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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Robbie (t/a Dunlaw House Hotel) v Revenue & Customs [2009] UKFTT 82 (TC) (30 April 2009) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00050.html Cite as: [2009] UKFTT 82 (TC)

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TC00050

Appeal number: EDN/08/123

Compulsory Registration; cancellation of registration; Notice of assessment; validity; time bar; Value Added Tax Act 1994 Section 73, Schedule 1 paragraph 13.

FIRST-TIER TRIBUNAL

TAX

MR & MRS D ROBBIE

T/A DUNLAW HOUSE HOTEL Appellant

- and - THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS (VAT) Respondents

TRIBUNAL: Tribunal Judge: J Gordon Reid, QC., F.C.I.Arb.,

(Member): W Ruthven Gemmell, WS

Sitting in public in Edinburgh on Monday 16 February 2009

Thomas Reid, of TP Reid & Co, Dumfries - for the Appellant

Mr Bernard Haley - instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009


 


DECISION

Introduction

1. The Appellants appeal against a Notice of Assessment dated 24/3/06 in the sum of £43,730 following compulsory registration. However, only a small part of that sum appears to be in dispute. A Hearing took place at Edinburgh on 16/2/09. Thomas Reid, of TP Reid & Co, Dumfries, appeared on behalf of the Appellants. Mr Reid gave evidence on oath, but neither partner of the Appellants gave evidence. Bernard Haley of the Respondents ("HMRC") appeared on their behalf. He led the evidence of Sarah Pullar, an HMRC officer. Witness statements of Alan Lowe and Helen Cox, officers of HMRC had previously been served and were not objected to. A bundle of productions was produced. There was no dispute as to the authenticity and, where appropriate, the transmission and receipt of these documents.

Grounds of Appeal

2. These are, as amended, that The Assessment was issued outside the statutory time limits and that the assessment covers a period during which the Appellant was not liable to be registered for Value Added Tax. Consequently the Appellant was unable and unwilling to submit a return for this period.
3. However, the real issue, as will be seen, is the date on which the Appellants fell to be de-registered and the consequences of various statutory time limits. At the outset of the Hearing, Mr Haley, on behalf of HMRC, accepted that a request for de-registration was made on behalf of the Appellants on 6/4/05.

Statutory Background

4. Schedule 1 to the Value Added Tax Act 1994 makes detailed provisions in relation to liability to be registered under that Act. Broadly, liability is triggered by the value of a trader's taxable supplies exceeding a threshold. HMRC are given power to register a person (liable to be registered) compulsorily if he does not do so voluntarily. Provision is also made for the cancellation of such registration. In particular, paragraph 13 of the 1994 Act provides as follows:-

"(1) Subject to sub-paragraph (4) below, where a registered person satisfies the Commissioners that he is not liable to be registered under this Schedule, they shall, if he so requests, cancel his registration with effect from the day on which the request is made or from such later date as may be agreed between them and him.

(2) Subject to sub-paragraph (5) below, where the Commissioners are satisfied that a registered person has ceased to be registrable, they may cancel his registration with effect from the day on which he so ceased or from such later date as may be agreed between them and him.

(3) Where the Commissioners are satisfied that on the day on which a registered person was registered he was not registrable, they may cancel his registration with effect from that day.

(4) The Commissioners shall not under sub-paragraph (1) above cancel a person's registration with effect from any time unless they are satisfied that it is not a time when that person would be subject to a requirement to be registered under this Act.

(5) The Commissioners shall not under sub-paragraph (2) above cancel a person's registration with effect from any time unless they are satisfied that it is not a time when that person would be subject to a requirement, or entitled, to be registered under this act.

(6) In determining for the purposes of sub-paragraph (4) or (5) above whether a person would be subject to a requirement, or entitled, to be registered at any time, so much of any provision of this Act as prevents a person from becoming liable or entitled to be registered when he is already registered or when he is so liable under any other provision shall be disregarded.

(7) In this paragraph, any reference to a registered person is a reference to a person who is registered under this Schedule.

5. Where an unregistered trader exceeds the threshold but then falls below it again, HMRC may operate a discretionary procedure known as Liable no Longer Liable. Essentially, the amount of tax, for which the trader would have been liable over the period when the value of his taxable supplies exceeded the statutory threshold, is calculated and agreed with the trader. Instead of proceeding with the administrative process of registration and de-registration, the agreed sum is simply paid to HMRC. This appears to be an extra statutory procedure, in respect of which we do not have any jurisdiction. We mention it only because it was discussed at the Hearing.

