18847

VALUE ADDED TAX – transfer of a going concern to Appellant - transferor ceased to be a taxable person – transferor retained a commercial property less than three years old in respect of which it had previously claimed input tax - whether there was a deemed supply of the commercial property to the transferor when it ceased to be a taxable person – yes  – whether Appellant liable for tax on the deemed supply of the commercial property  – yes – appeal dismissed – VATA 1994 S 5 and Sch 4 paras 8 and 9 – VAT Regulations 1995 SI 1995 No. 2518 reg 6(3)
LONDON TRIBUNAL CENTRE

	TRADE ONLY PLANT SALES LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

			Tribunal:	DR A N BRICE (Chairman)
					MRS S SADEQUE MBCS

Sitting in public in London on 27 September 2004

Mr Michael Taylor, of Messrs Derek Young & Co, Chartered Accountants, for the Appellant

Mr M Barnes of counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

The appeal

1.	Trade Only Plant Sales Limited (the Appellant) appeals against an assessment dated 18 February 2002 to tax of £14,000 and interest of £2,261.20 making a total amount assessed of £16,261.20. 

2.	The amount assessed was the same amount as the input tax claimed when an associated company of the Appellant, called Vale Press Limited (Vale Press) purchased a new commercial property in 1998. On 1 January 2000 Vale Press transferred its business as a going concern to the Appellant who agreed to pay any tax due on supplies made by Vale Press before the business was transferred. On the transfer Vale Press retained the commercial property and ceased to be registered. 

3.	Customs and Excise were of the view that when Vale Press ceased to be a taxable person the commercial property was deemed to be supplied by it and so Vale Press should have accounted for output tax on that deemed supply. As the Appellant had agreed to pay any tax due on supplies made by Vale Press the Appellant was liable for the tax on the deemed supply. 	

The legislation

4.	The legislation relating to deemed supplies when a person ceases to be a taxable person is found in section 5 and Schedule 4 of the Value Added Tax Act 1994 (the 1994 Act). Section 5 provides that Schedule 4 shall apply for determining what is, or is to be treated as, a supply of goods or a supply of services. The relevant parts of paragraph 8 of Schedule 4 provide:

“8(1)	Where a person ceases to be a taxable person, any goods then forming part of the assets of the business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless-
(a)	the business is transferred as a going concern to another taxable person; … .”

5.	Paragraph 9 of Schedule 4 provides that paragraph 8 has effect in relation to land forming part of the assets of the business as if it were goods forming part of the assets of the business. 

6.	Thus paragraphs 8 and 9 together provide that when a person ceases to be a taxable person any land forming part of the assets of his business is deemed to be supplied by him immediately before he ceased to be a taxable person. 

7.	The legislation relating to the transfer of a business as a going concern is contained in Regulation 6 of the Value Added Tax Regulations 1995 SI 1995 No. 2518. Regulation 6(1) provides that: where a business is transferred as a going concern; the registration of the transferor is to be cancelled and the transferee becomes liable to be registered; and an application is made on Form VAT 68 by or on behalf of both the transferor and the transferee of that business, Customs and Excise may, as from the date of the transfer, cancel the registration of the transferor and register the transferee with the registration number previously allocated to the transferor. Regulation 6(3) provides: 

“(3)	Where the transferee of a business has under paragraph 1 above been registered under Schedule 1 to the Act in substitution for the transferor of that business, and with the transferor’s registration  number –
(a) any liability of the transferor existing at the date of the transfer to make a return or to account for or pay VAT … shall become the liability of the transferee.”

The issues

8.	Thus the issues for determination in the appeal were:

(1) whether when Vale Press ceased to be a taxable person the commercial property forming part of the assets of its business was deemed to have been supplied by it within the meaning of paragraph 8 of Schedule 4; and

(2) whether the liability of Vale Press to pay tax on the deemed supply became the liability of the Appellant under the provisions of regulation 6(3)(a).

The evidence

9.	An agreed bundle of documents was produced. Witness statements by Mr Eric Peter Nunn and Mr Sudesh Chandra, containing evidence on behalf of Customs and Excise, had been served on the Appellant under Rule 21 and not objected to by the Appellant. They were therefore admitted in evidence at the hearing as evidence of the facts stated in them. 

