18815
ASSESSMENT – Taxi operator business – Question of identity of proprietor at time of assessment – if the appellant, then VAT assessed correctly and late registration penalty due – if not, assessment invalid and penalty not due – on evidence, appeal allowed – VATA 1994 s73 and Schedule 1 paras 1(i)(a) and 5(2)

MANCHESTER TRIBUNAL CENTRE

	MOHAMMED SHAFIQ
	Appellant	
	and		
			
	THE COMMISSIONERS OF CUSTOMS AND EXCISE	    Respondents	

Tribunal : Rodney P Huggins  (Chairman)
                                                    Marjorie Kostick FCA

Sitting in Manchester on 11 May and 9 September 2004

Nigel Gibbon, Solicitor, for the Appellant.

Jonathan Cannon, Counsel, for the Respondents

©  CROWN COPYRIGHT 2004
DECISION

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	The appeal

1.  This is an appeal by Mr Mohammed Shafiq (“the Appellant/Mr Shafiq”) against three decisions of the Commissioners of Customs and Excise (“Customs”) as follows :

(1)     to assess the Appellant pursuant to section 73 of the Value Added
         Tax  Act 1994 (“the 1994 Act”) in the sum of £13,517 (plus interest) 
         representing VAT arrears for the period 1 November 2000 to 
         31 January 2003. The assessment is dated 2 April 2003 ;

(2)    to assess the Appellant to a late registration penalty in the sum of
        £2,306 for the period 1 November 2000 to22 October 2002.  The
        assessment is dated 26 March 2003;

(3)    the decision to compulsorily register the Appellant with effect from 
        1 November 2000 which was notified to the Appellant by letter dated
        20 January 2003.

The remaining issue

2.   During the final session of the hearing of the appeal on 9 September 2004, Mr Gibbon representing the Appellant indicated that the only issue for the tribunal to consider was whether the Appellant was the proprietor of the taxi business known as United Private Hire at all relevant times. If so, then the Appellant accepted that his turnover exceeded the registration threshold in September 2000 giving a liability to be registered with effect from 1 November 2000.  Furthermore, if the tribunal found Mr Shafiq was the proprietor then he accepted the VAT assessment was made to best judgment and the penalty for later registration was justified.

3.   Both Mr Gibbon and Mr Cannon therefore accepted that the only issue remaining before the tribunal was to determine on the evidence whether Mr Shafiq was the proprietor of the business.

The evidence

4.   At the hearing a bundle of documents was produced on behalf of both parties and supplementary documents were handed in during the course of the hearing.

5.    Oral evidence was given by the Appellant and the following :

       his brother, Mr Mohammed Rashid (“Mr Rashid”)

        his brother, Mr Tariq Mahmood (“Mr Tariq”)

        Mr Mohammed Safdar, Accountant

6.   The Respondents called Senior Customs Officer Mrs Vivian Barbara Parsons (“Mrs Parsons”).

The facts

7.   From the evidence before us, we find the following facts :

8.   United Private Hire (UPH) has carried on business as a taxi operator using self-employed drivers from premises at 28 Ainsworth Road, Radcliffe,  Manchester for over nineteen years.

9.  For several years up to September 1997, the Appellant was the owner of UPH and also drove one of the taxis.  He collected the daily rents for the radio services from the self-employed drivers and paid the expenses of the business.  He also employed radio operators who worked at the base at 28 Ainsworth Road, Radcliffe. The private hire operator’s licence issued by the Bury Metropolitan Borough Council was held by Mr Shafiq during his ownership.

10. By 1997, Mr Shafiq found he could not handle the running of the business and also driving a taxi full-time. At that time, he had between 8 and 9 vehicles using the services of UPH.  He sold the business to a Mr Mohammed Iqbal (“Mr Iqbal”) of 2 Contefield Avenue, Great Lever in September 1997 for £15,000.  Mr Shafiq continued to drive full-time for Mr Iqbal who took ver the private hire operator’s licence.

11.  After about a year in 1998, Mr Iqbal also found that he could not cope with the controlling the drivers and running the business. He was also ill.  He indicated to Mr Shafiq and Mr Tariq that he wanted to leave the business quickly as it was not giving him any real profit.

12.  It was suggested that Mr Tariq who is Mr Shafiq’s younger brother (born in 1978) should acquire the business in an endeavour to stop his criminal activities.  At the time, he was only 20 years of age but had since 1994 various criminal convictions ranging initially in stealing a motor vehicle in 1994, later driving offences for which he was disqualified from driving leading to driving whilst disqualified for which he was sent to prison for three months on 29 October 2002.  He actually served six weeks for that conviction and was also disqualified from driving for twelve months.  He has subsequently committed minor offences such as attempted burglary, handling stolen goods and under the Public Order Act.

