18164
Registration – compulsory registration – liability to register under the Act – failure of trader to register and failure to permit access to records as not registered.

EDINBURGH TRIBUNAL CENTRE

	THOMAS H DYER	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	       Respondents

			Tribunal:	 (Chairman)   S P Riddell, MA, LLB, WS
					 (Member)      Ian M P Condie, CA

Sitting in Edinburgh on Monday 7 April and Tuesday 6 May 2003.

for the Appellants		Philip Simpson, Advocate

for the Respondents	Miss Gillian Carty, Shepherd & Wedderburn, WS

© CROWN COPYRIGHT 2003.

DECISION

The disputed decision is the decision of the Respondents compulsorily to register the Appellant for the purposes of Value Added Tax (“VAT”) under VAT registration number 774 7579 68 with effect from 1 October 1996.  The Appellant was duly notified of the decision by letter dated 28 June 2001.

At all material times for the purposes of this appeal the Appellant carried on business as an insolvency practitioner at various addresses in and around Dundee, including premises at 10 Douglas Street, Dundee, DD1 5AJ.  He also carried on business as a racehorse trainer.

The Appellant was registered for VAT with effect from 16 March 1993 to 30 August 1996 under registration number 607 6702 42.  The Appellant was de-registered, pursuant to his written request dated 30 August 1996 in which the Appellant notified the Respondents that he had ceased trading.

Thereafter the Appellant was compulsorily registered for VAT with effect from 1 October 1996 under registration number 774 7579 68 and it is the decision of the Respondents to effect this registration which is the subject of this appeal.

The Tribunal finds in fact:-

1.	On or about 21 May 1996 the Appellant was visited by one of the Respondents’ Officers for a routine check on his VAT returns.  Following an inspection of the Appellants’ accounts, the Officer raised a query concerning the Appellant’s VAT treatment of interim payments received in relation to insolvency work.  The Appellant contested the view that there were any irregularities in such matters and, after his de-registration on 30 August 1996, maintained that the VAT Act 1994 (“the Act”), Schedule 11, paragraph 7 did not apply to him, an unregistered person.
2.	On or about 22 October 1996 the Respondents wrote to the Appellant to arrange an appointment to discuss three particular matters, namely

2.1	the Appellant’s VAT treatment of interim payments for insolvency work;
2.2	the Appellant’s outstanding VAT return for the period from 1 June 1996 to 31 August 1996; and
2.3	whether the Appellant’s deregistration had been correctly effected.

3.	The Appellant refused to arrange an appointment as requested and also failed to provide documents as requested by the Respondents pursuant to Schedule 11, paragraph 7 of the Act.  Following a period of protracted correspondence between the parties, the Respondents imposed penalties under section 69 of the Act.  The Appellant’s appeals against these penalties were subsequently dismissed by the Tribunal on 17 November 1999.
4.	On or about 8 December 1999 the Respondents again wrote to the Appellant and repeated the request for him to arrange an appointment to enable one of their officers to examine his business records and to resolve the matters raised in the letter of 22 October 1996 (referred to at paragraph 2 above).  The Respondents also made numerous attempts by telephone and fax to contact the Appellant but these were all unsuccessful.
5.	On 14 February 2000 the Respondents wrote to the Appellant informing him that they had reason to believe that he was continuing to trade.  The Appellant was advised that since he had denied the Respondents access to the records of his business and had declined requests to arrange a meeting, the Respondents would be forced to act on the information available.
6.	The Appellant replied by letter dated 21 February 2000 in which he stated inter alia that he was employed as a financial adviser by Paratus (No. 403) Ltd (“Paratus”).  He subsequently produced a Statement of the terms of his employment which indicated that his employment there commenced on 1 July 1998.  Normal working hours were stated to be 9 am to 5 pm, Monday to Friday each week.  During cross-examination he said he had been employed there for only two months.
7.	On the basis of the limited information available to them, the Respondents then purported to reinstate the Appellant’s VAT registration (under registration no 607 6702 42).  The Appellant was notified of the decision by letter dated 17 March 2000.  At the same time the opportunity was taken to remind the Appellant that the Respondents still required a meeting with him to discuss the affairs of the business and to inspect the records.
8.	Following the purported decision to reinstate, the Appellant lodged an appeal with the Tribunal under reference EDN/00/0091 and the parties entered into protracted correspondence.  Following a detailed review of the issues in dispute for the purposes of EDN/00/0091, the Respondents accepted that the decision to reinstate the Appellant’s VAT registration under 607 6702 42 should not have been made and that the same was to be cancelled.  The Appellant was duly notified of this by letter dated 22 May 2001 in which the Respondents also advised that they nevertheless remained of the view that the Appellant continued to trade after 30 August 1996 and that he remained liable to be registered for VAT from a date thereafter.  (This effectively determined the said appeal and the Appellant subsequently received a payment of costs in respect thereof).
9.	On 4 June 2001 the Respondents wrote to the Appellant and repeated that it remained their view that the Appellant had continued to trade after 30 August 1996 and that he was liable to be registered for VAT from a date thereafter, namely 1 October 1996.  The Appellant was again invited to afford the Respondents access to his business records.
10.	In the absence of any response to the letter of 4 June 2001, Mrs Janet Cain, a Senior UK Revenue VAT Assurance Officer of the Respondents, wrote to the Appellant on 28 June 2001, saying:-

