19290
	INPUT TAX  — claim by Appellant to recover VAT on the supply of insolvency practitioner fees — those fees incurred in connection with the liquidation of a separate company — were the fees incurred in the course or furtherance of Appellant’s business — no — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	DIY CONSERVATORY CENTRE LTD	Appellant

	- and -

	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Lady Mitting (Chairman)
						Marilyn Crompton	

Sitting in public in Manchester on 15 September 2005

Nigel Ferrington, VAT Consultant, for the Appellant 

James Puzey, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	The Appellant appeals against the decision of the Respondents to disallow input tax in the sum of £787.50.  This sum represents the VAT on an invoice dated 4 August 2004 from Hamiltons Insolvency Practitioners Limited and addressed to the Appellant company.  The invoice was for £4,500 plus VAT and was stated to be for:
“Fee payable in respect of costs connected in convening the creditors meeting pursuant to Section 98 of the Insolvency Act 1986 and the preparation of the Statement of Affairs”.
The fees were incurred in connection with the liquidation of a company called Click4Web Limited.  
The Evidence
2.	We heard oral evidence from Mr Nicholas Paice, the managing director of the Appellant.  Mr Paice described himself as the controller of the Appellant company, which traded in the retailing of modular DIY conservatories and garden buildings.  The company was incorporated on 21 June 2004 and was registered for VAT with effect from 26 July 2004.  Prior to this, Mr Paice had operated an identical business, Click4Web Limited, from the same premises and had traded in that capacity for some three and a half years.  During its final year of trading, for reasons which we were not told, Click4Web became insolvent.  On its liquidation, it owed £200,000, its principle creditor being the Inland Revenue, but Customs and Excise also proving in the liquidation.
3.	With knowledge of the approaching insolvency, Mr Paice formed the Appellant company, his intention, he told us, being that the Appellant, which he described as a “phoenix” company, would, on the day Click4Web went into liquidation, rise and continue to trade without disruption.  Mr Paice told us that he had a choice.  He could either allow Click4Web to become compulsorily wound up at no cost or he could pursue a voluntary liquidation.  On advice and in order to achieve his aim of continuing to trade, he adopted the latter course of action but he still needed to ensure the stock, lease and other assets of Click4Web were not sold off elsewhere but were transferred to the Appellant.  For this he needed what he described as a “sympathetic” insolvency practitioner.  Mr Puzey suggested that by this, he really meant a “tame” practitioner, a description which Mr Paice readily accepted.  Mr Paice instructed Hamiltons.  He described himself as instructing them solely in his capacity as a director of the Appellant although Mr Ferrington, in his closing submission, described Mr Paice as having instructed them in his dual capacity as a director of both companies.  Mr Paice succeeded in his aim and all the assets, the trading style and internet website of Click4Web were sold to the Appellant for £14,000.  
4.	Hamiltons raised a pro-forma invoice on 4 August 2004 and it was paid by the Appellant company by way of four post dated cheques at weekly intervals from 11 August 2004, the cheques being numbered 100024 to 100027.  A formal invoice was, for some reason, not issued until 19 January 2005 but it was in identical form.  Mr Paice maintained throughout that despite its stated content, the invoice was not confined to the statement of affairs and creditors meeting for Click4Web but covered continuing services to the Appellant, including advice on employment matters.  The official date of the liquidation of Click4Web was 3 September 2004 when, Mr Paice maintained, the Appellant company began to trade.  
5.	In cross examination, Mr Puzey produced to Mr Paice a number of invoices addressed to the Appellant company and also a number of completed customer order forms to the Appellant, all dated June, July and August 2004.  Mr Puzey’s suggestion was that these proved the Appellant was trading some time before the liquidation of Click4Web, a fact which Mr Paice continued to deny although he eventually conceded the Appellant was during this period “running up to becoming a trading company”.  This would involve ordering further stock and registering the company with trading organisations.  
