19778

VAT – DATE OF REGISTRATION – TRANSFER OF GOING CONCERN – Appellant took out a lease for ten years in respect of a private members club – the Appellant was not the purchaser of the club – the previous business ceased trading on 4 November 2004 with the Appellant re-opening for business on 5 November 2004 – satisfied no break in trading and no fundamental change in the nature of the business – the Appellant was put in possession of a going concern – Appeal dismissed. 

MANCHESTER TRIBUNAL CENTRE

	MPH LEISURE LIMITED         	Appellant

	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal:	MICHAEL TILDESLEY OBE (Chairman)
					JOHN DAVISON                        (Member)

Sitting in public in North Shields on  2 August 2006

Peter James Carragher, company director for the Appellant

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

© CROWN COPYRIGHT 2006

DECISION
The Appeal
1.	The Appellant was appealing against:
(1)	The Respondents’ decision to register the Appellant company with effect from 5 November 2004.
(2)	An assessment for VAT in the sum of £7,800 for the period 5 November 2004 to 31 January 2005.
The Dispute
2.	The Appellant carried on business as a private members’ licensed club from premises at 104 Lord Street, Redcar, Cleveland.
3.	 The issue in dispute was whether the private members’ licensed club had been transferred to the Appellant as a going concern. If we find that the business was transferred as a going concern, the Appellant’s VAT registration would take effect from 5 November 2004 with the result that the Appellant would be liable to pay the assessment of £7,800. If, however, the business was not transferred as a going concern the Appellant would be registered for VAT from 1 February 2005 with no liability to pay the outstanding VAT.
The Facts
4.	Mr Carragher, the director of the Appellant company gave evidence on its behalf. We received a bundle of documents in evidence.
5.	On 4 November 2004 Mr and Mrs Iredale sold the private members’ club, known as Val’s Priory Club at 104 Lord Street, Redcar to Easington Greyhound Stadium Limited (hereinafter known as the landlord). The landlord elected to waive exemption from VAT with the result that VAT was included in the purchase price.
6.	Mr and Mrs Iredale were registered for VAT in respect of their business at Val’s Priory Club. Their last VAT return to 4 November 2004 showed that the turnover from the business exceeded the VAT registration limit.
7.	The Appellant believed that it had struck a deal with Mr Iredale to purchase Val’s Priory Club. The Appellant reached a verbal agreement with Mr Iredale to lease the club for 12 months with a view to raising the capital to purchase the club outright at the expiry of the lease. The Appellant was prepared to lodge a £50,000 bond with Mr Iredale to signify the seriousness of its intentions. The Appellant, however, learnt that the landlord was planning to purchase the club which was confirmed by Mr Iredale.  The Appellant decided to put its name forward to the landlord as potential licensees of the club. The  Appellant entered into detailed negotiations with the landlord which we are satisfied took place before the completion of the sale of the club and resulted in the grant of a lease to the Appellant starting on 5 November 2004.
8.	On 5 November 2004 the landlord granted a lease of Val’s Priory Club for a term of ten years to the Appellant. Under the terms of the lease the Appellant was required to conduct and manage the carrying on of the business, which was the retail sale of beers and other products. The landlord supplied the fixtures and fittings for the business. The landlord insisted that the Appellant purchased its supplies of beer, ales, cider, stouts and alco-pops through an agreement with the landlord’s suppliers.
9.	Mr and Mrs Iredale ceased trading on the 4 November 2004. The Appellant re-opened the business the following day, which continued as a private members’ club with a bar downstairs and a bingo area upstairs. The Appellant engaged between eight to ten members of staff previously employed by Mr and Mrs Iredale so as to maintain continuity for the members. The Appellant retained at least 75 per cent of the members who held membership of the club when ran by Mr and Mrs Iredale.   
10.	The Appellant initially used  Mr and Mrs Iredale’s suppliers except for the alcohol supplies tied in with the landlord’s agreement. However, the Appellant soon arranged its own suppliers. The Appellant honoured the bookings made by Mr and  Mrs Iredale but on its own terms and conditions.
11.	The Appellant on taking control of the club changed its name to Redcar Citizens Priory Club. The club had been in existence for 40 years and was known locally as the “Citz”, (shortened version of “Citizens”). The change of name confirmed its identity as known by the local residents. Further the Appellant retained “Priory” which was part of the trading name used by Mr and Mrs Iredale so that taxi drivers would not be misled by the business changing hands.
12.	The Appellant registered the club for VAT on 1 February 2005. In the Application form the Appellant stated that
(1)	The first taxable supply was made on 13 December 2004.