The facts.

10.	From the evidence before us we find the following facts. 

1985 – 2000 – the activities of Vale Press

11.	On 4 October 1985 Vale Press registered for value added tax. In its application for registration it stated that its place of business was in Evesham, Worcestershire. Initially, Vale Press ran two businesses, one of the sale of horticultural plants and the other of a printing press. On 20 January 1998 Vale Press acquired property which was a new building at Unit 6, Willersly Business Park, Willersy, Worcestershire (Unit 6). The purchase price was £80,000 with value added tax of £14,000 making a total of £94,000. Completion took place on 28 February 1998. Vale Press claimed input tax credit of £14,000. 

12.	As part of its horticultural business Vale Press purchased plants from the European Union and its value added tax registration number was known to importers. 

1 January 2000 – the re-structuring

13.	In 2000 there was a company re-structuring. The intention was that separate companies would carry on the businesses of (1) the sale of horticultural plants (the Appellant), (2) the printing press (Vale Press), and (3) the management and letting of the commercial property (Mouton Limited (Mouton)). All three companies were to be owned by the same shareholders.  Because the value added tax registration number of Vale Press was known to importers it was thought advisable to ensure that the new company which would carry on the horticultural business (the Appellant) should also use the value added tax registration number previously used by Vale Press. 

14.	Accordingly, on 1 January 2000 the horticultural plant business, and the value added tax registration number, of Vale Press were transferred to the Appellant with the intention that the Appellant should carry on the business of the sale of horticultural plants. On the same date the registration of Vale Press was cancelled. Both Vale Press and the Appellant signed Form 68. Question 7 of Form 68 asked the value of retained stock and assets and no value was declared. On Form 68 the Appellant agreed to do a number of things and, in particular, agreed:

“I will pay Customs and Excise any VAT due on supplies made by the previous owner before the business was transferred, including any VAT on stocks and assets kept by the previous owner.” 

15.	On the transfer of its horticultural business to the Appellant, Vale Press retained the property at Unit 6. It changed its name to Mouton Limited (Mouton) and carried on the business of letting Unit 6 to associated companies. The supplies of the letting of Unit 6 made by Mouton were exempt supplies as Mouton did not elect to waive exemption. Mouton changed its name to Vale Press and carried on the printing business. 

16.	On 1 January 2000 Mouton applied to be registered for value added tax on a voluntary basis. Customs and Excise asked Mouton for further information on 14 and 28 February 2000. There was some dispute as to whether the information was supplied. On 8 March 2000 Mr Chandra of Customs and Excise wrote to Mouton to say that for the time being it would not be registered.  

2001 –The visit of Mr Nunn

17.	On 25 October and 27 November 2001 Mr Nunn visited the Appellant. He learnt that when the business of Vale Press was transferred to the Appellant the building at Unit 6 was less than three years old. Accordingly, he formed the view that Vale Press had been liable to account for output tax on the value of the property when Vale Press ceased to be registered for value added tax. 

18.	On 30 November 2001 Mr Nunn wrote to the Appellant to say that a supply of goods was deemed to take place under paragraph 8 of Schedule 4 when a person ceased to be a taxable person and retained goods which were part of the business assets on which input tax had been claimed. Where input tax had been claimed on the purchase of new commercial property the deemed supply was taxable if the property was less than three years old or if an option to tax had been made. Output tax was therefore due on the deemed supply of Unit 6 at the time of the deregistration of Vale Press. In his letter Mr Nunn asked the Appellant to confirm that his understanding of the facts was correct. The Appellant passed Mr Nunn’s letter to its advisers who said that they would write to Mr Nunn if they had any points which they wished Mr Nunn to consider. No further information was sent to Mr Nunn so he wrote again to the Appellant on 1 February 2002 saying that he assumed the matter was agreed  and stated that an assessment would be issued. 

