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Cite as: [2004] UKVAT V18656

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Dollard v Customs and Excise [2004] UKVAT V18656 (23 April 2004)

VALUE ADDED TAX – compulsory registration – whether the business carried on by the Appellant was previously carried on by a taxable person and transferred to the Appellant as a going concern and whether the turnover of the transferor exceeded the registration limit – yes - appeal dismissed – VATA 1994 s49

LONDON TRIBUNAL CENTRE

SANDRA DOLLARD

Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE

Respondents

Tribunal: DR NUALA BRICE (Chairman)

MR M A SHARP FCA FHCIMA FBHA

Sitting in public in London on 25 March 2004

The Appellant did not appear and was not represented

Jonathan Holl, of the Office of the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

The appeal

Ms Sandra Dollard (the Appellant) appeals against:

(1) a decision of Customs and Excise dated 28 September 2001 to register her for value added tax as from 1 September 1999; and

(2) an assessment dated 18 March 2002 for tax of £17,408 and interest of £18.60 making a total amount assessed of £17,426.60; the assessment was in respect of the single accounting period from 1 September 1999 to 31 December 2001.

Appeal heard in absence of the Appellant

The appeal was lodged on 13 December 2002 (which was over a year late for the first disputed decision and about eight months late for the assessment). On 23 January 2003 the Appellant's representative (Mr Howard of Messrs Deighan & Co Chartered Accountants) wrote to apply for a direction that the appeal be entertained without payment or deposit of the tax in dispute on grounds of hardship. (This was the only letter ever received by the Tribunal from either the Appellant or her representative). This application was later consented to by Customs and Excise. After a number of extensions of time the statement of case was lodged on 16 September 2003 after which Messrs Deighan & Co were asked for their dates to avoid for the hearing of the appeal. There was no reply and a further request was sent to Messrs Deighan & Co on 27 October 2003. Again there was no reply and the parties were notified on 15 January 2004 that the appeal would be heard on 25 March 2004.

At the beginning of the hearing on 25 March 2004 Mr Holl informed us that he had spoken to Messrs Deighan & Co the previous week and had been told that his message would be passed on to Mr Wade of that firm who was now dealing with this matter. Mr Holl had spoken again to Messrs Deighan & Co shortly before the hearing and had been told that Mr Wade was not in but they would try to contact him. Messrs Deighan & Co knew that the appeal would be heard on 25 March 2004. Mr Holl had given the telephone number of the tribunal centre but at that time no further information from Messrs Deighan & Co was available.

We then decided to hear the appeal in the absence of the Appellant under Rule 26(2) of the Value Added Tax Tribunals Rules 1986 SI 1986 No. 590. Rule 26(2) and (3) provides:

"26(2) If, when an appeal … is called on for hearing, a party does not appear in person or by his representative, the tribunal may proceed to consider the appeal … in the absence of that party.

(3) Subject to paragraph (4) below, the tribunal may set aside any decision … given in the absence of a party on such terms as it thinks just, on the application of that party or of any other person interested served at the tribunal centre within 14 days after the date when the decision … of the tribunal was released."

In reaching our decision to hear the appeal in the absence of the Appellant we bore in mind that the decisions the subject of the appeal were more than two years old; that the only communication the Tribunal had had from the Appellant or her representative was in January 2003 (which was more than a year previously); that the Appellant, through her representative, had been asked twice to indicate dates to avoid for the hearing of the appeal but had not replied; and that the Appellant, through her representative, knew that the appeal was to be heard on 25 March 2004 and had made no request for a postponement. We also bore in mind the provisions of Rule 26(3) which allows the Appellant to apply to have our decision set aside.

During the course of the hearing of the appeal (at 11.55 am) we were informed that Mr Wade had known about the hearing but would not be attending.

The legislation

Section 3 of the Value Added Tax Act 1994 (the 1994 Act) provides that a person is a taxable person while he is, or is required to be, registered under the Act and that Schedule 1 has effect with respect to registration. Paragraph 1(2)(a) of Schedule 1 provides:

"(2) Where a business carried on by a taxable person is transferred to another person as a going concern and the transferee is not registered under this Act at the time of the transfer then … the transferee becomes liable to be registered under this Schedule at that time if:

(a) the value of his taxable supplies in the period of one year ending at the time of the transfer has exceeded [£51,000]."