“I refer to my letter to you dated 04/06/01.

In said letter I requested that you contact me in order to arrange access for me to the records of your business so that I might determine whether a liability to be registered for VAT is ongoing.  I also advised that as the turnover of the business in the 12 months ending 31/08/96 exceeded the threshold for VAT registration then in force, registration for VAT was required from 01/10/96.  As I have received no response to my letter I am forwarding your papers to our Registration Section with a request to effect registration for VAT with effect from 01/10/96.  You will receive correspondence from them in this respect in due course”.

11.	Compulsory registration of the Appellant took place with effect from 01/10/96 under registration number 774 7579 68.  Notification to the Appellant was issued on 06/07/01 and a duplicate notification was issued to the Appellant on 24/08/01. 
12.	Mrs Fiona Calder, an experienced VAT Review Officer, was responsible for reviewing Mrs Cain’s decision at local level.  She stated that through the Respondents’ Liaison Team with the Inland Revenue she had been able to obtain copies of the Appellants’ Tax Returns for the years ended 5 April 1998 and 5 April 1999.  These were produced.  Both were signed by the Appellant as being “correct and complete to the best of (his) knowledge and belief”.  In respect of the first of these, which bore to cover the accounting period from 1/5/96 to 1/4/97, sales/business income (turnover) was stated at £183,801.  The Appellant, during cross-examination said that that sum represented income he had earned in the period up to 31 August 1996.  The date of commencement of business was stated to be 1/5/94 and there was no entry in response to the query “Date of cessation if before 6 April 1998”.  In response to the query, “Were you an employee, or office holder, or director, or agency worker in the year ended 5 April 1998?”  the response was “No”.  In response to the query, “Were you self-employed (but not in partnership)?” the response was “Yes”.  It did not appear that any reliefs were claimed in respect of the sale of a business.  In respect of the second of these, which bore to cover the accounting period from 1/5/97 to 30/4/98, sales/business income (turnover) was stated at £29,610 and there was no entry as regards either “Date of commencement if after 5 April 1996” or “Date of cessation if before 6 April 1999”.
13.	A public notice in connection an Insolvency Act meeting of creditors of The St Andrews Chair Co Ltd appeared in the Evening Telegraph on October 31, 1996.  The meeting was to take place on 7 November 1996 within the offices of Tom Dyer & Co, 63 Brown Street, Dundee.  It bore to be signed by “G Tosh, Director”.  In a Witness Statement by Murray Henry Wood lodged on behalf of the Respondents, reference was made to a list of cases “subject to Insolvency action and the Trustee involved is Thomas Dyer”.  Mr Wood noted that the last item on the list of 33 names was St Andrews Chair Co Ltd and the relevant “Date action commenced” was 19/11/96.  (Mr Wood was clear that he had not prepared the list itself but was responsible only for the five stated “Dates action commenced”).
14.	The Respondents produced a copy of a circular letter dated 16 May 1997 which they had received from the Appellant.  The covering letter dated 23 September 1997 was signed by the Appellant and addressed to the Respondents’ office in Greenock.  The enclosed letter had no addressee mentioned.  It was on notepaper of the Caledonian Blind Company Limited.  The letter dated 16 May 1997 was headed “Caledonian Blind Company Limited t/a Unicorn Trading and Caledonian Blind Company,” signed by “G Tosh, Director” and said “I write to advise you that the above company has ceased trading due to its inability to pay its debts.  