UT/2023/000067 - [2024] UKUT 00106 (TCC)

As already indicated, it is convenient to deal with Grounds 1 and 2 together.

It was common ground that the underlying supplies of investment gold fell within Item 2 Group 15 of Schedule 9 to VATA. It was also common ground that the statutory authority for the Notice was regulation 31A(1)(b) which applied where there was a supply of investment gold within Item 2 “which subsequently results in the transfer of the possession of the investment gold.” From this it followed that the transactions in question had to involve the transfer of possession of the investment gold. Finally, it was common ground that QASL’s customer at no time obtained physical possession – the investment gold was held in a vault by a third party under a contract of bailment.

Essentially, HMRC argued that, although QASL’s customer (the Designated Employee) did not have physical possession, the customer did have the right to obtain physical possession of the investment gold. That right was sufficient to establish that the gold was “delivered, or otherwise made available to” QASL’s customer (Section 6.1 of the Notice (Footnote: ²)) or “delivered or available to be taken away by” by QASL’s customer (Section 7.1 of the Notice). Section 6.4 of the Notice, which does have the force of law, requires an invoice to contain the name and address of the purchaser of the investment gold and the delivery address, if different. The reference in regulation 31A(1)(b) to the subsequent “transfer of the possession of the investment gold” included, on HMRC’s case, the transfer of the right to obtain possession.

It is not, in our view, necessary to determine whether the right to obtain physical possession was sufficient for the relevant provisions of the Notice to apply. This is because we have come to the conclusion that the Designated Employee of QASL’s client did not have the right to obtain possession of the gold that QASL purchased on his/her behalf. As Mr Edwards submitted, the Second Waiver had the effect that the Designated Employee waived the right to obtain physical possession of the investment gold. It is also clear that when Mr Graham, the director of QASL, signed the Second Waiver he was doing so as agent for the Designated Employee pursuant to the Supply of Services Agreement, dated 24 February 2016, between QASL and the Designated Employee. Therefore, the Designated Employee had no right to the delivery or physical possession of the investment gold.

The FTT at [25] referred to the Second Waiver in passing but without apparently appreciating or, possibly, having its attention drawn to its significance. It follows, therefore, that the FTT’s conclusion that the investment gold was delivered or available to be taken away and that, therefore, QASL should have complied with the invoicing and record keeping requirements set out in the regulations, was an error of law.

We accept, as did the parties, that the scope of the Notice could not be wider than the scope of the language used in regulation 31A(1)(b), viz that the supply of the investment gold had to result in the subsequent “transfer of the possession of the investment gold”. However, for the reasons we have given, it is not necessary for us to express a concluded view on the width of the meaning of this expression (i.e. whether it included the mere right to obtain physical possession) because the Designated Employees had neither physical possession nor the right to obtain physical possession of the investment gold.

It is also unnecessary for us to reach a view on a point we raised with the parties in argument in relation to the application of the presumption against doubtful penalisation to the interpretation of the Notice (and the wording of regulation 31A(1)(b)).

The parties’ submissions included references to the case-law in relation the need to determine the economic reality of the transactions in order to establish the nature of the supplies being made. However, it seems to us that the contractual framework in this case clearly expresses the economic reality of the transactions, that the nature of the supplies was not in dispute and that it was therefore unnecessary to address these authorities.

For the reasons given above, the Decision cannot stand and QASL’s appeal must be allowed.

In reaching this conclusion, it would be harsh, in our view, to express undue criticism of the Decision. The effect of the Second Waiver was not raised or even mentioned in QASL’s skeleton argument before the FTT (Mr Edwards informed us that he was instructed very shortly before the FTT hearing). Mr Edwards also informed us that, whilst the Second Waiver was mentioned in cross-examination by Ms Brown and in his reply, he accepted that his submissions before the FTT on this point had not been made with the same force as they were made before us. It seems likely, therefore, that the terms and significance of the Second Waiver were not fully drawn to the attention of the FTT.

In the light of our conclusions on Grounds 1 and 2, it is unnecessary for us to express any view on Grounds 3-9.