Section 49 of the 1994 Act provides that, where a business carried on by a taxable person is transferred to another person as a going concern then, for the purposes of determining whether the transferee is liable to be registered under the Act, he shall be treated as having carried on the business before as well as after the transfer and any records relating to the business should be preserved by the transferee instead of by the transferor.

The issue

Customs and Excise gave the disputed decision and issued the assessment because they were of the view that the business carried on by the Appellant had previously been carried on by a taxable person who had transferred it to the Appellant on 1 September 1999 as a going concern and that value of the taxable supplies made by the transferor in the period of one year ending at the time of the transfer exceeded the registration limit. Accordingly, they were of the view that the Appellant had been liable to be registered from 1 September 1999. The assessment had been raised because the Appellant had not rendered a return for the period from 1 September 1999 to 31 December 2001. The ground of the Appellant's appeal was that there was not a continuing trade prior to her taking over the business and that she should not have to account for value added tax until she had reached the turnover limit.

Thus the only issue for determination in the appeal was whether the business carried on by the Appellant was previously carried on by a taxable person; whether the value of the taxable supplies made by the transferor in the period of one year ending at the time of the transfer exceeded the registration limit; and whether the business had been transferred to the Appellant as a going concern. If all these conditions were satisfied then the Appellant was liable to be registered from the commencement of her trade.

The evidence

A bundle of documents was produced. Oral evidence was given on behalf of Customs and Excise by Mr John Michael Christopher Cordwell an Officer of HM Customs and Excise.

The facts

From the evidence before us we find the following facts.

The Appellant carries on business as a publican trading as "The Carpenters Arms" from premises at 17, Carpenters Street, Stratford, London E15 2JH.

In 2001 Customs and Excise undertook an exercise in the Stratford area of London to identify unregistered businesses. Unannounced visits were made to various premises including the premises of the Appellant.

June 2001 - August 2001 - the three visits

On 25 June 2001 Mr Cordwell and a colleague visited the Appellant's premises. The public house was open and the two officers approached two members of staff and asked if the business was registered for value added tax. One of the members of staff telephoned the Appellant (whom she called the manager). The Appellant told the staff member that value added tax officers had called "the other week" and that she had supplied the registration number to those officers. The Appellant's telephone number was supplied to Mr Cordwell who left his name and address with the request that the Appellant should contact him as soon as possible with the registration number. At the visit Mr Cordwell was informed that the premises had recently undergone a refurbishment and had been closed for six weeks.

When he returned to his office Mr Cordwell found that no Customs and Excise Officers had visited the Appellant's premises in recent weeks to ask for the registration number.

On 29 June 2001 Mr Howard of Messrs Deighan & Co contacted Mr Cordwell and said that "the current owners" had been trading for about a year but that he did not have the registration number to hand.

On 3 August 2001 Mr Cordwell (with another colleague) paid a second visit to the Appellant's premises and asked to speak to the Appellant. A member of staff said that she was not available but telephoned her which enabled Mr Cordwell to ask the Appellant for her registration number. The Appellant said that Messrs Deighan & Co had all the details. Mr Cordwell then telephoned Messrs Deighan & Co and spoke to a secretary. No registration number could be found on the file. Later the same day Mr Cordwell spoke to Mr Deighan who confirmed that he held the business records and who stated that there had been an application for registration but that there was no registration number on the file. Later the same day (3 August 2001) Mr Cordwell wrote to the Appellant requesting sight of her business records from the start of her business to that date such records to be produced before 13 August 2001.

Between 6 August 2001 and 13 August 2001 there were a number of telephone conversations between Mr Cordwell, Mr Wade of Messrs Deighan & Co and the Appellant. On 13 August 2001 Mr Cordwell (with a third colleague) paid a third visit to the Appellant's premises and spoke to the Appellant. The Appellant said that she was running the business as a sole proprietor; that the premises were owned by Punch Taverns; that she had been in business since June 2000; and that the business had been closed between 31 March 2001 and 18 June 2001 for refurbishment work. Meals had been served since June 2001. Takings averaged £3,000 each week.

