[2010] UKFTT 425 (TC)

TC00696
Appeal number: TC/2009/10830

Income Tax – Loss Relief – were the losses arising from a failed business venture incurred by the Appellant trading on his own account as a concert promoter – No – Appeal dismissed

FIRST-TIER TRIBUNAL
TAX 

	MR L AGUS	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: 	Michael Tildesley OBE (Judge)
Robert Barraclough FCA (Member)				

Sitting in public at Alexandra House, 14-22 The Parsonage, Manchester on 1 July 2010

Milton & Co Accounting and Legal Services for the Appellant

Colin G Smith HM Inspector of Taxes for HMRC

© CROWN COPYRIGHT 2010

DECISION
The Appeal

1.	On 8 September 2008 the Appellant appealed against HMRC’s decision dated 28 August 2008 amending his self assessment return for the year ending 5 April 2007. The amendment produced an increase of ₤12,043.86 in the tax due. 
2.	The issue to be decided by the Tribunal was one of principle, namely, whether the Appellant was entitled to claim loss relief under section 380 ICTA 1988 in the sum of ₤100,000 for the year ending 5 April 2007.
3.	The loss arose from a failed business venture concerning the promotion of three classical music concerts which did not go ahead. The concerts involved Jose Carreras and Katherine Jenkins supported by the Royal Philharmonic Concert Orchestra at the stadiums for Wolverhampton, Bolton and Huddersfield football clubs on 27 May, 3 June and 9 June 2006 respectively.
4.	The dispute between the parties concerned the identity of the concert promoter. The Appellant asserted that he promoted the concerts in his personal capacity, and, therefore, trading on his own account in respect of the concert promotion venture. HMRC disagreed  contending that West Yorkshire Live Events Limited (WYLEL) was the promoter, in which case the Appellant was not entitled to loss relief under section 380 ICTA 1988.
The Hearing

