Ginza Teppanyaki Restaurant v Customs & Excise [2004] UKVAT V18451 (07 January 2004)

VAT TRANSFER OF A GOING CONCERN – preliminary point – completion of applications for registration and retention of registration numbers – not a voluntary act – unsupported by the evidence appellant fully aware of what they were doing – Respondents correct in their treatment of the business as a continuing concern despite changes in ownership. 

MANCHESTER TRIBUNAL CENTRE

	GINZA TEPPANYAKI RESTAURANT        Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal: Michael Tildesley	 (Chairman)
					     Marjorie Kostick BA FCA CTA (Member)	

					 	

Sitting in public in  Birmingham on 11 November 2003

Mr Taylor VAT Consultant VATease for the Appellant 
James Pusey Counsel  for the Respondents

© CROWN COPYRIGHT 2003

DECISION

The Appeal

1	The Appellant is appealing against the following decisions of the Respondents:

•	The decision dated 30 June 2000 not to accept a claim for input tax in the sum of £18,074 made by voluntary disclosure submitted by the Appellant to the Respondents on 29 March 2000.
•	The decision to assess Mr and Mrs Hung trading as Ginza Teppanyaki Japanese Restaurant pursuant to section 73 of the Value Added Tax Act 1994 (1994 Act) to VAT arrears in the sum of £111,496 (plus interest) for periods 00/00 (19 July 1991 to 31 May 1994) to 11/99 notified to the Appellant by Notices of Assessment dated 14 July 2000
•	The decision to assess the Appellant to a penalty pursuant to section 76 of the Act for dishonest conduct falling within section 60 of  the Act in the sum of £100,346 notified to the Appellant by notice dated 17 November 2000.

2.	On 15 April 2003 the Tribunal directed that

“this Appeal shall be set down for the hearing of a preliminary point, namely whether the Respondents are correct in their treatment of the business as a continuing concern despite changes of ownership allowing half a day in Birmingham”.

The Hearing 

3.	The hearing on the 11 November was restricted to dealing with the preliminary point about the treatment of the business as a continuing concern despite changes of ownership. 

4.	The preliminary point concerned the completion of various VAT forms by Mr and Mrs Hung which resulted in the Respondents treating the business as a continuing concern since its inception in 1991 which enabled the Respondents to raise assessments for VAT against the Appellant dating back to 1991.  The issue was whether the completion of these forms by  Mr and Mrs Hung was a voluntary act. If it was not, Mr and Mrs Hung cannot be liable for the VAT assessed against the previous owners of the restaurant. 

5.	The Tribunal heard evidence from Mrs P Hung , one of the partners. A bundle of documents was provided to the Tribunal.

The Evidence

6.	Ginza Teppanyaki Japanese Restaurant opened for business in September 1991. The partners of that business, Yuk Pui Cheung, Kam Lan Liu and Chung Shing Hung were registered for VAT purposes under registration number 568 2095 17 with effect from 5 July 1991. On 1 November 1993  Chung Shing Hung took over the business following dissolution of the  partnership and traded as a sole proprietor. On 6 April 1999 a new partnership was formed consisting of  Chung Shing Hung and Pui Hung (Mr and Mrs Hung), the Appellant, to run the business. 

7.	On 27 June 1994, an Officer of the Respondents, carried out a routine visit of the Appellant restaurant where the Officer met with Mr Hung. The Officer noted that the business was not profitable enough for three partners and Mr Hung was continuing to run the business as a sole proprietor. The Officer recorded that Mr Hung’s English was not brilliant and Mr K.H. Lim was looking after the paperwork for the business. The Officer indicated that he would be informing the Respondent’s Registration Section after the visit about the need to send Mr Hung forms VAT1 and VAT 68 for completion about the changes of ownership. Following the visit Mr Lim  wrote on behalf of the Appellant to the Respondents on 22 August 1994 and 7 November 1994 acknowledging receipt of the forms to register as sole proprietorship whilst retaining the existing VAT number. Mr Lim explained  that the matter of dissolving the partnership and reverting to sole proprietorship was being dealt with by the Appellant’s solicitors and that forms would be duly submitted once the legalities of the changeover had been completed.

8.	On 9 November 1999, Miss Fisher, an Officer for the Respondents, saw Mr and Mrs Hung in the presence of their accountant, Mr Gunby of SMJ Accountancy Services. Miss Fisher established with Mr and Mrs Hung  the changes in ownership of Ginza Teppanyaki Japanese Restaurant since 1991. The Respondents had not been notified of these changes. The only contact had been from Mr Lim who indicated that the first change of ownership had not been resolved at the time of writing.

