The First-tier Tribunal has rejected an appeal for repayment of overpaid output tax in respect of coal sold to domestic customers at the full rate rather than the reduced rate because of insufficient evidence (McKiernan T/A AMK Fuels v HMRC  UKFTT 80 (TC)).
The appellant ran a small shop. A VAT visit revealed he kept very basic records. A suspended penalty was issued and various conditions made about the need for improved records. During the discussions HMRC advised the appellant that sales of coal of up to one tonne could be charged at the reduced rate of 5% as opposed to the standard rate of 20%.
The appellant attempted to reclaim overpaid output VAT on such sales made prior to the visit. When this was refused, he appealed to the tribunal.
The appellant had no sales records for the period but argued that based on the size/weight of bags sold, his knowledge of his customers and the way that they collected their coal he could be confident that no sales had been in excess of one tonne. The tribunal found his reasoning to be flawed but noted:
“We wish to make it clear that we consider that all of this arises from confusion and a lack of records, such that the evidence overall is unreliable as to history. We do not believe that there was any intention to mislead.”
It was also noted that while there is a statutory provision that allows HMRC to use best judgement, there is no equivalent statutory provision for taxpayers and no mechanism that allows them to make presumptions based on the assumed continuity of business practices. Evidence obtained from the improved records available after the VAT visit could not be used to support a claim before it.
The tribunal judged that:
“The law is clear that a person seeking relief from the standard VAT rate must have evidence to support their claim. In this case, we do not consider that there is enough evidence to support Mr McKiernan’s claim for repayment of overpaid VAT … The reduced rate is only available to those businesses who keep contemporaneous records which demonstrate that they meet the requirements for the reduced rate”.
The tribunal noted that while it was not in their jurisdiction in this case to judge whether HMRC’s actions had been “fair”, HMRC’s initial prompting that the reduced rate was available was evidence of fairness and that it would not be fair to business that kept appropriate records if non-compliant businesses were allowed to use a reduced rate where they have failed to keep records to support that rate.