5.	The Appellant and his representative did not attend the hearing on 1 July 2010 despite a notice of hearing being sent to the Appellant’s representative. The Tribunal contacted the Appellant and his representative by telephone prior to the commencement of the hearing. The representative advised the Tribunal that the Appellant would be conducting his case in person. The Appellant informed the Tribunal that he was unable to attend because of his mother’s poor state of health but requested that the hearing proceed in his absence. The Tribunal noted that the hearing had been adjourned on two previous occasions. Having regard to all the circumstances the Tribunal was satisfied that the Appellant had been duly notified of the hearing and that it was in the interests of justice to hear the Appeal in his absence in accordance with rule 33 of Tribunal Rules 2009.
6.	The Tribunal received in evidence a bundle of documents which incorporated an agreed statement of facts, the Appellant’s witness statement and other statements submitted in support of his case, witness statement of Graham Guy (the assessing officer) and relevant documentation and correspondence. The Tribunal also had regard to the Appellant’s skeleton argument and HMRC’s oral submissions at the hearing.
The Facts
The Appellant
7.	The Appellant’s principal trading activity was that of a builder. During the period in question he was a director of West Yorkshire Construction Limited.  Mr Golding and Mr Ruckledge were the other directors of West Yorkshire Construction Limited.
West Yorkshire Live Events Limited (WYLEL)
8.	WYLEL was incorporated on 28 October 2005 with four directors: the Appellant, Mr Golding, Mr Ruckledge and Mr Towell. On 1 November 2005 Mr Cavey was appointed as the fifth director. On 21 December 2005 WYLEL was registered for VAT.
9.	WYLEL submitted a business plan with its VAT registration. The business plan exhibited at D14 stated that
“In association with the Reduced Opera Company, WYLEL is currently in discussions with J Carreras who has confirmed his desire to perform in open air concerts in West Yorkshire, Lancashire and the Midlands during June 2006.
10.	The business plan also operated as a funding prospectus for the proposed concerts featuring Jose Carreras.  The plan offered three routes for potential investors, one of which was to receive shares in WYLEL in return.
11.	As part of the VAT registration process WYLEL supplied HMRC with additional evidence of its intention to trade which included an invoice from Pantoni Pantomimes Ltd dated 21 December 2005 in the sum of ₤10,000 plus VAT for administration costs and expenses in respect of the three Jose Carreras’ concerts. The invoice was addressed to WYLEL not to the Appellant.
12.	WYLEL submitted two VAT returns for periods 01/06 and 04/06 both of which were repayment returns in the respective sums of ₤39,423.61 and ₤34,039.00. The total value of the sales declared in the returns was nil, whilst the value of the purchases was ₤424,976.  WYLEL furnished no further VAT returns. In January 2007 Mr Towell, one of WYLEL’s directors, advised HMRC that the company had ceased trading in June 2006.
13.	On 23 November 2006 Wolverhampton Wanderers Football Club petitioned for the winding up of WYLEL in respect of debts owed to it. On 25 April 2007 WYLEL was wound up by order of the Court, and dissolved on 10 January 2009. Wolverhampton Wanderers was one of the three football clubs providing venues for the aborted Jose Carreras’ concerts.
The Appellant’s Tax Returns and the Loss Claim
14.	On 31 January 2007 HMRC received the Appellant’s tax return for the year ended 5 April 2006. Mr Towell prepared the return for the Appellant. The return contained no claim for loss relief.
15.	On 30 April 2007 HMRC received the Appellant’s tax return for the year ended 5 April 2007. The return referred to additional information supplied by Milton & Co. The return included a claim for loss relief in the sum of ₤77,500 brought forward from an earlier year.
16.	The additional information supplied by Milton & Co was entitled Financial Statements prepared for the Appellant for tax years 2005/06 and 2006/07.  Note 3 to the Financial Statements stated that:
“The 2005/06 tax computation annexed hereto begins with the said HMRC figure of profit but deducts allowable losses, these being ₤100,000 in total and relate to a catastrophic attempt to arrange a series of operatic concerts and comprise ₤20,000 paid in general management and promotional and administrative expenses and an ₤80,000 fee paid to Jose Maria Carreras (the latter sum being borrowed); the concerts never took place”.
17.	Mr Guy queried with the Appellant’s representative in a letter dated 6 December 2007 why the 2005/06 return did not include a loss claim. Mr Guy pointed out that the Appellant’s 2005/06 tax return was prepared by Mr Towell who was the accountant for both the Appellant and WYLEL.  In those circumstances Mr Guy suggested the reason for not including the loss was that Mr Towell must have been aware that the loss was that of WYLEL not of the Appellant personally.
