Passion Incorporated Limited v The Commissioners for HMRC

5 February 2024

[2024] UKFTT 122 (TC)

First-tier Tribunal

A company appealed HMRC's decision to deny them a VAT refund. The company didn't provide enough proof that their expenses were business-related, so the court sided with HMRC. They had to pay the taxes.

Key Facts

•Passion Incorporated Limited appealed a best judgment VAT assessment and input VAT disallowances by HMRC.
•The dispute concerned VAT periods from 7/19 to 1/21.
•HMRC disallowed input VAT due to insufficient evidence linking expenditure to taxable supplies.
•The Appellant argued insufficient information from HMRC, data protection concerns, inconsistent treatment of claims, and previously accepted expenses being disallowed.
•HMRC raised concerns about the nature of expenditure, suggesting personal rather than business use.

Legal Principles

To recover input VAT, a direct and immediate link must exist between costs and taxable supplies.

VATA 1994, Section 24(1), Section 25(2), Section 25(3), Section 26

The taxpayer must demonstrate the link between expenditure and taxable supplies; the burden of proof is on the taxpayer.

Case Law and HMRC practice

Input VAT is generally not recoverable for personal use or business entertainment.

VATA 1994, Article 176 of Directive 2006/112, VAT (Input Tax) Order (SI 1992/3222)

A best judgment assessment is valid if HMRC fairly considers all material and reaches a reasonable decision; the burden is on the taxpayer to show excessiveness.

Van Boeckel [1981] STC 290

Outcomes

Appeal dismissed.

The Appellant failed to provide sufficient evidence linking expenditure to taxable supplies. The information provided was insufficiently detailed, and much of the expenditure appeared personal or related to business entertainment. HMRC's actions were reasonable.

HMRC's best judgment assessment for 10/19 upheld.

A minor error in HMRC's summary of the assessment did not affect its validity. HMRC had reasonable grounds to believe the return was incorrect, and the assessment was based on a reasonable expectation of the Appellant's VAT position.

HMRC's input tax disallowance for 01/20 adjusted.

HMRC corrected an error in disallowing input tax relating to advertising at Malden Golf Club, resulting in a revised amount of disallowed input tax.

Passion Incorporated Limited v The Commissioners for HMRC

Key Facts

Legal Principles

Outcomes

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