United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2006] UKVAT V19666

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Windsor House Investments Ltd v Revenue & Customs [2006] UKVAT V19666 (21 July 2006)

19666

VAT – land and buildings – election to waive exemption – whether on facts an election notified by trader's accountants had been made – burden of proof of claim to the contrary not satisfied – election confirmed as valid

LONDON TRIBUNAL CENTRE

WINDSOR HOUSE INVESTMENTS LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: JOHN CLARK (Chairman)

KAMAL HOSSAIN FCA FCIB

Sitting in public in London on 23 and 24 May 2006

Stephen Jourdan, counsel, instructed by Halliwells LLP, for the Appellant

Caroline Neenan, counsel, instructed by the Acting Solicitor for Her Majesty's Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1. This appeal is against a decision by the Respondents ("Customs") to make an assessment in respect of output tax not declared on the Appellant's rental income for a property in South London known as Windsor House ("the Property"). We refer to the Appellant in this decision as "WHIL". There are two issues in this appeal. The first is whether WHIL made an election to waive exemption in respect of the Property. The second, in respect of which we agreed to defer making any decision, relates to the use to which relevant parts of the Property were put.

The law

2. An election to waive exemption (often referred to as an option to tax) may be made under paragraph 2(1) of Schedule 10 to the Value Added Tax Act 1994 ("VATA 1994"):

"(1) Subject to sub-paragraphs (2), (3) and (3A) and paragraph 3 below, where an election under this paragraph has effect in relation to any land, if and to the extent that any grant made in relation to it at a time when the election has effect by the person who made the election, or where that person is a body corporate by that person or a relevant associate, would (apart from this sub-paragraph) fall within Group 1 of Schedule 9, the grant shall not fall within that Group.

(a) . . .

(b) a building or part of a building intended for use solely for a relevant charitable purpose, other than as an office.

. . . "

3. Paragraph 3 of Schedule 10 to VATA 1994 provides:

"(1) An election under paragraph 2 above shall have effect—

(a) subject to the following provisions of this paragraph, from the beginning of the day on which the election is made or of any later day specified in the election; or

(b) . . .

. . .

(4) Subject to sub-paragraph (5) below, an election under paragraph 2 above shall be irrevocable.

(5) Where—

(a) the time that has elapsed since the day on which an election had effect is—

(i) less than 3 months; or

(ii) more than 20 years;

(b) in a case to which paragraph (a)(i) above applies—

(i) no tax has become chargeable and no credit for input tax has been claimed by virtue of the election; and

(ii) no grant in relation to the land which is the subject of the election has been made which, by virtue of being a supply of the assets of a business to a person to whom the business (or part of it) is being transferred as a going concern, has been treated as neither a supply of goods nor a supply of services; and

(c) the person making the election obtains the written consent of the Commissioners;

the election shall be revoked, in a case to which paragraph (a)(i) above applies, from the date on which it was made, and in a case to which paragraph (a)(ii) above applies, from the date on which the written consent of the Commissioners is given or such later date as they may specify in their written consent.

(5) . . .

(6) An election under paragraph 2 above shall have effect after 1st March 1995 only if—

(a) . . .

(b) in the case of an election made on or after that date—

(i) written notification of the election is given to the Commissioners not later than the end of the period of 30 days beginning with the day on which the election is made, or not later than the end of such longer period beginning with that day as the Commissioners may in any particular case allow, together with such information as the Commissioners may require; and

(ii) in a case in which sub-paragraph (9) below requires the prior written permission of the Commissioners to be obtained, that permission has been given."

The facts

4. The evidence consisted of an agreed bundle of documents, including a number of witness statements. Various witnesses gave oral evidence. As there were conflicts between the evidence of certain witnesses, we set out below what we find to be the background facts based on the documents, and then set out the relevant evidence; we consider the conflicts of evidence as part of our discussion and conclusion.

The background facts

5. An e-mail sent on 28 July by Marcus Ward, a partner in Price Bailey, accountants, to his colleagues Charles Olley and Alison Hughes (each of whom was away on holiday that week) records that at some time on 27 July 2004, a client, Trevor Spencer, telephoned him regarding the purchase of the Property. After discussing matters relating to VAT, Mr Spencer requested Price Bailey to obtain a company with the appropriate name in order to purchase the Property.
6. The company, WHIL, was incorporated on 29 July 2004. Subsequently Mr Spencer received the subscriber share, and was appointed as one of the directors, the other director being a company.
7. Once various formalities had been completed, and subject to an adjustment of the price to allow for postponement of completion, WHIL purchased the Property on 29 October 2004 for £5,175,000. Apart from one section of the Property which was vacant as at the time of preparation of the sale particulars, the Property was let to various tenants; the total rent (including the expected rent in respect of that section) was £404,130. Of that total, £153,543 was payable by a charity. The vendor of the property had not elected to waive exemption in respect of the Property; a warranty to this effect was given in the sale contract dated 26 August 2004. On 4 November 2003, the lease to the charity in respect of the fourth floor of the Property had been varied so that in the event of the landlord electing to waive exemption, the rent was to be treated as inclusive of VAT. Although copies of the other leases to the charity were not included in the bundle, the Heads of Terms dated 27 July 2004 show that corresponding provisions (described in this decision as the "Rent Clause") applied in respect of the other parts of the Property let to the charity.
8. On 9 September 2004 Price Bailey sent to Customs a form VAT 1, by which WHIL applied to be registered for VAT, and a form VAT 1614, notifying Customs of a decision by WHIL to elect to waive exemption in respect of the Property. The form VAT 1 had been signed by Mr Spencer as a director on behalf of WHIL, and the declaration was dated 21 August 2004. It was indicated in the form that the intended business activity was property rental, that the value of taxable supplies in the next twelve months was expected to be £400,000, that WHIL was not yet making taxable supplies but intended to in the future, and that WHIL did not expect to make any exempt supplies. Although it had been indicated in the form that WHIL wished to be registered from 19 August 2004, the registration date is shown in the Customs copy as 'Officially Amended' to 23 September 2004.
9. The form VAT 1614 had been signed by Mr Spencer as a director of WHIL, and was dated 9 September 2004. Under 'Details of the land and/or building to be opted' the address and Land Registry Title Number of the Property were stated, and the effective date of the option to tax was shown as 19 August 2004. The form contained two warning notes in bold type, the first in block capitals at the top and the second immediately above the space for signature:

"Attention – complete this form only to notify your decision to tax land and/or buildings (your option to tax). Before you complete this form, it is strongly recommended that you read VAT Notice 742A or seek guidance from the National Advice Service . . . "

"Under certain circumstances it may be possible to revoke your option within 3 months with Customs permission, otherwise your option will remain in effect for a minimum of 20 years. You should read VAT Notice 742A for more information."

10. On 15 September 2004 Customs sent a Request for Information and a Property Questionnaire to WHIL at Mr Spencer's address, which was also the address of WHIL's principal place of business, and sent copies to Price Bailey at their Bishops Stortford office. The latter copies were completed; once signed by Mr Spencer, they were sent to Customs. Customs' date stamp on the Request for Information showed the date of receipt as 29 September 2004; there was no corresponding stamp on the Property Questionnaire, but we accept on the balance of probabilities that it was received by Customs on the same date.
11. The completed Request for Information contained the following in response to the enquiry "Please give additional details of your business and describe the nature of the taxable supplies you are making":

"Purchase of non-residential property – conversion to residential – eventual zero-rated sale. Alternatively, standard-rated use of commercial property (see option to tax). In each case, no exempt supplies will be made."

12. In the completed Property Questionnaire, none of the boxes under question 3 was ticked to show WHIL's intentions with regard to the Property; in particular, the box 'Rent out property in its current state' was not ticked. However, next to the box 'Other (please specify)' the following wording had been inserted:

"Conversion of commercial property then either freehold sale or grant of long lease (over 21 years)."

