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Cite as: [2007] UKVAT V20507

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Tom Carr (t/a The Princess Royal Public House v Revenue & Customs [2007] UKVAT V20507 (14 December 2007)

20507

VAT – back dating of registration – HMRC argued transfer as a going concern – no transfer of going concern – appeal allowed

LONDON TRIBUNAL CENTRE

TOM CARR T/A THE PRINCESS ROYAL PUBLIC HOUSE Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: ADRIAN SHIPWRIGHT (Chairman)

SHAHWAR SADEQUE

Sitting in public in London on 28 September 2007

Glyn Edwards of CCH Taxation Services for the Appellant

Mrs Gloria Orimoloye of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

Introduction

This is an appeal by Tom Carr trading as The Princess Royal Public House against the Respondents decision to backdate the Appellant's registration to 28 December 2005 on the basis that there had been a transfer of business as a going concern to him. The decision was contained in a letter dated 12 July 2006. The decision on review to uphold the original decision is contained in a letter dated 12 January 2007 which also extended the time for appeal. In the alternative Customs have sought to disallow some of the input VAT on the basis they were used solely to make supplies before registration.

Issue

The issues in this case are:

(a) Whether there was a transfer as a going concern such that the Appellants registration should be backdated to 28 December 2005;

(b) If not, whether input tax should be disallowed in respect of services supplied before registration.

The Law

The law on transfer to businesses as a going concern is found in section 49 VATA and Article 5 of the VAT (Special Provisions Order) 1995. Pre-registration input tax is dealt with under Regulation 111 of the VAT Regulations 1995.

We were supplied with copies of the following authorities by the Appellant:

Denise Harrild VTD 19604

Andrew Hulse VTD 13896

Franchesco Danielon VTD 19244

Denise Jerzynek VTD 18767

The Respondents supplied us with copies of the following authorities:

Sam's Bistro Limited Case Number 19973

MPH Leisure Limited Case Number 19778

Kenmir v Frizzell [1968] 1All ER 414

Reference was also made to Andrew Hulse by the Respondents. We have read and carefully considered all these cases.

Evidence

The Appellant produced a bundle of documents. No objection was taken to any of them. They were admitted in evidence.

We heard oral evidence from Julian Carr, Tom Carr's Father.

Findings of Fact

From the evidence we make the following findings of fact.

(a) At the relevant times the Appellant, Tom Carr, was the proprietor of a public house which traded under the name of "The Princes Royal".

(b) The Appellant took a tenancy of The Princess Royal on 28 December 2005. He had in fact collected the key prior to Christmas that year when the premises were vacant and not open as a pub.

(c) The tenancy was not assigned to Mr Carr by the previous tenant but was the grant of a new tenancy by Shepherd Neame, the Landlord, to Mr Carr.

(d) The previous tenant's lease had earlier been forfeited by the brewery.

(e) The brewery repossessed the pub seemingly because of debt to brewery and so could not be transferred.

(f) The licence to sell liquor had been transferred to the brewery on a protective basis at about the same time. Mr Carr did not become the licensee until some time later when he had been the lessee for a number of months.

(g) From the evidence before us we conclude that the pub was not capable of operation as a business at the time that the new lease was granted to Mr Carr. The unchallenged evidence was that at the time the new lease was granted there were no beer pumps, no glasses and no usable furniture at which people would be prepared to sit. The property was also dirty, messy and covered with dog excrement particularly the carpets. As Mr Julian Carr described it, it was a disgusting mess. There were no tea towels, no ash trays, no ice maker, no optics and no till. There was no beer or other stock such as mixers or spirits.

(h) Mr Julian Carr confirmed that there were breaches of the fire regulations, there were no signs as to exit and no fire extinguishers. The lavatories were disgusting and there were no sinks. The urinals were blocked. There was no soap, there were no dryers. There were also health and safety issues.

(i) We find as a primary fact that the time of the grant of the new lease the premises could not be operated as a pub, there was accordingly no business and so no transfer of any business.

(j) Over a period of months (but within the six months period) Mr Tom Carr refurbished the pub. The disgusting carpets were removed and replaced with a stripped bleached wood floor. Five skips of rubbish were taken out. New furniture, new tables, new glasses, fire extinguishers, a BOC gas system acquired and installed as was a new boiler and hot water system. Optics, stock and other necessities were also acquired.

(k) Mr Julian Carr confirmed that nothing had been bought from the previous tenant and that there were no negotiations or similar dealings with the previous tenant. He further confirmed that it was not until the first Friday of February that the revamped Princess Royal opened its doors. It was initially a success. However, Mr Julian Carr explained that it was in a deprived area and there is much abuse at weekends. This lead to Mr Tom Carr becoming despondent and in April giving six months' notice to quit.