Facts

6. The Appellants are a partnership. The partners are husband and wife. They carry on business under the name Dunlaw House Hotel from premises in Dundee. They have done so since at least 1994. They were not registered for VAT until the partnership was compulsorily registered in the circumstances described below.
7. In September 2004, Sarah Pullar (formerly Pytlowanyi), a member of HMRC's hidden economy team, made and followed up enquiries relating to the Appellants' hotel business. She engaged in correspondence with representatives of the Appellants with a view to obtaining accurate financial information about their trading activities, and in particular a breakdown of their monthly sales figures. No satisfactory information was produced. Accordingly she made a statutory request to the Inland Revenue for copies of submitted Self Assessment Tax Returns. These showed that the VAT registration thresholds had been exceeded but it was not entirely clear when the turnover first exceeded the threshold. This information was set out at length in a letter dated 2/2/05 to the Appellants' representatives.
8. In that letter HMRC stated inter alia that

In order to establish when your clients first exceeded the VAT registration threshold can you please provide a breakdown of the monthly sales relating to the above financial years. Can you please also confirm that date of commencement of trade.

If you have already established the effective date of registration can you please have the VAT 1 completed and returned to me.

The reference to the above financial years is to the years 1/2/95- 31/1/97, and each year between 1^st February and 31^st January thereafter until 31/1/04. The reference to VAT 1 is a reference to the HMRC Value Added Tax Application for registration for VAT.

