Mochars Ltd v The Commissioners for HMRC

Introduction

1. The documents provided to the Tribunal before the hearing were as follows: (1) a documents bundle including some authorities (523 pages); (2) an additional authorities bundle (281 pages); (3) skeleton arguments from each of the parties. Outline of the case

2. This is the Appellant’s appeal against HMRC’s decision to reduce the Appellant’s VAT repayment claim for the 12/23 period from £29,394.80 to £76.00.

3. The reduction was based on two sets of purchases for which the corresponding input tax had been claimed in the Appellant’s 12/23 return: (1) 77 transactions for which tax invoices that were provided to HMRC were shown to have been dated many months after the repayment claim was made; and (2) 24 transactions for which no tax invoices or any other supporting evidence had been provided to HMRC.

4. At the beginning of the hearing, we were told that the Appellant’s appeal was focused solely on the 24 transactions, the input tax of which totals £6,128.78.

5. For the reasons that follow, we dismiss the appeal. Findings of fact

6. We heard evidence from two witnesses: (1) Mr Chun Him Tam, the sole shareholder and a director of the Appellant; and (2) Mr Ali Hussain, the HMRC officer who made the decision under appeal.

7. Initially, Mr Tam tended to deflect questions put to him and try to argue the Appellant’s case from the witness box. However, once we made clear to Mr Tam what was expected of him (which was simply to answer the questions put to him to the best of his ability) he gave his evidence in a straightforward fashion. Officer Hussain also gave clear evidence and direct responses to the questions asked of him.

8. Accordingly, we had no concerns about the credibility of either witness and we found their oral evidence helpful in clarifying the facts that we had to consider.

9. Based on that evidence and the documents before us, we make the following findings of fact. (1) The Appellant registered for VAT on 1 June 2023 and has submitted tax returns ever since on a monthly basis. (2) At all relevant times, the Appellant’s business was to purchase luxury goods, such as clothes in the UK and export them to customers outside the UK (mainly, but not exclusively, in China). (3) The purchases were undertaken by Mr Tam personally, or occasionally by friends. Mr Tam accepted that some of the purchase receipts might have been lost. (4) The Appellant’s purchases are generally standard rated, whereas its sales (by virtue of being the exporting of goods) qualify for zero-rating. (5) Consequently, the Appellant’s VAT returns will usually give rise to a claim for a repayment of VAT. (For completeness, the July 2023 period showed nil input and nil output tax.) In the first eleven months, the Appellant showed no output tax so that the only entries on its VAT returns concerned taxable inputs. (6) HMRC commenced an investigation into the Appellant’s VAT return for the month ended 31 December 2023 (“12/23”) as well as for the months ended 31 January 2024 and 29 February 2024. That investigation formally commenced by a letter dated 25 April 2024. That letter, written by Officer Vincent, requested sight of the six invoices representing the highest amount of VAT, the VAT audit trail and the Appellant’s bank statements for the periods under review. (7) Over the next six months, despite a number of repeated requests by Officer Vincent, this information was not sent. However, a list of 101 purchase invoices comprising the £29,394.80 input tax claim for the 12/23 period was provided. (8) The list indicated that a number of these purchases had been paid by credit card. By this stage, another officer was looking at the case (Officer Smith) and, on 15 August 2024, she asked the Appellant to provide copies of the credit card statements that include those purchases. That information request was not complied with. (9) With the exception of invoices from the Appellant’s then accountants in relation to fees paid in early 2024, none of the invoices requested by HMRC were provided until 21 October 2024. (10) On that date, the Appellant eventually provided 77 invoices in relation to the 12/23 repayment claim. These were provided by Mr Feng who was now representing the Appellant. (11) Those 77 invoices all came from Harrods Ltd in Knightsbridge and related to transactions that had taken place in the last four months of 2023, although the invoices themselves were all dated September or October 2024 (i.e. approximately one year later). The total input tax relating to those 77 invoices was £23,119.22. (12) On 11 November 2024, Officer Hussain who was now conducting the investigation requested further information. This included a request for sight of the remaining 24 invoices, all of which concerned purchases from a number of UK-based suppliers (including, again, Harrods). The total input tax in respect of those 24 transactions was £6,128.78. (13) At the same time, Officer Hussain asked a number of questions about the Appellant’s business. Mr Feng replied by e-mail on the same day. (14) On 19 November 2024, Officer Hussain stated HMRC’s then current position (to give the Appellant a further opportunity to respond prior to a formal decision being made). HMRC’s position was that of the input tax originally claimed: (a) the input tax claims for the invoices referred to at ‎(10) above were to be disallowed because, at the time of the claim, the Appellant did not have a valid tax invoice; (b) the input tax claims for the invoices referred to at ‎(11) above were to be disallowed as there had been no provision of invoices at all or any other supporting evidence, the officer concluding that (as with the previous category) if any valid invoice were to be produced at a later date, it could then be the subject of a valid claim; and (c) the input tax for services from the Appellant’s accountants (totalling £76) would be allowed by discretion. There were some minor discrepancies in the papers as to the actual totals for each category (which might only partially be explained by a possible transposition error). However, the overall difference (£70.80) is not considered to be material and this discrepancy is not considered any further. (15) Accordingly, Officer Hussain’s provisional view was that the input tax claim should be reduced from £29,394.80 to £76.00. (16) Following a request from Mr Feng within his 11 November 2024 response that the provisional decision be formalised sooner rather than later, a decision was then made by Officer Hussain on 29 November 2024 formally reducing the VAT repayment for the 12/23 period from £29,394.80 to £76.00. That is the decision under appeal. For the reasons behind that decision, Officer Hussain’s letter of 29 November expressly referred back to the reasons set out in his 19 November 2024 letter. (17) In December 2025, the Appellant made Error Correction Notice claims in relation to the 77 invoices referred to at ‎(10) above. The repayments have since been made by HMRC. At the beginning of the hearing, the Appellant withdrew the aspects of its appeal that concerned those invoices.