After 13 August 2001 - Mr Cordwell's enquiries

After the meeting on 13 August 2001 Mr Cordwell made a number of enquiries. He consulted the Customs and Excise's Departmental Trader Records about previous traders at the Carpenters Arms. These enquiries revealed that a previous trader had been The Carpenters Arms (1998) Limited. The director was Ms Pamela Joan Kennett. The last return submitted by that trader was on 30 December 1998 for the accounting period from 1 January 1998 to 31 October 1998. This showed sales of £62,408 in that ten month period. That was about £6,000 each month which was above the then annual registration limit of £51,000. On 4 May 1999 the bailiffs had visited the premises and were told that the then trader was insolvent and that the public house was being given back to the brewers. Letters had been sent to the trader. The company was dissolved on 28 September 1999. Visits had been made on 2 December 1999 and 17 December 1999 when Customs and Excise had been told that the Appellant had taken over in September 1999. The public house was then very busy and a party was in progress. After further enquiries, on 23 February 2000 The Carpenters Arms (1998) Limited was compulsorily de-registered with effect from 1 November 1999.

On 15 August 2001 Mr Cordwell contacted Punch Taverns and asked for information about: the identity of the current tenant of the Carpenters Arms; the identity of the previous tenant; whether the business had been closed at any time; and the exact date when The Carpenters Arms (1998) Limited ceased to trade. (The reply to this enquiry was not received until after Mr Cordwell had informed the Appellant of his decision to register her compulsorily.)

On 20 August 2001 Customs and Excise issued a formal letter to the Appellant requesting production of her business records on or before 31 August 2001. A copy of the letter was sent to Messrs Deighan & Co.

Finally, Mr Cordwell contacted the local licensing office who stated that the Appellant had been the licensee since 1 September 1999.

On 4 September 2001 Mr Cordwell visited other premises where the Appellant's accountant was present. Mr Cordwell collected a number of records relating to the Appellant's business between June 2000 and April 2001 including; a purchase day book; Excel spreadsheets for June 2000 to the end of March 2001; records of daily gross takings from 1 June 2000 to 31 March 2001; and bank statements in the name of J Ryan and the Appellant. At that meeting the accountant informed Mr Cordwell that the reason that no application for registration had been made was because the Appellant could not make up her mind whether to register as a partnership or as a sole proprietor. On 6 September 2001 Mr Cordwell wrote to the accountant to say that the records given to him on 4 September were not complete and he requested further specific records. The letter also asked about the position of Mr J Ryan (because the bank account for the business was in the joint names of Mr Ryan and the Appellant); the position of Mr T O'Donovan (whose name appeared on some rental invoices with that of Mr Ryan); and the date upon which the Appellant became the licensee of the Carpenters Arms. Finally the letter enclosed the application for registration forms for completion.

September 2001 - the decision to register

From the enquiries which he had made Mr Cordwell concluded that the business carried on by the Appellant was previously carried on by a taxable person who had transferred it to her on 1 September 1999 as a going concern and whose turnover had been above the registration limit.

On 28 September 2001 Mr Cordwell notified the Appellant that, in the absence of further information, he would compulsorily register her with effect from 1 September 1999.

On 12 October 2001 Punch Taverns provided details of the tenants of the Carpenters Arms, as:

17.12.90 to 13.07.99 - Mr T Kennett

13.07.99 to 02.09.99 - Mrs B Frayne

03.09.99 to 21.05 01 - Mr T O'Donovan

01.06.01 to date - Mr J Ryan and the Appellant

Punch Taverns stated that their records did not disclose whether the public house had been closed for any length of time. The tenants were responsible for operating the licensed trade on the premises and Punch Taverns could only confirm the periods of the tenancies. Their records made no reference to The Carpenters Arms (1998) Limited which may have been incorporated by one of the lessees who traded under the umbrella of the company.