9.	Following her visit to the Appellant’s business Miss Fisher reported the changes of ownership to the VAT Registration Unit at Grimsby which issued to the Appellant forms VAT 1 (Application for Registration), VAT 2 (Partnership Details) and VAT 68 (Request for Transfer of a Registration Number) to complete.

10.	The Appellant completed forms VAT1 and VAT 68 in respect of the changes on 1 November 1993. Form VAT 1 was signed by Mr Hung  who gave the date of  1 November 1993 as when the business was transferred to him as a going concern. He also indicated that he wished to keep the previous owner’s VAT number. Part 1 of  the form VAT 68 was signed by Mr Hung. Part 2 of this form which dealt with cancellation of the previous registration and agreement to transfer the registration number  was also signed by Mr Hung. Part 2 was signed by Mr Hung on behalf of the partnership. In a covering letter to the Respondents dated 14 December 1999 Mr Hung explained that

“The form VAT 68 has been signed by myself only on behalf of the old partnership as the other former partners are either no longer contactable or no longer live in this country. However, I confirm that I will be personally responsible for any outstanding VAT liability which may be due by the old partnership up to 1 November 1993”.	

The completed forms VAT1 and VAT 68 were dated  5 January 2000.

11.	The Appellant also completed forms VAT1, VAT2 and VAT 68 in respect of the changes of ownership on 6 April 1999. The forms were dated 5 January 2000. Mrs P Hung signed form VAT1. She declared as true that the date of transfer of business was 6 April 1999, the previous owner was Mr Hung and that she wished to keep the previous owner’s VAT number. Mrs Hung also signed VAT2 setting out the partnership details of herself and her husband, Mr Hung.  Part 1 of VAT 68 was signed by the new owners Mr and Mrs Hung.  Mr Hung was the only signatory of Part 2 which had the effect of cancelling the previous registration number  and agreeing to its transfer to the new owners. In his covering letter of 14 December 1999 Mr Hung said that
 “In respect of the changes on 6 April 1999 when my wife was admitted as a partner. I confirm that I will be personally responsible for any outstanding VAT liability which me be due by me up to 6 April 1999”. 

12.	On 9 March 2000 SMG  Accountancy Services on behalf of Mr and Mrs Hung sent the completed VAT forms and Mr Hung’s covering letter of 14 December 1999 to the Respondents which date stamped receipt of  the forms as at 15 March 2000. On 13 April 2000 the Respondents sent Notices of Cancellation to the previous owners of  Ginza Teppanyaki Japanese Restaurant, informing them that their VAT  registrations had been cancelled from the date specified in form VAT 68. Also on the same date the Respondents sent to the previous and new owners advice on the reallocation of  the VAT registration number.

13.	Inspection of the completed forms revealed that all sections had been filled in. Mr and Mrs Hung had not added qualifications to their responses, nor had they crossed out a response and substituted another. Form VAT 68 contained a explanation note which was in bold print starting with IMPORTANT. The note said:

“IMPORTANT: The conditions that you and the previous owner must agree to are set out in the application form and are legally binding. This means that not only will you be liable for any outstanding VAT from the previous owners registration but the previous owner will no longer be entitled to any repayments of VAT or unclaimed input tax, whether these amounts refer to periods before or after the transfer”. 	

14.	On 14 July 2000 the Respondents issued Mr and Mrs Hung with Notices of Assessment for under declared output tax in the sum of £111,496. This was followed on 23 November 2000 with a Notice of Assessment to a penalty under section 60(1) of the 1994 Act in the sum of £100,346. The issue of these notices was the outcome of an investigation conducted by the Respondents into the Appellant’s business. The investigation involved a series of test purchases throughout July and August 1999 and two interviews under  “Civil Evasion Penalty Procedures” on 9 and 23 February 2000.

15.	Mrs Hung told the Tribunal in evidence that  prior to 1991 she worked with her husband at the Askern Chinese Take-Away near Doncaster. She would help with the cooking and dealing with the members of the public. When her husband bought a share in the Ginza Teppanyaki she carried on running the Askern Take-Away until 1997 when she sold it to her brother. She also helped her husband with the running of Ginza Teppanyaki In 1999 she became a partner in the restaurant. Her responsibilities under the partnership included dealing with correspondence, book-keeping  and communicating with the English accountant. She gave evidence that her husband’s understanding of English was poor. His prime responsibility was the kitchen where he did the majority of the cooking. During the period of his sole proprietorship of the business between 1993 and 1999 Mr Hung was assisted by his brother-in-law, Mr K H Lim, who handled the paperwork.

