[2010] UKFTT 152 (TC)

TC00458

Appeal number: LON/2000/1033

VAT – compulsory registration – whether over the registration limit – yes on facts – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                             PETER ZACHARIAS                            Appellant

TRADING AS PETROS HAIR AND BEAUTY

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Value Added Tax)                                                                Respondents

                         TRIBUNAL:             TRIBUNAL JUDGE:       ADRIAN SHIPWRIGHT

TRIBUNAL MEMBER: MICHAEL BELL

Sitting in public in London on 14 October 2009

Brian Corbould, VAT Consultant, VAT Management Service Limited for the Appellant

Jonathan Holl, advocate, HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

Introduction

1.      This is an appeal by Peter Zacharias (“Mr. Zacharias”) against the decision on review that the notice to Mr. Zacharias of his compulsory registration for Value Added Tax (“VAT”) from 1 September, 1995 by upheld.  The decision was contained in a letter dated 11 February, 2000. Consequent penalties are also appealed.

The Issue

2.      The issue in this case is whether Mr. Zacharias was properly registered.  Essentially, this requires us to decide whether he carried on business as a sole proprietor or in partnership? Did Mr and Mrs Zacharias carry on business in partnership?

The Law

3.     Schedule 1 VAT Act requires a person to register for VAT if the value of his supplies in the last 12 months has exceeded the registration threshold or there are reasonable grounds for believing that it will do so in the next 30 days.

The Evidence

4.     .     We were provided with a volume of documentation.  This was an agreed bundle of documents. The documents were all admitted in evidence no objection having been taken to any of the documents.

5.   We heard oral evidence from Mr. Zacharias. Two witness statements were provided for him. He was cross-examined.

6.     We also heard oral evidence from Peter Jennings, a Higher Officer of HMRC in Oxford. He was cross examined.

7.     A witness statement was provided for Maria Crilly but she did not give evidence.

Findings of Fact

8.     From the evidence we make the following findings of facts:       

(a)     Mr. Zacharias carried on business as a hairdresser under the name “Petros Hair and Beauty”.  His main premises were in Field End Road, Eastcote.

(b)    Mr Zacharias started in business in 1971. He ceased to be VAT registered on 31 March 2003

(c)     There were three shops till 1995.  He ran one, his wife ran one and the other was run as a partnership.  As well as the Eastcote Shop where he had mainly worked there was one in Harrow and another in Northwood.

(d)     During the period before 1995 the staff were employees and were on commission.

(e)     In late 1994 some staff left Harrow shop.  Mr. Zacharias understood that this was so they could work as self employed stylists. Others left later.

(f)      Mr. Zacharias had to leave Eastcote to work in the Harrow shop as there was no staff and no one else to cover it.

(g)     The Harrow shop premises were leased.  The lease was in the name of Mr. Zacharias and his wife. The shop was run as a partnership between Mr Zacharias and his wife.

(h)     The Harrow shop was operated on a 60:40 split with the stylists.  There was a 60 per cent chair charge.

(i)      There was a notice above the mirror saying that the stylist was self employed.

(j)      The Harrow shop was deregistered in 1995 on the basis that the stylists was self employed and making supplies to the customer and not the shop. Mr Zacharias said he relied on his accountant for this.

(k)     HMRC (as it is now called) discovered that there was no VAT registration for the appellant or the premises.  HMRC sent a questionnaire to the premises.  This was later completed. Mr Zacharias described himself as the sole proprietor in respect of Harrow on that form in 1999.

(l)      A meeting subsequently took place at the Appellant’s premises.  Mr. Zacharias was requested at the meeting to supply a sample licence agreement and copies of insurance documents.  These were later supplied.

(m)   Of the three shops Mrs Zacharias ran one as her own shop. She had her own bank account for it and all was done in her name. The business name was similar but the “get up” was different from the other shops. One of these was run as Mr Zacharias shop and the other (Harrow) as a partnership.

(n)     There was no written partnership agreement produced to us. We assumed there was none and that the Partnership Act 1890 applied.

(o)    Separate accounts were maintained for each shop.

(p)    The partnership was seemingly “dissolved” in 1995 but continued till 1999 when the Harrow shop was sold in 1999. We do not accept this and find that it was not the case.

(q)    The partnership is the registered in 1995.  This was “…  because business wise if a [Mr. And Mrs. Zacharias] had decided to split and go their own way”. They had also “…  verbally agreed to cease trading together and go their own ways with Mr. Zacharias taking Eastcote and Mrs. Zacharias taking northward and that Harrow was to be disposed of”.

(r)     Is if the harrow premises were put on the market but were not sold till 1999.  Mr. Zacharias had run the business carried on those premises till sale.  However, on his own evidence this was not in partnership with his wife as they had to sell the partnership.

(s)     We find as a fact that the partnership was dissolved in 1995.  We further find that Mr. Zacharias carried on his business from the Harrow shop in the subsequent period before sale.  The lease continued to be at in the joint names of Mr. and Mrs. Zacharias.

(t)      Accordingly, Mr. Zacharias was carrying on business at Eastcote and at Harrow as a sole proprietor.  Mr. and Mrs. Zacharias remained the co- owners of the Harrow premises from which Mr. Zacharias carried on part of his sole proprietorship.

(u)     In reaching this conclusion we have borne in mind the Appellant’s arguments that the partnership continued till the sale. We find that the Appellant has not shown this and that such evidence as there is, the dissolution and consequent deregistration is entirely consistent with there being a dissolution of the partnership and the subsequent realisation of the assets. Mr Zacharias ran a business from it so as to maximise the potential value for both spouses on sale of the lease.

The Submissions of the Parties

The Appellant’s Submissions in outline

9.     In essence, the Appellant submitted that the partnership had not been dissolved and continued. Consequently, Mr Zacharias’ turnover was not above the registration limit and so he should not have been compulsorily registered.

HMRC’s Submissions in outline

9.     In essence, HMRC submitted…

(a)                                                   The onus was on the taxpayer to prove its appeal.  This burden had not been discharged.

(b)                                                  There was no evidence of a partnership nor was there any evidence profit sharing after the dissolution.

(c)                                                   There was no reasonable excuse in the circumstances.

10.  In the light of the complexity of the changing Law and of the elapse of time the advocate for HMRC very properly said that the Revenue would only seek a minimal £50 penalty.  We are most grateful for this very sensible and proper approach.

Discussion

11.  We have found that that the partnership was dissolved and Mr Zacharias was trading in Harrow and Eastcote and so was above the registration threshold. Accordingly, he was properly registered.

Conclusion

12.   We find that Mr Zacharias was properly registered. Consequently, the appeal against registration is dismissed. We reduce the penalty to £50 in accordance with HMRC’s very proper and sensible suggestion. We make no order as to costs.

The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.   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.

                                              ADRIAN SHIPWRIGHT

   TRIBUNAL JUDGE

RELEASE DATE: 8 April 2010