13.  Mr Tariq had driven his vehicle as a taxi when Mr Iqbal owned the
business but not when his brother was the proprietor.  When he was disqualified from driving for motoring offences as a result of the totting up process, he had to cease involvement as a driver in the taxi business of UPH.  Afterwards, he was unable to return to be a driver because of his age and on account of his bad driving record he could not obtain realistic insurance cover for his motor car.

14.  Since neither Mr Shafiq nor the middle Mohammed brother, Mr Rashid did not want to be the owner, it was agreed in or about September 1998 that Mr Tariq would purchase UPH for £15,000, the same price that Mr Iqbal had paid Mr Shafiq for the business.

15.  Mr Iqbal agreed that after an initial payment of £5,000, various installments of a few hundred pounds each time could be paid by Mr Tariq when he was able.  A further sum of £2,500 was paid by Mr Tariq to Mr Iqbal when he came out of prison in December 2002 from damages he received from an insurance company as a result of a whiplash injury he had sustained.  The whole sum has now been settled.

16   Mr Rashid has worked for UPH as a self-employed taxi driver since about 1996.  He agreed to assist his younger brother run the business.  Although Mr Tariq helped man the base radio unit he did this intermittently initially and Mr Rashid would arrange to settle bills and wages of the radio operators at the base unit after Mr Tariq had collected the radio rents paid by drivers from the operator working on the Sunday evening shift.   When any surplus was left after settlement of the bills incurred by the business, Mr Rashid would pay Mr Iqbal a further installment for Mr Tariq, usually between £200 and £500.Mr Rashid particularly assisted in the managing of the business in 2002 when Mr Tariq was in prison and the period leading up to his conviction in October 2002 as Mr Tariq was under excessive pressure on account of his pending court case before Bolton Magistrates.  He did not attend regularly to his business affairs leaving this to his brother, Rashid.

17.  In 2002, there were five radio operators working the base unit for some 10 to 11 drivers.  The operators were paid a minimal £4.10 per hour.  The full-time drivers (including Mr Shafiq) were paying £50 per week for the supply of the radios and services from UPH at the end of 2001.  This was increased to £65 per week early in 2002.  Part-time drivers paid £35 which was increased to £40 per week.

18.   On 21 July 2000, Mr Tariq completed an Inland Revenue “Notification of Self Employment” Form CWF1 (1999) notifying the appropriate tax authority (Inland Revenue NI Contributions Office) that he had commenced self employed work as a base operator with effect from     1 September 1998. This was submitted to the Newcastle-upon-Tyne Office by Mr Tariq’s Accountants, M Safdar & Co at that time.
19.   Accounting records were supplied by Mr Tariq either personally or through his brother after the end of each accounting year (31 August) to   M Safdar & Co for the period 1 September 1998 to 31 August 1990 and for the years ending 31 August 2000, 2001, 2002 and 2003.  Mr Tariq did not keep a regular business bank account and UPH was run on a cash basis.  The records consisted mainly of weekly radio money receipt sheets and bills for outgoings and details fo wages paid to radio operators.

20.   At the hearing, Mr Safdar produced a copy of a Self Assessment Tax Calculation form SA302 from the Inland Revenue for Mr Tariq revealing that for the tax year ended 5 April 2003, Mr Tariq had a net income as a self-trader (owning UPH) of £8,419 upon which, after deducting his personal allowance as a married man,  he had to pay tax of £617.48.

21.  Because of his brother’s criminal record, Mr Shafiq agreed to take out, in his name, the necessary operator’s licence from the local authority with effect from 30 October 1999. For the same reason business insurance cover was effected in Mr Shafiq’s name and utility bills and rate demands for the business premises were made out to Mr Shafiq.  These various items were effectively paid by Mr Tariq out of the weekly radio money receipts from the drivers.

22.  The Customs Officers in the shadow economy team stationed at Salford made enquiries on 11 December 2001 with the Inland Revenue which revealed that Mr Shafiq had submitted regularly annual tax returns disclosing his taxi driving activities only.  No mention was made of any involvement with UPH.  Also the same Customs team obtained copies of Mr Tariq’s annual tax returns implying he was the owner of UPH. Also other enquiries were made about who held the operator’s licence.

23.  Armed with this information, Mrs Parsons assisted by Customs Officer Allyson Hughes visited the business premises of UPH on 15 July 2002 unannounced.

24.   The Customs officers spoke initially to the base operator Mamood Shafiq who contacted Mr Shafiq on the telephone.  It took him some time to arrive at the business premises. He had given permission for records to be checked.  Details of current drivers were listed and some call sheets collected.