18.	The Appellant’s representative in response dated 20 December 2007 disagreed with Mr Guy’s interpretation. He stated that Mr Towell would not have been aware of the collapse of the venture when he prepared the return in question.
19.	Mr Towell was also company director and secretary for WYLEL from 28 October 2005.  He dealt with the VAT registration and returns for WYLEL which specifically referred to WYLEL’s role in the organisation of the concerts and the costs incurred in putting them on. Mr Towell’s knowledge of the concert business venture cast doubt on the Appellant’s assertion that Mr Towell was unaware of its failure.
20.	In his later letter of 30 January 2009 Mr Guy indicated to the Appellant’s representative that no relief was available for the losses claimed in the 2006/07 return because the loss was made in 2005/06. In which case, the loss could only be carried forward into 2006/07 if it could be utilised against profits of the same trade, namely concert promoting. The Appellant could not use this loss against the profits of his trade as a builder which was what he was doing in 2006/07. 
21.	The Appellant’s representative in a letter dated 12 June 2009 in response to Tribunal directions altered the details of the loss claim. First he stated that the ₤100,000 loss comprised ₤85,000 in fees to Jose Carreras funded by a loan and ₤15,000 in administrative expenses. Second, he claimed that the loss was incurred in 2006/07 and sought to carry back some of the losses to 2005/06.  
22.	The Appellant relied on a letter from a Mr Wakefield dated 3 March 2008 as evidence of the loan which purportedly funded the fees for Jose Carreras. Mr Wakefield stated that
“I further confirm that I loaned the Appellant ₤85,000 for funding a series of concerts intended to be presented by Jose Carreras, this took place in February 2006.
The loan I made to the Appellant ….. was a loan to him, he was personally the individual I loaned the money to; as finance was needed urgently and as WYLEL was dealing with the agents of the opera singers that the Appellant was seeking to contract, when I made the cheque I made it out to the company; this was only as a convenience; the loan was made to the Appellant in his personal capacity as a concert promoter but, to save time in the banking process, instead of making the cheque out to the Appellant so he could pay it into his bank and then pay it to WYLEL, I made it out direct to WYLEL. This was done at a moment of urgency as a mere commercial convenience”.
23.	Mr Wakefield also submitted a copy of the receipt for the ₤85,000. The receipt was dated 27 February 2006 and signed by Mr Wakefield and the Appellant. Mr Wakefield signed in the capacity of director on behalf of WYLEL The receipt stated that
“WYLEL herewith acknowledges the receipt from the Appellant in the sum of ₤85,000; this sums represents funds obtained by the Appellant in his capacity as a concert promoter which are borrowed from Mr D Wakefield by the Appellant; these sums would normally be disbursed by the Appellant in pursuance of fees payable in concert to be given by Sr J M Carreras but, for expediency, the cheque has been made payable by Mr Wakefield to WYLEL and will be disbursed by the said company upon the Appellant’s behalf in capacity as agent thereof.
This receipt witnesses the above and that the company, WYLEL, is not liable to the said Mr Wakefield for the said sums and the said sums are received from the Appellant acting in capacity as concert promoter and that it is the Appellant that is liable for the repayment of the said sums to the said Mr Wakefield”.
24.	The Appellant did not include Mr Wakefield’s letter and receipt in the original documentation supporting the loss claim which was supplied to Mr Guy on 14 November 2007. The Appellant supplied a copy of the letter and the receipt together with the first batch of witness statements on 25 March 2008 which was after Mr Guy’s refusal of the loss claim. Further the receipt erroneously stated that Mr Wakefield was a director of WYLEL. 
25.	The paying-in books for the bank account of WYLEL submitted in evidence contained no record of a payment of ₤85,000. HMRC have asked for bank statements of WYLEL to confirm an audit trail for the ₤85,000 loan but no statements have been provided by the Appellant.
26.	The bundle at M1 contained a copy of an agreement between Unity Electrical Limited and the Appellant dated 23 January 2006. Under the terms of the agreement Unity Electrical Limited loaned the Appellant ₤50,000 to fund the advance payment to Jose Carreras for his performance at a series of concerts. The agreement recited that the Appellant was acting as an independent concert promoter. The agreement concluded with the statement that WYLEL had been made aware of the agreement and confirmed that it was receiving the loan form the Appellant in its capacity as the Appellant’s agent.
