Judgment summary
Unatrade Limited appealed against HMRC's decision denying 90% of its input tax claims for the 07/23 to 11/23 VAT periods, reducing the claim from £151,368.73 to £15,136.88 (1). HMRC denied the claims on the basis that Unatrade did not hold valid VAT invoices and HMRC would not exercise discretion under Regulation 29(2) VAT Regulations 1995 to accept alternative evidence (2).
The Tribunal found that none of the documents provided by Unatrade constituted a valid VAT invoice under Regulation 14 (21). The central question was whether HMRC had properly exercised its discretion under Regulation 29(2) in concluding that Unatrade had not provided sufficient alternative evidence (22).
The Tribunal concluded that Unatrade had substantially failed to provide evidence of the input VAT actually charged on the transactions, as the vast majority of documents did not show any VAT amount (33-37). The Tribunal held that any proper exercise of discretion would have reached the same conclusion, and therefore did not need to determine whether HMRC's actual exercise of discretion was flawed (49-50). The appeal was dismissed (52).
Background
Unatrade has been VAT-registered since March 2021 (4). Its trade involved purchasing luxury goods, predominantly Rolex watches, from UK high street retailers and exporting them to a company in Hong Kong for onward sale in the Chinese market, with supplies treated as zero-rated due to export, leading Unatrade to claim repayment of input tax on its purchases and submit monthly VAT returns (4).
HMRC opened a check into Unatrade's 07/23 VAT return, requesting supporting documentation for all transactions in the period, and Unatrade provided till receipts, bank statements and sales/export documentation (5). Following review, HMRC requested purchase invoices for two further transactions, after which the documents provided covered more than 99% of the input VAT claimed in the relevant period (6).
HMRC advised in a pre-decision email that the documents provided did not satisfy Regulation 14 requirements, either lacking purchaser details, showing incorrect purchaser details, or lacking a VAT rate or VAT amount (7). HMRC indicated it was considering reducing the allowed input tax to 5% and invited Unatrade to provide further evidence (8). Unatrade provided three further documents showing a VAT amount, but these were dated outside the periods in question (8).
HMRC concluded Unatrade did not hold sufficient evidence but, given some documents showed a VAT amount, proposed allowing a deduction of 10% of the input tax claimed (9). HMRC asked whether Unatrade had operated differently in the 08/23 to 11/23 periods; Unatrade responded that its business model was 'broadly the same' (10).
The decision under appeal was issued on 30 May 2024, and a subsequent review upheld the decision with a minor amendment to the 07/23 period (11). Unatrade appealed to the Tribunal on 4 October 2024 (11).
Core dispute
The parties agreed that none of the 56 documents provided by Unatrade constituted a valid VAT invoice meeting the requirements of Regulation 14 of the VAT Regulations 1995, so Unatrade had no automatic right to deduct the input VAT in question (21).
The issue for the Tribunal was whether HMRC had properly exercised its discretion under Regulation 29(2) in concluding that Unatrade had not provided sufficient alternative evidence to support its claim for deduction of input tax (22, 23).
Unatrade argued that HMRC's decision was flawed and unreasonable for several reasons, including that the officer treated absence of a valid invoice as determinative, misapplied the concept of 'systematic' failure by reference to Hotelbeds UK Ltd [2025] EWHC 2312, failed to properly consider alternative evidence, breached the principle of VAT neutrality, unfairly penalised Unatrade for supplier non-compliance, and improperly extrapolated from the 07/23 period without further enquiry (24).
HMRC contended that Officer Burns had properly exercised the discretion, that the discretion under Regulation 29(2) was an exception to the mandatory requirement for a valid VAT invoice rather than a norm, that alternative evidence had to be of the same level of detail as a valid invoice, and that there was no evidence Unatrade had attempted to obtain valid VAT invoices for the transactions in question (25, 26, 27).
Court findings
The Tribunal noted that HMRC's exercise of discretion can only be challenged on the ground that it was a decision no reasonable HMRC officer could have reached, citing Peachtree Enterprises Ltd [1994] STC 747 and Kohanzad [1994] STC 967 (28). The Tribunal also noted the decision in Tower Bridge GP Limited [2021] UKUT 0030, which held that alternative evidence must place HMRC in the same position as if a fully compliant VAT invoice had been provided, not merely evidence of a taxable transaction (32).
The Tribunal found that Unatrade had substantially failed to provide evidence of the input VAT charged on the relevant transactions; calculating a notional VAT amount from a gross total was no more than an assumption, not evidence of a charge to VAT (33, 34). For the 07/23 period, which covered more than 99% of the input VAT claimed, none of the documents included evidence of a VAT amount charged (37).
The Tribunal rejected the argument that Unatrade's inability to compel suppliers to issue valid VAT invoices assisted its case, noting that Mr Hanna had not even asked suppliers for valid invoices once he became aware the documents were insufficient (39, 40).
On extrapolation from the 07/23 period to later periods, the Tribunal found Unatrade had conceded in its skeleton argument that extrapolation was reasonable where the evidence for each transaction was the same, and Unatrade had confirmed its business model remained broadly the same in 08/23 to 11/23 (42, 44, 45).
Referring to Tower Bridge GP [2022] EWCA Civ 998, the Tribunal noted that the primary purpose of HMRC's Regulation 29(2) discretion is to allow correction of defective invoices by subsequent information, not to dispense with the need for evidence altogether (46-48). The Tribunal concluded that any proper exercise of discretion would have reached the same result, denying input tax for all periods under appeal, and therefore did not need to resolve whether HMRC's actual decision-making process was itself flawed (49, 50).
The Tribunal found no basis to regard HMRC's decision to allow 10% of input tax as unreasonable, noting no submissions were made that an alternative amount should have been allowed (51).
Outcome
The appeal was dismissed (52). The Tribunal upheld HMRC's decision to deny the disputed input tax claims, subject to the 10% deduction already allowed by HMRC.
Major issues / areas of contention
- Whether Unatrade held valid VAT invoices under Regulation 14 of the VAT Regulations 1995 for the disputed input tax claims.
- Whether HMRC properly exercised its discretion under Regulation 29(2) VAT Regulations 1995 to accept alternative evidence in place of valid VAT invoices.
- Whether a calculated or assumed VAT amount derived from a gross receipt total constitutes evidence of a charge to VAT.
- Whether HMRC was entitled to extrapolate from the 07/23 VAT period to the later 08/23 to 11/23 periods.
- Whether Unatrade's inability to compel suppliers to issue valid VAT invoices excused its failure to provide evidence of input tax.
- Whether, even if HMRC's exercise of discretion were flawed, the outcome would inevitably have been the same.