FS Commercial Limited v The Commissioners for HMRC

Where HMRC refuses an input-tax deduction because requested VAT invoices have not been produced, an appeal against the exercise of the discretion under regulation 29(2) of the Value Added Tax Regulations 1995 is supervisory. The First-tier Tribunal reviews the decision on public-law principles and by reference to the material available to HMRC when the decision was made. It does not exercise HMRC’s discretion afresh or determine the claim on later evidence. A statutory assessment implementing the refusal does not convert the appeal into a full merits appeal. The decisive issue is the substance of HMRC’s decision, not the statutory gateway or form by which the appeal arises.

FS Commercial Limited appealed against HMRC’s refusal to allow input-tax deductions. HMRC had repeatedly requested the invoices underlying payments recorded under the code “Verity”, but the invoices were not produced before HMRC made its decision and assessments.

The First-tier Tribunal decided that its jurisdiction was supervisory and that it could not rely on invoices first produced after HMRC’s decision. The Upper Tribunal dismissed the appeal in [2025] UKUT 00013 (TCC). The central issue before the Court of Appeal was whether the existence of assessments under section 73 of the Value Added Tax Act 1994 gave the First-tier Tribunal a full appellate jurisdiction, including the ability to consider later-produced invoices.

Lewison LJ gave the leading judgment. Peter Jackson LJ and Miles LJ agreed. The appeal was dismissed.

1. Invoice and evidence requirements. The right to deduct VAT accrues when the deductible tax becomes chargeable, but its exercise requires the taxable person to hold the required invoice. An invoice is part of the proof mechanism enabling tax authorities to verify the levy and deduction. If requested invoices are not produced, HMRC may refuse the deduction unless alternative evidence establishes entitlement. That evidence must be supplied before HMRC adopts its refusal decision; later evidence does not require HMRC to revisit the decision. These principles were supported by the CJEU authorities including Terra-Baubedarf, Reisdorf and Petroma.
2. Supervisory jurisdiction. The substance of HMRC’s decision was an exercise of the discretion under regulation 29(2) of the Value Added Tax Regulations 1995. The First-tier Tribunal therefore had a supervisory jurisdiction. It could intervene for public-law reasons, including an error of law, unreasonable conduct, failure to consider relevant matters, taking irrelevant matters into account or irrationality. It could not exercise HMRC’s discretion afresh by considering later material.
3. Effect of the assessment and appeal gateway. The jurisdiction depended on the nature and substance of the decision, not whether the appeal arose under section 83(1)(c) or section 83(1)(p) of the Value Added Tax Act 1994. An assessment under section 73 giving effect to a regulation 29(2) refusal remained subject to supervisory review. A different result would treat taxpayers in similar situations differently for purely procedural reasons.
4. Best-judgment authorities. Authorities concerning best-judgment assessments, including Pegasus Birds, Mithras and Karoulla, concerned a different underlying decision. Their treatment of the correct amount of tax did not govern an appeal against the exercise of the regulation 29(2) discretion.
5. Application. HMRC had lawfully required production of compliant invoices and the failure to produce them was wholesale. The grounds of appeal did not assert that the appellant held compliant invoices. Since no public-law flaw was established, there was no separate quantum challenge. The appeal was dismissed.

• Court of Appeal (Civil Division): In [2026] EWCA Civ 29, the appeal from the Upper Tribunal was dismissed.
• Upper Tribunal (Tax and Chancery Chamber): In [2025] UKUT 00013 (TCC), the appellant’s appeal was dismissed and the First-tier Tribunal’s supervisory approach was upheld.
• First-tier Tribunal: On 12 July 2023, the Tribunal decided that its jurisdiction concerning HMRC’s regulation 29(2) decision was supervisory and excluded reliance on invoices not presented to HMRC before its decision.