First-tier Tribunal (Tax)

[2013] UKFTT 609 (TC)

TC02996

Appeal number: TC/2013/02598

 VAT – appeal against refusal of input tax claim and de-registration for VAT –has appellant established that it is engaged in business activities – no – is the appellant entitled to recover input tax – no – appeal dismissed.

FIRST-TIER TRIBUNAL

TAX CHAMBER

Sitting in public at Bedford Square on 1 October 2013

Andrew Adelekun, director of the Appellant company for the Appellant

Chris Jacobs of HMRC for the Respondents

© CROWN COPYRIGHT 2013

DECISION

1.           The matters under appeal are two-fold.  Firstly, there is the matter of the Respondent’s decision to disallow the Appellant’s input tax claims for the VAT periods 10/11, 1/12 and 4/12.  In each case the amount claimed was reduced to nil.  Secondly, the Respondent’s decision dated 29 May 2013 to de-register the Appellant for VAT and issue an assessment disallowing the outstanding input tax claim for the period 7/11 is appealed.

2.           The Tribunal heard from Mr Adelekun that he is a director of Wosem Communities Development Limited (“WCDL”).  He described himself as the “outgoing” director because he said that the company is being wound up.  He told the Tribunal that WCDL is the “trading arm” of Christ Apostolic Church registered charity number 1014992 (“the charity”), although he described its method of operating as one of re-investing its profits in community projects, rather than the usual arrangement of transferring its profits by gift aid to its parent charity.   It is a company limited by guarantee (so the charity is not a shareholder and its legal relationship with WCDL is unclear).  Mr Adelekun also described it as a social enterprise company and its printed note paper describes it as a “community based business”.

3.           It was apparent from Mr Adelekun’s evidence and from much of the documentary evidence before the Tribunal that there was an imprecise line between the activities of the charity and of WCDL and that the relationship between the two entities was not clearly delineated.  Mr Adelekun referred to the shared religious ethos and mission of the two organisations, however they are in law separate entities and we would strongly suggest for the future that the charity takes advice from the Charity Commission about the permissible business arrangements between a charity and its trading subsidiary.  

4.           Mr Adelekun submitted that WCDL had at all material times been carrying out business activities for VAT purposes.  As Mr Jacobs correctly submitted on behalf of the Respondents, the onus of proof is on the Appellant to satisfy the Tribunal on the balance of probabilities that it is a business making taxable supplies.  Mr Adelekun told the Tribunal that it planned to act as the commercial landlord of a property which the charity intended to transfer to it and that it would also provide management, repair and maintenance for the property.  Also that it proposed to be part-owner of a nursery run from the property and that it would provide training and development services.  Mr Adelekun had provided to HMRC a number of documents to support WCDL’s appeal and these were available to the Tribunal in the hearing bundle.  The majority of these were invoices addressed to “Christ Apostolic Church” and some bills were addressed to Mr Adelekun personally.  Other documents were addressed to “Greenhold Properties Limited”.  Clearly none of these could be accepted as evidence of the activities of WCDL, which is a separate legal entity.  Documents clearly mentioning WCDL included bank statements and an extract from WCDL’s own business plan.  The Tribunal also saw some invoices issued by WCDL to overseas companies for “professional services provided”.  We note that WCDL’s financial accounts for the year ended 2011 describe its principal activity as “the provision of logistical services for foreign visitors and entities” although we saw no contracts for the supply of such services or any other documents describing what this work entailed.  Mr Adelekun explained that some documents had been destroyed in a fire at the premises in March 2012.

5.           Mr Adelekun also produced for the Tribunal a report from a building surveyor in respect of the property which it was intended that the charity would transfer to WCDL.  This appears to have been commissioned in connection with a loan application by WCDL in respect of the property which it did not yet own.  The invoice for this work is addressed to WCDL.  We gained the impression that there was a reasonably mature plan for the property to be transferred to WCDL and for it to undertake business activities as a commercial landlord from that address.  We saw a draft lease with a commercial tenant.  However, we are aware that the transfer of a property from a charity to its trading subsidiary is a “connected persons” transaction for the purposes of section 117 of the Charities Act 2011 and so the charity would need the prior consent of the Charity Commission to make the transfer.  Accordingly, there can be no certainty that the property would have been transferred to WCDL or that the proposed business activity as a commercial landlord would have ever taken place.  Due to the fire at the premises, the plan was abandoned in any event.

6.           Mr Jacobs for HMRC relied upon a witness statement from Mr King, who had now retired but had previously been the officer in this matter.  He submitted that the Appellant had produced no evidence on which the Tribunal could rely to support its appeal.  He argued that the Tribunal could not rely upon documents addressed to separate legal entities to support the Appellant’s case, and that the Appellant had had plenty of opportunity to produce copies of documents lost in the fire some eighteen months ago.  Where invoices had been produced by WCDL, he argued that the lack of information as to the nature of the supply prevented HMRC and the Tribunal from applying the business test as set out in Morrison’s Academy Boarding Houses and Associations [1978] STC 1. 

7.           Having considered all the evidence and submissions we concluded that both appeals (against de-registration for VAT purposes and the refusal of the input tax claim) should be refused.  The Appellant has not produced evidence of a nature and quality to satisfy the Tribunal that it was engaged in business activity and making taxable supplies at the relevant times. Accordingly, we uphold HMRC’s decision to refuse the input tax and its decision to de-register WDCL for VAT purposes.

8.           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.