27.	HMRC pointed out that the details of the loan from Unity Electrical Limited were not included in the Appellant’s claim for loss relief. HMRC questioned the relevance of this evidence. The Appellant’s representative mentioned in its skeleton argument stated that another financier had loaned the Appellant with ₤50,000 which was lost in the venture and would necessitate a further amendment to the Appellant’s tax returns for 2005/06 and 2006/07.
28.	The Appellant provided no documentary evidence, for example bank accounts and invoices, corroborating receipt of the loan by the Appellant and its use to discharge the fees owed to Jose Carreras. The loan agreement itself was a word produced document. It did not take the form expected of a commercial loan agreement, containing no details of the rights of the various parties to the agreement, and scant information about the method of payment and the rate of interest on the loan.
29.	The Appellant has not provided a detailed breakdown of the expenses element of the loss claim, the total of which varied between ₤15,000 and ₤20,000. The evidence submitted in support of the expenses were letters from Mr Wakefield dated 10 November 2007 and from Mr Mickie of the same date. Mr Wakefield stated that the Appellant rented from him a Range Rover in connection with his concert promotion activities for a period of eight months in 2005/06. The cost of the rental was ₤1,000 per month with weekly fuel costs of ₤80. Mr Wakefield also stated that he was aware that the Appellant incurred ₤900 in air travel, ₤600 on train fares and ₤1,500 on Spanish speaking legal advisers and accountants in his role of concert promoter. Mr Mickie asserted that Systems Buildings Systems Limited leased an office to the Appellant at a calendar monthly rental of ₤1,200. According to Mr Mickie, the Appellant used the office as a base for organising a series of concerts involving Jose Carreras.
30.	The Appellant has supplied no commercial documentation in respect of the expenses incurred. There was no written evidence of the various rental agreements, and no actual receipts for payments made. Finally the Appellant’s bank statements submitted in evidence showed no record of payments made for the said expenses. 
31.	The Appellant was not registered for VAT.
Witness Statements from Third Parties
32.	The Appellant submitted 50 statements from third parties who described themselves as a friend, colleague, or relative of the Appellant. Some of the parties did not describe their relationship to the Appellant. The statements were generally dated in March 2008. The statements were identical in content and format, and appeared to originate from a single source. The statements contained no statement of truth. They were simply signed and dated.
33.	The statements essentially said that the Appellant was acting as an independent concert promoter with the aim of organising a series of concerts featuring Jose Carreras and Katherine Jenkins.  The Appellant would regularly discuss the concerts with the signatory to the statement. The signatories heard the Appellant speaking with others and seeking to raise finance in his own name to book stadia. The signatories stated they knew that the company known as WYLEL had been formed because one of the singers did not understand the concept of a sole trader. The signatories asserted that the Appellant nevertheless acted as the principal concert promoter with WYLEL acting sometimes as his agent.  The signatories knew about the loan advanced by Mr Wakefield. The statement ended with the assertion that the Appellant at all times and to all people held himself out as the main concert promoter.
The Contract Documentation
34.	The bundle incorporated two sets of contracts in connection with the Jose Carreras’ concerts. The first set was a copy of an unsigned contract between Michael Storrs Music (MSM) and The Reduced Opera Company Limited (ROC) dated 9 January 2005.  Under the terms of the contract Mr Carreras agreed to perform in three concert performances to be staged by ROC on 27 May, 3 June and 10 June 2006 in consideration of a fee of €600,000 paid in three instalments to MSM. 
35.	The bundle at F15 included an invoice from MSM to ROC dated 26 January 2006,  requesting payment of the first instalment in the sum of €310,000 of Mr Carreras’ fees for the concerts in May and June 2006. 
36.	The second set was a contract dated 26 January 2006 to present a classical concert featuring Jose Carreras on 9 June 2006 and made between WYLEL in association with ROC, referred to as The Promoter, of the one part with Kirklees Stadium Development Limited, referred to as The Venue of the other part.  Under the terms of the contract, The Promoter confirmed that it had in place signed contracts for the performers and that it was liable for any financial risk arising from the presentation of the concert. In this respect the risks fell on WYLEL since ROC was specifically excluded under the contract from exposure to any liabilities which may arise from the contract.  ROC had affixed its signature to the agreement to confirm its association with WYLEL because it had secured and signed a contract with the management representing the performers appearing at the concert. WYLEL was not permitted under the contract to assign its rights or obligations without the prior written consent of the other party. The Appellant signed the contract on behalf of WYLEL in his capacity as director. Mr Rimmer who represented the Venue in the contract negotiations confirmed to Mr Guy that he held no other documentation in relation to the proposed concert on 9 June 2006.
