[2011] UKFTT 81 (TC)

TC00958             

 Appeal number TC/2009/14385

VAT – registration – sole trader having two separate businesses – whether businesses are separate taxable persons – whether VAT registration covers all the business activities of the registered person – Flat Rate Scheme -  whether relevant turnover includes VAT exempt supplies.

FIRST-TIER TRIBUNAL

TAX 

	ICAN FINANCE	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: WDF COVERDALE (TRIBUNAL JUDGE)

Sitting in public at King’s Court, North Shields on 21st October 2010

Mr S Hare, the Appellant, in person

Ms P Roberts, of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	The Appellant Stephen Hare trades as ICAN Finance as a Commercial Finance Broker.  He also has a business in residential property lettings.  He is registered for VAT under reference 856 9319 78, this registration having evidently been effected for the purpose of his commercial finance broking business with effect from 14/04/05 and the registration remains extant.
2.	Following visits to Mr Hare’s premises by an officer of HMRC on 20/11/08 it became apparent that Mr Hare had not included, in the calculation of Tax due in his Flat Rate Scheme, the turnover in respect of his residential property lettings business.  As a consequence HMRC issued Notices of Assessment as follows:
Assessment dated 20/11/08 for £750 tax plus default interest
Assessment dated 19/02/09 for £8269 tax plus default interest
3.	The interest evidently amounted to a £160.03 in respect of the £750 Assessment and £1,023.94 in respect of the £8,269 Assessment.  It appears to the Tribunal that HMRC’s actual calculations of the amount of VAT and of the interest are not in dispute today.  
4.	Following Local Reconsideration the Assessments were confirmed by letter from HMRC to Mr Hare dated 15/04/09.  The Decision contained in that letter is the Decision appealed today.  Mr Hare attends before the Tribunal in person in order to pursue his Appeal.
5.	The basis of Mr Hare’s Appeal as set out in his Notice of Appeal, in his written submission to the Tribunal today and in his oral submissions is that he had been running two separate businesses, one VAT registered (the Commercial Finance Brokerage) and the other not VAT registered (Residential Property Letting).  For the VAT registered business he was on the Flat Rate Scheme.  Following a VAT inspection in August/September 2008 Mr Hare was told by HMRC that, pursuant to the Flat Rate Scheme, because both businesses are sole proprietorships he should include the total turnover of both when calculating the VAT due.  He expresses the view that this produces an absurd situation where he has to pay VAT on exempt income.  He maintains that he has done nothing wrong and says that his reading of Notice 733 regarding the Flat Rate Scheme does not convey to him that an individual operating two separate businesses will have those treated as one “if they are both structured as sole traderships”.
6.	The Tribunal acknowledges that Mr Hare has, at all times, acted in good faith and there has been no intent to deceive on his part.  It is, however, necessary to examine the law in relation to these matters and apply Mr Hare’s circumstances to the relevant law.  

7.	Section 26B(2)(c) of the Value Added Tax Act 1994 provides that: 
(c) a person’s “relevant turnover” is the total of:-
(i)	the value of those of his relevant supplies that are taxable supplies, together with the VAT chargeable on them, and
(ii)	the value of those of his relevant supplies that are exempt supplies
8.	It is important, at this point, to acknowledge the fundamental points made by HMRC in this case namely that it is the person (natural of legal) and not the business which is registered for VAT and each VAT registration covers all the business activities of the registered person.  Mr Hare is registered for VAT (albeit initially with the intention of registering only the Finance Brokerage) as a sole proprietor and consequently the registration covers all of his business activities ie both the Finance Brokerage and the Property Lettings.  For the purposes of the Flat Rate Scheme a person’s “relevant turnover” includes the value of those of his relevant supplies including those that are exempt supplies.  This contention by HMRC is correct and, indeed, is confirmed in the decided case to which the Tribunal’s attention has been drawn namely Commissioners of Customs and Excise v Glassborow and another [1974] STC 142.
9.	Notice 733 “Determining your flat rate turnover” is Departmental Guidance issued by HMRC.  Paragraph 6.2 reads as follows:  
“6.2 What must I include in my flat rate turnover?
Your flat rate turnover is all the supplies your business makes, including VAT.
This means all of the following:
•	The VAT inclusive sales and takings for standard rate, zero rate and reduced rate supplies
•	The value of exempt supplies, such as rent….
Note:  As exempt and zero rate supplies are included in flat rate turnover you apply the flat rate percentage to the exempt and zero rate turnover….”
10.	It will be noted from the above that “rent” is specifically mentioned as an exempt supply that must be included in flat rate turnover.
11.	When read together Section 26B(2)(c) of the Value Added Tax Act 1994 and paragraph 6.2 of Departmental Guidance Notice 733 do clearly confirm that the contention by HMRC, set out above, is correct and that it is the person and not the business which is registered for VAT and Mr Hare’s rental income should be included within turnover under the Flat Rate Scheme.  Mr Hare may or may not have read Section 26B(2)(c) and paragraph 6.2 of the Departmental Guidance Notice but put together these amount respectively to a Statement of the law and additional explanation of the law.
12.	Mr Hare’s letter of appeal, his written submission and his oral submissions to the Tribunal today contain many statements of opinion upon which the Tribunal will not comment.  He does, however, suggest that he has had a penalty imposed upon him but that is not correct: the Assessments relate to Tax, not penalties, and the imposition of interest is not a penalty.
13.	The Tribunal concludes that interest has properly been charged on the sums of VAT due under Section 74 of the Value Added Tax 1994 and this has not been challenged today by Mr Hare.
14.	The Tribunal therefore concludes that HMRC’s two Assessments have properly been issued, the VAT is due to be paid by Mr Hare, the interest has properly been imposed and accordingly this appeal is dismissed.
15.	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.

                                            WDF COVERDALE
TRIBUNAL JUDGE
RELEASE DATE: 25 January 2011