DATE OF REGISTRATION FOR VAT PURPOSES – taking over of business  of public house – tenancy at will – purchase of wet stock and glasses – no interruption in business – appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

 
 	MELVIN NATHANIEL FOX
	 T/A THE CAVENDISH HOTEL	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

        				   Tribunal: Mrs. E. Gilliland (Chairman)
                    				       Mr J. Lapthorne

Sitting in public at Birmingham on 3 October 2003.

Mr A. G. Mc.Clelland for the Appellant.
Miss Sara Williams of Counsel instructed by the Solicitors Office of H.M. Customs and Excise for the Respondents.

	© CROWN COPYRIGHT 2003

DECISION
1.	This is an appeal by Melvin Nathaniel Fox (the Appellant) against a decision of the Commissioners as set out in their letter of 16 April 2002 that the Appellant had taken a transfer of  a going concern  and should be registered for VAT purposes from the date of the transfer of the business. The effective date was stated by the Commissioners to be 18 December 2001. This decision was upheld on a reconsideration  on 4  September 2002 and the officer who gave that confirmation, Ms Diane Minshall  and also the officer who dealt with the matter subsequent to the letter of 16 April 2002, namely Mrs. Catherine Jane Cross, gave evidence to the tribunal and were cross-examined by the Appellant’s representative. In addition, there has been produced to the tribunal a fax from Ms Minshall to the Appellant’s accountant dated 26 September 2003 substituting as the correct effective date for registration  by the Appellant 1 March 2002.
2.	The Appellant’s case has been put by Mr A G McClelland with Mr Kultaran Singh partner in Harrison Sedgwick Kulturan Singh & Co. Chartered Accountants. The Appellant has given evidence  to the tribunal  and we have before us  a copy letter  dated 7 June 2002 from  Mr Richard Fletcher  (Mr Fletcher) of Avebury Taverns  and a copy of his witness statement dated 26 June 2003. 
3.	The facts established by us are that the Appellant was approached by Mr Fletcher shortly before Christmas 2001 to take over  the running of  a public house, the Cavendish Hotel at Derby of which Avebury Taverns (the Company) was the landlord. Both the Appellant in his oral evidence and Mr Fletcher in his witness statement have confirmed that this was because the previous tenant, a Mr Shaun Elliot, (the previous tenant) had give notice  to quit  and the Company was concerned that the public house should remain open  over the busy Christmas period. There was no written agreement between the Company and the Appellant nor between the previous tenant and the Appellant and indeed the two never met. It was understood however between the Company and the Appellant that the Appellant would be a tenant at will on a temporary basis for a 13 week period whilst Mr Fletcher looked for a permanent tenant. Before the 13 week period had expired however the Company proposed a promotion which would run for 3 months. The Appellant has told the tribunal that it was not his intention to stay on permanently but at the time of the hearing the Appellant is still at the premises. In his letter  Mr Fletcher has said that negotiations are taking place to move to a more substantive agreement but the Appellant has told us that at his age he did not wish to carry on long term.
4.	The position is that that the Appellant has been running the business of a public house under the Company’s terms as a temporary tenant from 18 December 2001 to October 2003. Evidence was produced from all parties as to what the Appellant  had in fact acquired. The Appellant has paid the sum of £3,000 but has not acquired a formal lease of the public house nor any written documentation establishing the nature of his tenancy. However  Mr Fletcher said  in his letter  of 7 June 2002 that within the trade normally 7 days oral notice on the part of the either the landlord or the tenant would suffice. On any view the Appellant must have occupied the premises  as at least a licensee  since he was there with the consent of Mr Fletcher. In his letter Mr Fletcher also confirmed that the fixtures and fittings were owned by the Company but that on a more substantive agreement the purchase of the fixtures and fittings over a period would form part of an offer letter. Again that must constitute a licence to use the fixtures and fittings. There are also a juke box and gaming machines and the Company has dealt with Leisure Link. The gaming licence and agreements were transferred from the previous tenant’s name to the Appellant’s. The Appellant said in cross-examination that he had had no choice but to pay for these. The other relevant items were the wet stock and the glasses. The Appellant has said that these belonged to the Company. It is the case that Mr Fletcher arranged for an independent valuation of these items but we are satisfied that they were owned by the previous tenant. The Appellant said that he paid £1,900 but the Company received the money and would appear to have used this against monies owed by the previous tenant to it. The Appellant has told us  that he did not obtain any money from the various gaming machines  as this went to pay for his use of the fixtures and fittings with the exception  of what was the amount of VAT payable for which he had to account. Otherwise the takings went to him though he paid for the beer, rates, and everything else.
5.	It has been submitted on behalf of the Appellant  that when he purchased the wet stock that did not put him in a position to run a public house and that he needed premises and fixtures and fittings none of which the Appellant had acquired. Reference was made by the Appellant’s  representative to various factors set out in the Commissioners’ internal guidelines as to what constitutes  a transfer of  a going concern  and it was submitted that these had not been satisfied. There had been no documentation prepared between the previous tenant and the Appellant such as one might have expected on a transfer of a going concern. There was no document recording a sale of goodwill  and no goodwill payment and the business name remained unchanged. One member of staff had stayed on  but we have been given an explanation that this was because she had nowhere else to go, though it does appear to us that she worked in the public house. Furthermore, the Appellant did not consider that he was buying a business from the previous tenant. It is submitted that there was in this case no willing seller nor willing buyer nor a business for a transfer to be concluded. The Appellant’s representative also criticised the role of the Commissioners in making assumptions, particularly as to turnover when it was within their power  to establish  what the VAT registration status of the previous tenant had been.