13. A Progress Sheet prepared at Customs' Wolverhampton VRU section contained the following entry, dated 1 October 2004 and initialled "N.S.":

" – called Trevor Spencer confirmed MBA is residential property to sell. Has no planning permission/application yet, has opted should planning permission get rejected estimated FTS is 12/05. OK to reg Intending from completion date 23/09/04. OTT."

14. WHIL was registered for VAT with effect from 23 September 2004, as indicated by the amendment to Form VAT 1. On 18 November 2004 Customs' Option to Tax National Unit wrote to WHIL at its business address to acknowledge the notification of the election to waive exemption on the Property with effect from 19 August 2004.
15. On 20 December 2004 Price Bailey sent to Customs a VAT return for the period from 23 September 2004 to 31 October 2004. This showed that there had been no outputs or output tax to declare, but there was a claim for input tax of £7,696.76. Customs received the return on the following day.
16. In a letter dated 7 February 2005 to Customs' Option to Tax National Unit, Price Bailey informed Customs that the option to tax form VAT 1614 acknowledged on 18 November 2004 was invalid. The letter set out the reasons for Price Bailey's view. On 11 March 2005 Customs replied, setting out the reasons why in their view the option to tax the Property was valid and irrevocable. By a letter dated 23 March 2005 to the Option to Tax National Unit, Price Bailey requested local reconsideration of the decision, and by a fax dated 8 April 2005 to Customs' Regional Appeals Team requested an independent reconsideration. Ian Hartley of that team responded on 14 April 2005 upholding the officer's decision to accept WHIL's option to tax as valid and irrevocable. On 16 May 2005 an assessment of tax in the total sum of £29, 054 was issued in relation to VAT periods 10/04 and 01/05. [£8,782 of that assessment is no longer in dispute; the present appeal relates to the balance of £20,272.] Following receipt of the Notice of Assessment, WHIL gave notice of appeal to the Tribunal.

