TC09611 - [2025] UKFTT 00987 (TC)

Mr Webb has been registered as a builder for VAT with effect from 16 October 1979.

Mr Webb stopped providing building services to third parties in 1995. He continued in business as a self-employed builder for his own purposes, albeit he did not enjoy good health. For a period, he let out accommodation.

On 14 May 2004, the, then, Inland Revenue opened an enquiry in terms of section 9A Taxes Management Act 1970 (“TMA”) into the tax return for the year 2001/02 and that encompassed the building accounts for the period 6/4/01 – 5/4/02 and the Letting Income Accounts for the period 6/4/01 – 5/4/02. A Code of Practice had been issued with the notice of enquiry.

Insofar as relevant to this appeal, the notes of meeting between Mr Webb, his accountant and HMRC on 28 September 2005 disclose, amongst other things, that:

On 12 December 2005, the Inspector of Taxes, Mrs Nazari, wrote to Mr Webb’s accountants (the “2005 Letter”) and insofar as relevant stated:

9 Dolphin Close (“Dolphin”) was purchased on 23 November 2006 and was not rented out because there were dangerous trees. The rationale for the purchase was because it adjoined the Builder’s Yard and Mr Webb hoped to develop both.

On 23 March 2013, Mr Webb, having sought advice from a Chartered Town Planner, was told that in relation to Windfield, the planning application had allowed the “Erection of a single storey dwelling and detached garage following demolition of existing dwelling and garage”. By that time the dwelling on the land had been demolished. The land was cleared of trees etc after the demolition and in any event by 2015/16.

The freehold of the cleared land at Windfield was eventually sold at a loss in September 2018 with the purchasers taking entry then, albeit they paid the balance of the purchase price being £40,000, in instalments over the following four years.

Weyside had been rented out between 2001 and 2009. It was not inhabited after 2009 as there had been a major land slip. It was sold at a loss in March 2020.

On 15 April 2021, HMRC wrote to Mr Webb intimating that a compliance check of the VAT return for the period 02/21 (and the records for that return) would be carried out before the VAT repayment of £1827.61 was authorised.

On 20 April 2021, Mr Webb telephoned HMRC and the record of that conversation states that:

The HMRC officer advised him to list all invoices to include the date, reference, description, VAT and net amounts. He was also asked to provide information about three properties that he owned.

On 22 April 2021, referring to the telephone call, Officer Kumar wrote formally to Mr Webb reiterating the requests for information.

On 17 May 2021 the officer wrote to Mr Webb referring to the telephone call and letter requesting that the information be provided by 28 May 2021 which failing the input tax claimed would be reduced to nil.

In an undated, handwritten, letter Mr Webb furnished details of three properties that had been owned by him being Weyside, Windfield and Dolphin and provided a schedule of invoices for which he was making a claim in the 02/21 period. That schedule referred to invoices dated between 2 September 2000 and 24 March 2021 and reads as follows:

On 24 May 2021, the officer replied asking for copies of a number of those invoices and copies of bank statements. A reply was requested by no later than 21 June 2021.

There was no reply so the officer sent a further reminder on 1 July 2021 requesting a response by no later than 21 July 2021 stating that if there was no reply the input tax claimed would be reduced to nil.

On 12 July 2021, Mr Webb replied by recorded delivery confirming that he had sent the requested items on 18 June 2021 and included a proof of posting receipt. He enclosed further copies.

On 3 August 2021 the officer wrote to Mr Webb referring to a telephone call with him that day (in fact the previous day). He recorded that Mr Webb had told him that:

The officer asked for confirmation as to which year Mr Webb intended to claim for the maintenance of the property or whether that would be ongoing until the property was sold. He confirmed the advice given on the telephone that the sale of the property might give rise to a tax liability and Mr Webb might therefore need a self-assessment tax form. He recommended that Mr Webb got advice from an accountant. He requested a reply by 23 August 2021 confirming that that could be done by telephone. There is no record of a response.

On 7 September 2021, the officer wrote to Mr Webb stating that the amounts declared in the VAT return had been checked and that HMRC believed that there were inaccuracies in the return. He confirmed that VAT is exempt on residential properties and therefore no refund of VAT was possible. Accordingly, Mr Webb was not entitled to a VAT credit and the reduction in the VAT account would be made under section 73 VATA.

