simply have held that, because of its inability to determine whether the taxable supplies in that case had been received by the appellant, the appeal should fail. It would not have gone on to address the reasonableness of the Respondents’ refusal to exercise their discretion under Regulation 29(2).

In short, I do not accept the distinction which Mr Way was drawing between the question of whether taxable supplies which were agreed to have been made had been received by the appellant (Scandico) and the question of whether the supplies received by the appellant were taxable (this case).

It follows from the above that the Respondents’ application to strike out the appeal is dismissed. The parties are required to send to the FTT (for the FTT’s consideration), within 21 days of this decision, an agreed draft of the directions for the further case management of the appeal or their respective submissions to the FTT to that effect.

As I have already noted in paragraph 14(14) above, in its response to Judge Brown’s decision of 6 June 2025 to hold an oral hearing in respect of the Respondents’ decision to strike out the appeal, the Appellant applied for a direction that its application of 21 January 2025 for a direction precluding the Respondents from defending their rejection of the Appellant’s claims on the basis that the supplies made to the Appellant by the Suppliers were anything other than standard–rated, which had been stayed by Judge Brown on 17 February 2025, be heard at the same time. However, neither party referred to this application in their skeleton arguments before the hearing of the application to strike out the appeal or at any stage in the course of the hearing. If the Appellant wishes to renew this application, it should do so within 14 days of this decision, giving reasons why the stay should be lifted, whereupon the Respondents will have 14 days from their receipt of the renewal within which to lodge their response to it.

Finally, I would like to make some observations about the Respondents’ conduct in these proceedings because, in my view, it falls short of the standards which the Appellant was entitled to expect from them.

When Officer Ross issued the denial letters on the basis that no VAT had been charged because “both the supplier and the customer accepted that the supplies were exempt” and then relied on the decision in Zipvit to support her denial, she made two mistakes. The first was to say that that the Appellant had accepted that the supplies in question were exempt and the second, which was partly in consequence of that first mistake, was to say that the facts in this case were similar to those in Zipvit.

As regards the first mistake, the letter from the VATP of 28 July 2022 made it apparent that, whilst the Suppliers were of the view that the relevant supplies were exempt, that was not the view which the Appellant had taken.

As regards the second mistake, Zipvit was a case where, at the time when the relevant supplies were made, both parties (and the Respondents) erroneously considered that the relevant supplies were exempt. Although the contract between the parties required the recipient of the supplies to pay the supplier an additional amount equal to the VAT arising on the supplies, the effect of that common mistake was that, even after the parties realised that the supplies in question were in fact taxable, that additional amount was never paid and the SC in Zipvit noted that there was now no prospect that the recipient could be made to pay, or would pay, that additional amount (see Zipvit at paragraph [6]).

It was therefore very different from the present case where, at the time when the supplies were made, the Suppliers considered that the relevant supplies were exempt but the Appellant, as the recipient of the supplies, considered that the relevant supplies were taxable. More significantly, if, as I have been asked to assume for the purposes of this application, the payments made by the Appellant to the Suppliers included an amount equal to any VAT arising in respect of the supplies, then the only proper basis for concluding that no VAT was paid by the Appellant in receiving those supplies was that the supplies were exempt.

It is therefore surprising that Officer Ross considered that the present facts were on all fours with those in Zipvit and that she gave no consideration to whether the VAT–inclusive language in the contracts necessarily meant that, in making its payments under the contracts, the Appellant had incurred VAT input tax.

The same errors were repeated by Officer McInnes in the review conclusion letter and were the basis for the Respondents’ first application to strike out the appeal on 28 March 2024.

The Respondents were then in error again when they submitted in the SOC that the Appellant had made no argument in its grounds of appeal that the supplies made to the Appellant by the Suppliers were taxable. Not only was it apparent from the letter from the VATP of 28 July 2022 that the Appellant’s view was that the supplies were taxable but ground 1 of the grounds of appeal had in fact stated that, in the Appellant’s view, the supplies were not exempt from VAT (which is to say that they were taxable). It is therefore surprising that the Respondents reached the conclusion that the Appellant had accepted that the supplies in question were exempt.

However, instead of apologising for the mistakes outlined above, the Respondents, in making the current application to strike out the appeal, have sought to take advantage of those mistakes. Had they approached the claim correctly, they would have realised that Zipvit was not an appropriate basis on which to deny the claim and that, instead, they were required to reach a view on whether the supplies in question were exempt or taxable before they could conclude that no VAT input tax had been incurred by the Appellant. It is regrettable that the Respondents have now sought to strike out the appeal in reliance on the fact that they did not adopt the correct approach.

Having set out at some length, through the letter from the VATP of 28 July 2022, the reasons for its conclusion that the supplies in question were taxable and explained that the Suppliers considered that those supplies were exempt, the Appellant was entitled to expect that the Respondents would come to a conclusion (and express a view) on that question in deciding whether to accept or deny the claim. I do not consider it to be appropriate for the Appellant to be told at this stage in the proceedings that the only way for it to compel the Respondents to fulfil their duty in this respect is by way of a claim for judicial review.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Rules. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.