(l) Mr Julian Carr confirmed that the negotiations for the lease granted to Tom Carr took place with Shepherd Neame and not the previous tenant. He further confirmed that Shepherd Neame granted a new lease to Tom Carr and there was no assignment from the previous tenant.

(m) We find that by November 2005 the Princess Royal was not capable of proper operation as a public house. We find as a primary fact that the original business had to all intents ceased. There was no business that could be transferred. We find as a primary fact that there was no transfer of any business and certainly not as a going concern.

(n) We emphasise that we find as a primary fact that there was no business which could be transferred as a going concern and that there was no such transfer.

(o) We further find that even if there were there a business which is not admitted there was no transfer of the business. This was the case of the grant of a new lease of a pub to a tied tenant of the brewery. The brewery at the commencement of this lease remained the licensee and Mr Carr did not become the licensee of the pub. We find as a primary fact that there was no transfer of a business.

(p) We also find as a primary fact that all the "disallowed services" were received within the six month window and were for the purposes of the new business and that they did not fall in the category of matters to be excluded.

Submissions of the Parties in outline

Submissions of the Appellant in outline

In essence, Mr Edwards argued that there was no transfer of the business as there was no business to transfer. This was because what the Appellant received was a new lease from the brewery. There was no assignment of the lease from the previous tenant. That lease had been forfeited. The previous business had ceased and could not be and was not transferred.

If this were not the case then the Appellant was still entitled to recover the input tax under Regulation 111 of the VAT Regulations.

Submissions of the Respondents in outline

As we understood the Respondents submission it was that before Mr Tom Carr acquired the new lease from the brewery The Princess Royal was operating as a pub. After Mr Carr acquired the new lease The Princess Royal operated as a pub. Consequently, there was a transfer for the business as a going concern. It did not matter that a new lease was acquired from the brewery and there were no dealings with and nothing was acquired from the previous tenant.

The Respondent sought to argue that there were disallowed services not related to the Appellant's business which should be disallowed under Regulation 111 of the VAT Regulations. This was apparently axiomatic.

Discussion

We have found that as a primary fact there was no transfer of the business as a going concern. This is mostly because there was no business to transfer. Secondly, the situation here was that of a grant of a lease, not as a transfer of a business as a going concern. A new lease was granted by Shepherd Neame. It was not a transfer of part of their property rental business let alone of the previous occupant of the pub's business which had ceased.

As factually there was no transfer of the business and certainly not as a transfer of a business as a going concern, the first argument of the Respondents must fail. We hold as a matter of primary fact that there is no transfer of a business as a going concern. Accordingly, the Respondents decision to backdate the Appellant's registration to 28 December 2005 was misconceived and wrong and should not have been made. There should have been no such backdating. Accordingly, we allow the Appellant's appeal on this point.

The Respondents seek to deny input tax recovery on pre-trading expenditure under Regulation 111 on the basis that the "disallowed services" did not directly relate to the Appellant's business.

As regards Regulation 111 we are happy to adopt the approach of Mr Barlow (Chairman) in the Jerzynek Case. He said at paragraph 18:

"Regulation 111 (1)(a) allows recovery as if it were input tax for all VAT on the supply to the taxable person (it allows recovery after registration) in respect of the supplies of goods and services supplied to the taxable person for the purposes of the business which was carried on or was to be carried on by him at the time he received those supplies. I hold that Regulation 111 (2) then excludes only certain input supplies and any that are for the purpose of the business carried on or to be carried on are recoverable as if they were input tax unless they are excluded. This is the plain wording of the Regulation".

As he noted at paragraph 21 "…The Commissioners' statement in their internal guidance… that, during the six month period, it is deemed to simplification purposes that "services obtained will relate to business activity carried on at the time of registration". He said that he interpreted that "as meaning that the Commissioners accept that services received within six months before registration can on a rough and ready basis be accepted as attributable to supplies made after registration. Clearly those internal notes do not have the force of law but they do explain why the legislation adopts the specific approach to services relating to the business generally".

Mr Barlow also dealt with the use of the word "may" in the Regulation. We adopt what he said at paragraph 27:

"However, I do not find it necessary to determine the question whether the correct interpretation of the Regulation is that it gives the Commissioners discretion to refuse; still less though it would be ultra vires if it did so. That is because it is clear that in the circumstances of this case it would be unreasonable for the Commissioners to refuse the claim even if they did have discretion to do so."

We find as a fact that this is the case here.

We find that the disallowance of input tax was misconceived and wrong and should not have been made.

Accordingly, we allow the Appellants appeal on both points. The appeal is allowed with costs.

ADRIAN SHIPWRIGHT

CHAIRMAN

RELEASE DATE: 14 December 2007

LON/2007/0312