Witness evidence

17. Rachel Gilligan, a "client accountant" in the Property Management department of Savills Commercial Ltd, read out her witness statement, but was not cross-examined. [We comment on this below in the context of costs.] Savills had managed the Property for the previous owners, including raising rent and service charges on a quarterly basis. She was responsible for submission of invoices to the tenants, usually six weeks in advance of the quarter date. The rent invoices for the Property for the quarter to 24 December 2004 were dealt with through the previous owners; Miss Gilligan understood that these were apportioned as part of the completion statement on WHIL's purchase. The first invoice that she prepared for WHIL was for the quarter to 24 March 2005. Whilst preparing the invoices, she noticed that WHIL had forwarded her its VAT number. She knew that the property had not previously been opted to tax, and so she needed to find out whether the new owner intended to charge VAT when billing the tenants. She wrote to Trevor Spencer on 8 November 2004 to ask whether WHIL intended to charge VAT to the tenants of the Property.
18. She telephoned Mr Spencer some time between 8 and 24 November 2004 to seek a response to her letter before raising the quarterly invoices. Her recollection was that Mr Spencer told her that his accountants had advised him not to charge VAT and therefore the Property was not opted to tax. Her understanding was that there had been no change in the status of the Property and that it had not been opted to tax. She asked Mr Spencer if it was his intention to charge VAT to the tenants and he replied that it was not.
19. She dealt with matters as instructed and raised invoices on behalf of WHIL showing a nil charge to VAT. On 1 February 2005, in compliance with Mr Spencer's request made during the earlier conversation, Miss Gilligan e-mailed to Alison Hughes of Price Bailey the "Client Statement" for the Property for the period from October 2004 to January 2005. Alison Hughes subsequently telephoned Miss Gilligan to ask why VAT had not been charged on the rent invoices to the tenants, and Miss Gilligan replied that Mr Spencer had instructed her not to charge VAT as the Property was not opted to tax. Alison Hughes expressed surprise and said that she would need to check the position with the client. In response to a request by Alison Hughes, Miss Gilligan subsequently supplied copies of documentation relating to her dealings with Mr Spencer.
20. Miss Gilligan had continued to raise rent invoices for the Property with a nil charge to VAT as instructed by Mr Spencer.
21. Charles Olley, the Finance Director of Price Bailey, gave evidence. He explained that he was the main adviser to Mr Spencer on corporate finance matters and on tax, with financial accounting and tax compliance usually being dealt with by Alison Hughes of his firm. He had been on holiday on 27 July 2004, and illness had delayed his return to the office until 10 August. He would probably not have read Marcus Ward's e-mail (see paragraph 5 above) until his return to the office; he did not recall discussing the VAT issues with Marcus Ward. He (Charles Olley) and Alison Hughes would have handled the joint venture arrangements for WHIL; they had a number of pro forma documents used on previous property deals for Trevor Spencer. Charles Olley did not recall being involved with the VAT registration of WHIL; as far as he was concerned, this was being dealt with by Marcus Ward.
22. One of the standard conditions precedent to the provision of bank finance for WHIL's purchase of the Property was that WHIL should be VAT registered. At the time that the conditions precedent were under review, Alison Hughes was able to advise the solicitor that the VAT registration papers were with Trevor Spencer for signature. With the benefit of hindsight, Charles Olley admitted that he and Alison Hughes should have realised that there was no need for WHIL to be registered for the purposes of the loan facility as the vendor would not be charging VAT on the purchase.
23. After completion of the purchase of the Property, Charles Olley did not recall any dealings on the matter until he received a file note from Alison Hughes dated 3 February 2005 identifying a potential problem with VAT. It was not until he read that memo that he became aware of the (unusual) Rent Clause in the charity's leases. After discussing the matter within his firm and with its insurers, he explained the difficulty to Trevor Spencer, who expressed the opinion that the preparation and submission of the option to tax was a matter that Price Bailey were responsible for as he (Trevor Spencer) had not made (and in view of the unusual lease terms would not have made) any decision to opt to tax. He and Charles Olley agreed that a letter should be sent to Customs to explain that the option to tax had been made without authority; this was drafted by Marcus Ward, dated 7 February 2005 (see paragraph 16 above) and approved by Charles Olley for posting on 9 February 2005.
24. It was not odd that Trevor Spencer was now saying that he had not opted to tax the Property, yet had signed the form; Charles Olley did not believe that Mr Spencer read every word of every document which he was asked to sign. It was quite consistent that he had signed the form and left it undated. He would have complained if Price Bailey were not acting in accordance with his instructions.
25. Charles Olley accepted that if the Property were to be converted to residential use, the first grant would be zero-rated and a later grant exempt. In the circumstance there would be no need to opt to tax. He could not explain the theory that the option would have been kept on file for a later date; it must just have been a mistake.
26. Alison Hughes, an Operations Manager with Price Bailey, explained in her evidence that Trevor Spencer was a client of the firm through one company, and that he was a property investment entrepreneur with a number of "single purpose vehicle" companies each involved in either property development or investment. She was normally Trevor Spencer's first point of contact with the firm.
27. On 2 August 2004 she had received the e-mail from Marcus Hughes dated 28 July 2004. Although she recalled speaking to Marcus Ward, she could not recall any of the detail of the conversation.
28. On 19 August 2004 she received a telephone call from Trevor Spencer asking where Price Bailey were with the registration of WHIL; her recollection was that he was "a bit upset". She believed that he may have thought that VAT registration was crucial to completion of the deal. (She set out her recollection of the telephone conversation in a file note made on 16 May 2005.) She spoke to Marcus Ward to check the position. She recalled that Marcus Ward informed her that he thought the Property was not opted to tax, and so the VAT registration of WHIL was not necessary for completion of the purchase of the Property. She subsequently telephoned the solicitors to confirm whether or not the Property was opted, and if not, advised them of Marcus Ward's comments. She made a contemporaneous note of the latter conversation. She thought it likely that she would have telephoned Trevor Spencer back to reassure him that VAT registration of WHIL was not crucial to completion. She recalled telephoning Marcus Ward at around this time and saying "Can I assume that you are dealing with the VAT registration?" His reply was that he would deal with it.
29. Subsequently she was contacted by James Howe, who was assisting Marcus Ward. He wanted details for completion of the form VAT 1. She did not recall any specific mention of form VAT 1614. She provided details of Trevor Spencer's directorships, and indicated that the likely level of supply was approximately £400,000 per annum; no bank account had yet been set up. She was not involved in any other way in preparation of either the form VAT 1 or the form VAT 1614.
30. In relation to the conditions precedent to the loan finance, she did not remember anything specific about her e-mail dated 6 September 2004 to the solicitors, but she accepted that she must have established, as stated in the e-mail, that Trevor Spencer had the VAT registration papers and that he was waiting for bank details, which he would not have until the following day.
31. She received copies of the form VAT 1 and form VAT 1614 and related correspondence on 9 September 2004; these were sent for filing as she believed that no further action was necessary.
32. On 17 September 2004 Customs' Request for Information (see paragraph 10 above) was received at her office. She passed this to Marcus Ward, who dealt with its completion and returned it to her to send to Trevor Spencer for his signature. In her covering letter to Mr Spencer, she advised him that he would need to provide Customs with copies of any supporting evidence of his intention to trade in respect of the Property. She was not aware at that stage of there being any problem with this.
33. She did not specifically recall seeing the letter from Customs dated 18 November 2004 acknowledging the Option to Tax in respect of the Property (paragraph 14 above), but must have seen it because the filing reference was in her handwriting. Mr Spencer did not query this with her. She believed that the copy came to Price Bailey with the bundle of documents required for preparation of the first VAT return and received at their offices on 20 December 2004, as it did not have the firm's "Received" stamp on it and was filed with other documents received on that date.
34. On the same date she prepared the first VAT return for the quarter ending October 2004 in order to reclaim the VAT paid on the acquisition costs of the purchase of the Property. She and Trevor Spencer had discussed this beforehand, probably the previous week, and he had mentioned that there was something "funny" about the VAT on the Property and that he was not sure whether it would be possible to reclaim the inputs. At his request she spoke to Marcus Ward, who said that as WHIL was registered, the inputs could be reclaimed. (She had no file note for either of these conversations.) She submitted the VAT return, signed by Charles Olley, to Customs under cover of her letter dated 20 December 2004 stating that the original return had gone missing in transit between the client's office and Price Bailey.
35. In early February 2005 she started work on preparation of the second VAT return for the period ending 31 January 2005. She noted that the rent invoice did not charge VAT and that the managing agent's reports showed the Property as "Non-Opted". She telephoned Rachel Gilligan to discuss the Property and the fact that it appeared now to have been opted to tax. Her recollection was that Rachel Gilligan was surprised by this news; Miss Gilligan had said that she recalled having a conversation with Trevor Spencer on this point and he had confirmed to her that the Property was not opted to tax and that not VAT was to be charged.
36. Following this conversation, Alison Hughes checked the file and found the documentation showing that the Property was opted as from 19 August 2004. She discussed this with Marcus Ward; her recollection was that Marcus Ward said that he thought that the Property may have been opted to prove an intention to trade. She then telephoned Trevor Spencer, who informed her that he understood that the Property was most definitely not to be opted until a later date and only if the development into residential units was going to proceed; he recalled discussing this with Marcus Ward.
37. Trevor Spencer then informed her that the main tenant of the Property was a charity and explained about the Rent Clause; if the Property was opted to tax, WHIL would lose 7/47 of its rental income each quarter. He was very concerned about the potential problem. It was clear to her that Price Bailey had made a mistake in submitting the VAT 1614. She told Trevor Spencer that she could not comment further until she had spoken again to Marcus Ward.