16.	Mrs Hung was unaware that she had to inform the Respondents of change of ownership. She relied on the restaurant’s accountants, SMJ Accountancy Services, to look after these matters.  It was only during the visit from Miss Fisher that she realised about the obligation to notify the Respondents about these changes. Miss Fisher advised  Mrs Hung that forms about the changes would be sent to her to complete. Mrs Hung received a pile of forms (VAT 1, 2 and 68) in the post. She was under the impression that she needed to complete and return  the forms as soon as possible. Mrs Hung received no assistance with their completion. No-one explained to her what each of the forms meant and up-to-now she was still not clear what the effect was of transferring the previous registration number to the partnership of herself and her husband. 

17.	In cross-examination Mrs Hung accepted that she had not returned the forms herself. They had been sent by the accountants,  SMJ Accountancy Services, on 9 March 2000, some four months after receipt of the forms. Mrs Hung could not recall whether she had spoken with the accountants about the contents of the forms. She denied knowledge of her husband’s covering letter of 14 December 1999, although she accepted that it was his signature on the letter. Mrs Hung agreed that she had completed boxes 6a and 6b of the Application for Registration indicating that the business had been transferred as a going concern to the partnership and that it should retain the previous registration number. Mrs Hung acknowledged that it had been the same business and had not changed since its inception in 1991. She felt that it would save a lot of trouble and time if the partnership kept the existing registration number. Mrs Hung accepted that it was her signatures on the relevant VAT forms. She also accepted that she could read the various forms but doubted whether she really understood the meaning of them.  

18.	The Appellant accepted that Miss Fisher did not influence directly the completion and the submission of the various VAT forms by Mr and Mrs Hung. 

Submissions

19.	Mr Taylor submitted on behalf of the Appellant that the Respondents did not sufficiently explain to the Appellant what the effect of requesting a transfer of the VAT registration would be. Mr and Mrs Hung believed they were required to complete all of the forms they were sent which they did without understanding the consequences of their actions. In Mr Taylor’s view this was not a voluntary act on the part of the Appellant. Therefore, the Tribunal should disregard the forms and direct that the Notice of Assessment  upon Mr and Mrs Hung should not include the period relating to the two previous legal entities.

20.	Mr Taylor relied on the VAT and Duties Tribunal decision in Yee Mei Yeung v Commissioners of Customs and Excise [VTD 18017] where the Tribunal had ruled that the act of registration by the Appellant was not a voluntary act because of  her lack of grasp of English and her considerable difficulty in understanding the forms. In those circumstances the Tribunal found that the VAT registration under the 1994 Act was not properly constituted. 

21.	Mr Puzey on behalf of the Respondents found the Appellant’s argument totally unsatisfactory.  There was nothing on the face of the documents that  suggested Mr and Mrs Hung were confused. Further they had received professional advice from their accountants, who returned the forms on their behalf. Mrs Hung had been in business for a long time and there was nothing wrong with her English. The fact that Mr and Mrs Hung did not understand the full ramifications of completing the forms did not prevent the Respondents from enforcing the assessment. VAT is a self assessing tax, traders are under a duty to know the law themselves. There was no legal obligation upon the Respondents to explain to Mr and Mrs Hung the legal implications of their actions. Mr and Mrs Hung were not suggesting that the Respondents misled them. The circumstances of this case were different from those in Yee Mei Yeung v Commissioners of Customs and Excise [VTD 18017].  In short the submission was simply going nowhere the facts did not support it.

Decision

22.	Regulation 6 (1) of the Value Added Tax Regulations 1995 sets out the procedure for the transfer of a going concern.. Essentially there are four pre-conditions before the Respondents can accept the registration of the new owner, which are in summary:

•	A business is transferred as a going concern.
•	The registration of the transferor has not been cancelled.
•	On the transfer of the business the registration of the transferor is to be cancelled and either the transferee becomes liable to be registered or the Commissioners agree to register the transferee.
•	VAT form 68 is completed on behalf of the transferor and transferee.

23.	Regulation 6 (3) of the 1995 Regulations sets out the consequences of a transfer of a going concern, in particular that any liability of the transferor in relation to VAT matters will become the liability of the transferee.

24.	Regulation 7(1) of the 1995 Regulations provides that a notice given by one partner on behalf of the partnership shall be sufficient compliance with the  requirements to give notice under the VAT Act 1994 and the 1995 Regulations. Thus Mr Hung was entitled to sign the relevant forms relating to the transfer of the business from the original partnership to himself as sole proprietor.