25.  A detailed interview then took place with Mr Shafiq who made it quite clear that the owner of the business was his brother Tariq.  He readily admitted that the operator’s licence was in his name along with the business insurance, rates and utility bills.  However, Mr Shafiq was adamant that the business was not his.  He stated he drove for UPH and assisted in the management.  A lengthy questionnaire was completed.

26.  Customs Officers from the Unit endeavoured to contact Mr Shafiq and Mr Tariq several times over the ensuing weeks with the aim of interviewing Mr Tariq and obtain weekly takings records. Eventually, appointments were arranged for 22 and 23 October but both were cancelled by Mr Shafiq as his brother had to attend interviews with his probation officer.

27.  Mrs Parsons then wrote to Mr Shafiq on 23 October 2002 in the following terms :

“Further to my visit to the above premises on 15th  July 2002, my subsequent telephone calls and your failure to keep arranged appointments on the 22nd & 23rd October 2002.

My conclusions from your verbal statement taken on 15th July, inspection of available records uplifted and information regarding the operation of the business are that you are the Sole Proprietor of United Private Hire. This decision is bases upon the following :-

You have held the Operators Licence since 30th October 1999.
You have been the Business Rate payer since July 1998.
All utility bills are in your name.
Business insurance is in your name.

The gross turnover for radio hire from information supplied is £46280, your turnover as a driver has been added (the amount of £12649 has been used – accounts submitted to the Inland revenue 00/01).  Total annual turnover £58929.  Based on these figures the Vat threshold of £54000 p.a. would have been exceeded in September 2000 and you were therefore liable to be vat registered from 1 November 2000…”

28.  On 8 November 2002 the Accountant Mr Safdar telephoned Mrs Parsons.  He told her that with reference to her letter of 23 October 2002, Mr Shafiq did not own the business.  She explained that all records and utility bills and operator’s licence were in Mr Shafiq’s name and, from Customs point of view, he was the owner.  Mr Safdar told her that as Mr Shafiq and Mr Tariq were related they had not bothered to transfer names.  He also said that Mr Tariq was in prison.  He was asked to confirm this in writing although she was still considering compulsory registration.

29.  As nothing further was heard from the Mohammed brothers (Tariq was in prison !) or Mr Safdar, on 12 December 2002, a compulsory registration form was submitted. The Respondents compulsorily registered the Appellant for VAT with effect from 1 November 2000.  A VAT registration certificate was issued to Mr Shafiq on 15 January 2003.

30.   Mr Shafiq was assessed by the Commissioners in the sum of £13,517 (plus interest) representing VAT arrears for the period 1 November 2000 to 31 January 2003 and the assessment is dated 2 April 2003.

31.  The Appellant was assessed to a late registration penalty in the sum of £2,306 for the period 1 November 2000 to 22 October 2002 by an assessment dated 23 March 2003.  By a letter dated 27 August 2003 a Customs Appeals Officer, Mrs E Foster wrote to Mr Shafiq and indicated that an error had been made in the calculation of the late registration penalty because no allowance had been made for input tax.  As a result, the penalty was reduced to £1,778.

Reasons for the decision

32.   The tribunal considers that the burden of proof in deciding whether the Appellant was the proprietor of the business at the relevant time lies on the Appellant.

33.  Before we consider whether to Appellant discharges the burden, we would refer to the arguments put forward for the Respondents by Mr Cannon.  In his skeleton argument he stated, “Subject to the evidence at the hearing, the following matters are relied upon by the Commissioners.

  3.1 The Appellant held the Private Hire Operator Licence from at least 30
        October 1998 to the present day. He was described as the proprietor;

  3.2  Insurance, telephone, business rates and radio licence fees were all in
         the name of the Appellant:

  3.3  The Appellant had originally been the proprietor of the business but
         had sold to Mr Iqbal.  In interview he stated on two separate
         occasions that he had bought the business back from Mr Iqbal but
         later changed his mind to say that Mr Mahmood had bought the
         business ;

  3.4  The Appellant described his position in the business as taxi driver and
          manager.  He accepted that Mr Mahmood was never there ;

  3.5  The accountant explained that the documentation was in the
         Appellant’s name because he and Mr Mahmood were related and
          they hadn’t bothered to transfer names,  He was asked to confirm this
          in writing but never did so.”

34.   Mr Cannon in his final submission to the tribunal said that except for the Tax returns, no other documentation had been provided such as invoices, correspondence or insurance policy to substantiate that Mr Tariq was the owner of the taxi business.  He asserted that except for the letter from Mr Iqbal dated 5 September 2004 (Confirming Mr Tariq had purchased the business from him) everything pointes to Mr Shafiq being the owner.

35.  he alleged the Tax returns were totally wrong and pointed out the evidence had revealed that Mr Tariq was not using his vehicle for business purposes but had claimed tax relief in this respect.