38. She spoke to Marcus Ward, who said that Customs were not prepared to allow the option to be revoked. She reviewed the files and relevant correspondence, and became more concerned, as the submission of the VAT 1614 seemed to be totally contrary to the initial advice given by Marcus Ward and the action agreed with Trevor Spencer. After preparing a detailed file note, she passed the matter to Charles Olley.
39. In relation to the conditions precedent to the finance, she thought that she and her colleagues had been reacting to a request from the client and the client's solicitor; it was fair to say that Price Bailey were not thinking about what was required. She accepted that they were seeking registration because that was what they had been told to do. She did not believe that Trevor Spencer had made an active decision to opt to tax; on her reading of the documents, Price Bailey had made a mistake. Trevor Spencer had not raised any query on the forms; although this was not necessarily consistent with a decision by him not to opt, it was consistent with his usual method of collating the papers and sending them to Price Bailey. During the period from August to September 2004, he had not queried whether Price Bailey were acting in accordance with their instructions or decisions, not raised queries on other documents. She did not regard this as consistent with a decision by him to opt to tax. He had not queried the option notification sent to him by Customs on 18 November 2004. Trevor Spencer had not mentioned the Rent Clause to her until February 2004.
40. Marcus Ward, Director of VAT at Price Bailey, explained in his evidence that his actual recollection of events was generally limited and was based on the documents. Although he had had some previous involvement in advising Trevor Spencer on VAT queries relating to his property deals, they had not met, all previous dealings being by telephone. Marcus Ward referred to his record of the telephone conversation on 27 July 2004 (see paragraph 5 above). The focus of the conversation was to form the new company for the purchase of the Property. Trevor Spencer explained that the Property was tenanted by various charities and that it was his intention to let the leases run until expiry in 2008, at which time he intended to convert the Property to residential dwellings and grant major lease interests (these would be zero-rated). He told Marcus Ward that he was purchasing the Property VAT free and it was not subject to an option to tax.
41. Mr Spencer had asked him whether he would be able to reclaim the VAT on the acquisition costs of the Purchase of the Property. Marcus Ward advised him that in order to do so, he would need to register the company (WHIL) for VAT. It was not possible to put the purchase costs through another company in order to recover the input tax on professional fees and the other acquisition costs of the purchase. Marcus Ward's initial advice to Mr Spencer was to hold back for a while from registering the company (in order to maximise the period in which other expenditure could be made) but that WHIL would need to be registered for VAT within six months of incurring the professional costs on the purchase of the Property.
42. Marcus Ward confirmed that he was focusing on the VAT recovery of the immediate costs. It would not have been in the forefront of his mind as to whether Mr Spencer was seeking advice on recovering VAT on the costs of converting the Property to residential units in the future, as the supplies of units would be zero-rated. He did not recall specifically advising Mr Spencer on whether or not to opt to tax; this would have been unlikely, as the option to tax could not apply to residential dwellings, which (as already mentioned) would be zero-rated in any event.
43. On 19 August 2004 he received an instruction to register WHIL for VAT. He did not recall who gave that instruction, but it did not come from Trevor Spencer directly; it might have been from Alison Hughes, but he could not be certain of this. He instructed his assistant James Howe to prepare a form VAT 1 and a form VAT 1614. He did not recall why he had asked for the latter to be prepared; had he referred back to his e-mail note of the initial telephone conversation with Trevor Spencer, he would have seen that the tenants of the Property were charities, and this would have caused him to query whether opting to tax would be beneficial. He could only assume that he asked for the Option to Tax form as a back-up or alternative means of obtaining VAT registration.
44. He had inserted the dates at question 22 on form VAT 1 (concerning the date of voluntary registration) and in form VAT 1614 (relating to the effective date of the Option to Tax). He did not recall sending the forms to Customs; he suspected that this had been done when he was not at the Cambridge office, although he must have caused them to be sent. He did not recall why both forms were submitted; the Option to Tax form was most definitely sent by mistake and without the client's authority to do so. If he had referred to his e-mail, only the form VAT 1 would have been submitted at that stage.
45. He had no reason in September 2004 to query the receipt from Customs of the Request for Information and the Property Questionnaire (see paragraph 10 above). Once this had been completed, Alison Hughes had sent it to Trevor Spencer for signature.
46. With reference to Customs' letter dated 18 November 2004 acknowledging the election to waive exemption (see paragraph 14 above), he could not recall seeing it at the time of receipt, but knowing that the option had been made and notified, it would not have raised any concerns or queries. He had no further dealings with the matter until Alison Hughes spoke to him in early February 2005 querying the Option to Tax. His understanding was that the VAT registration had gone ahead to enable the input tax on the acquisition costs to be reclaimed. At this time he was informed about the Rent Clause. Had he known about this, it would have prompted him to query whether the Property should have been opted to tax. He had subsequently written on Price Bailey's behalf to Customs to seek to revoke the Option to Tax.
47. Although he did not specifically remember at what time on 27 July 2004 the telephone conversation with Trevor Spencer had taken place, he accepted that Price Bailey had had to rush round at a "rate of knots" to get things done. In relation to registration, he accepted that there was no need to opt to tax. The option to tax was to be kept on file because of the uncertainties at the beginning, and so it could be used at a later date. Planning permission for future conversion was not essential to determine an intention to make taxable supplies; he felt that the simple purchase of a property could be enough. He had been asked to obtain registration. He thought that an assumption had been made incorrectly that Trevor Spencer would be opting to tax. Price Bailey had proceeded on the lines of a "package" with the form VAT 1 and the Option; this had been a mistake.
48. Registering WHIL with a £400,000 turnover had been in accordance with the client's instructions. However, the option form had been generated by Price Bailey and sent in error to the client; Trevor Spencer had not asked for it. Price Bailey had asked Trevor Spencer to sign the forms, which he had done. Marcus Ward could not comment on Trevor Spencer's intentions. Marcus Ward had inserted the "effective date" in the option form. There had been no query from Trevor Spencer on returning the form, nor had he raised any question as to intentions. Marcus Ward had acted as he did as a result of a mistake; if he had referred to his original e-mail, he would not have done. The form VAT 1 had been prepared on the basis that WHIL had opted. He had not known at the time about the Rent Clause; if he had, he would possibly have recorded this in his e-mail; it had been mentioned that the tenants were charities. In the original conversation Trevor Spencer had not initiated any question concerning the option to tax; the main objective had been to obtain a company to enable the rest of the process to go ahead.
49. Apart from his oral evidence, Trevor Spencer's evidence was contained in his original witness statement (dated 14 December 2005) and in a supplementary witness statement dated 22 May 2006 handed in on the day of the hearing. He explained that he operated his businesses largely on his own and used Price Bailey in an almost "in-house" accountancy capacity. He allowed them to get on with all tax matters and simply returned to them tax forms and all other such documentation that they asked him to sign; his main contacts were Alison Hughes and Charles Olley.
50. He sought advice from Price Bailey on VAT issues that might affect the purchase of the Property. He explained that he did not recall the specific discussions with Price Bailey, and that in part his recollection was derived from documents on file.
51. Before acquisition of the Property, he informed Price Bailey that the Property was not elected to charge VAT. He spoke to Marcus Ward, the VAT specialist. Mr Spencer was aware from the particulars of sale that one of the tenants was a charity, and was informed by the agent acting for him on the purchase that the various leases to the charity contained the Rent Clause. (Details of the effect of the Rent Clause on the rents payable by the charity under the various leases were confirmed in the Heads of Terms as faxed to him by his agent.) He told Marcus Ward that the effect of the Rent Clause would be that rental income payable to WHIL would be reduced by the amount of VAT if a VAT election on the Property was made.
52. It was this unusual provision, namely the Rent Clause, which prompted Mr Spencer to seek VAT advice from Price Bailey prior to the acquisition. His usual practice for a property deal where the premises were already elected was to ensure that the acquiring company was VAT registered and that a "transfer of going concern" election was made. As the Property was VAT-free and the leases contained the Rent Clause, he was unsure what the VAT position would be. He discussed the Rent Clause with Marcus Ward and asked for advice on how to reclaim VAT on the costs incurred in the acquisition of the Property, and (more importantly) how he could reclaim VAT on the redevelopment costs if he decided to convert the Property into residential units in the future. The latter was the main purpose of his call to Marcus Ward.
53. He and Marcus Ward had discussed the possibility of registering WHIL for VAT in the future if he decided to carry out the residential refurbishment. Mr Spencer was aware that there might be some irrecoverable VAT on the costs incurred in purchasing the Property, but he was not particularly concerned by this as he knew that the amount would be relatively modest compared with the benefit of maintaining the Property in the VAT-free state. It would be vital for the economics of the transaction that WHIL would be able to recover VAT on the building costs of converting the Property. His recollection of his understanding of Marcus Ward's advice was that if WHIL began the conversion works it would be prudent to register and elect at that stage so that WHIL could recover the VAT elements of the sums expended. Marcus Ward explained that Mr Spencer would need to sign a form to opt to charge VAT in respect of the Property, which Price Bailey would keep on file in case the decision was later made to convert the Property.
54. In other transactions he was usually very concerned in relation to VAT costs to ensure that the acquiring company was VAT registered, as VAT costs were significant in an acquisition. He did not pursue anyone at Price Bailey on the acquisition of the Property because he was not motivated by the need to register WHIL for VAT.
55. Mr Spencer referred to Marcus Ward's letter dated 20 August 2004 enclosing VAT forms for Mr Spencer to sign. In accordance with his usual practice, and in accordance with his recent discussion with Marcus Ward, Mr Spencer signed the forms on behalf of WHIL and returned them to Price Bailey to keep on file. He believed that he would have been surprised to receive both VAT forms for signature at that time, and believed that that was why, in his letter to Marcus Ward dated 9 September 2004 returning the VAT forms, he had raised a query on dating the Option to Tax form:

"Please note that I have not dated the option to tax in case you wish a particular date to be entered."

56. Mr Spencer emphasised that WHIL did not authorise Price Bailey to file the form VAT 1614 in order to make any election to charge VAT in respect of the Property; it was never his intention that the Property be opted to tax. He had only signed the form on behalf of WHIL strictly on the basis and understanding that it would be held on file pending the decision as to whether (and if so, when) to redevelop the Property into residential units.
57. Mr Spencer did not recall any telephone conversation with Customs on 7 October 2004. However, he accepted that a conversation had taken place. He did not think that the note (see paragraph 13 above) accurately reflected that conversation. He had not raised any query as a result of the conversation. He did not see any reason to tell Customs not to talk to him but to refer to Price Bailey; he had nothing to hide. It had been a fairly innocuous conversation; it was fairly clear in his mind that it was not referring to an option to tax. If he had appreciated that this was being discussed, alarm bells would have rung; the VAT office would have thought that he had something to hide. He was unable to understand the reference in the note to the option to tax. If he had been asked by Alison Hughes or Rachel Gilligan whether he wanted to opt, he would have queried this.
58. Mr Spencer referred to Alison Hughes' letter dated 20 December 2004 relating to the VAT return for WHIL, and to his handwritten note of the same date stating: "For some reason I missed [WHIL] VAT return. Hopefully not a big problem?!" This demonstrated the way that he considered Price Bailey to be his "in-house" accountants and that he simply forwarded on to them all matters relating to tax for them to deal with.
59. Mr Spencer did not recall receiving the letter dated 8 November 2004 from Rachel Gilligan (see paragraph 17 above), or speaking to her further to this letter (see paragraph 18 above). He acknowledged that he had received it, and did not remember reading it, although he must have done so, possibly on the day of receipt. As far as he was aware, he had not opted; he did not look more closely at the terms of the letter. He could not deal with VAT or tax, which was why he did not respond to this letter.
60. Mr Spencer had been concerned to learn that Price Bailey had filed the option to tax on WHIL's behalf by mistake; they were not authorised to file it, as it was never his intention to opt to tax the Property.
61. Mr Spencer accepted that he had experience of VAT on property; he had experience, together with Price Bailey, of between five and ten transactions involving options to tax. He continued to use Price Bailey; he was very happy with them.
62. He believed that he had first become aware of the Rent Clause some days or weeks before his conversation with Marcus Ward. He accepted that there was no mention of it in Marcus Ward's note, but Mr Spencer's firm recollection was that he had told Marcus Ward about the Rent Clause; this had been the purpose of the call and the "backbone" of the conversation.
63. Mr Spencer was unable to explain the discrepancy between the reference to the Option to Tax form being kept on file, and the view expressed by Marcus Ward in his evidence that an option would not have assisted in relation to a residential conversion. Mr Spencer had come away with the view that he would need to register WHIL for VAT; he now knew that this was wrong. He had been happy with Marcus Ward's advice.
64. In relation to question 24 in the Form VAT 1, which indicated that WHIL did not expect to be making any exempt supplies, Mr Spencer stated that he did not know what the definition of an exempt supply was. He knew that in the absence of an option, no VAT was charged. This confirmed that he would not have read the document. He indicated that he would sign an important form without reading it; he relied entirely on Price Bailey to tell him what to do. This was the first "hiccup" that there had ever been with this way of working. He had given nobody any instructions to prepare these forms. Price Bailey had supplied them to him; he did what they told him to do.
65. The bank's condition precedent requiring VAT registration would have been a standard clause, but as he understood it would not have been critical unless there was a transfer of a going concern. The deal would not have collapsed. The condition was not lifted, so WHIL had to register in order to obtain the finance. Mr Spencer's understanding was that a trader could become registered but still would not have to charge VAT on the rents.
66. Everything in the Option to Tax form apart from the "Date of notification" box had been filled in before he received it. As mentioned in his covering letter to Marcus Ward, he left this blank. He would not have considered the dates on the two forms; he would have signed them without reading them. All these areas were Price Bailey's responsibility. He would have read Alison Hughes' letter enclosing Customs' Request for Information. He did not read forms; he signed them as instructed by crosses on the forms. He did not read documents. In the same way, he had not read Customs' letter acknowledging the Option to Tax; he "did not read VAT stuff".
67. It was not true to say that he had decided to register and opt without appreciating the consequences; he had not asked for the Property to be VAT registered. He referred to his way of working; he had given no instructions, written, verbal or otherwise. He did not know what he was signing; he left that to Price Bailey. However, he could not accept that Price Bailey had authority to deal on his behalf.
68. In his evidence, Mr Hartley of Customs' Southern Region Appeals and Reconsiderations Team confirmed the history of the case. He had been involved in the independent reconsideration, and upheld the original decision that the option to tax was valid and irrevocable. He explained the steps taken for the purposes of the reconsideration.
69. Mr Singh stated in his evidence that he was the officer at Customs' Wolverhampton VRU section who had made the note dated 1 October 2004 (see paragraph 13 above). He did not specifically recall the conversation or having made the note, but it was in his handwriting. He believed that he had made the call to clarify the nature of the intended supplies; it was not clear from the correspondence whether these were commercial rental, the sale of residential property, or a mixture of both. "MBA" meant "main business activity", and "FTS" meant "first taxable supply". Mr Singh explained his interpretation of the note, the conclusion being that he had agreed that WHIL could register as an intending trader from the date of completion of the purchase of the Property because, by virtue of the Option to Tax, it could be shown that taxable supplies were intended. His reason for calling Trevor Spencer rather than Price Bailey was that the VAT 1 form had been signed by Trevor Spencer.
70. Mr Singh accepted that the first taxable supply would have been at least a year earlier than December 2005. The reference to anticipated completion date was to the date originally proposed, not to the actual date, which had been postponed by agreement.
71. Mr Singh provided additional documentation consisting of an agreement between Customs' National Registration unit and their Option to Tax Unit concerning WHIL, and an e-mail from the latter Unit listing various companies and showing whether the option to tax had been accepted, and if so, the effective date; against WHIL, the entry is "PROCEED 19/08/04".

Arguments for WHIL

72. Mr Jourdan referred to Blythe Limited Partnership (1999) VAT Decision 16011, in which the Tribunal had held that election to waive exemption and notification of that election were separate matters. The election was the important step which determined the scope of the election; notification merely gave it effect. If the taxpayer claimed that the notification was of something other than the actual election, the Tribunal must decide on the evidence what election was made. Further, if a person sent a notification to Customs on behalf of another person without authority to do so, it had no effect.
73. The principles laid down in Blythe Limited Partnership were correct and had consistently been accepted as such in later cases. Mr Jourdan referred to DS Talafair & Sons (1999) VAT Decision 16144, Classic Furniture (Newport) Ltd (2001) VAT Decision 16977, Hammersmith & West London College (2001) VAT Decision 17540, and Rathbone Community Industry (2003) VAT Decision 18200.
74. There were two questions for the Tribunal in the present case:

(1) Did Trevor Spencer, as director of WHIL, intend to make an election to waive exemption in respect of the Property?

(2) Did Price Bailey have authority from WHIL to send the form VAT 1614 to Customs?

75. Mr Jourdan argued that on the facts Mr Spencer did not intend to opt; this would have been very foolish. Actions spoke louder than words: it was necessary to see what Mr Spencer actually did. Looking back at the history, he had taken advice on 27 July 2004 about registering, he had subsequently received the forms to fill in, he had dated one but not the other; Price Bailey had sent in the forms, and were not trying to cover up their error.
76. In Blythe, the Tribunal had looked at the commercial background; there had been no evidence from the people making the mistake. The Tribunal had looked at the actual intention, and the commercial considerations. It had also examined the conduct of the partnership after the election had been made. Having found as a fact that the election and the notification did not correspond, the Tribunal had confirmed that there was a distinction between election and notification. It had decided that the question was whether an election had been made of the type required by paragraph 3 of Schedule 10 VATA 1994. If it was not, it did not constitute an election within paragraph 2 of that Schedule. If the Tribunal in the present case accepted that there had been no election, the appeal should be allowed.
77. In relation to the notification, Mr Jourdan relied on the second sentence of paragraph 23 of Blythe:

"Although there is nothing in the Act saying so, we consider that it must be the case that, if a person sends a notification to the Commissioners on behalf of another person without any authority, it cannot have any effect, otherwise any person could make a notification on any property to the detriment of the owner.