As there is insufficient assets to appoint a Liquidator, the Directors will co-operate with any Creditor who wishes the appointment of a Liquidator and I would ask you to call our Financial Adviser, Mr T Dyer, B.A., C.A., on (01382) 226332.”  Some time later in a letter headed “Caledonian Blind Company, Unicorn Trading Co. Ltd., Thomas Dyer” and dated 22 February 2000 sent to the Respondents’ Officer, Mrs Cain, an individual signing “M Tosh” said (s)he had been asked by Mr Dyer to confirm his role as Financial Adviser to the Company.  “Mr Dyer stated that he had ceased to act as an Insolvency Practitioner and suggested that we write to all the Creditors to see if they would like to liquidate the company.  He stated that he would answer any telephone call on the matter, given that there were only 15 or so Creditors.  His actions were merely to try to sort out a difficult situation and he did not receive any fee for his services, as the company has no assets.”
15.	The Appellant produced a document entitled “Heads of Agreement” which he said related to the sale of his business “Tom Dyer & Co” to The Business Tax Centre (Tayside) Ltd (“B.T.C.”).  It was dated 1 September 1996 and provided for B.T.C. taking over the business and staff at 5 p.m. that day.  The purchase price was stated at £30,000, with details as to how it was to be split and paid and it was also stated, “Thomas Dyer, B.A., C.A., will act as a Consultant of B.T.C. until the end of 1996”.  As an Appendix to the Heads of Agreement there was a List of Staff, but the Appellant’s name was not included in the List.  There was no mention of what, if anything, the Appellant was to be paid for acting as a Consultant – but in his evidence he stated that he got no money from B.T.C. for any consultancy work.  He said that from May 1996 to the end of the year he had been working in the Republic of Ireland developing software which might be of some use to Accountants and he did little else between September and December of that year.  There were various family companies, to which he was financial adviser (he tidied up their financial affairs), but he did nothing for them between September and December 1996.  The same registration for VAT covered his C.A./insolvency work and his income from acting as a race-horse trainer.  The race-horse business was sold in July 1996 and for the rest of that year he lived on the £30,000 he had received from B.T.C.  
The Appellant’s grounds of appeal, as appearing from his Notice of Appeal dated 14th September 2001, were:-
	“(1) That the decision is wrong in law.
 (2) That the decision is a breach of the Human Rights Act.
 (3) That the facts show that VAT registration is not required.”
By Direction dated 11 March 2003, the Appellant was required to submit Further and Better Particulars of the first two grounds of appeal.  The Appellant did so, and indicated that he no longer insisted on ground (2).  At the same time he maintained that as registration was based on the proposition that he started making taxable supplies on 31 August 1996 and the decision was taken to register him for VAT with effect from 1 October 1996, the appeal must also be determined on the basis of the Act as in force at those times.
In the Appellant’s Further and Better Particulars, his argument “That the decision is wrong in law” was amplified as follows:-

4.	The relevant parts of paragraph 1 of Schedule 1 provide:

‘(1) 	Subject to sub-paragraphs (3) to (7) below, a person who makes taxable supplies but is not registered under this Act becomes liable to be registered under this Schedule-

(a)	at the end of any month, if the value of his taxable supplies in the period of one year then ending has exceeded £47,000; or
(b)	….

(3)	A person does not become liable to be registered by virtue of sub-paragraph (1)(a) … if the Commissioners are satisfied that the value of his taxable supplies in the period of one year beginning at the time which, apart from this sub-paragraph, he would become liable to be registered will not exceed £45,000.

