[2011] UKFTT 266 (TC)

TC01128

Appeal reference: TC/2010/02439

VAT – transfer of assets – whether transfer of going concern – yes – appeal dismissed

FIRST-TIER TRIBUNAL
TAX

				                   3 NET MEDIA GROUP	Appellant

- and -

	THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Lady Mitting (Judge)
		John Lapthorne FCMA (Member)
					
Sitting in public in Birmingham on 22 March 2011

The Appellant did not appear and was not represented

Mrs. H Bunce, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2011
DECISION

1.	The Appellant appeals against an assessment to tax calculated on 21 September 2009 in the sum of £10,500 plus interest.  The assessment was raised to recoup input tax claimed by and repaid to the Appellant for period 09/07.
2.	The Appellant was not represented at the hearing, having sent in a letter to the tribunal dated 10 March 2011 advising that the company had ceased trading and it was not their intention to attend.  The Commissioners had done a search at Companies House which had established that the company was not in administration or liquidation and it was Mrs. Bunce’s application that we should proceed to hear the case in the absence of the Appellant.  This we agreed to do in the knowledge that the Appellant was aware of the hearing, had decided not to attend and it was in the interests of justice that we should proceed.
3.	We heard oral evidence from Mrs. Gillian Sloan, the assessing officer, and we find the following facts.
4.	The Appellant operates a media communications business and has been VAT registered since 18 December 2006.  The company was formerly known as “The Orb Group Limited”, changing its name to 3 Net Media Group Limited on 5 February 2008.  In January and February 2009, Mrs. Gillian Sloan carried out a routine assurance visit at the Appellant’s premises.  During the course of her inspection of the books and records, Mrs. Sloan identified an invoice dated 20 September 2007.  It had been issued by Orb Communications Limited to The Orb Group Limited.  The invoice was stated to be for “sale of assets” and was in the sum of £60,000 plus VAT of £10,500.  Mrs. Sloan was later told that the assets sold consisted of fixtures and fittings to the value of £8,000 and the rights to a portfolio of existing customers to the value of £52,000.
5.	The Appellant also produced for Mrs. Sloan a copy of the agreement for the sale of the assets.  This agreement was dated 4 April 2007 and was made between Orb Communications Limited and The Orb Group Limited.  Clause 2 of the Agreement stipulated:
“The Company shall sell, and the Buyer shall buy, as a going concern and with effect from completion, all such right, title and interest (if any) as the Company may have in the transferred assets, upon the terms of this agreement and for the consideration set out in Clause 3.”
Clause 4 of the Agreement set out what was to be the VAT treatment of the supplies.  Paragraph 4.1 provided that:
“The parties intend that the Value Added Tax Act 1994, section 49 and the Value Added Tax (Special Provisions) Order 1995, article 5 shall apply to the transfer of the business and the transferred assets.  And:
4.1.1 The parties shall use all reasonable endeavours to secure that pursuant to section 49 and article 5 the sale of the transferred assets is treated as neither a supply of goods nor a supply of services for the purposes of VAT…”
6.	Correspondence ensued between the Appellant and Mrs. Sloan in the course of which Mrs. Sloan set out her view that the sale of the assets was in effect the transfer of a going concern.  She pointed out in correspondence that the transaction in question matched an almost identical transaction undertaken by the company earlier in the year in which part of the existing customer base was sold personally by one of the directors.  This transfer had been treated as a transfer of a going concern.  She also put forward her view that the conditions set out by HMRC in their Public Notice 700/9 had all been met – namely that the effect of the transfer was to put the new owner in possession of a business which could be operated as such; the business or part business was a “going concern” at the time of the transfer and that the assets transferred were intended for use by the new owner in carrying on the same kind of business.  The Appellant believed that Orb Communications Limited had in fact accounted for output tax on the sale of the assets to the Appellant company and if that had been the case, Mrs. Sloan might have been able to show some discretion in the way she treated the input tax claim.  However, enquiries revealed that Orb Communications Limited had gone into liquidation in July 2007 – ie some months before the invoice date.  Output tax had not been accounted for and in fact Orb Communications’ return for the period in question was a nil return.
7.	It being Mrs. Sloan’s view that the transfer was in fact a transfer of a going concern, she raised the assessment to recoup the input tax that had already been repaid to the Appellant.
8.	The Appellant’s grounds of appeal read that:
“The decision is unreasonable in the circumstances.  Our accountants were involved with this matter and at no point did they advise that the invoice in question should be returned and a new one issued because of TOGC regulations.  The vendor company has since gone into liquidation and we will be unable to reclaim the money from them.  It is iniquitous and against the laws of natural justice that we should be placed in a position where we are forced to pay the VAT amount twice.”
9.	It is clear to us that the “Sale of Assets” described in the invoice of 20 September 2007 was a transfer of a going concern.  Not only did the agreement for the sale stipulate that it was to be a transfer of a going concern, but in practice that is exactly what it was.  The assets were made up of fixtures and fittings and intangible assets described in the emails as the rights to a portfolio of existing customers.  These were immediately brought into use by the Appellant in the continuation of its business.  In its Notice of Appeal, the Appellant has highlighted what it sees as the unfairness of this treatment but has not addressed the issue of whether or not it was in reality a transfer of a going concern.  In other words the Appellant has produced nothing which could lead us to question our view.  We find that this was a transfer of a going concern.  As such there was neither a supply of goods nor a supply of services and the supply was outside the scope of VAT.  VAT should not have been charged on the invoice and the Appellant is not entitled to reclaim it.  The assessment was therefore properly raised to recoup the repayment.
10.	The appeal is therefore dismissed.
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.

LADY MITTING
JUDGE
Release Date: 20 April 2011