TC09611 - [2025] UKFTT 00987 (TC)

As can be seen, at every stage, Mr Webb has relied upon the 2005 Letter. In the course of the hearing we went through that letter with him because we had explained that Mrs Nazari was an Inspector of Taxes with the Inland Revenue and she was concerned only with Income Tax and CGT. When the enquiry was opened in 2004, Customs and Excise, which was completely separate from the Inland Revenue, dealt with VAT. HMRC was only formed by a merger of the two entities on 18 April 2005.

As we have recorded in paragraph 16 above, Mrs Nazari merely noted that Mr Webb had been reclaiming VAT. We do not accept that Mrs Nazari had investigated Mr Webb’s VAT records or sanctioned what he did in that regard.

We also explained that what constitutes a taxable business for income tax purposes does not now, or in 2005, necessarily constitute a taxable business for VAT purposes or vice versa.

Mr Webb’s business in 2001/02, which was the year with which Mrs Nazari was concerned, was very different from his activities in the periods with which we are concerned.

Although the enquiry had focussed on exempt supplies and, of course, that is a crucial point, for both parties at the heart of this appeal, was the issue as to whether or not Mr Webb was carrying on an economic activity through a business. If he was not, then he was not entitled to be registered for VAT or to reclaim VAT.

Mr Webb argued that it sufficed that he was self-employed, albeit he had filed no tax returns in that regard. However, being self-employed is not the test for VAT or for eligibility to be registered for VAT.

The Bundle included Babylon Farm Limited v HMRC [2021] UKUT 0224 (TCC) (“Babylon”) although there was no reference to it in HMRC’s Statement of Case or Review Conclusion letter. We allowed an adjournment so that Ms Brown could consider the case as she was not familiar with it and we then heard her submissions.

Given that time was short as the appeal was listed for the morning only, we suggested that she commenced with what are known as the six indicators derived from Customs and Excise Commissioners v Lord Fisher [1981] STC 238 (“Fisher”) as the analysis in Wakefield College v HMRC [2018] EWCA Civ 952 (“Wakefield”)deals with what Babylon described as “opaque” European authorities. Babylon cites not only Fisher and Wakefield but also numerous other authorities. Further, as the Tribunal in Babylon indicated at paragraph 53, the six indicators have a role to play and they do in this appeal.

For the avoidance of doubt, we have adopted the approach in Babylon which in turn adopts the approach in Wakefield (see paragraph 44 of Babylon).

We were not referred to it but, of course, Babylon refers to Article 9(1) of the Council Directive 2006/112/EC (the Principal VAT Directive or PVD) which defines both a taxable person and economic activity. It reads:

“'Taxable person' shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as 'economic activity'. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.”

Firstly, we considered whether there was a supply for a consideration, albeit that is not a sufficient condition for an economic activity.

The only supply made by Mr Webb was the sale of the three properties. Mr Webb argued that that supply did not have to be at a profit and he is correct.

We find that there was a supply for a consideration but the issue to be addressed is whether, objectively considered, the supply is made for the purposes of obtaining income therefrom on a continuing basis.

In principle, of course, the sale of residential properties can certainly be a source of income but as Ms Brown pointed out there were only the isolated sales of the three properties.

Windfield had been demolished at some point before 2013 and the ground cleared by no later than 2016 and possibly considerably earlier. It had been sold in September 2018. Dolphin had not been occupied at any stage between its purchase in 2006 and its eventual sale. Weyside was not occupied or indeed habitable between 2010 and its sale in March 2020.

Mr Webb has made significant VAT repayment claims over the years but we have some difficulty with his evidence. For example, as we narrate at paragraph 50 above, Mr Webb claimed that the petrol and diesel receipts in 02/21 related to all three properties and not just the Builder’s Yard. That is quite simply inaccurate. They were dated February and March 2021. Windfield and Weyside had been sold in 2018 and 2020 respectively.

As we have noted at paragraphs 54 and 55 above the scale of the VAT repayments claimed by Mr Webb indicate very significant expenditure of in excess of £100,000 on maintenance and that does not include the periods where the assessments were out of time.

Mr Webb told the Tribunal that he did not think that the invoices underpinning the returns for 08/18 to 11/20 would have been similar to those for period 02/21, ie not for the relevant period but he could not explain why 02/21 was so badly adrift. He was clear he no longer had any of the invoices for 08/18 to 11/20 as he said that he had given them all to George and could not now recover them. Quite why he still had the earlier invoices that he submitted for 02/21 is not clear.

Looking at Mr Webb’s own description of his activities in relation to the “maintenance and bits and pieces” (see paragraph 51) above we do not find it credible that such a large level of expenditure would have been incurred.

Although Mr Webb had intended to develop Dolphin and the Builder’s Yard that had never materialised and nor had the joint venture. There was no evidence in that regard other than Mr Webb’s indication that that had been his intention and as can be seen that intention, since at least 2005 and 2006 (see paragraphs 15(i) and 17 above) had come to nothing. The extract from Wakefield at [55] in paragraph 44 of Babylon makes it clear that subjective factors such as intention do not come into play when considering Article 9 of the PVD (see paragraph 78 above).

Looking at all of the circumstances, we do not find that Mr Webb has established that he was carrying on an economic activity through a business during the relevant period. Accordingly in terms of the relevant provisions of VATA he was not entitled to be registered for VAT and nor was he entitled to reclaim VAT.

Furthermore, the only supplies made by him were exempt in terms of Schedule 9, Group 1, item 1 VATA so as to no tax is payable. Mr Webb was not entitled to any of the input tax he has claimed regardless of the date on which it was incurred.

For all these reasons we uphold HMRC’s decision to deregister Mr Webb for VAT, deny the repayment for 02/21 and issue the assessments for the periods 08/18 to 11/20.

The 02/21 VAT return was very inaccurate. On the balance of probability, quite apart from the fact that, as we have found, Mr Webb was eligible to reclaim input tax, we find that the earlier returns will also have been inaccurate. We find that HMRC have established that the penalties for the periods 08/18 to 02/21 were timeously and competently issued on the basis of Mr Webb’s careless behaviour in failing to take reasonable care to establish the correct position before making claims for input tax.

We also find that, in the circumstances, HMRC’s 91% reduction in the amount of the penalties for the quality of the disclosure is generous and should not be increased.

There are no special circumstances in this case.

Lastly, the penalties cannot be suspended in whole, or in part, because Mr Webb has been deregistered for VAT.