(2)	The business was taken over as a going concern on 5 November 2004.
(3)	The previous owner was stated to be Mrs Iredale and the VAT number was 755 9866 63.
(4)	The taxable supply threshold had been exceeded on 13 December 2004.
(5)	The estimated value of taxable supplies in the next 12 months was £450,000. 
13.	The Appellant’s representative wrote to the Respondents on 31 May 2005 and 16 July 2005 stating that the Appellant had completed the VAT registration form in error. The Appellant mistakenly declared that it was a transfer of a going concern and failed to give the  correct date for registration, which was 1 February 2005.
Reasons for Our Decision
14.	Section 49(1) of the VAT Act 1994 provides that
“ Where a business carried on by a taxable person is transferred to another person as a going concern, then
a)	for the purpose of determining whether the transferee is liable to be registered under this Act he shall be treated as having carried on the business before as well as after the transfer and supplies by the transferor shall be treated accordingly”.
15.	Paragraph 1(2) of schedule 1 of the VAT Act 1994 states that
“Where a business carried on by a taxable person is transferred to another person and the transferee is not registered under this Act at the time of the transfer … the transferee becomes liable to be registered under the Schedule at that time if –
the value of his taxable supplies in the period of one year then ending at the time of the transfer has exceeded £58,000.
16.	Thus the legislation provides that where a business is transferred as a going concern the transferee is liable to be registered from the date of the transfer provided the value of the transferor’s taxable supplies exceeded the registration threshold in the period of one year ending with the date of transfer.
17.	The Appellant contended that it was not a party to a transfer of a business as a going concern. The landlord purchased the business. The Appellant leased the premises from the landlord at a VAT inclusive rent. The Appellant did not acquire any assets of the business sold by Mr and Mrs Iredale.
18.	The Respondents countered by stating that the legislation simply required the business as a going concern to be transferred. There was no requirement in the legislation for the transferee to purchase the business or acquire the assets of the business as necessary pre-requisites for a transfer of a going concern.
19.	The Respondents relied upon the High Court decision in Kenmir Ltd v Frizzell and Others [1968] 1W.L.R. where Widgery J as he then was stated that
“ In deciding whether a transaction amounted to the transfer of a business regard must be had to its substance rather than its form and consideration must be given to the whole of the circumstances, weighing the factors which point to 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 the possession of a going concern the activities of which he would carry on without interruption. Many factors may be relevant to this decision though few will be conclusive in themselves. Thus, if the new employer carries on business in the same manner as before this will point to the existence of a transfer, but the converse is not necessarily true because a transfer may be complete even though the transferee does not choose to avail himself of all the rights which he acquires thereunder. Similarly, an express assignment of goodwill is strong evidence of a transfer of the business but the absence of such an assignment is not conclusive if the transferee has effectively deprived himself of the power to compete. The absence of an assignment of premises, stock-in-trade or outstanding contracts will likewise not be conclusive if the particular circumstances of the transferee enables him to carry on substantially the same business as before”. 
20.	Although Kenmir concerned employment law, the dictum of Widgery J that “the  effect of the transaction was to put the transferee in the possession of a going concern of which he would carry on without interruption”  has been applied by the courts and tribunals to determine transfer of going concern disputes in VAT cases.
21.	The Respondents referred to two VAT and Duties Tribunal decisions which had applied the dictum of Widgery J in cases which involved the transfer of a public house business. In Donald McPherson T/A Comet Bar (1993) (Decision Number 10427) and Melvin Nathaniel Fox T/A the Cavendish Hotel (2003) (Decision Number 18441) the companies owning the public houses had installed new tenants to run the businesses. In each case there had been no formal transfer of the business from the outgoing tenant to the new tenant. Further the new tenant had not purchased the assets including the goodwill of the business. The Tribunal in each of the cases considered the facts and decided that the new tenant was carrying on the same business as the previous tenant and as such was put in possession of a going concern.
22.	We also consider that the VAT and Tribunal decision in Chevenings Ltd (1990) (Decision Number 6171) was relevant to the facts of this Appeal. Chevenings Ltd concerned assets which had been acquired by the transferee from the liquidator of another company, and not, therefore from the company itself. The Tribunal held that