10. Mr Tam expressly confirmed (and we accordingly find) that the Appellant did not have any valid tax invoices for any of the relevant transactions until September 2024 (being after the 12/23 return containing the repayment claim was submitted) and the remaining 24 invoices are still not available. He also confirmed (and we accordingly find) that the Appellant has still not provided the bank statements that would evidence the purchases. The relevant legislation

11. With the exception as to the meaning of regulation 29(2) of the VAT Regulations (to which we return below), the effect of the relevant legislation was undisputed. In summary, the legislation provides as follows: (1) Section 24(1) of the Value Added Tax Act 1994 provides that “input tax” is the VAT incurred by a taxable person in relation to supplies of goods or services to that person. (2) Section 25 entitles the person to a credit for the input tax relating to any particular VAT period to be set off against the person’s liability for VAT in relation to its outputs for that period. Where, as here, the input tax exceeds the output tax, the person is entitled to repayment of the excess. The availability of these credits or repayments is, however, expressly limited to “input tax as is allowable under section 26” (section 25(2)). (3) Section 26 provides that the allowability of any input tax is to be determined by regulations. (4) Regulation 29(1) of the Value Added Tax Regulations 1995 (SI 1995/2518) provides the general rule concerning a claim for input tax. (5) At its simplest, the input tax claim may be made in the VAT return for the period in which the VAT became chargeable. (6) However, that is subject to a number of exceptions embedded within regulation 29(1). Those that are relevant to this appeal are considered below. (a) First, HMRC have the power to allow an input tax claim that would not otherwise be permitted under regulation 29(1). (b) Secondly, an input tax claim may not be made until the taxpayer holds particular documentation (in which case, the taxpayer “shall make his claim on the return for the first prescribed accounting period in which he holds that … [documentation]”). (c) What constitutes the relevant documentation is provided for by regulation 29(2). That will in cases such as this typically be a VAT invoice that conforms with the requirements of regulation 13. (d) Regulation 16 provides that retailers may issue VAT invoices with less [ sic ] particulars, provided the consideration does not exceed £250. This sentence which is taken from HMRC’s Statement of Case was agreed by the parties to be an accurate summary of regulation 16 as needed for the purposes of this appeal. We agree. (e) Regulation 29(2) concludes with a proviso which reads as follows: … provided that where the Commissioners so direct, either generally or in relation to particular cases or classes of cases, a claimant shall hold or provide such other evidence of the charge to VAT as the Commissioners may direct. (7) Section 83(1)(c) provides that an appeal may be made against any decision concerning the amount of any input tax which may be credited to a person. The Appellant’s submissions

12. Given that the VAT in relation to the 77 Harrods invoices was no longer in issue, Mr Feng’s submissions on behalf of the Appellant focused on the remaining 24 invoices.

13. Mr Feng’s argument was simply that Officer Hussain had failed to consider exercising the discretion as required by the proviso to regulation 29(2) and, in doing so, failed in his duty to give the Appellant any opportunity to provide any alternative evidence.