(4)	In determining the value of a person’s supplies for the purposes of sub-paragraph (1)(a) …, supplies made at a time when he was previously registered under this Act shall be disregarded if-

(a)	his registration was cancelled otherwise than under paragraph 13(3) below, paragraph 6(2) of Schedule 2 or paragraph 6(3) of Schedule 3, and
(b)	the Commissioners are satisfied that before his registration was cancelled he had given them all the information they needed in order to determine whether to cancel the registration …

(6)	A person shall not cease to be liable to be registered under this Schedule except in accordance with paragraph 2(5), 3 or 4 below’.

5.	In so far as relevant, paragraph 3 provides:

‘A person who has become liable to be registered under this Schedule shall cease to be so liable at any time if the Commissioners are satisfied in relation to that time that he-

(a)	has ceased to make taxable supplies; …’

6.	Paragraph 5 of Schedule 1 provides:

‘(1) 	A person who becomes liable to be registered by virtue of paragraph 1(1)(a) above shall notify the Commissioners of the liability within 30 days of the end of the relevant month.

(2)	The Commissioners shall register any such person (whether or not he so notifies them) with effect from the end of the month following the relevant month or from such earlier date as may be agreed between them and him.

(3)	In this paragraph “the relevant month”, in relation to a person who becomes liable to be registered by virtue of paragraph 1(1)(a) above, means the month at the end of which he becomes liable to be so registered’.

7.	It is submitted that the decision to register the Appellant is wrong in law because:

(a)	during the relevant time, he was not making taxable supplies.  Any supplies of professional services the Appellant made were made otherwise than for consideration (see, for example, R3/6 though this relates to a later time in any event).  Reference is made to section 5(2)(a) of the Act.  Paragraph 1 of Schedule 1 was therefore not applicable;

(b)	on the facts available to the Commissioners as of the time at which, according to the Commissioners, the Appellant became liable to be registered, they ought to have been satisfied that the value of the Appellant’s taxable supplies in the period of one year beginning at that time would not exceed £45,000.  Reference is made to R3/1 and to Gray (trading as William Gray & Son) v Customs and Excise Commissioners [2000] STC 880.  Esto the Commissioners are entitled to take into account information they consider ought to have been disclosed by the time the Appellant is alleged to have become liable to be registered, any additional information would also have indicated that the Appellant’s taxable supplies in the period of one year beginning at that time would not exceed £45,000;

(c)	paragraph 1(4) of Schedule 1 to the Act applies, with the effect that the Appellant’s supplies during the period of his previous registration (which ended on 1 September 1996) are to be disregarded in determining the value of the Appellant’s supplies for the purposes of sub-paragraph (1).  There was therefore no basis at all for the proposition that the Appellant’s taxable supplies in the period of one year to 31 August 1996 exceeded £47,000;

(d)	the Appellant’s previous registration was not cancelled until 1 September 1996 (R3/2, R3/4 and R3/15).  Up to and including that date, he was registered under the Act.  He therefore did not fall within paragraph 1(1) of Schedule 1 until 2 September 1996.  Accordingly, even if he were liable to be registered pursuant to paragraph 1(1), the time at which he became so liable was the end of September 1996.  The Commissioners were therefore required to register him from the end of October 1996 (paragraph 5(2) of Schedule 1).  The consequence is that the Appellant ought to have been registered as of 1 November 1996.  Reference is made to Henderson and another (trading as Tony’s Fish and Chip Shop) v Customs and Excise Commissioners [2001] STC 47.  However, the Appellant was actually registered from 1 October 1996 (R9/3).  This is clearly an error of law.

Miss Carty invited the Tribunal to uphold the decision contained in Mrs Cain’s letter of 28 June 2001 and to refuse the Appeal.  She also referred to paragraph 1 of Schedule 1 of the Act and pointed out that liability for VAT depended on the value of taxable supplies – a question of fact.  Even if the value of the supplies made at a time when the trader was previously registered was to be disregarded when the registration was eligible to the cancelled under sub-paragraph 1(4)(a) of Schedule 1 of the Act, the trader still had to satisfy the Commissioners under sub-paragraph 1(4)(b) that he had given them all the information they needed to determine whether to cancel the registration.  As Mrs Cain had made clear in her letter of 28 June 2001, as the turnover of the business in the 12 months ending 31/08/96 exceeded the threshold for VAT registration then in force, registration for VAT was required from 01/10/96.  The figure of £341,000 appearing as turnover on the compulsory Registration form produced (A10) was taken from the Appellant’s VAT returns in his previous registration.  The Respondents did not have any other information on which to proceed – it was reasonable for the Respondent’s Officers to proceed on that basis as they were entitled to do.