36.  The Appellant relied entirely on his two brothers as witnesses and their evidence was inconsistent and in his opinion unsatisfactory and incredible.  Mr Cannon pointed out that Tariq’s driving record was deplorable and there was no evidence as to when he had been disqualified prior to him going to prison in October 2002.  How he allegedly paid for the business had never been clarified with certainty.  It was in dispute as to whether Mr Shafiq paid any weekly rentals to his brother Tariq.  Also, there were discrepancies in what was paid to the radio operators.

37.  The Respondents considered that all the evidence pointed to Mr Shafiq being the owners and it was incredible that a person so young and inexperienced as Tariq was chosen to be the proprietor.

38.  For the Appellant, Mr Gibbon said that the tribunal was not being asked to decide if Mr Tariq should not have claimed for motor expenses or not in his tax return, nor to determine whether the radio takings were correct.  The test, in his opinion, was whether Mr Shafiq was the owner of the business; it was not a test of judgment.

39.  We agree with Mr Gibbon and find that taking all the evidence into consideration and, on the balance of probabilities, Mr Shafiq was not the owner of the business at the relevant times.  We reach our decision for the following reasons.

40.  First, we find that the three brothers are not business-wise persons.  Adequate records are not kept in the business.  Mr Cannon identified in his final submission various inaccuracies in the brothers’ evidence but, in our view, these can be attributable both to the delay in time and the fact that no witness statements for them were prepared for the tribunal and they had to rely on their memories which were imperfect.

41.  The one person called on behalf of the Appellant whom we found to be most reliable was the Accountant Mr Safdar He was a credible witness.  He was the accountant not only for Mr Tariq in the business but also Mr Shafiq.  In July 2000 Mr Safdar submitted for Mr Tariq a Notification of Self Employment form to the Inland Revenue NI Contributions Office indicating Mr Tariq had commenced self-employment as a base operator from 1 September 1998.  If he had suspected that it was a fraud, we believe he would never have proceeded to act for Mr Tariq and prepare annual accounts for the ensuing periods because he came across to us as a professional person carrying on his practice in a proper manner. Also produced to the tribunal was a self assessment tax calculation form for the tax year 2002/2003 for Mr Tariq.  This revealed that his total income for the year came to £8469.  This married exactly with the figure in the tax return for the same periods and Mr Tariq had to pay tax of £617.48 after his deductions and allowances were taken into account.

42. We also find that Mr Tariq was inveigled by his two elder brothers to take over the business from Mr Iqbal on 1 September 1998. Mr Tariq had a chequered past including involving various criminal activities and a deplorable driving record.  As Mr Gibbon suggested, it is not our duty to pass judgment as to whether Mr Tariq was a proper person to take over the business.  In our view, the other two brothers found it more profitable for them to drive their own vehicles and let Tariq take the profit, albeit at a low level, in an endeavour to keep him out of trouble.  As they were relatively experienced in business they naturally assisted him in the running of the business from time to time.

43.   With reference to the radio rents paid by the brothers, the Respondents argued that as one of the weekly sheets revealed Mr Shafiq had not paid anything in the week at the end of June, this was supporting evidence that he was the owner of the business.  The tribunal was supplied at the end of the hearing with the weekly takings sheets for most of the periods from      2 September 2001 until the end of August 2002. This revealed that over 53 weeks, Mr Shafiq as driver number 11 had only missed paying on nine separate occasions spread out during the year,  This did not imply that he was the owner of the business.

44.   We are satisfied that Mr Iqbal was paid consideration for the business: how and when exactly the instalments were paid is hazy because records were not kept.  Mr Iqbal confirmed in his letter the full consideration of £15,000 had been paid.

45.  The Customs Officers were fully aware when they called at the business premises on 15 July 2002 that Mr Shafiq had submitted regularly annual tax returns through Mr Safdar in respect of his taxi driving and that his brother Tariq had for the same periods sent in tax returns relating to the business of UPH  It is obvious that during the latter part of 2002, because of his impending criminal court case, Mr Tariq could not give any real time to his business.   The Officers did not make any endeavour to discover why he did not attend interviews.

46.  Finally, we find it reasonable that the operator’s license continued in the name of Mr Shafiq and this also applied to the utility bills and insurance policy.  As far as the operator’s licence and insurance were concerned, it would have been difficult for Mr Tariq to obtain the licence and cover because of his convictions.
Decision

47.   The appeal is allowed.  The two assessments are discharged.  The compulsory registration is cancelled.

48.  The Appellant’s costs in the appeal are to be paid by the Respondents.  In default of agreement, either party is at liberty to apply for assessment by a Chairman sitting alone.

Rodney P Huggins
Chairman

Release date: 21 October 2004

MAN/03/0360		

££Shafiq v Customs and Excise [2004] UKVAT V18815 (21 October 2004)