Mr Cordwell considered the information in this letter. He was aware that the tenant of premises, the licensee, and the person carrying on the business could be different entities. The tenant was responsible for the rent; the licensee was responsible for the proper conduct of the premises; but it was the person carrying on the business who had to register for value added tax. He noted that the current tenants were Mr Ryan and the Appellant but also noted that at his visit on 13 August 2001 the Appellant had told him that she was trading as a sole proprietor. He noted that Mr O'Donovan was the tenant from 3 September 1999 to 31 May 2001 and that would explain the Appellant's records which showed that the invoices for the rent on the premises had been addressed to Mr O'Donovan and Mr Ryan although it was not clear who paid the rent. It was also relevant that there were bank statements in the joint names of Mr Ryan and the Appellant. As he had not heard from either the Appellant or from Messrs Deighan & Co in reply to his letter of 28 September 2001 Mr Cordwell concluded that his original decision (that the Appellant was trading as a sole proprietor) was right. He guessed that The Carpenters Arms (1998) Limited had been incorporated by Mr Kennett (although the director was Ms Kennett).

On 17 October 2001 the Appellant was registered with effect from 1 September 1999.

February and March 2002 - the assessment

Customs and Excise had issued the Appellant with a return for the period from 1 September 1999 to 31 December 2001. Mr Cordwell waited to see if the return would be rendered but it was not. On 7 February 2002 he therefore wrote to the Appellant and said that he had raised an assessment. His letter contained full details of the method of calculation. From the records he had (which were confined to the period from 5 June 2000 to 25 March 2001) he knew that the turnover between 5 June 2000 and 25 March 2001 was £92,535.37 or £2,156.55 each week. He estimated that turnover between 26 March 2001 to 31 December 2001 was at the same average amount. For the period from 1 September 1999 to 4 June 2000 he calculated the average weekly turnover between 11 June 2000 and 30 July 2000 as £1,766.19 and applied this average to the earlier period. He also calculated input tax in a similar way. He assumed that the business had been closed for six weeks in 2001. The turnover of the gaming machine or machines was not included because it could not be quantified.

Customs and Excise then assessed the amount of tax due in the sum of £17,408 and a notice of assessment dated 18 March 2002 notified the Appellant of the assessment.

August 2002 - The correspondence after the assessment

Nothing was heard from the Appellant or Messrs Deighan & Co until 7 August 2002 when Messrs Deighan & Co wrote to Customs and Excise to say that the Appellant had had a visit from the bailiffs and asking what action had been taken in respect of the appeal. The letter also asked for the return of the Appellant's books and records. (This was the only letter ever received by Mr Cordwell from Messrs Deighan & Co.) Mr Cordwell replied to say that there was no record of any appeal and sent the form for an appeal to the Tribunal. He copied the records and returned them. On 29 August 2002 Customs and Excise's debt management unit wrote to the Appellant asking for settlement of the debt in seven days. The appeal was not lodged with the Tribunal until 13 December 2002.

After the assessment of 18 March 2002 returns were rendered regularly. Average turnover was in the region of £50,000 each quarter.

The arguments

In the absence of the Appellant we have referred to the notice of appeal for the ground of appeal. This was stated to be:

"That the assessment has been raised without taking into account the fact that there was not a continuing trade prior to my taking over the public house, Therefore I should not have to account for VAT until I had reached the turnover limit."

There was no other letter or document from the Appellant or Messrs Deighan & Co to clarify the ground of appeal.

For Customs and Excise Mr Holl argued that the Appellant had acquired the business as a going concern. The Carpenters Arms (1998) Limited had been registered for value added tax and there was no evidence that there had been any cessation of the business before it had been taken over by the Appellant. From that it must be concluded that the Appellant had taken over the business as a going concern. The burden of proof in the appeal was on the Appellant who had been asked on a number of occasions to supply information. If there were any evidence of a gap in trading then it was reasonable to assume that such evidence would already have been supplied. Mr Holl cited Kenmir v Frizzell [1968] 1 WLR 329 at 330B for the principle that, in deciding whether a transaction amounted to the transfer of a business, the decision must be based on a broad view of the circumstances as a whole. Turning to the assessment Mr Holl argued that the amount was based on the Appellant's own records and had been made to best judgment.