19.	The assessment was issued on 18 February 2002 and that is the assessment the subject of the appeal. 

20.	On 25 March 2002 Messrs Derek Young & Co wrote to Mr Nunn to say that in January 2000 they had requested that Mouton be registered for value added tax. They asked that that registration request be allowed. This letter was treated as a request for a local reconsideration of the assessment. On 22 April 2002 the assessment was confirmed. The letter confirming the assessment pointed out that Mouton was making exempt supplies. If it wished to make taxable supplies it would have to elect to waive exemption. 

The arguments

21.	For the Appellant Mr Taylor argued that this was a complex matter and the Appellant had been penalised because Customs and Excise had not offered help to the Appellant. Value added tax should be a neutral tax. Customs and Excise should not have refused the application to register Mouton and if that registration had been effected the assessment would not have been raised. 

22.	For Customs and Excise Mr Barnes argued that when Vale Press ceased to be registered there was a deemed supply of the property at Unit 6 and output tax was due. That tax was payable by the Appellant as transferee of the business of Vale Press.  

Reasons for decision

23.	We consider separately each of the issues for determination in the appeal.

(1)	Did Vale Press make a deemed supply of Unit 6?

24.	The first issue is whether, when Vale Press ceased to be registered, it made a deemed supply of Unit 6 within the meaning of paragraph 8 of Schedule 4.

25.	Paragraph 8(1)	 provides that, where a person ceases to be a taxable person, any goods (or land) then forming part of the assets of the business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person unless the business is transferred as a going concern to another taxable person.

28.	In this appeal Vale Press ceased to be a taxable person on 1 January 2000. On that date Unit 6 formed part of the assets of its business and so, under paragraph 8, Unit 6 was deemed to be supplied by Vale Press immediately before it ceased to be a taxable person. Paragraph 8(a) provides an exception where a business is transferred as a going concern. However, although part of the business of Vale Press was transferred to the Appellant as a going concern, Unit 6 was not so transferred and so, in our view, the exception in paragraph 8(a) does not apply to Unit 6. 

29.	We therefore conclude that when Vale Press ceased to be registered, it made a deemed supply of Unit 6 immediately before it ceased to be registered within the meaning of paragraph 8 of Schedule 4.

(2)	Is the Appellant liable for tax on the deemed supply?

30.	The second issue is whether the Appellant was liable for the tax on that deemed supply under the provisions of regulation 6(3)(a).

31.	The Appellant was registered in substitution for Vale Press and with Vale Press’s registration number. Accordingly, under regulation 6(3)(a) any liability of Vale Press already existing became the liability of the Appellant. The liability on the deemed supply of Unit 6 was then existing because it had arisen immediately before Vale Press ceased to be registered.  In addition, the Appellant had agreed to pay any tax due on supplies made by Vale Press. 

32.	Of course there would have been no liability for tax on a deemed supply if that deemed supply were exempt. However, Schedule 9 Group 1 Item 1(a)(ii) and Note (4) have the effect that the grant of a commercial building less than three years old is not an exempt supply.  

33.        Mr Taylor argued that Customs and Excise should not have refused the application to register Mouton. As mentioned above, there was some dispute as to whether the information requested by Customs and Excise of Mouton on 14 and  28 February 2000 was supplied. Mouton maintained, through Mr Taylor, that it replied to the request of 28 February by writing manuscript notes on the request form stating that that its main business activity was asset and property management. However, it was the evidence of Mr Chandra for Customs and Excise that no reply to the requests of 14 and 28 February was received. On the evidence before us we find that,even if a reply was sent, no reply was received by Customs and Excise. In any event, it does not appear that Mouton was making any taxable supplies as it had not elected to waive exemption in respect of Unit 6. It was therefore not entitled to be registered under paragraph 9 of Schedule 1 of the 1994 Act. 

Decision

34.         Our decisions on the issue for determination in the appeal are:

(1) that when Vale Press ceased to be a taxable person Unit 6, which formed part of the assets of its business, was deemed to have been supplied by it within the meaning of paragraph 8 of Schedule 4; and

(2) that the liability of Vale Press to pay tax on the deemed supply became the liability of the Appellant under the provisions of regulation 6(3)(a).

35.          The appeal is, therefore, dismissed. 

DR A N BRICE

CHAIRMAN
RELEASE DATE: 29 November 2004

LON/2003/0593
10.11.04