Judgment summary
Victoria Oil & Gas plc (VOG) appealed against a decision dated 31 January 2023 and assessments issued on 3 April 2023 totalling £884,049, covering VAT periods 01/19 to 07/22 (excluding 01/22) (1).
The parties agreed that VOG made supplies for consideration in the course of an economic activity to Gaz du Cameroun and Gaz du Cameroun SARL (together "GdC") (4). The disputed issues were whether the assessments were made to best judgment, whether disputed input tax was directly and immediately linked to supplies to GdC, and whether VOG made only taxable supplies and so could recover all input tax (5).
The Tribunal (Judge Blackwell) heard evidence from Officer Babita Hargun, Ms Chane Greenslade (a former VOG employee) and Miss Sabrina Choudhury (an employee of VOG's administrators, S&W Partners LLP) (21).
The Tribunal found that the assessments were made to best judgment (71), but allowed the appeal in part, finding that certain categories of input tax (costs recharged to GdC and various litigation costs connected to GdC's business) were directly and immediately linked to VOG's taxable supplies to GdC and were recoverable, while other categories (Kermerkol/Therium litigation costs and general corporate head office costs) were not shown to be so linked (82-95). The Tribunal also found that VOG did not make only taxable supplies, since services were provided to other, non-revenue-generating subsidiaries without consideration (96-101).
Background
VOG had been under enquiry by HMRC Officer Babita Hargun, beginning as a pre-repayment credibility check on 28 March 2022 into VOG's VAT repayment claim for period 01/22 (40). VOG described itself as the head office of a corporate group holding oil and gas assets at various stages of development, with Gaz du Cameroun SA (via the Logbaba project in Cameroon) being the group's only revenue-generating asset during the relevant period (41, 45-46, 96).
VOG's position shifted during the enquiry: its finance manager, Ms Greenslade, initially told HMRC that VOG did not make taxable supplies (42), but VOG's adviser, Mr Steve McCrindle of Haines Watts, later asserted that VOG made supplies outside the scope of UK VAT with a right to recover, including to subsidiaries other than GdC once they became productive (46, 52).
Officer Hargun, having received invoices and staff time analyses relating to GdC but no equivalent evidence for other subsidiaries, calculated a 12% input tax recovery rate based on staff time percentages drawn from VOG's own invoices (57). This rate was applied across the assessed periods, producing the assessments totalling £884,049 (58). VOG went into administration, with S&W Partners LLP appointed as administrators (3, 59). A review upheld the assessments on 29 September 2023, and two ADR meetings followed in 2024 (62-63).
Core dispute
The dispute centred on three issues: first, whether HMRC's assessments had been made to best judgment under section 73(1) VATA 1994; second, whether disputed input tax, including costs relating to various litigation matters, was directly and immediately linked to VOG's taxable supplies to GdC so as to be recoverable; and third, whether VOG had in fact made only taxable supplies across its business, entitling it to recover all input tax (5).
VOG argued that HMRC's methodology was flawed for failing to carry out a direct attribution exercise before applying a blanket staff-time percentage, and that most of the disputed input tax, including legal costs relating to the RSM arbitration, the Fotso dispute, insurance and well disputes, and the Kermerkol litigation, was directly attributable to supplies made to GdC (28-31).
HMRC accepted that VOG made taxable supplies to GdC but contended that VOG's intention to charge other subsidiaries was conditional, speculative and unenforceable, with no service agreements, invoices or enforceable obligations, so that input tax relating to those subsidiaries was not attributable to taxable supplies (32-34).
Court findings
On best judgment, the Tribunal found that Officer Hargun made an honest and genuine attempt to arrive at a reasoned assessment on the material available to her at the time, having repeatedly requested information and received inconsistent responses from VOG (64-67). The 12% recovery rate was derived from VOG's own documents, was not invented, punitive or arbitrary, and was rounded in VOG's favour (67). The assessments were therefore held to have been made to best judgment (71).
On the direct and immediate link question, the Tribunal found that costs recharged to GdC (category 1) and litigation costs connected to GdC's business, including the Fotso dispute, the MCBL insurance claim, the Radio Resources royalty dispute, the RSM arbitrations, the Weatherford dispute and the well dispute (categories 5 to 11), had the requisite direct and immediate link with VOG's taxable supplies to GdC and were recoverable, even though recharging had sometimes been delayed pending the outcome of proceedings (82-85).
By contrast, costs relating to the Kermerkol (Kazakhstan) litigation funded in part by Therium (category 2) were not linked to GdC's business, and no taxable supply by VOG to Therium was established on the evidence, including an incomplete copy of the Litigation Funding Agreement (86-91). General corporate head office costs and corporate legal costs (categories 3 and 4) were also not shown to be directly and immediately linked in full to VOG's taxable supplies to GdC, being general overheads of the wider business; the proportion already allowed by HMRC for these categories was left undisturbed (92-95).
On the final issue, the Tribunal found that VOG did not make only taxable supplies. Other subsidiaries received courier services and other support without consideration or any expectation of remuneration, which did not constitute economic activity, and VOG had not shown that a greater proportion of residual costs was attributable to its taxable economic activity (96-101).
Outcome
The appeal was allowed in part, to the extent of the amounts found recoverable in relation to categories (1) and (5) to (11), namely costs recharged to GdC and litigation costs connected with GdC's business (102).
The decision was expressed as a decision in principle. If the parties could not agree the consequential figures, either party could apply to the Tribunal for determination of the amount by which the assessments should be reduced, with any such application to identify the matters remaining in dispute and be accompanied by a period-by-period calculation and supporting bundle of invoices (103).
Major issues / areas of contention
- Whether HMRC's assessments totalling £884,049 were made to best judgment under section 73(1) VATA 1994.
- Whether disputed input tax was directly and immediately linked to VOG's taxable supplies to GdC, applying the principles in HMRC v Hotel La Tour Ltd and HMRC v Tower Resources PLC.
- Whether costs relating to the Kermerkol (Kazakhstan) litigation and the Therium litigation funding arrangement were recoverable, given the absence of evidence of a taxable supply by VOG to Therium.
- Whether general corporate head office and corporate legal costs were cost components of VOG's supplies to GdC or general business overheads.
- Whether VOG made taxable supplies only to GdC or whether unremunerated activity in relation to other subsidiaries meant VOG was not entitled to recover all input tax.