20176
TRANSFER OF GOING CONCERN — provision to golf club of inhouse catering on cessation by previous provider — no formal agreement between outgoing provider and new provider — whether a transfer of business — yes — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
MR D & MRS K L HARPER trading as
					TEE TIME CATERING	Appellants

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: Lady Mitting
							 John D Kippest		
					
Sitting in public in Birmingham on Monday 23 April 2007

Russell Mason, accountant, for the Appellants 
 
James Puzey, general counsel and solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	Mr and Mrs Harper appeal against a decision of the Commissioners, as set out in their letter of 15 February 2006, that they had taken over a going concern and should thus be registered for VAT from the date of transfer.  The Harpers were compulsorily registered with effect from 10 October 2005, this decision being upheld on a local reconsideration by letter dated 3 May 2006.

2.	No oral evidence was called on behalf of Mr and Mrs Harper who did not attend the tribunal but were represented by their accountant, Mr Russell Mason.  On behalf of the Commissioners, we heard oral evidence from Mr Gary Treece who had made the original decision.

The Evidence
3.	On 10 October 2005, Mr and Mrs Harper began trading as “Tee Time Catering” at Stanton-on-the-Wolds Golf Club (“the Club”).  They did so pursuant to an agreement with the Club to provide a catering service to the Club.  Prior to the Harpers setting up business, the Club had contracted out the provision of catering, under an identical agreement, to a Mr and Mrs Whitt, who had traded as “Clubhouse Catering”.  Mr and Mrs Whitt had registered for VAT with effect from 1 April 2003 and had deregistered when they ceased trading on 7 October 2005.  Their application to deregister stated that they had transferred the business as a going concern to Mr David Harper.   Mr and Mrs Whitt had been the first inhouse caterers used by the Club and it would seem that they had allowed the business to run down as the value of stock on deregistration was only £149. 

4.	The contract which the Club had with Mr and Mrs Harper, and had had earlier with the Whitts, was for the provision of a full catering service.  The Harpers were responsible for staffing, provisioning, health & safety, and laundering.  The premises from which they operated were, of course, owned and provided by the Club and the Club also provided a fully equipped kitchen, cold room, crockery, cutlery, restaurant furniture and all other equipment necessary for the catering operation to be carried on.  The Harpers however were responsible for keeping the premises and the equipment clean and well maintained.  The Harpers could set their own prices for their catering, subject to agreement with the Club.  The agreement also provided at (e) that Mr and Mrs Harper would register for VAT when their sales reached the threshold.

5.	Mr Treece made an unannounced visit to the Club on 7 February 2006.  He had seen the Whitts’ application to deregister and the purpose of his visit was to establish from Mr and Mrs Harper whether or not a catering business was still being carried on on the premises.  He met Mr Harper who confirmed he was trading in partnership with his wife.  He said he had not registered because his accountant had advised him he need not until he reached the threshold.  Mr Treece asked whether there had been any break in trading between the Whitts’ departure and the Harpers’ commencement and whether the business had changed since the Harpers took over.  Mr Harper made no reference to any break in trading but said he was going to start serving Sunday lunches with the approach of the new golf season.  Mr Treece also spoke to Mr Pell, the Club treasurer.  He told Mr Treece that he was becoming frustrated by the Harpers’ refusal to register for VAT as it was costing the club money in terms of lost input tax. 

6.	Mr Treece formed the view that there had been a transfer of a going concern and that Mr and Mrs Harper should be registered.  Representations were made on behalf of the Harpers by Mr Mason to the effect that the Harpers had purchased nothing from the Witts but had merely set up their own business utilising equipment provided by the Club on a site where a previous VAT registered business had been carried on but had ceased.  Further, Mr Witt had been incorrect in saying the business had been transferred and the Harpers should not be penalised for Mr Witt’s error.  Despite these representations, Mr Treece remained of the view that there had  been a transfer of a going concern and accordingly the Harpers were compulsorily registered, a decision which was later upheld on reconsideration.  

7.	Mr Mason told us that he had been contacted by the Harpers in September 2005.  They told him that they were seeking a tenancy at a golf club offering catering services and they were thus setting up a new business.  Mr Harper was currently head chef at a local restaurant and his wife had her own full time professional career.  It would be Mrs Harper who provided the business brains and Mr Harper the catering skills.  The Harpers had entered into an agreement with the Club but had had no discussions or negotiations with the outgoing tenants.  Mr and Mrs Harper merely entered into an agreement with the Club.  There was no transfer of stock from the outgoing tenants, no transfer of assets, no transfer of goodwill, no transfer of books or accounting records, no transfer of supply agreements and the trading name was altered.  Mr Mason believed that the Harpers had never met the Whitts and they were not aware that they had been registered for VAT.  They had not even seen the Whitts’ trading records.  Mr Harper took on new staff and, as he had his own contacts in the catering trade, he entered into supply agreements with new providers, not adopting the ones previously used by Mr and Mrs Whitt.