On 8 September 2021, the officer wrote to Mr Webb explaining that since all of the supplies are exempt he had never been eligible to claim VAT repayments for any of the work undertaken on the residential properties. Therefore, an assessment would be issued to reclaim all VAT repayments received from period 05/17 through to period 11/20. The consequence of that would be an assessment in the sum of £31,258.

He then asked for information in relation to how the error had occurred namely: –

He explained that penalties might be issued. He also intimated that since all of the supplies made by Mr Webb were exempt for VAT purposes he would be deregistered for VAT from 28 February 2021.

On 30 September 2021, Mr Webb wrote to the officer arguing that the three properties in question were all trading properties purchased for commercial reasons in connection with his business as a builder. He enclosed a copy of the 2005 Letter. He argued that all were commercial business assets. He again said that he had relied on Inspector Nazariand his then accountant.

The officer replied on 21 October 2021 stating that:

On 19 November 2021, Mr Webb replied requesting a review. He again relied on the 2005 Letter. He explained that:

On 11 February 2022, HMRC issued their Review Conclusion letter upholding the original decision.

The key points in that letter include:

Thereafter, HMRC notified Mr Webb:

On 23 May 2022, those penalty assessments were issued by HMRC.

On 9 August 2022, HMRC deregistered Mr Webb for VAT with effect from 28 February 2021.

Mr Webb had lodged the first of the two appeals with the Tribunal on 11 March 2022. The second, and late, appeal was lodged with the Tribunal on 26 September 2022.

On 6 December 2022, Mr Webb’s application for ADR was accepted.

The Record of Outcome of ADR dated 13 February 2024, insofar as relevant, stated that:

Mr Webb’s oral evidence was that although he had originally prepared VAT returns when they were submitted in paper form, his friend George who was a retired mortgage broker had prepared and submitted the electronic returns because he had a computer and could use it. He had no tax knowledge. Mr Webb would take the invoices to him each quarter and they would sort them out and the return would be filed.

In 2021, George had been 72 and he had told Mr Webbthathe could not continue doing the returns so Mr Webb had thought that he would either have to find someone else to help or he would have to deregister for VAT. Unfortunately, George had died after filing the 02/21 return.

He said that he had only given George invoices relating to the three properties.

When asked about the petrol station receipts in 02/21 and how he accounted for private mileage he confirmed that he did not keep mileage records so what he did was only give George some of the petrol receipts. On 5 August 2025, after the hearing, Mr Webb wrote to the Tribunal stating that the petrol and diesel receipts for period 02/21 were not just for the Builder’s Yard but also for all three of the properties, ie Windfield, Dolphin and Weyside.

In his oral evidence he had said that the invoices and receipts in respect of every period with which we were concerned related to what he described as maintenance of the properties such as repairs to fences and walls, clearing brambles, replacing locks etc. He would travel to the properties approximately once a week to check that they were secure. If necessary, he would pick up rubbish if there had been fly tipping. He would spend approximately one day a month on maintenance but perhaps more if there had been vandalism.

Mr Webb told the Tribunal that he no longer had copies of the invoices relating to any period other than 02/21 but they would have related to materials for repairs and replacements, tools, the purchase of a digger and tractor, planning and structural engineer’s fees etc.

In the earlier periods with which we are concerned being 08/18 until 11/20 the returns recorded no output tax, ie there were no supplies and the input tax claimed was:

That is a total of £21,970.60. That would suggest that in a period of two years and three months, quite apart from his own time and labour on what he described in his grounds of appeal as “maintenance and bits and pieces”, he had expended approximately £109,853 on maintenance of the three properties.

He had made no self-assessment tax returns in that period or indeed since 2008/09.

Mr Webb has consistently argued that he has never stopped being self-employed and that he always hoped to make a profit by selling the properties. He had been very unlucky. Only the Builder’s Yard still remained to be sold. Nothing had changed since the 2005 Letter in terms of how he operated other than that his rental income had ceased by 2010.

He had never claimed benefits because he was not entitled to do so given the ownership of the properties.

He had acted in good faith relying on the 2005 Letter. He asserts that Officer Nazari “was satisfied with the way the business was run and claiming VAT on the properties etc.”

In summary, HMRC argue that

The burden of proof rests with Mr Webb to establish that he is entitled to the VAT credits claimed on the VAT returns and with HMRC to demonstrate that the penalties were timeously and competently issued. The standard of proof is on the balance of probabilities.