First-tier Tribunal (Tax)

[2009] UKFTT 309 (TC)

TC00253

Appeal number MAN/2009/290

INPUT TAX – disallowed because no tax chargeable on supply – appeal dismissed.

FIRST-TIER TRIBUNAL

TAX

                                                  SHAKEEL ALI                                 Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                                                TRIBUNAL: Judge Richard Barlow

                                                                        Member Susan Stott

Sitting in public in Manchester on 24 August 2009

Sergey Prokofiev of counsel instructed by Sutton McGrath Ltd acccountants for the Appellant

Jonathan Cannan of counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.     The appellant’s appeal is against the respondents’ decision, notified by a letter dated 20 March 2008, by which they refused to pay the appellant £4,375 being part of a larger claim for input tax in the prescribed accounting period ending December 2007.  The claim related to a business called The Quarter which is a bar.  The appellant had registered as the sole proprietor of that business with effect from 12 November 2007.

2.     The disputed part of the claim for input tax relates to the acquisition by the appellant of fixtures and fittings at the premises where The Quarter was situated.  The appellant had acquired the fixtures and fittings as part of a transaction by which he acquired the lease of the premises which had previously been occupied by a business known as the Sola Bar which was owned by Sola Bar Ltd.  The completion statement from the appellant’s solicitor for the transaction shows that the appellant paid £25,000 as a premium relating to the lease, £29,375 for fixtures and fittings and various amounts by way of rent, deposit for rent and landlords costs as well as legal expenses.  Only the fixtures and fittings are said to have included VAT and the sum charged is £25,000 plus VAT at the then applicable rate of 17.5%.

3.     Although the appellant’s accountant later told the respondents in correspondence that the appellant had bought the Sola Bar business, no separate amount is shown for any such sale on the completion statement. 

4.     Sola Bar Ltd had applied to the Commissioners on 17 March 2007 (in a document that the Commissioners received on 16 May 2007) to de-register, having ceased to trade on 17 July 2005. Sola Bar Ltd had made several nil returns for VAT before it applied to de-register.  The Commissioners de-registered Sola Bar Ltd with effect from July 2005 though they only did so on 26 June 2007.  The appellant completed the purchase after 26 June 2007 as is shown by the completion statement which was dated 12 July 2007.

5.     Initially, by a letter dated 20 March 2008, the respondents denied the relevant part of the appellant’s claim for input tax on the grounds that no VAT invoice had been produced.  The appellant’s accountant replied on 17 July 2008 pointing out that alternative evidence can and should be accepted in exercise of the respondents’ discretion and produced the completion statement already mentioned and a letter from the vendor’s solicitor which said that VAT had been charged on the sale of the fixtures and fittings.

6.     On 28 July 2008 the respondents replied asserting that the input tax was not recoverable because the transaction was a transfer of a going concern on which no tax was chargeable in any event.  The respondents have not persisted in that argument before us and were right not to do so as clearly the purchase of a lease and some fixtures and fittings some two years after a previous business had ceased to trade would not normally be classifiable as a transfer of a going concern and there are no special factors that would displace that conclusion in this case.   

7.     Then, on 20 October 2008, the respondents asserted in a letter that the transaction in question could not have been a taxable supply on which VAT was chargeable and therefore was not a supply that gave rise to a right to claim input tax.  That argument was put to us as the ground on which the respondents rely for the purposes of this appeal.

8.     Section 24 of the VAT Act 1994 defines input tax as “VAT on the supply to [a taxable person] of any goods or services”.  There must be VAT on a supply before it can become input tax.  Section 4 of the Act provides for the scope of VAT and the material wording is in section 4(1) and it reads: “VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him”.  A “taxable supply” is, by reasons of section 4(2), any supply other than an exempt supply.  A “taxable person” is defined by section 3(1) as a person who “is or is required to be registered under [the] Act” and it also specifies that a person is only a taxable person “while” he is registered or is so required to be registered.  Thus a person who has been registered but ceases to be registered ceases to be a taxable person at the point at which he is de-registered unless he was then required to be registered (ie he should not have been de-registered).

9.     The vendors of the fixtures and fittings had ceased to be registered before the transaction in question as we have already pointed out.  There is no doubt that at that point the vendor was also a person who was not required to be registered because it was not trading and so was not liable to be registered under Schedule 1 of the Act.  The value of the sale of the fixtures and fittings was not sufficient to require the vendor to re-register in consequence of that transaction.

10.  It follows that the transaction in question was not one on which VAT was chargeable and the appellant cannot claim, as input tax, the tax that was purportedly charged.  Clearly the appellant was overcharged by the vendor but there is no basis for making the respondents liable to remedy the vendor’s default in that respect.  No doubt the appellant may have a right of action against the vendors to recover the overcharged amount though it appears from what we were told that any such action would be fruitless.

11.  We would add that the alternative evidence provisions have no relevance in this case.  The reason why input tax is not recoverable is because the evidence proves that there was no tax charged on the transaction not because of any lack of documentation.

12.  The appeal is therefore dismissed.  

RICHARD BARLOW

TRIBUNAL JUDGE

RELEASE DATE: 18 November 2009