78. He also relied on paragraph 3(6) of Schedule 10 VATA 1994, and section 98 VATA 1994. He argued that if a person signed a form VAT 1614 with the intention that it was to be given to his accountants but was not to be released until a later date, this was not a valid notification. Customs were arguing that it became a valid notification as soon as it was signed; if this were to be the case, Mr Jourdan would accept that there had been a notification.
79. In relation to Customs' argument that Mr Spencer had exercised the option when he signed the form but had done so without realising the consequences, and that the "penny had dropped" later, Mr Jourdan pointed out that what Mr Spencer had told Rachel Gilligan was not to charge VAT on rents. Customs' argument amounted to a contradiction in terms. If Mr Spencer did not intend to charge VAT, the appeal must be allowed. It was necessary to have a conscious decision to charge VAT; following Blythe, if there was no such intention, no election had been made.
80. On the question of the form VAT 1614, Customs were pointing to a contrast between the effective date and the date of notification. It was clear that this was posted to Mr Spencer on 20 August 2004, the day after that stated to be the effective date. Mr Spencer could not have made an election on 19 August. Mr Jourdan argued that on the wording of paragraph 3(1)(a) of Schedule 10 VATA 1994, an election could not be made with effect from a date earlier than it was made. Thus Mr Spencer could not make WHIL's election on 21 August with effect from 19 August.
81. It was clear from paragraph 3(6) of Schedule 10 VATA 1994 that it was not enough simply to have a decision to elect to waive exemption, or a written record of that decision; written notification had to be given to Customs. If a note of the election were merely to be put in a drawer, that did not amount to notification. If the trader's accountants sent in information relating to an election, but did so without authority, Mr Jourdan argued that this did not amount to notification.
82. Mr Jourdan summarised the history, and referred to the following as pointers to the only sensible conclusion, that WHIL had not opted to tax, and that the appeal should therefore be allowed:

(1) Rachel Gilligan's unchallenged evidence that Mr Spencer did not want to charge VAT;

(2) the acceptance by the Price Bailey witnesses that the firm had made a mistake;

(3) although Mr Spencer had signed forms suggesting that he did intend to charge VAT, his approach to such documents was that he did not read them;

(4) Customs' note of the conversation on 1 October 2004 between Mr Singh and Mr Spencer was not a reliable one;

(5) in relation to the failure to sound the alarm, Mr Spencer had sent the papers to Price Bailey, and he had phoned Alison Hughes; this was not consistent with opting and treating the Property as taxable.

Arguments for Customs

83. Miss Neenan accepted that there was a distinction between the exercise and the notification of an option to tax because an election had a separate existence from the notification: Blythe at paragraph 21. Thus the effect of the legislation was that where the taxpayer wishes to waive the VAT exemption relating to property, he must make an election and notify Customs in writing that he has done so. In Rathbone (at paragraph 17 of the decision) the Tribunal had confirmed that notification is evidence of election and where notification has been made the Appellant bears the onus of proving that it did not opt to tax.
84. Although Customs did not seek to argue before the Tribunal that a different approach should be adopted from that taken by the Tribunal in Blythe, Customs formally reserved the right to argue elsewhere if need be that the taxpayer is always bound by notification. This was the same approach as that adopted before the Tribunal in Hammersmith & West London College at paragraph 22 of that decision. For the purposes of the present hearing, Customs accepted that if it were to be established that WHIL had not decided to opt, the case would end there. The principal question was one of fact.
85. In Blythe at paragraph 21 the Tribunal had been looking at the extent of the notification. It did not consider the position where a notification was made and it was subsequently contended (after the expiry of the three month period and, in addition, after an input tax claim in respect of supplies which would otherwise have been exempt) that no election at all had been made. WHIL's case was that it, through Mr Spencer, did not exercise the option to tax and did not intend to opt to tax.
86. This Tribunal was therefore being asked to ignore the effect of the following documents, all of which had been signed by the only person with authority to elect to waive exemption, namely Mr Spencer himself:

(1) Form VAT 1, which confirmed that the nature of the business was property rental, that the expected level of taxable supplies was £400,000, and that it did not intend to make exempt supplies. Miss Neenan contended that the contents of the application for registration indicated that WHIL did indeed wish to opt to tax the Property: without the option to tax, WHIL would not have been making taxable supplies and would not have been able to register for VAT.

(2) Form VAT 1614: this, received by Customs together with form VAT 1, carried the warnings set out at paragraph 9 above. The form VAT 1614 requested that the option should commence from 19 August 2004.

(3) The Request for Information form: this stated that no exempt supplies would be made and referred Customs to the option to tax.

87. The documents signed by Mr Spencer contained clear warnings as to the effect of the option to tax. Miss Neenan referred to the law of contract, where it was well established that if a contractual document is signed, the signatory will be bound by its terms and it is irrelevant whether that party has read them, or has any knowledge of them. She cited L'Estrange v F Graucob Ltd [1934] 2 KB 394.
88. The content of these documents plainly indicated a wish to opt. There was nothing in the evidence to support registration on an alternative basis. It had been necessary to opt in order to convert an exempt supply into a taxable one.
89. Mr Spencer's evidence was that he did not read documents; he was too busy. However, the forms were clear to make them "user-friendly". He had admitted that he had read the covering letter. She submitted that he plainly knew what he was doing; he would not sign without any awareness whatsoever. Nothing affected the fact that the decision had been made.
90. All the Price Bailey staff had said that Mr Spencer had not at any stage queried the decisions until the time of the first VAT return; this had contained a claim based on taxable supplies. She argued that all of this indicated that a decision to opt had been made. The position as understood by Price Bailey had been that Mr Spencer wanted to claim back input tax on purchase-related costs, and to meet the condition precedent relating to VAT registration. She contended that Mr Spencer had been thinking about commercial considerations, as without registration there would have been no finance.
91. As all the Price Bailey staff had said that no reference had been made to the Rent Clause, it was clear that it did not feature in the decision making during July or August 2004. She argued that at that stage Mr Spencer had not appreciated the significance of the Rent Clause. The date of 19 August 2004 had been included in the form VAT 1614 as the effective date of the option; the date of notification was less significant.
92. It was plain that Price Bailey had thought that they were acting consistently with Mr Spencer's wishes. Miss Neenan argued that the "keep on file" argument was nonsense; Marcus Ward knew that if there were to be a conversion, there would be no need for an option, as the first supplies after the conversion would have been zero-rated.
93. Miss Neenan also drew attention to the following:

(1) the telephone conversation between Mr Singh and Mr Spencer;

(2) Mr Spencer's failure to "raise the alarm" on receipt of Customs' letter of 18 November 2004 acknowledging receipt of the option to tax notification;

(3) WHIL's claim for input tax on its first VAT return, which, she contended, indicated that WHIL did not consider that it was making exempt supplies.

94. She argued that Mr Spencer's conduct indicated that he had decided to opt to tax. She could not speculate on what had caused him to realise that the option gave rise to a problem; she thought that it would have been in late 2004 or early 2005 when he made the connection. The absence of this realisation did not affect the validity of the option; it was just that Mr Spencer did not appreciate the consequences when it was exercised.
95. On the question of Price Bailey's authority to send the form VAT 1614, she referred to the extract from Blythe cited by Mr Jourdan and set out at paragraph 77 above. She emphasised that the Tribunal in that case had been talking about an individual who signed a notification, and had not been referring to the sending of the notification. Paragraph 24 of that decision showed that the notification had been sent by the solicitors. The question had been whether or not the signatory was authorised; if he was and the notification was sent to Customs, that was sufficient.
96. The notification in WHIL's case was unequivocal. It was made by an authorised person, Mr Spencer. It reflected the decision to elect to waive exemption. Accordingly, WHIL was bound by the election to waive exemption, and could not avoid the consequences of making such an election. It made no difference that, with the benefit of hindsight or different professional advice, WHIL might have chosen not to make an election. The appeal should be dismissed. She emphasised that Customs did not need to show that the decision to opt had been made on 19 August 2004; it was for WHIL to establish that it had not exercised the option.