Submissions
6.	It was Mr Ferrington’s submission that Hamiltons were instructed by Mr Paice to deal with the voluntary liquidation of Click4Web for the only purpose of enabling the formation of a phoenix company, the Appellant.  Without the creditors meeting, the new company could not have been formed, nor could it trade.
7.	Mr Ferrington relied on the case of Customs and Excise Commissioners v Redrow Group plc (1999) STC 161 HL.  Mr Ferrington argued that, in Redrow, the Court posed four questions for a person claiming to deduct input VAT, namely:
(i)	Did that person instruct the supplier to do something?
(ii)	Was something done for or obtained by that person?
(iii)	Did that person use that something in the course of furtherance of its business?
(iv)	Did that person pay consideration for the something which included VAT?
8.	Mr Ferrington argued that all four questions were answered in the positive and the Appellant had therefore to be allowed to treat the VAT which was paid as its own input VAT.  It was the Appellant company which had instructed Hamiltons and had paid for Hamiltons’ services.  The services were provided to the Appellant because it was through these services that the Appellant was able to trade.  
9.	Mr Puzey maintained, to the contrary, that the insolvency services were not supplied to the Appellant but to Click4Web and further that all the evidence showed that the Appellant company had been trading before Click4Web’s insolvency and it could not therefore be said that it was the liquidation of Click4Web which enabled the Appellant to begin to trade.
Conclusions
10.	Section 24(1) of the VAT Act 1994 defines input tax in relation to a taxable person as “VAT on the supply to him of any goods or services … being (in each case) goods or services to be used for the purpose of business carried on or to be carried on by him”.  Redrow provides guidance on how to identify the recipient of a supply of services, where the services are supplied to more than one person.  It does nothing to dilute Section 24(1) and the Appellant can only recover the input tax on Hamiltons’ invoice if Hamiltons services fall within the statutory definition.
11.	If we ask ourselves Mr Ferrington’s four questions, we come to somewhat different conclusions.
(i)	Who instructed Hamiltons?  Mr Paice instructed Hamiltons but in what capacity is debatable.  He was a director of both companies but the only service which Hamiltons could carry out for him was to manage the liquidation of Click4Web.  In our view, therefore, Mr Paice was acting on behalf of Click4Web when he instructed Hamiltons and not the Appellant. 
(ii)	Was something done for or obtained by the Appellant?  To answer this, resort must be had to the description of Hamiltons’ services.  They are described in the invoice as being to deal with the creditors meeting and the statement of affairs.  Those services quite simply were in relation to Click4Web.  The manner of the liquidation may have enabled the Appellant to acquire Click4Web’s assets but that does not mean that Hamiltons provided any service to the Appellant.
(iii)	Did the Appellant use any service of Hamiltons in the course or furtherance of its business?  Again, no.  The insolvency services were not used by the Appellant.  The Appellant gained an indirect benefit but the services were no part of the Appellant’s economic or trading activities.
(iv)	Did the Appellant provide consideration?  We accept the Appellant paid for Hamiltons services but the fees were not incurred for the purpose of the Appellant’s business.  The fees were incurred to allow Click4Web to be put into voluntary liquidation.  We should also say at this stage that we do not accept Mr Ferrington’s submission that the fees were incurred to enable the Appellant to begin trading.  The Appellant had quite clearly been trading for several months before the liquidation.  
12.	The reality of what happened here is that Mr Paice put his former company into liquidation in such a manner as to enable his new company to acquire its assets and carry on trading but having left behind his former company’s debts.  The part played by Hamiltons in this exercise was to manage the liquidation on behalf of Click4Web.  Their duty was to the creditors of the insolvent company and it cannot possibly be the case that, in this capacity, they provided any service to the mere purchaser of the assets.  
13.	For these reasons the appeal is dismissed.  Mr Puzey made no application as to costs and we make no order.

LADY MITTING
CHAIRMAN
Release Date: 10 October 2005
MAN/04/0791