14. We asked Mr Feng whether, if we disagreed with him on that ground by concluding that the officer had considered exercising the discretion, he was proposing to argue that the outcome of the officer’s exercise of that discretion was irrational. After considering the matter for a short while, Mr Feng confirmed that he was not running that alternative case.

15. The basis of Mr Feng’s challenge was the wording of the 19 November 2024 pre-decision letter which was expressly incorporated into the actual decision letter ten days later. That letter was made up of three parts: (1) the decision to deny the repayment in relation to the 77 invoices on the basis that, at the time that the claim was made, the relevant invoices were not held (regulation 29(1) was cited); (2) in respect of the 24 invoices, Officer Hussain wrote: Invoices have not been provided for the following purchases. As I don’t have the evidence in all cases below, I can only assume the evidence will be similar to above and you should reclaim the VAT in the relevant period. Therefore, it is my intention to refuse these as well. (3) in relation to the remaining £76, Officer Hussain wrote: I have applied discretion and allowed the following given you have provided invoices for your accountant for future periods.

16. Mr Feng made the following arguments: (1) regulation 29(2), by using the word “direct” twice in the proviso, obliges HMRC to advise taxpayers of the possibility of providing alternative evidence and obliges HMRC to give taxpayers the opportunity to do so – the officer thus failed to comply with those obligations; (2) the officer’s reasoning was solely focused on the absence of any invoices and, therefore, he did not consider the possibility of taking into account alternative evidence – this contrasted with the approach taken in relation to the VAT incurred on the accountancy services received by the company; (3) in addition, Officer Hussain’s decision failed to recognise the fact that, in relation to five of the invoices, where the goods acquired cost less than £250, more limited evidence such as till receipts might have been appropriately considered. HMRC’s duty

17. Mr Feng relied upon what was said by this Tribunal in Lucky Technology Ltd v HMRC [2022] UKFTT 366 (TC) at [195]: We find that it was an error of law repeatedly to tell the appellant that only VAT invoices would do.

18. He also relied on a passage in this Tribunal’s decision in Eurocent (Buckingham) Ltd v HMRC [2025] UKFTT 1253 (TC) at [47]: HMRC’s discretion in Regulation 29(2) is the ability to direct that a taxpayer should or is permitted to hold evidence other than VAT invoices.

19. We do not agree with Mr Feng’s interpretation of regulation 29(2). It does not require HMRC to advise taxpayers of the possibility of providing alternative evidence. The word “direct” is not being used in the sense of HMRC giving any instruction to taxpayers, but in the sense of making a determination to permit a particular derogation from the normal rule that one of the specific types of document listed earlier in regulation 29(2) must be held and deciding instead that alternative evidence (to be determined by HMRC) might, in such cases, be sufficient.

20. We do not read the passage from Eurocent to say otherwise. It is in any event, a paraphrase of the proviso to regulation 29(2) rather than an interpretation of it (and we do not believe it is trying to do any more than that).

21. The passage in Lucky Technology , when read in context, similarly does not support the proposition being put forward by Mr Feng. That was a case where the officer, when communicating to the taxpayer the question of discretion, said it would be applied only if it proved impossible to obtain VAT invoices. As the First-tier continued to say in [195]: The error of law was in giving the appellant the impression that there was no point in Mr Suryaatmadja [the sole director and shareholder of the appellant in that case] obtaining and then providing alternative evidence such as information to inform the till receipts – for example, which credit card matched which purchaser and how that purchaser was linked to the appellant (if the purchaser was not Mr Suryaatmadja himself) – because alternative evidence would at that point make no difference.

22. Thus, whilst it is clear that insisting upon invoices and stating that nothing else will do amounts to an error of law, there is nothing in Lucky Technology that mandates HMRC to tell taxpayers what alternative evidence to produce.

23. As a result, we do not accept that there was any duty on Officer Hussain to give further instruction to the Appellant concerning the possibility of relying on alternative evidence.

24. As to whether Officer Hussain made the same mistake as the officer in Lucky Technology , we address that in the next section. Focused solely on the absence of invoices

25. Mr Feng’s argument is that Officer Hussain declined to exercise any discretion in relation to the missing invoices. We do not accept that that argument is supported by the contemporaneous documentation.