Discussion and conclusions

97. It is clear from Blythe Limited Partnership that for an election to waive exemption to be valid and effective, two requirements must be fulfilled. The first is there must be an election. The second is that the election must be notified. In relation to the first, there is no dispute in the present case as to the scope of the alleged election, as there was in Blythe; the question here is whether any election was made.
98. We accept that, as Miss Neenan argued following Rathbone, notification of an option to tax is evidence of such an option, and therefore the onus is on the trader to prove that it did not opt.
99. The question for us to consider is principally one of fact. Apart from the background facts as found above, establishing the facts depends on resolving the conflicts between the evidence of the various witnesses. As Mr Spencer was for all practical purposes the sole "mind and management" of WHIL, a great deal depends on the reliability of his evidence. He emphasised that he did not recall the specific discussions with Price Bailey, and that in part his recollection was derived from documents on file. The difficulty for us is that neither the documentary evidence, nor the evidence of other witnesses, supports various statements made by Mr Spencer.
100. Mr Spencer referred to the unusual provision contained in the Rent Clause as having prompted him to obtain VAT advice from Price Bailey prior to the acquisition. If this was the case, we find it very strange that there is no mention of the Rent Clause in Marcus Ward's e-mail of 28 July 2004 recording details of the conversation the previous day. The message refers to the purchase of the Property being VAT-free, and states that the Property is not opted. It states: "His [ie Mr Spencer's] initial query was whether he could recover the input tax on the professional fees etc on the purchase. He intended to put these costs through another company." It records the advice given concerning input tax recovery, and refers to the possibility of delaying registration for a period of up to six months from incurring the costs on the purchase. It then sets out the actions required, including the preparation of the VAT registration application papers to put Price Bailey in a position to move when they need to. If other matters had been discussed, we would have expected a professional firm to have accurately recorded the details of the further discussion; we find that the e-mail message, although written the next day, was an accurate record of the telephone conversation.
101. As Marcus Ward's evidence was that he did not become aware of the Rent Clause until February 2005, and as there was no mention of the Rent Clause in the message dated 28 July 2004, we can only conclude that Mr Spencer must have been mistaken in his recollection that he discussed the subject with Marcus Ward on 27 July 2004. Although Mr Spencer may have had some knowledge of the Rent Clause before seeing the Heads of Terms, he did not receive these until they were faxed to him at 16.27 on that date. Given the actions which Price Bailey had to take as a result of his telephone conversation with Marcus Ward, in particular obtaining a company and carrying out checks on the validity of the name, we do not consider that there would have been time for the telephone conversation to take place and for all the other actions to be taken after 16.27 on that day. We find that the conversation must have taken place at some earlier stage during that day. It follows that during the conversation, Mr Spencer would at most have had the information in general terms as previously received orally from his agent. We question whether he would have been aware at that time of the significance of the Rent Clause; on the basis of the Property remaining "VAT-free", ie not opted to tax, the Rent Clause (and any question of establishing the use to which the charitable tenant would be putting the parts of the Property let to it) would have had no significance, and the questions of seeking input tax relief (both for the acquisition costs and the possible eventual conversion costs) and obtaining a company for the purposes of acquiring the Property would have had much greater immediate importance. We find that the latter matters were dealt with in that conversation, but that the Rent Clause was not discussed.
102. Mr Spencer referred to having discussed with Marcus Ward the implications of a VAT election in respect of the Property, as well as the possibility, at the stage of the possible residential conversion, of registering WHIL and making a VAT election. In the light of the other evidence, both from Marcus Ward and from the documents before us, we doubt whether such a discussion actually took place. It is not recorded in Marcus Ward's e-mail dated 28 July 2004. Further, as mentioned by Marcus Ward in his evidence, it is most unlikely that he would have suggested opting to tax at the time of a residential conversion, as the option to tax cannot apply to residential dwellings, which in any event would be zero-rated.
103. Mr Spencer stated that he had no need to "chase" Price Bailey in relation to the VAT registration of WHIL, yet Alison Hughes stated that he had telephoned on 19 August 2004 to see where Price Bailey had got to with the registration. Her file note of her recollection of the conversation was not written until 19 May 2005, although her file note of the subsequent telephone conversation with the solicitor to confirm the VAT status of the Property, and thus establish that VAT registration was not crucial to completion of the purchase, was written on 19 August 2004 (as confirmed by her e-mail to Marcus Ward on that date, which he forwarded to James Howe). It is open to question whether Alison Hughes would have spoken to the solicitor on this subject if she had not been telephoned by Mr Spencer; a message from the solicitor had been sent to Charles Olley on 17 August and forwarded to Alison Hughes on 18 August, so her conversation with the solicitor did not necessarily have to be prompted by Mr Spencer. However, we found Alison Hughes to be a credible witness, and her recollection was that Mr Spencer had telephoned; she believed that he may have thought at the time that VAT registration was crucial, as this was often the case in these deals. On the balance of probabilities, we find that Mr Spencer did telephone her on that date to establish what had happened about the VAT registration of WHIL.
104. Mr Spencer believed that he would have been surprised to receive the two VAT forms for signature. He stated that he had returned the form VAT 1614 to Price Bailey strictly on the basis and understanding that it would be held on file pending the decision as to the possible residential conversion. However, as stated above, it is unlikely that Marcus Ward would have given him such advice. We also consider it strange that, if the matter was so important, no specific reference was made to this in his letter to Marcus Ward. The only matter raised was the dating of this form. (This refers to the date of the form, not the effective date of the Option to Tax, which had already been inserted as 19 August 2004.) We therefore doubt whether such an understanding existed as between Mr Spencer and Price Bailey. Further, if the intention had been to follow the original advice from Marcus Ward given on 27 July 2004, Mr Spencer might have been expected to ask why he had also been requested at that point to complete Form VAT 1, and to refer to the original advice to hold back from registration and keep the registration papers on file; Mr Spencer did not mention any question of delaying submission of the form VAT 1, or refer to the forms being returned for Price Bailey to retain as previously discussed.
105. Mr Spencer had no specific recollection of a telephone conversation with Customs on 7 October 2004, although he accepted that it had taken place; as indicated in Nirmal Singh's evidence, Customs' record shows a conversation on 1 October 2004. Although Mr Spencer accepted that there was no planning permission for the Property, he said that he disputed the rest of the note, as he knew that he did not want to opt to waive exemption to charge VAT and therefore reduce the rent from the charity. We find that the conversation did take place, although we express no view as to whether Mr Spencer fully understood the implications of the conversation. He emphasised to us in his evidence the extent to which he relied on Price Bailey to deal with tax matters on his behalf, yet he is on record as having discussed VAT matters with Nirmal Singh of Customs. He told us that he dealt with Mr Singh's questions because he had nothing to hide. If Mr Spencer had been aware at that stage of the implications of opting to tax in the light of the Rent Clause (as he stated himself to have been at the time of his telephone conversation with Marcus Ward on 27 July 2004), we would have expected to see evidence, as soon as the option to tax was mentioned, that he ceased to discuss matters with Nirmal Singh and sought immediate assistance from Price Bailey. Instead, Mr Spencer dealt with the matter on his own.
106. Although Mr Spencer had no recollection of Rachel Gilligan's letter or any subsequent telephone conversation, her evidence was unchallenged. As Rachel Gilligan acted on what she understood to be his instructions, namely that following advice from his accountants, the Property was not opted to tax, she dealt with the rents on the basis that no VAT was to be charged on them. We do not consider that she would have contemplated acting in this way if she had not been so instructed, which must mean that she considered herself to have received a reply to the matters raised in her letter. We find that she did send the letter and that she had a telephone conversation with Mr Spencer at some time between 8 and 24 November 2004 to discuss it.