25.	Mr Taylor on behalf of the  Appellant contended that Mr and Mrs Hung did not understand what they were doing when they completed the Applications for Registration and the Requests for Transfer of a Registration Number dated 5 January 2000 which meant that the subsequent registrations for VAT with the original registration number were not properly constituted. Thus there had been no transfer of a going concern in accordance with Regulation 6(1) of the 1995 Regulations and no transfer of liabilities under Regulation 6(3).  Mr Taylor’s submission was based on the VAT and Duties Tribunal decision in Yee Mei Yeung v Commissioners of Customs and Excise [VTD 18017]. 

26.	Yee Mei Yeung concerned an Appellant who had purchased a Chinese restaurant in Alfreton. This was the first time that the Appellant had been self-employed and believed that she had to register for VAT  because she thought it was everyone’s duty to do so. She subsequently registered for VAT from 11 July 2001. After a while she realised that the business turn-over was low and that there was no obligation upon her to register for VAT, consequently she applied to be de-registered for VAT from the date of her registration. Mr Porter, the Chairman of the Tribunal, conceded that there was no power to backdate the de-registration but decided that the original registration for VAT by the Appellant was not valid because it did not amount to a voluntary request by the Appellant for registration. The salient facts of the Appeal were:

•	The Registration for VAT on 11 July 2001 was a voluntary registration not a compulsory registration.
•	Ms Yeung’s responses in her application form for registration clearly demonstrated her lack of understanding  and confusion of the legal requirements for VAT registration.
•	Ms Yeung had a poor grasp of  English
•	Customs and Excise sent two requests for further information about her application for registration because of the confusing nature of her responses. Based upon these responses the Commissioners could not have been satisfied that the Appellant was making a voluntary request for registration.

27.	We find the following facts in relation to this Appeal:

a.	Mr and Mrs Hung were experienced business people and had run a Chinese take-away before Mr Hung’s involvement with the Ginza Teppanyaki.
b.	They were under a legal obligation to notify Customs and Excise of changes in ownership of the business but failed to do so. Mr Hung was aware of his obligations from the visit of Customs and Excise in 1994.
c.	The business had not altered in nature since its opening in 1991. Throughout that period Mr Hung had run the business either as a sole proprietor or in partnership.
d.	The responses given by Mr and Mrs Hung in the VAT forms dated 5 January 2000 were clear and unequivocal. 
e.	Mr and Mrs Hung signed the appropriate VAT forms
f.	Mrs Hung had a good command of the English language.
g.	We were unable to form a view about Mr Hung’s understanding of the English language because he was not called to give evidence. However, we were satisfied that he would have had the assistance of Mrs Hung with the completion of the relevant forms.
h.	The Respondents did not influence the completion and the submission of the relevant VAT forms by Mr and Mrs Hung .
i.	Mr and Mrs Hung were put under no pressure from the Respondents to complete and return the VAT forms. 
j.	Mr and Mrs Hung took about three months to return the VAT forms to the Respondents.
k.	Mr and Mrs Hung understood  the consequences of requesting the transfer of the existing VAT registration number.  VAT form 68 contained clear advice marked IMPORTANT about the transfer of liabilities from the previous owner to the new owner when the existing registration number was retained. Mr and Mrs Hung signed the declaration in form 68 that they would pay Customs and Excise any VAT due on supplies made by the previous owner. Mr Hung in his letter of 14 December accepted personal responsibility for VAT debts incurred by previous owners of the business.
l.	SMJ Accountancy Services, Mr and Mrs Hung’s accountants submitted the completed VAT forms on their behalf to the Respondents. We were satisfied that the accountants would have advised Mr and Mrs Hung on filling out the forms.

28.	We are satisfied that the facts of this case are very different from those in Yee Mei Yeung v Commissioners of Customs and Excise [VTD 18017].  On the facts found as set out paragraph 27 we have concluded that Mr and Mrs Hung (the Appellant) gave accurate responses to the questions in the VAT forms dated 5 January 2000 and were fully aware of what they were applying for, namely the separate VAT registrations and the retention of the existing VAT registration number. They also had the benefit of  independent advice from their accountants. They were put under no pressure from the Respondents to complete the forms. The form VAT 68 contained clear advice about the implications of retaining the existing VAT registration number. In those circumstances Mr and Mrs Hung, the Appellant,  must bear the intended consequences of their actions, namely, there has been an effective transfer of the business (The Ginza Teppanyaki) as a going concern on 1 November 1993 and on 6 April 1999. We, therefore, find for the Respondents in respect of the preliminary point, namely that they were correct to treat the business as a continuing concern despite the changes in ownership.

29.	We direct of our own motion that the Appeal be listed for hearing. We further direct the parties to supply the Tribunal Office in Manchester of dates to avoid, number of witnesses to be called and likely estimate of hearing by no later than 14 days from the date of release of this decision. 

MICHAEL TILDESLEY
CHAIRMAN
RELEASED:

MAN/00/1005