“What Griddlegrove had transferred were a quantity of stock, some fixtures, fittings and equipment, and apparently, a licence to occupy a part of the grading premises. That was not all in one transaction; however I agree with Mr Agathangelou’s contention, that if the whole of a part of a business is transferred as a going concern it does not matter whether the transfer is effected in a single transaction or a number of transactions”.
23.	Thus under the legislation the central issue to be determined in this Appeal was whether the business was transferred as a going concern. There was no requirement under the legislation for the transferee to purchase the business or its assets in order for the transfer to qualify as a transfer of a going concern. The analysis of the case law demonstrated that this issue was one of fact concerned with substance rather than form and in the end the vital consideration was whether the effect of the transaction was to put the transferee in the possession of a going concern.
24.	The facts of this Appeal were not in dispute except whether the Appellant had  mistakenly completed the VAT registration form. The Appellant accepted that Mr and Mrs Iredale had carried on the business of a private members’ club. When they ceased trading on 4 November 2004, the Appellant re-opened the business the following day trading as a private members’ club. The Appellant continued to run the business as performed by Mr and Mrs Iredale by selling  alcohol and organising events, such as bingo sessions in the function room upstairs The Appellant served virtually the same customers who attended the club prior to the 5 November 2004, using members of staff who had been in the employ of Mr and Mrs Iredale. The facts that the Appellant may have served different beers from Mr and Mrs Iredale and traded under a new name did not alter the essential nature of the business run by the Appellant, namely, a private members’ club. We are satisfied that there was no break in trading and no fundamental change in the business from Mr and Mrs Iredale to the Appellant. 
25.	The Appellant contended that despite running essentially the same business as Mr and Mrs Iredale it did not amount to a transfer of a going concern because it was not a party to the sale and purchase of the business, and that it acquired the business as a third party. We accept that the Appellant was not a direct party to the sale and purchase of Val’s Priory Club. However, the Appellant’s evidence of approaches to Mr Iredale and the landlord and that a deal regarding the lease was struck with the landlord prior to the cessation of trading by Mr and Mrs Ireldale demonstrated that the parties to the sale and purchase intended for the Appellant to take over the business as a going concern without interruption.
26.	 The Appellant stated that it made a mistake in describing the transfer as a going concern in the VAT registration form. However, the Appellant only arrived at that conclusion after receiving the Respondents’ notification that the business was to be registered from the 5 November 2004. We are satisfied that the Appellant at the time of completing the VAT registration form believed that it was taking on a business as going concern, from which we infer that the Appellant had an expectation that it was taking over a going concern. 
27.	The question that we are required to determine is whether the Appellant was put in a possession of a business as a going concern, the activities of which he could carry on without interruption. We are satisfied that our finding of fact that there was no break in trading and no fundamental change in the business from Mr and Mrs Iredale to the Appellant was determinative of the disputed issue in this Appeal. That finding of fact outweighed the matters put forward by the Appellant. The change in trading name and different beers sold did not alter the essential nature of the business as a private members’ club. The relevance of the Appellant not being a direct party to the sale and purchase of the business was muted by our finding that the parties intended for the Appellant to take on the business as a going concern.. Moreover, the legislation and case law did not prescribe a method for transferring a going concern and that it was not necessary for a transfer to be effected in a single transaction. We also attach weight to our finding that the Appellant had an expectation of taking over a going concern. 
28.	The Appellant did not dispute that Val’s Priory Club was registered for VAT and that its value of supplies in the 12 months ending on the date of transfer exceeded the VAT registration threshold.
29.	We hold that the Appellant was put in possession of a business as a going concern, the activities of which it could carry on without interruption. We, therefore, dismiss the Appeal and uphold the Respondents’ decision to register the Appellant’s business from  5 November 2004 and their assessment in the sum of £7,800.
30.	We make no order for costs.
MICHAEL TYLDESLEY  OBE
CHAIRMAN
		                                   Release Date: 19 September 2006

MAN/2005/0891