107. It is clear that by February 2005, in the course of the telephone conversation with Alison Hughes, Mr Spencer was aware of the implications of opting to tax the Property and the disadvantageous effect of the Rent Clause if the Property had been opted. However, it is not clear at what point he had become aware of these matters. We have found that the subject was not raised in his telephone conversation with Marcus Ward. Further, Mr Spencer did not express any specific concerns at the time of returning the two VAT forms to Marcus Ward (9 September 2004). Nor did Mr Spencer make any comment at the time of the conversation with Nirmal Singh of Customs on 1 October 2004. On balance, we consider that Mr Spencer's recollection that he was aware as from the beginning of the transaction in July 2004 of these implications (as opposed to being aware merely of the existence of the Rent Clause) cannot be correct, and that it must have been at, or shortly before, the time of the preparation of WHIL's second VAT return (for the period ending 31 January 2005) that he discovered the position. It was at that point that he considered Price Bailey to have made a mistake in filing the form VAT 1614.
108. Mr Spencer's recollection that there was something "funny" about the VAT on the Property and that he was not sure whether it would be possible to reclaim the inputs would have been consistent with a decision not to register WHIL. However, the application for registration did proceed, and the basis on which WHIL applied was accepted. The consequence was that as a registered taxable person, WHIL was entitled to (and sought) recovery of the input tax, as advised by Marcus Ward in December 2005.
109. Marcus Ward referred to the instruction to register WHIL (see paragraph 43 above). It is clear that Alison Hughes had previously told him that morning, as recorded in her contemporaneous file note, that registration was not crucial to completion. However, she referred later in the same note to the VAT registration being one of the tasks outstanding for Price Bailey. On the same day she provided James Howe with turnover details for the purposes of the registration (showing the turnover as £400,000, the approximate total of the rents in respect of the Property), as well as Mr Spencer's directorships and the VAT registrations of his companies, also needed for the VAT registration of WHIL. It is therefore unclear exactly how Marcus Ward gained the impression that he was required to proceed with the registration, but clear that Price Bailey regarded themselves as required to proceed with it.
110. These steps had been taken, and the letter to Mr Spencer enclosing the forms for his signature sent to him, before the solicitors sent Price Bailey (on 5 September 2004) the list of the bank's conditions precedent. Mr Spencer's letter returning the forms was dated 6 September. We therefore find that the question of the condition precedent requiring VAT registration was not a consideration relevant to the decision to register WHIL.
111. Although we find that Mr Spencer and Marcus Ward did discuss the possibility of Price Bailey holding the VAT registration papers for a period before submitting them, nothing of what was done subsequently gives any indication of carrying through that decision. We have found that Mr Spencer did telephone Alison Hughes on 19 August 2004 to "chase" the VAT registration. As this was on the same day that Alison Hughes checked the relevance of registration to completion of the purchase of the Property, we consider that this telephone call is the most likely reason for Price Bailey regarding themselves as instructed to proceed with the registration.
112. In order to register, it was necessary for WHIL to demonstrate an adequate level of taxable turnover. It appeared from Mr Singh's evidence that on its own the proposal to convert the Property to residential at some time in the future would not have been considered sufficient, unless this could be supported by planning permission. In the absence of planning permission, some other means of showing taxable turnover was required. As Marcus Ward had no knowledge of the Rent Clause, and had not discussed the question of opting to tax in the original conversation with Mr Spencer, we do not find it surprising that Marcus Ward decided that an Option to Tax form would have to be prepared as part of the registration papers. He did not consider the implications of opting in relation to the leases held by the charity; if he had done so, this would have prompted him to investigate the purposes of the charity's occupation of the Property in order to determine whether the option would have any effect on the charity.
113. In our view, the only basis for registering WHIL in the light of its circumstances in August 2004 was on the assumption that it would be receiving taxable rents. The only method of achieving this was by an election to waive exemption. The decision to register therefore entailed a corresponding decision to opt to tax the Property. The question therefore becomes: did WHIL decide to register and elect to waive exemption? In practice, this means: did Mr Spencer, on WHIL's behalf, decide to register and opt to tax the Property?
114. Mr Jourdan argued that Mr Spencer's telephone conversation with Rachel Gilligan, in which he had instructed her not to charge VAT on rents, demonstrated that he could not have intended to opt to tax the Property; the basis of this argument was that these two elements contradicted one another. The argument presupposes that Mr Spencer fully understood the VAT position. WHIL does not seek to contend that the VAT registration was made in error. Mr Spencer expressed the view when giving evidence that WHIL could be registered without having to charge VAT on rents; this could be regarded either as an optimistic view, or an erroneous one. In his conversation with Rachel Gilligan, Mr Spencer referred to the accountants having advised him not to charge VAT. There is nothing in the evidence of any of the Price Bailey witnesses to support this statement, and parts of their evidence conflict with it. Our conclusion is that Mr Spencer did not properly understand the VAT position, so his comments to Rachel Gilligan, in a conversation which took place only a few weeks after his conversation with Mr Singh of Customs, cannot be regarded as indicative of WHIL's intention at the time of signing the form VAT 1614.
115. As the burden of proof is on WHIL to show that it did not opt, it has to provide appropriate explanations for a number of points, namely the form VAT 1, the form VAT 1614, the Request for Information form, Mr Singh's note of the telephone conversation, the absence of any reaction by Mr Spencer to the acknowledgment of the Option to Tax, and the input tax claim made on WHIL's first VAT return. We accept Miss Neenan's argument that because of the burden of proof on WHIL, Mr Jourdan's contention as to the timing of signature of the form VAT 1614 does not affect the conclusion as to whether WHIL did or did not opt.
116. As registration did proceed, the original suggestion of postponing registration became irrelevant. A decision to register was made, and WHIL continued to act on the basis of registration by completing the return containing the input tax claim. As the only basis for registering was the Option to Tax, WHIL would have to demonstrate that it had not intended to be registered if it is to satisfy us that it, through Mr Spencer, did not intend to elect to waive exemption in respect of the Property.
117. Taking into account our findings on the evidence, we are not satisfied that WHIL has discharged the burden of proving that it did not opt to tax the Property. The whole course of dealing with Customs is consistent with a desire to register, which in turn requires the Property to have been opted. Further, the Request for Information form and the telephone conversation with Mr Singh did acknowledge the Option to Tax, and Customs' letter acknowledging of the Option to Tax went unchallenged.
118. Mr Spencer stated that he relied on Price Bailey in relation to VAT, and merely signed documents without looking at them. However, as a director of WHIL, he must be assumed to have intended the consequences of his own actions. A trader cannot "hide behind" his advisers, particularly where those advisers do not have authority to deal on his behalf.
119. Although reference was made to the tenants of the Property being charities, it is clear from the Particulars of Sale that only limited parts of the Property are let to one charity. The rents from the charity are less than half the total. The total shown as at the time of sale is £404,130, of which the rent payable by the charity, amounting to £153,543, represents 38 per cent. Thus the disadvantage resulting from the Rent Clause is limited; it is not clear what the effect will be of imposing VAT on the rents payable by other tenants, as this will depend on their VAT status.
120. On the issue of the Option to Tax, our decision is that WHIL's appeal must be dismissed. This means that it is necessary to consider the other issue, concerning the use to which the charity has put the parts of the Property occupied by it pursuant to its leases. We adjourn the appeal for a period of three months from the date of release of this decision, to give the parties time to agree this issue between them, or failing agreement, to give notice to the Tribunal that they require a further hearing to resolve this issue. In the absence of any such notice to the Tribunal by the expiry of that period, the appeal will stand dismissed without further notification.
121. In respect of costs, there are two matters to consider. Customs made no application for costs in the event that WHIL's appeal failed, despite a suggestion to the contrary in Mr Hartley's letter dated 8 September 2005. We consider that, despite Mr Hartley's comments in that letter, WHIL's claim that it had not opted to tax in respect of the Property cannot be described as "frivolous"; as demonstrated by this decision, there has been a substantive issue for us to consider. We think it proper and appropriate that Customs have since decided to make no application.
122. The other matter is the costs of Rachel Gilligan's attendance. We understand that Miss Neenan accepted that Customs should pay these costs, as Miss Gilligan was not cross-examined on her witness statement. We direct that Customs pay those costs in an amount to be agreed between the parties, and in default of agreement to be assessed by the Chairman sitting alone.

JOHN CLARK

CHAIRMAN

RELEASE DATE: 21 July 2006

LON/05/0610