26. In the pre-decision letter, Officer Hussain wrote as follows: Invoices have not been provided for the following purchases. As I don’t have the evidence in all cases below, I can only assume the evidence will be similar to above and you should reclaim the VAT in the relevant period. Therefore, it is my intention to refuse these as well.

27. We accept that that the wording of the first sentence focuses solely on invoices. Furthermore, the second half of the second sentence makes the assumption that no invoices were held at the time of the repayment claim (in the same way as there were no invoices held at that time for the other 77 transactions). In the circumstances where HMRC had repeatedly asked for evidence since April 2024 and where the Appellant eventually produced invoices for 77 out of 101 transactions, we consider that it would have been reasonable to conclude that, not only were the invoices not held at the time of the repayment claim, but it was proving extremely difficult to obtain them. Such a conclusion will have proven correct in this case (see ¶‎10 above).

28. However, the first part of the second sentence does not refer to “invoices” but to “evidence”. This was in the context of a case where, for almost seven months, HMRC had repeatedly asked for bank statements and audit trails (over and above the request for invoices). Such alternative evidence had not been forthcoming despite the repeated requests.

29. In cross-examination, Mr Feng suggested to Officer Hussain that he should have referred to regulation 29(2) expressly and then he sought to quiz Officer Hussain on the wording of that provision. In respect of the former line of questioning, we do not consider that, as a general rule and in particular in this scenario, the application of a statutory discretion necessarily requires a statement of the statutory source. In respect of the latter, we do not consider that cross-examination is the appropriate forum for ascertaining an officer’s recall of the legislation. What is important is whether, when carrying out his duties, Officer Hussain took into account the matters he was required to take into account and that he did not take into account irrelevant considerations.

30. Mr Feng sought to argue that Officer Hussain’s error is demonstrated by the contrast between (on the one hand) his wording concerning the 24 transactions (and the alleged focus on invoices) and (on the other) his willingness to consider alternative evidence in relation to the accountancy services. We disagree. (1) First, it is natural that Officer Hussain should have referred to “invoices” because he was made aware of these 24 transactions as they were identified on a list of 101 invoices previously provided by the Appellant to HMRC. Furthermore, these 24 transactions were of a type very similar to the 77, for which late invoices had been provided. (2) Secondly, we consider the reference to the accountancy services weakens rather than strengthens the Appellant’s case. It shows that Officer Hussain was fully conscious of the ability to consider alternative evidence. In our view, this reinforces our conclusion that the use of the word “evidence” is being used in the sense of any corroborative evidence rather than evidence in the form of a fully compliant VAT invoice.

31. It should also be noted that the 19 November 2024 letter was a pre-decision letter rather than a final determination of the repayment claim. As Officer Hussain’s covering letter to the Appellant stated: Please let me know if you’d like to comment on my calculation, or give me any more information.

32. The only reason why Officer Hussain proceeded to finalise the decision just ten days later was because the Appellant (through its adviser, Mr Feng) wanted the officer to expedite the decision.

33. Our conclusion, therefore, is that Officer Hussain not only recognised that alternative evidence might be taken into account but, by the express use of the word “evidence” (on the first occasion), actually alluded to it. Thus, we conclude that the pre-decision letter does not wrongly focus on invoices at the expense of alternative evidence.

34. Furthermore, given the wording of the pre-decision letter as a whole, we also find that Officer Hussain considered exercising his discretion in relation to the 24 transactions. However, given the complete lack of corroborative evidence that would allow the purchases to be verified (despite being asked for over nearly seven months), it was inevitable that the decision would be to refuse the input tax claims.

35. We find that there was no error in the approach taken by Officer Hussain. The low-value invoices

36. The additional argument in relation to the low-value invoices is that Harrods was not obliged to provide VAT invoices for these items. However, that does not help the Appellant. Regulation 16 provides a concessionary treatment for retailers on the assumption that the typical retail purchaser is a consumer who will have no need to obtain a formal VAT invoice. It does not provide a relaxation for VAT registered persons who wish to make input tax claims in relation to goods acquired from retailers. Indeed, regulation 16 expressly provides that retailers are required to provide VAT invoices upon request in relation to purchases by VAT registered persons, with a simplified regime applying in cases where consideration is no more than £250.

37. We do not see how Officer Hussain could have treated those five cases any differently in the absence of any VAT invoice (simplified or otherwise) or indeed any other evidence to support the claim that a purchase had been made. Conclusion

38. For the preceding reasons, the appeal is dismissed. Right to apply for permission to appeal

39. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 20 th FEBRUARY 2026