37.	The Tribunal notes that the contract dated 26 January 2006 did not specifically state that WYLEL was a limited company. The Tribunal, however, was satisfied that the reference in the contract to WYLEL meant the company incorporated on 28 October 2005. The Appellant in his correspondence accepted that WYLEL was formed as a separate corporate entity. Also Wolverhampton Wanderers Football Club petitioned for the winding up of WYLEL in respect of debts owed to it, which confirmed that WYLEL was a corporate entity.
News and Website Material
38.	The bundle at F20 – F22 included extracts from Lancashire Evening Telegraph dated 18 May 2006 and the Bolton Wanderers football club website dated 22 May 2006 which reported the cancellation of the Jose Carreras’ concert at the Reebok stadium on 3 June 2006. The extracts specifically stated that WYLEL in association with ROC were promoting the concert.
Reasons for the Decision
39.	Under section 50(6) of the Taxes Management Act the obligation is on the Appellant to demonstrate on the balance of probabilities that the amendment to the self assessment for the year ending 5 April 2007 was excessive. 
40.	Essentially the Appellant asserted that he personally suffered a loss from the failed business venture of organising a series of classical concerts involving Jose Carreras. The amount of loss was ₤100,000 which was made up of a loan of ₤85,000 from a Mr Wakefield to fund the first instalment of Jose Carreras’ fees and ₤15,000 in miscellaneous expenses. The Appellant also referred to another loan of ₤50,000 from Unity Electrical Limited which he took out to fund the concerts. This ₤50,000 would increase the loss claim. The Appellant stated that he acted throughout in a self employed capacity when promoting the concerts. According to the Appellant, WYLEL was formed as a separate entity so as to deal with the Spanish representatives of Mr Carreras. The representatives did not understand the concept of a sole trader and insisted upon dealing with a corporate entity. The Appellant contended that WYLEL was acting as his agent during its dealings with the Spanish representatives for Jose Carreras.
41.	HMRC accepted that the concerts involving Jose Carreras did not take place. HMRC, however, submitted that the Appellant’s case was contradictory and contrary to the independent third party evidence which demonstrated that WYLEL was the promoter of the concerts.
42.	The Tribunal finds that the Appellant’s case in support of his loss claim was replete with contradictions and unsubstantiated by credible independent documentary evidence. The Appellant gave contradictory accounts of the breakdown of his loss claim. He first asserted that it consisted of a loan of ₤80,000 to fund Mr Carreras’ advance fee and ₤20,000 for various expenses. The Appellant then changed this to ₤85,000 for fees and ₤15,000 for expenses. The Appellant also altered the amount of the loss claim to ₤150,000 with the introduction of the loan from Unity Electrical Limited. Further the Appellant originally claimed that the loss was incurred in 2005/06, with the balance being carried forward to 2006/07. After being confronted with Mr Guy’s observations about the restrictions on setting off losses carried forward and that no loss claim was made in the 2005/06 tax return, the Appellant gave a different version of events with the losses taking place in 2006/07.  
43.	The Tribunal holds that the documents adduced by the Appellant to support the existence of loans from Mr Wakefield and  Unity Electrical Limited were flawed in material respects. Mr Wakefield signed the receipt as a director of WYLEL which was untrue. Mr Wakefield stated that he gave the loan to the Appellant despite making the cheque out for ₤85,000 to WYLEL. The Appellant produced no formal agreement evidencing the loan from Mr Wakefield. The agreement with Unity Electrical Limited was a word produced document, which bore no resemblance to the form expected of a commercial loan agreement. It contained no details of the rights of the various parties to the agreement, and scant information about the method of payment and the rate of interest on the loan. The monies purportedly handed over as loans were not shown in the paying in books for WYLEL’s bank account, and the statements of the Appellant’s bank account. The Tribunal holds serious reservations about the genuineness of the purported loans to the Appellant.
44.	Equally the evidence relied upon by the Appellant to substantiate the purported expenditure upon which the loss claim was based was suspect. The Appellant produced no document which indicated that he paid the advance fee for Jose Carreras. The only evidence of the Appellant’s expenditure on administration expenses in connection with the concerts were the letters of Mr Wakefield and Mr Mickie. The contents of the letters were not backed up by documents evidencing the various rental agreements, and by receipts of the actually payments made. Finally the Appellant’s bank statements submitted in evidence showed no record of payments made for the said expenses.
