United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2006] UKVAT V19604

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Denise Harrild v Revenue & Customs [2006] UKVAT V19604 (10 April 2006)

19604

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 transfer exceeded the registration limit – no – appeal allowed - VATA 1994 s49.

LONDON TRIBUNAL CENTRE

DENISE HARRILD	Appellant
and
THE COMMISSIONERS OF HER MAJESTY'S REVENUE AND CUSTOMS	Respondents

Tribunal: Rodney P Huggins (Chairman)

Christopher J Perry CEng

Sitting in public in Cardiff on 28 March 2006

The Appellant appeared in person.

Philip Webb of the Office of the Solicitor for Her Majesty's Revenue and Customs for the Respondents.

... CROWN COPYRIGHT 2006

DECISION

The appeal

Ms Denise Harrild ( the Appellant) appeals against :

(1) a decision of the Respondents (HMRC) dated 11 October 2004 to register her for value added tax (VAT) as from 1 December 2003;

(2) an assessment dated 4 January 2005 for tax of £2,981; the assessment was in respect of the single accounting period from 1 December 2003 to 31 October 2004; and

(3) a civil penalty for £102 by notice dated 18 January 2005.

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 the taxable supplies in the period of one year ending at the time of the transfer has exceeded [£60,000]."

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 relation to the business should be preserved by the transferee instead of by the transferor.

Where a person fails to comply with a duty to notify liability for registration in the transfer of a going concern then by virtue of section 67(1)(a) of the 1994 Act that person is liable to a penalty equal to the specified percentage of the relevant value added tax.

The issue

HMRC gave the disputed decision and issued the assessment and civil penalty notice 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 or about 1 December 2003 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 opinion that the Appellant had been liable to be registered from 1 December 2003. The assessment had been raised because the Appellant had not rendered a return for the period from 1 December 2003 to 31 October 2004.

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.

The only real issue for determination in the appeal was whether the business had been transferred to the Appellant as a going concern.

The evidence

Two bundles of documents were produced. Oral evidence was given by the Appellant.

The facts

From the evidence before us we find the following facts.

The Appellant has, since about 1 December 2003, carried on business as a publican at the "Red Rose Inn" from premises at 113, High Street, Pembroke Dock, Pembrokeshire.

As a result of an advertisement in "The Publican" towards the end of 2003, the Appellant approached Mr Michael Murphy who was the owner of the licensed premises. It was arranged for her to inspect the premises. She was told that the licensee was a Ms Susan Thomas who, through family problems, was unable to continue as licensee.

The licensed premises were in a dreadful state and the business virtually non-existent. Previously, Ms Thomas had provided bed and breakfast accommodation (there were two bedrooms) as well as sandwiches to a double glazing factory in the area and had opened the public house every day. Because of her absences, the trade had deteriorated. Although she had been registered for VAT details were not available to the Appellant who was shown old annual accounts and not those for the previous two years.

The Appellant decided to make a fresh start. She agreed with the landlord Mr Murphy to take a new lease of the premises for a three year term and he granted her one month's rent free period to clean and refurbish the premises The pub was closed for a month. No useable stock had been left by Ms Thomas. She was not paid anything by the Appellant.

Because of Ms Thomas having a bad credit rating, there was a problem in the Appellant obtaining supplies to stock the only bar in the small pub. Eventually, she persuaded a local brewery to supply alcohol and other beverages although her predecessor had left leaving unpaid bills and a reputation of not meeting her obligations.

The Appellant did not take over any staff. Indeed she has run the business on her own with assistance from her partner since opening in December 2003. She has not opened every day but only when demand dictates. She has not provided bed and breakfast accommodation as she lives at the premises with her partner.

Ms Thomas was previously registered for the purposes of VAT.

Because she did not consider that she had taken over a going concern and her takings did not reach the value added tax threshold, Ms Harrild did not contact the local office of HMRC.

A Joint Shadow Economy Team of HMRC became aware that Ms Thomas had left The Red Rose Inn and a new licensee was running the premises. It was therefore decided that a visit would take place to ascertain the exact position. This was carried out on 5 May 2004. The bar was closed and the HMRC Officer did not go to the rear entrance which is where entry is gained to the residential accommodation. Instead, a letter and questionnaire were pushed under the door leading to the bar. The letter stated that if the new licensee wanted help, an Officer would come and see her.

The Appellant endeavoured, without success, to contact the local office of HMRC on several occasions in order to get help and explain her position and then eventually returned the questionnaire partially completed in July 2004.

HMRC made no attempt to help the Appellant nor to ascertain the circumstances arising from her commencing business as a licensee in December 2003. However, an HMCR Officer did contact her on the telephone after the questionnaire was returned and told her that she should comply with the rules regarding transfers of going concerns. It was explained to her that the key aspect was that the previous proprietor had been VAT registered. Although the Appellant maintained the business was not performing as well as previously, she was told she had a liability to register for VAT. She did not complete an Application to Register for VAT form and was compulsorily registered on 20 September 2004.

The compulsory registration gave an effective date of registration of 1 December 2003 when the Appellant was deemed to have commenced trading. She was informed of this by letter dated 11 October 2004 and subsequently was served with a notice of assessment of tax on 4 January 2005 in the sum of £2,982 for the period 1 December 2003 to 31 October 2004.

She was informed that she was also liable to pay a civil penalty of £102 in a letter dated 18 January 2005.

Reasons for the decision

The only dispute identified by the Appellant is whether or not there was a continuing trade when she took over the business. She does not deny the date of commencement of her trading or the fact that she is the sole proprietor. Indeed, the tribunal found her an entirely credible witness. Accordingly, all we have to decide is whether the licensed business was previously carried on by a taxable person; the turnover of the business was above the registration limit before the Appellant entered the premises and commenced trading; and finally the business was transferred to her as a going concern. If all these conditions are satisfied then the Appellant was liable to be registered from the commencement of her trade.

In considering our decision we have taken into account the comments of the then Advocate General Lord, then Sir Gordon Slynn. He said in J M A Spijkers v Gevroeders Benedik Abattoir CV [1986] 2 CMLR 296 at page 299 :

"Thus the fact that at the date of transfer trading has ceased or has been substantially reduced does not prevent there being a transfer of a business if the wherewithal to carry on the business, such as plant, building and employees, are available and are transferred. Nor is the fact that goodwill or existing contracts are not transferred conclusive against there being a transfer within the meaning of the Article."

There was no goodwill transferred, no money passed between the Appellant and Ms Thomas and the business was completely run down so those factors were within the Advocate General's remarks. However, there were other features which made it impossible for there to be a transfer of a going concern e.g. a new lease was granted with a rent free period; there was no stock; it proved difficult to find a brewery to supply alcohol and beverages; no current accounts were available; there were no staff remaining; the bar had to be refurbished; the pub had to be cleaned from top to bottom because of the unhygienic state of the premises; certain parts of the business such as the bed and breakfast accommodation and take-away sandwich provision could not continue. These and other factors meant that a new business had to start from scratch. There was no continuity.

In these circumstances, we have no hesitation in finding that there was no transfer of a going concern. Therefore, although Ms Thomas was VAT registered and may at some time in the past have had a turnover above the registration limit, the third essential component is not proved to exist on the balance of probabilities.

Therefore, the appeal succeeds in all respects.

We award the Appellant the sum of £50 to reimburse her travelling costs to the tribunal venue.

Ms Harrild undertook voluntarily to supply HMCR with her financial records in order that it could be ascertained whether at any time since she commenced her business her turnover had reached the VAT registration limit.

Rodney P Huggins

Chairman

Release date : 10 April 2006

LON/05/0693