6.	The case for the Commissioners has been that the intention of the Appellant was not relevant and the query raised as to whether there was a fixed or any particular length of time for the tenancy envisaged was not relevant as that related to intention and not whether there had in fact been a transfer of a business. It was submitted that a business could be transferred without goodwill and that the vital test was whether the circumstances created  enabled the Appellant to carry on substantially the same business as there had been before. They submitted that there had not been any interruption in the operation of the business. The Company was not the owner of the business. It supplied beer and was paid but had no interest in the takings and the business expenses went to and came out of the Appellant’s business account. If the Company had run the business, it would have been in their accounts. 
7.	The relevant statutory provisions  are in the Value Added Tax Act 1994 (the Act). S.3 defines a taxable person as person who “is, or is required to be, registered under this Act”. Paragraph 1(1)(a) of Schedule 1 to the Act, under the heading of “Liability to be registered”, states: “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 [the specified limit]. By paragraph 1(2)(a) of Schedule 1 it is provided that: “where a business carried on by a taxable person is transferred to another person as a going concern and the transferee is not registered under this Act at the time of transfer, then … the transferee becomes liable to be registered under this Schedule at that time if – (a) the value of his taxable supplies in the period of one year ending at the time of the transfer has exceeded [the specified limit]. The specified limit for the purposes of this case is £54,000. The previous tenant was registered for VAT purposes. The Appellant was not registered. If the business was transferred to the Appellant as a going concern, the Appellant was required to be registered.
8.	We have been referred to a number of tribunal decisions and the case of Customs & Excise Commissioners v Dearwood Limited [1986] STC 327 (Dearwood) has been referred to in argument. In that case there was transferred to the taxpayer company the stock, fixtures and fittings, lease and goodwill of a business and value added tax was charged on the transfer invoice. Subsequently the taxpayer company claimed credit for the tax paid as input tax. The taxpayer company had not intended to continue to carry on the reproduction furniture business which had been carried on by the transferor but after the transfer the premises had remained open during working hours and the stock had been sold to pay creditors. The appeal of the Commissioners was upheld. The dictum of Widgery J. in Kenmir Ltd. v Frizzell [1968] 1 WLR 329 at 325 was applied:
“ In deciding whether a transaction amounted to the transfer of a business, regard must in our view be had to its substance rather than to its form, and consideration must be given to the whole of the circumstances, weighing the factors which point in one direction against those which point in another. In the end the vital consideration is whether the effect  of the transaction was to put the transferee in possession of a going concern  the activities of which  he could carry on without interruption”.     
9.	In our view the question which we must address is what the Appellant actually acquired in December 2001 as distinct from what he wanted to acquire or what he intended to acquire. In a tribunal case referred to us on the Appellant’s behalf, namely P.J. Nicholas trading as P.A. Scaffolding  v The Commissioners of Customs and Excise (LON/01/378) the dictum of Widgery J. was again quoted. There the issue was whether there had been a transfer of a business as a going concern or a sale of assets only. The tribunal, having looked “at the circumstances rather than the form” found there had been a taxable supply at the standard rate, namely a sale of assets. It is therefore necessary for us also to look at the substance rather than the form and to consider all the circumstances. It is quite clear that for some time the Appellant has been running the business of a public house at the premises. Whatever may be the strict legal ownership  of the various assets he needs to keep his business going (premises, equipment, machines, and tills) he nevertheless has had to date the undisputed use of them and subject to discharging the expenses of the business he keeps the takings. He purchases and pays for the stock. Clearly the Appellant falls within s. 48 of the Act as he is making “taxable supplies”. It has been submitted on his behalf that his obligations for the payment of VAT arise at such time as his own turnover reaches the specified limit. The submission of the Commissioners however is that under s.29 (1)(a) of the Act the Appellant’s liability to be registered arose on his acquiring the Cavendish Hotel as a going concern in which case he is to be treated as carrying on the business before as well as after the transfer. 
10.	Also raised in this matter and resulting in correspondence between the parties for some time were the assumptions made by the Commissioners as to the turnover of the previous tenant. However it has now been ascertained that the previous tenant was registered for VAT and we have had produced to us information  as to his declared takings in respect of the period 11/01 and the period 02/02 to the date of cessation of trading (which was here stated to be 21 December 2001 rather than 18 December 2001) with also a break-down of VAT inclusive takings week by week from 9/9/2001 to 21/12/2001. This is set out in a witness statement dated 30 June 2003 made by Christopher James Kirk, a Senior Assurance Officer of HM Customs and Excise It is this information that has led to the amendment by the Commissioners of the registration date under s.49 of the Act as to when the turnover was shown as exceeding the registration limit of £54,000. This took into account the turnover of the previous tenant while he was running the Cavendish Hotel and that of the Appellant using the latter for the months of December 2001 and January 2002 as shown in his records. We do not consider that anything turns on the apparent discrepancy of 3 days.