45.	The Tribunal placed no weight on the 50 statements of the Appellant’s friends, colleagues and relatives which asserted that the Appellant acted in his own capacity in promoting the concerts involving Jose Carreras. The Appellant adduced no evidence of how these statements were put together and obtained from the signatories. The statements did not include a statement of truth. They were identical in content, and the language used was formal and technical. The Tribunal was of the view that one person had compiled the statements with the signatories asked to sign them without considering the truth of their contents.
46.	The Tribunal considers that the contract documentation and the documents supplied with the VAT registration of the WYLEL provided a compelling and reliable portrayal of the arrangements for the promotion of the aborted concerts involving Jose Carreras. 
47.	The contract with Kirklees Stadium Development Limited for the hire of the stadium for Huddersfield football club demonstrated that WYLEL in association with ROC promoted the concert of Jose Carreras. Further the contract showed that the Appellant was not acting in his own capacity but as director of WYLEL in the negotiations with Kirklees Stadium Development Limited.  The terms of this contract together with the contract between MSN and ROC demonstrated that the Appellant had no direct involvement with the procurement of the performers for the concerts, which contradicted the Appellant’s version of events. The agent for Jose Carreras in the negotiations was MSN, a UK registered company, which would have had a clear understanding of the concept of sole trader. The involvement of MSN undermined the Appellant’s explanation for the formation of WYLEL, which was that the Jose Carreras’ agent was unfamiliar with sole traders.
48.	The position of WYLEL as the concert promoter was confirmed by the contents of the business plan and the invoice from Pantoni Pantomimes Ltd submitted with its application for VAT registration.  The business plan declared that WYLEL was promoting the concerts. The invoice showed that WYLEL incurred expenses in connection with the concerts. The fact that the Appellant did not register for VAT in his own capacity was yet another indication that he was not the promoter of the concerts.  His non-registration made no sense if he was the promoter because it denied him the option of recovering significant input VAT on the expenditure incurred.
49.	Finally the evidence of the extracts from the Lancashire Evening Telegraph, the Bolton Wanderers football club website and the winding up petition of Wolverhampton Wanderers football club showed that WYLEL was the promoter of the aborted concerts.
50.	The Appellant alleged that there were serious irregularities with Mr Guy’s conduct of his investigation into the Appellant’s tax affairs. The Tribunal considers that the allegations had no substance, and in any event were not relevant to the disputed issue in this Appeal.
51.	The Tribunal concludes from its analysis of the facts that the Appellant’s case that he was the promoter of the aborted concerts involving Jose Carreras was hopeless. The evidence he adduced in support of his claim was fraught with inconsistencies and wholly unreliable. The evidence from reliable third party sources demonstrated without doubt that WYLEL was the promoter of the concerts. 
Decision
52.	The Tribunal, therefore, decides that 
(1)	The Appellant was not acting on his own account as a promoter of the aborted concerts.
(2)	WYLEL was the promoter of the concerts.
(3)	 The Appellant was not entitled to claim loss relief under section 380 ICTA 1988 in the sum of ₤100,000. 
53.	The Tribunal dismisses the Appeal. The decision of the Tribunal is one of principle. The Tribunal was not asked to determine the quantum of the assessment which unless agreed would be a matter for a further determination by a Tribunal.
54.	The Appellant’s representative in a letter dated 6 July 2009 questioned whether the Appellant could still recover the loss  under section 386 ICTA 1988 if the Tribunal decided that the loss was that of WYLEL. The Tribunal considers his suggestion wholly unacceptable in view of the case pleaded by the Appellant. In any event the Appellant did not meet the legal requirements for a claim under section 386 ICTA 1988 which applied when a sole trader with losses brought forward incorporated his business. The Tribunal found that the Appellant did not trade on his own account. Further the Appellant was not a shareholder of WYLEL. In those circumstances the Appellant could not have transferred a non-existent business to WYLEL in exchange for shares in the company.
55.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

TRIBUNAL JUDGE
RELEASE DATE: 9 September 2010