9. As at 2/2/05, HMRC were thus not in a position to identify the effective date of registration. They reasonably acted cautiously and requested more information.
10. By March 2005, the Appellants' representatives acknowledged that the Appellants should have registered but proposed a meeting to discuss matters. However, they did not produce any more financial information.
11. A meeting was arranged for 6/4/05. In preparation for the meeting, Ms Pullar estimated that the VAT threshold was exceeded in March 1997 and that the Appellants' VAT liability to 31/1/04 was £35,745. This was an estimate and not an assessment.
12. On 6/4/05, a meeting took place between Ms Pullar, and Patrick Slaven of PTS, representing the Appellants. The meeting lasted about three quarters of an hour. Mr Slaven appears to have acknowledged that the Appellants ought to have registered. The explanation offered for failure to register was negligence. He also stated that turnover for the current year would fall below the current VAT threshold as catering for funeral parties had ceased in January 2005. However, he did not produce any books or records. Nor did he put forward any figures for consideration. He indicated that records were available back to 2001 but there was nothing earlier than that.
13. Following the meeting, Ms Pullar wrote to Mr Slaven requesting a breakdown of income from February 2004 to date in order to confirm whether trade was below the VAT thresholds. As she had still not had sight of the Appellants' business records she offered the Appellants a further opportunity to provide further information so that it could be taken into account for the purposes of determining the effective date of registration. Further delay on the part of the Appellants ensued. Had the Appellants provided adequate information, HMRC might well have operated the liable no longer liable procedure.
14. By letter to HMRC dated 24/5/05, PTS produced some records relating to 1996 and 1997 including accounts for the year ending 31/1/97. However, apart from a telephone call in June and July 2005, nothing further was heard from PTS until their letter dated 7/11/05 to HMRC. With the additional information provided at the April meeting and the material sent with the letter of 24/5/05, Ms Pullar, in early September 2005, passed the necessary forms for compulsory registration to the VAT Registration Unit. By that stage, early September 2005, but not before, she was in a position to make a reasonable assessment of what the effective date of registration should be. She still had not received adequate information from the Appellants which would enable her to assess the effect of the alleged cessation of funeral parties on the Appellants' turnover.
15. In PTS's letter dated 7/11/05, figures for business turnover for the 12 months to January 2005, the four months to 31/5/05, and the combined turnover for July and August 2005, were set forth. These three figures were not vouched by any records. The letter concluded by proposing that the business should not be registered for VAT from 1^st September 2005, and by proposing that assessment should be for the six years from the notional date of de-registration.
16. By letter in reply dated 14/11/05, Ms Pullar stated that voluntary de-registration could only be from a current date, retrospective cancellation cannot be applied for. She offered to re-consider the previously assessed effective date of registration (1/5/97) if appropriate information were produced. She also noted that the Appellants had been issued with a VAT return form for the period between 1/5/97 and 30/11/05, which was due by 31/12/05.
17. By letter dated 29/12/05 to HMRC, PTS acknowledged that 1/5/97 was the correct date of effective registration but suggested that HMRC had a discretion. and by inference seemed to be requesting that liability should cease at an earlier date namely 1/9/05 as previously suggested in their letter dated 7/11/05.
18. Further correspondence ensued. No return was submitted. By letter to the Appellants dated 23/2/06, HMRC intimated that their registration was cancelled from close of business on 13/11/05. HMRC withdrew the earlier return for the period to 30/11/05 and issued a final return for the period to HMRC issued a Notice of Assessment dated 24/3/06 for the period from 1/5/97 to 14/11/05 in the sum of £43,730. The amount assessed is not challenged on the hypothesis upon which it proceeds.
19. PTS continued to correspond with HMRC. By letter to them dated 18/4/06, HMRC stated that The de-registration date of 14/11/05 has been applied as this is the date that de-registration was first requested (It will be recalled from paragraph 3 above that it is now accepted by HMRC that de-registration was requested on 6/4/05).
20. Eventually, the papers were passed to another HMRC official for reconsideration. By this stage PTS were asserting that the Appellants should be de-registered from some unspecified date in January 2005. The officer, by letter dated 19/5/06 confirmed the de-registration date of 14/11/05. She pointed out that if the necessary information had been received in a timely manner a different course of action could have been taken. PTS responded by letter dated 12/5/06 and enclosed a manuscript statement of monthly turnover between February 2005 and January 2006. PTS wrote again on 14/3/07. They asserted that HMRC had acted unfairly in refusing to allow retrospective de-registration. It was asserted that the turnover to January 2006 [this should be 2005] was irrelevant; and that the projected turnover was below the de-registration limit.
21. HMRC again reconsidered the matter. By letter to PTS dated 2/5/07, HMRC demonstrated that on a 12 month rolling turnover basis (based in part on the Appellants own figure of a turnover of £66,000 for the twelve months to January 2005, and monthly figures thereafter, provided to HMRC with the letter dated 12/5/06), the Appellants' turnover was over the statutory threshold until December 2005. The letter explained that the figures showed that the turnover was generally decreasing and likely to fall below the threshold in December 2005 and beyond. Accordingly, a November date, (probably the date of receipt of the PTS letter of 7/11/05) was taken as the cancellation date. The letter of 2/5/07 invited the Appellants to appeal to this Tribunal if still dissatisfied.
22. Correspondence continued. In a letter dated 21/7/07, PTS introduced an argument based on Nash (see paragraphs 34 and 35 below) and on statutory time limits. HMRC reconsidered the arguments but rejected them by letter dated 16/10/07. Yet further correspondence ensued and HMRC carried out a third reconsideration which they intimated to PTS on 27/11/07. Further exchanges took place until the end of June 2008 when the Appellants lodged an appeal to this Tribunal. The Notice of Appeal states that the appeal is against an assessment dated 24/3/06.

Discussion

23. There was a considerable degree of confusion at the Hearing. We were not greatly assisted by the presentation of either party. We have made the foregoing findings-of-fact on the basis of Ms Pullar's oral testimony, her written statement (to which reference was made in the course of her evidence without objection), the witness statements of Helen Cox and Alan Lowe, to which no objection was taken, and the documents produced, including the lengthy chain of correspondence.
24. We found Ms Pullar to be reliable and credible. We do note, however, that in her evidence she disputed that a request to cancel the Appellants' registration was made at the meeting held on 6/4/05. As we have already recorded, this appeal proceeded on the basis that it was accepted that such a request had been made. Having regard to our factual findings, it does not matter whether Mr Haley was correct to concede the point.
25. It is not in dispute that the Appellants' taxable supplies exceeded the statutory threshold from at least 1997 until some point in 2005, and that they ought to have been registered from 1/5/97. Two strands run through the discussions between HMRC and the Appellants' advisers. The first is the extent of the Appellants' liability to account for VAT. The second is the date of cancellation of registration. These two issues obviously overlap as the earlier the date of de-registration the less extensive the Appellants liability will be. At a later stage, the Appellants introduced the question whether the Notice of Assessment dated 24/3/06 was invalid because it was time-barred. We consider that issue first.