Mr Simpson’s reference to the case of Gray (trading as William Gray & Son) v the Commissioners [2000] STC 880 concerned the point at which the information available to the Commissioners is considered and the situation if some information is not taken into account.  Miss Carty argued that it related to a situation under Schedule 1, para 1(3) of the Act where a trader wished to apply for exemption – a different situation from that which had arisen in the present case when the test to be applied was whether it was reasonable to proceed on the basis of the factors taken into account.  She claimed that the case had no relevance to the present situation.

Miss Carty argued that both Mrs Cain and her colleague, Mrs Calder, had given evidence as to the level of obstruction presented by the Appellant and this was supported by the correspondence produced.  They did not have full access to his accounts and in the circumstances the denial of access made their decision reasonable.

There were two particular factors which influenced the Tribunal in its decision – Firstly, there was the content of the Appellant’s Income Tax returns referred to in paragraph 12 above, which directly contradicted the Appellant’s claim that he had ceased to be in business on 30 August 1996.  In these, his business turnover was stated to be £183,801 for the period from 1 May 1996 to April 1997, and if this had all fallen into the period to 30 August 1996 when the Appellant claimed to have ceased, this was at significant variance with his declared sales for VAT purposes, which in the quarter ended 31 May 1996, were just £49,357.  No VAT return appeared to have been recorded as having been received by the Respondents for the period from 1 June 1996 to the date of initial de-registration, and no reconciliation of business turnover as shown on the Appellant’s tax return as against declared sales for VAT purposes was offered by the Appellant.  Secondly, the consistent refusal of the Appellant to allow the Respondents access to his records and accounts gave the impression that the Appellant had something to hide from the Respondents.  The other matters referred to in paragraphs 13, 14 and 15 above were more debatable in the question of whether or not they fell into the category of “supplies” as defined by section 5(2)(a) of the Act, but cumulatively they did not assist in persuading the Tribunal that the Appellant should not have been registered under the Act at the relevant time.

The Tribunal agreed that the lack of access to the Appellant’s records and accounts was significant.  If access was denied as in the present case, it was impossible for the Respondents to carry out their statutory duties in any way other than that adopted here – it was reasonable for the Respondents to proceed on the basis of statistics relating to previous supplies.

Moreover, the Act repeatedly provides, both in Schedule 1 and elsewhere, that it is one essential condition that “the Commissioners are satisfied” before any change takes place.  Obviously, if the Commissioners are repeatedly denied access to an individual’s records and accounts, they are unlikely to be “satisfied”.  In particular, in his argument based on paragraph 1 of Schedule 1, Mr Simpson seemed to ignore the existence of the word “and” between sub-paragraph (a) and sub-paragraph (b) of Schedule 1, paragraph 1(4) of the Act.

It was appropriate that when the deregistration was withdrawn and the registration under number 607 6702 42 erroneously effected, steps were taken to correct and regularise the situation by registration under number 774 7579 69.  The Commissioners were clearly entitled to make the change and the timetable set out in Mrs Cain’s letter of 28 June 2001 appears to the Tribunal to comply with the provisions of paragraph 5 of Schedule 1 of the Act.  Moreover, once the registration under number 774 7579 68 took place the provisions of Schedule 11, paragraph 7 of the Act came into play.

The appeal accordingly fails.  The parties were agreed that expenses should follow success as regards the Hearing on 7 April and 6 May 2003.  The Tribunal finds the Respondents entitled to their expenses as agreed or as taxed by the Auditor of the Court of Session in respect of the Hearing on those days.

It was drawn to the attention of the Tribunal that all questions of expenses relating to the postponement of the Hearing on 22 March 2002 were reserved and it was felt that such could be resolved by written submissions.  Accordingly the parties are directed to make written submissions on the subject within 28 days of the publication of this Decision.

S P RIDDELL, MA, LLB, WS

CHAIRMAN

RELEASE:  28 MAY 2003

EDN/01/154