Reasons for decision

In reaching our decision we are mindful of the fact that the only dispute identified by the Appellant is whether or not there was a continuing trade when she took over the business. The Appellant does not dispute the date of the commencement of her trade, or the fact that she has been registered as a sole proprietor, or the way in which the assessment was calculated. Accordingly, all we have to decide is whether the business carried on by the Appellant was previously carried on by a taxable person; was transferred to her as a going concern; and before the transfer the turnover of the business was above the registration limit. If all these conditions are satisfied then the Appellant was liable to be registered from the commencement of her trade.

In this appeal the burden of proof is on the Appellant and a most unusual feature of this appeal is that the Appellant has brought forward no evidence at all to support her claim that there was no continuing trade when she took over the business. It is not for Customs and Excise to prove that there was a continuing trade but for the Appellant to prove that there was not. Only the Appellant will know of the exact circumstances surrounding the commencement of her business.

There are two other features of this appeal which we find relevant. The first is that the Appellant appears to have been reluctant to assist Customs and Excise by supplying them promptly with the information they requested, especially at the outset of their enquiries. Some information has been supplied but there is no information at all about the way in which the Appellant started her business, either by acquisition from a previous trader or otherwise. The other relevant feature is that Mr Cordwell was left to do all the work. We are of the view that he behaved reasonably throughout and did his best with the information he was able to obtain.

We therefore start by considering whether the business carried on by the Appellant was previously carried on by a taxable person. The evidence leads us to conclude that, on the balance of probabilities, The Carpenters Arms (1998) Limited ran the business until sometime in 1999 and was a registered trader until February 2000 when it was de-registered as from 1 November 1999. There was no evidence of any gap in trading. However, if there were another trader after The Carpenters Arms (1998) Limited and before the Appellant it is reasonable to assume, in the absence of any evidence to the contrary, that that trader also achieved a similar turnover to The Carpenters Arms (1998) Limited. If such a trader was not registered then he was required to be registered and so was a taxable person for the purposes of paragraph 1(2)(a) of Schedule 1 and section 49 of the 1994 Act.

In this connection we have considered the letter from Punch Taverns dated 12 October 2001. This gives details of the tenants but not of the persons carrying on the trade. It does not contain any evidence to indicate that there was any interruption in the trade.

Next, we consider whether the turnover of the business was above the registration limit at the date of the transfer. The returns rendered by The Carpenters Arms (1998) Limited showed that it had a turnover of about £6,000 each month which was well over the annual registration limit. It is therefore most probable that trading continued at about the same level of turnover until the transfer.

Finally, we consider whether the trade was transferred to the Appellant as a going concern. Here we rely upon the principle in Kenmir v Frizzell that, in deciding whether a transaction amounts to the transfer of a business, regard must be had to substance rather than form and consideration must be given to the whole of the circumstances, weighing the factors which point in one direction against those which point in another; in the end the vital consideration is whether the effect of the transaction is to put the purchaser in possession of a going concern which she could carry on without interruption; the decision should be based on a broad view of the circumstances as a whole.

The difficulty in this appeal is that there was no evidence before us about the transfer of the trade. As the burden of proof is on the Appellant to establish that there was no transfer of a going concern, and as the Appellant has not discharged that burden of proof, we have to conclude that the trade was transferred to the Appellant as a going concern. There was no evidence that the Appellant did not take over the business as a going concern. From what we know it is most probable that the Appellant was put in possession of a going concern which she could carry on without interruption.

Decision

Our decision on the issue for determination in the appeal is, on the balance of probabilities, that the business carried on by the Appellant was previously carried on by a taxable person; that the value of the taxable supplies made by the transferor in the period of one year ending at the time of the transfer exceeded the registration limit; and that the business had been transferred to the Appellant as a going concern. As all these conditions were satisfied then the Appellant was liable to be registered from the commencement of her trade.

The appeal is, therefore, dismissed.

DR NUALA BRICE

CHAIRMAN

RELEASE DATE:28/05/2004

LON/2002/1107