Validity of Notice of Assessment dated 24/3/06

26. As we understood the argument, which was ventilated more in the correspondence than in submissions, it was that the Notice of Assessment was raised more than one year after HMRC had sufficient facts to justify the making of an assessment.
27. This argument fails on the facts. We refer to finding-of fact 14-16. As at 6/4/05, HMRC were simply not in a position to form a concluded view. It comes ill from the mouth of the Appellants to suggest otherwise when they themselves procrastinated and provided incomplete and unvouched information.
28. Whatever other statutory time limits may be relevant, it is sufficient for HMRC that they made their assessment within one year after evidence of facts, sufficient to justify the making of the assessment, came to their knowledge. On any reasonable view, such facts came to their knowledge, at the earliest, on or about 7/11/05. The assessment was made on or about 24/3/06. (see section 73(6) of the 1994 Act). In these circumstances, the attack on the validity of the Notice of Assessment must be rejected.
29. We also note in passing that, somewhat generously, HMRC did not object to the fact that the appeal to this Tribunal was lodged more than two years after the date of the assessment in dispute and more than six months after the third reconsideration.

Cancellation of Registration

30. The argument for the Appellants appears to be that instead of seeking or considering the pre-April 2005 monthly figures, HMRC should have accepted the Appellants' assertion that they were no longer catering for funeral parties and that the resultant reduced turnover brought them or would bring them below the statutory threshold. HMRC should have looked forward not back, and assessed the projected turnover. Had they done so, they would have concluded that the Appellants should have been de-registered with effect from 6/4/05, when the request to do so was agreed to have been made.
31. We cannot accept this argument. Even if we assume that cancellation can be carried out retrospectively and that it does not matter that the Appellants had not actually been registered when the request was made, the argument still fails on the facts.
32. On the facts as we have found them, HMRC were not in a position, at any time, to be satisfied that the Appellants (a) were not liable to be registered between 6/4/05 and 13/11/05 or (b) ceased to be registrable between those dates. We refer to findings-of-fact 14, 15, 16 and 21. Given the quality of the information produced by or on behalf of the Appellants, cancellation of the registration with effect from 14/11/05 might be viewed as generous. It is not for us to speculate on why it took the Appellants or their advisers so long to produce adequate financial information, when it was very much in their interests to provide comprehensive records and accounts to establish the fact that they ceased to be liable to be registered from as early a date as possible.
33. On the view of the facts which we have taken, it does not matter whether a request to "de-register" was made on 6/4/05. Such information as was available as at 6/4/05 did not enable HMRC to take a forward look. This was what Mr Reid discussed in his own evidence. He purported to give expert evidence of HMRC practice based on eighteen years employment with HM Customs and Excise ending in 1985. Five or six of those years must have been before the introduction of VAT in 1973. We are not prepared to accept as reliable the "expert" testimony of the Appellants' own representative of the practice of his employer 24 years ago. We therefore need not dwell upon the prudence or propriety of the representative of a party purporting to give independent expert evidence to assist a tribunal.
34. We were referred to Raza EDN/00/118 6/2/01, Chairman TG Coutts Q.C. and to Nash MAN/96/1332, 7/5/97 Chairman Mrs JC Mitting. Raza turned on its own facts and there is nothing in it which assists the Appellants, or for that matter, HMRC. Nash established that in relation the question of liability to be registered following transfer of a business, is supervisory (paragraph 19). This was another transfer case in which paragraph (3) of Schedule 1 to the 1994 Act was considered. The Tribunal held that HMRC should only have been expected to take into account those factors of which they would have had knowledge at the date when registration should have taken place (paragraph 30).
35. This decision is not binding on this Tribunal. We have some difficulty in applying dictum contained in paragraph 30 to the present circumstances. The date when de-registration should take place is the de quo of the appeal. It cannot simply or necessarily be the date of a request for de-registration. Paragraph 13(4) of Schedule 1 makes that clear. Here, HMRC were justifiably not satisfied that the period between April and November 2005 was not a time when (the Appellants) would be subject to a requirement to be registered under this Act. Putting it positively, HMRC were satisfied that the Appellants should remain registered until 14/11/05. In our opinion, on the evidence, there was nothing unreasonable in that view.

Disposal

36. The appeal is dismissed.
J GORDON REID, QC., F.C.I.ARB., TRIBUNAL JUDGE RELEASE DATE: 30 APRIL 2009