11.	In the line of cases drawn to the tribunal’s attention, it is clear that we are to look at the reality of the events when considering whether a business has been acquired as a going concern. The Appellant’s representative has referred to the Commissioners’ guidelines but these however are guidelines only and not conclusive. There are a number of factors which are relevant in determining the proper registration date of which few are conclusive on their own.                            
12.	It is clear to us that the arrangement between the Company and the Appellant was that the Appellant was called in at the last minute so that a breathing space could be given to Mr Fletcher in seeking a permanent tenant. In so far as there may have been an intention that this was to be a short term arrangement, that is in our view irrelevant. The issue is whether he was put in possession of a going concern which he could carry on without interruption and not the duration for which he could carry the business on. In the instant case the business continued without any gap or interruption. There was no period of refurbishment and there was no change in the nature of the business carried on at the premises. Clearly the Appellant could not trade without having the use of the premises and of the items referred to which were in the premises. The Appellant had to satisfy and comply with the terms imposed by the Company as in any other business transaction and he had to pay for what he used. There was no assignment of goodwill but the previous tenant had to all intents and purposes disposed of what he had had, namely the wet stock and the glasses. No tax was paid on these assets. Like the Appellant the previous tenant used other items supplied by the landlord. He had been in the premises for only 3 months as a tenant at will or a licensee. We understand that the arrangements disclosed are not unusual in the licenced trade. The Appellant took over from the previous tenant and in disposing of his chattels and stock the previous tenant was deprived of his ability to continue trading or to compete. There has been no suggestion made to us that the usual procedure of application for a transfer of the liquor licence was not made. There was we are satisfied no gap in real terms in the operation of the business. We find that the business was a going concern when the previous tenant left and that the Appellant when he entered into occupation of the premises continued to carry on the very same business. The Appellant did not in our view merely acquire certain assets such as for example the stock and other chattels or the use of the premises. In our view he was  put into possession of the business by the Company. He was also put into a position to carry on that business and he has done so. We do not consider that the Appellant set up his own independent business. Mr Fletcher was in a position to decide what was to happen in relation to the continuation of the trading. He did so and installed the Appellant as the successor to the previous tenant. The business has been carried on since then by the Appellant without any interruption or challenge from the previous tenant. In our view the arrangement falls within paragraph 1(2)(a) of Schedule 1 to the Act as a transfer of a business carried on by a taxable person to another person as a going concern.
 
13.	The Commissioners have produced true figures in connection with the previous tenants VAT status in place of the assumptions or estimates previously made and we are satisfied and hold that the registration date has been correctly determined to be 1 March 2002.
14.	The appeal is dismissed.
15.	The Commissioners have not sought costs and we make no direction as to costs

MRS E GILLILAND
CHAIRMAN
RELEASE DATE:

MAN/02/0664.