UT (Tax & Chancery) UT/2023/00099 - [2025] UKUT 00013 (TCC)

The case of Scandico concerned the appellant’s appeal against three decisions made by HMRC, the first of which was set out at [4] of the judgment:

“As discussed at my visit to your premises on 10th May 2011, Apple till receipts which you have provided to support the claimed input tax do not constitute proper tax invoices because they do not contain all of the required information, each iPhone purchased is in excess of £250 (inclusive of VAT), which is the limit for which a simplified VAT invoice can be used in relation to [a claim for] input tax deduction; so proper documentary evidence in relation to the supplies is not held by [Scandico]. However, as [Scandico] has not produced any records or documentation that enables HMRC to examine an audit trail to confirm that it had received the taxable supplies as described on the till receipts it has not incurred the right to deduct in the first place.”

The two subsequent HMRC decisions were in similar terms, see [9] of the judgment. The UT summarised the statutory provisions and the FTT decision, and then said at [39]:

“The role of the First-tier tribunal is to examine a decision that HMRC have taken and decide whether that decision was right or wrong. Sometimes the test that is applied in examining HMRC’s decision is a full merits appeal. Sometimes it is a review as to whether the decision fell within the reasonable bounds of HMRC’s discretion.”

The UT continued at [40]:

“What the case officer decided is that, in the absence of VAT invoices from Apple to Scandico, there was not enough information provided by Scandico for HMRC to decide whether there has been a taxable supply or not. HMRC
has therefore exercised the discretion conferred on it by regulation 29(2) of the VAT Regulations 1995 by declining to direct that the alternative evidence that Scandico provided should be treated as sufficient evidence of the supply of the iPhones to Scandico. That is the decision which has been taken by HMRC and hence it is the decision that can be appealed and it is the decision that the tribunal should address.”

A similar point was made at [43]:

“In appeals of this kind, the First-tier tribunal should address only the decision
which is before it, namely HMRC’s decision that, in the absence of the VAT receipts, they were not prepared to exercise their discretion to accept the alternative evidence provided by the taxpayer as to whether there had been a taxable supply. The test that the First-tier tribunal applies in reviewing that decision is the test set out in Kohanzad.”

As we noted earlier in this Decision, the test set out Kohanzad is whether the officer in question had acted as no reasonable officer could have acted.

The UT then added at [44] that the task of FTT is “not to ‘fill in the gaps’ or ‘complete the picture’ in order to come to a conclusion, for the first time, as to whether all the substantive requirements for deduction are met”. At [53] the UT considered the principles of EU law, saying:

“We do not consider that there is an inconsistency between the obligation on Member States to allow input tax deduction when the substantive requirements have been satisfied on the one hand and the discretion conferred on HMRC by regulation 29(2) to decline to accept alternative evidence in a particular case on the other hand. It is true that the European Court and the Advocates General have emphasised in the cases we have cited that the Member State must not place additional obstacles in the taxpayer’s path when the substantive requirements for deduction have been fulfilled. But that discretion on the part of the tax authority where the taxpayer cannot produce a compliant VAT invoice is clearly contemplated by the Directives. Provided that HMRC focus on the relevant question, namely has the taxpayer established that the substantive conditions for deduction are in place, the exercise of that discretion does not, in our judgment, amount to the imposition of an additional formal requirement. In a case where HMRC have taken a decision that they are or are not satisfied, the tribunal will examine that decision and decide whether that decision was reasonable.”

At [56], the UT said this about Petroma:

“In our judgment Petroma is authority for the proposition that where the Member State tax authority adopts a decision refusing the right to deduct VAT because the information provided by the taxpayer is incomplete or irregular, the Sixth VAT Directive did not require the tax authority to revisit that decision when further information was provided after the decision has been taken. The position should be no different where the further information is provided to a tribunal in the context of an appeal against the initial refusal. This must apply equally to the PVD as to the Sixth VAT Directive. The fact that the FTT did, despite its misgivings about the relevance of the exercise, actually examine the facts in detail and conclude that there was a supply does not allow Scandico to side step the exercise of HMRC’s discretion, or to require that discretion to be exercised by reference to the later information before the FTT.”