8.	It had been Mr Mason’s advice to the Harpers that there was no transfer of a business and that the Harpers need not register until they reached the current threshold.  This view was substantiated by an enquiry which he made to the Commissioners’ helpline on 11 November 2005.  The Commissioners’ note of the call reads that Mr Mason had said that his client was doing catering in a golf club, there had been a previous company doing this before he began.  When asked if the client had taken over a business, Mr Mason replied “No” and the officer had advised that there could be no transfer of a going concern if there had not been a transfer of anything. 

9.	Mr Mason made a further call to the enquiry line on 9 May 2006.  The Commissioners had no record of this call but Mr Mason supplied his own note of the conversation which read to the effect that Mr Mason was again advised that as no assets or business had been transferred, then the TOGC provisions could not apply.  Mr Mason was apparently advised that nothing had been transferred and the mere cessation and moving out of the old business with a new business starting afresh did not bring these provisions into being.

Legislation
10.	The relevant legislation can be found in Section 49(1) Value Added Tax Act 1994 and Schedule 1, paragraph 1(2) of the same Act.

	“49(1) 	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.

	Schedule 1, para 1(2) of the VAT Act 1994 states:

(1)	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 this Schedule at that time if:-

(a)	the value of his taxable supplies in the period of one year then ending at the time of the transfer has exceeded (relevant VAT threshold)”.

Case Law
11.	We were referred by the parties to the following cases:

	Kenmir Limited v Frizzell [1968] 1 ALL ER 414
	G A and P Andrews v Commissioners of Customs and Excise (13310)
	MN Fox v Commissioners of Customs and Excise (MAN/02/0664)
	D McPherson trading as Comet Bar v Commissioners of Customs and Excise (10427)
	A T Harber v Commissioners of Customs and Excise (12979)
	Kwik Save Group Plc v Commissioners of Customs and Excise (12749)

12.	It was Mr Mason’s submission that there had been no transfer of a business.  The Whitts had ceased trading and Mr and Mrs Harper had commenced trading in the same premises but that was all.  There had been no transfer between the Whitts and the Harpers.  The Harpers’ contract was with the Club to which they paid £100 per month for the use of the kitchen and they had received nothing from the previous traders and had made no payment to them.  The Whitts had sold nothing and transferred nothing to the Harpers.  The Harpers had commenced their own entirely new business with its own name, new staff and new suppliers.  Additionally, the Harpers had at all time acted in good faith, relying on advice from the Customs helpline.

13.	Mr Mason referred us to the Kwik Save case.  This case concerned the VAT (Special Provisions) Order 1981, Article 12(1) and the chairman, in his judgment said: 

	“Article 12(1) is clearly drafted on the basis that the supplier of the assets and the transferor of the business are the same person.  In that instant case, therefore, since the Appellant supplied the assets of the Tates food stores to Tates, Article 12 cannot apply unless the appellant also transferred the business of the Tates food stores to Tates.”

14.	Mr Puzey contended that the absence of any transfer from the Whitts to the Harpers of goodwill, assets or supply contracts was immaterial if the effect of what happened was that the Harpers were carrying on substantially the same business as the Witts had been carrying on before them.  There did not have to be one single transaction  of transfer between the Witts and the Harpers.  There could just as easily be a transfer where, as in this case, there were two separate transactions, namely the Witts surrendering their agreement to the Club and the Club granting a new agreement to the Harpers.  

15.	Mr Puzey referred us to a number of tribunal cases, all of which concerned in some form or other the transfer of the tenancies of a public house.  In each case, an outgoing tenant had surrendered his tenancy to either a landlord or to a freehold owner and they in turn had granted a new tenancy to the ingoing tenant.  In each case, the tribunal had found that there was a transfer of a going concern.  There were distinctions between these cases and Mr and Mrs Harpers’ case which were pointed out by Mr Mason.  Specifically, in the public house cases, the trading name had been taken on and maintained by the new tenant and in Fox and Andrews there had been payments from the ingoing tenants to the outgoing tenants for stock.  

Conclusions
16.	The test repeatedly applied by the tribunals in cases such as this is that laid down by Widgery J (as he then was) in Kenmir v Frizell at page 164:

	“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 in one direction against those which point in another.  In the end the vital consideration is whether the effect of the transaction was to put transferee in possession of a going concern the activities of which he could 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 chose to avail himself of all the rights which he aquires 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 nevertheless enable him to carry on substantially the same business as before.”

17.	The substance of what happened here is that Mr and Mrs Whitt, pursuant to an agreement with the Club, carried on business as inhouse caterers to the Club.  This was a going concern until they ceased trading on Friday 7 October 2005.  On Monday 10 October, pursuant to an identical agreement with the Club, Mr and Mrs Harper carried on the very same business of inhouse caterers.  They operated from the same premises, using the same facilities and the same equipment and subject to the same liabilities to the Club.  There was no break in trading of any significance and the only difference in trading of which we were told is that the following spring, Mr Harper began to serve Sunday lunch.  The appointment of new staff and new suppliers by Mr Harper was a matter of personal preference and in no way detracts from what was transferred to him.  The fact that the business came to Mr and Mrs Harper via the Club rather than direct from the Whitts does not alter what they acquired.  There is no statutory requirement that there has to be only one single transaction to effect the transfer and equally there is no statutory requirement that there has to be consideration passing from the transferee to the transferor.  The effect of what took place between the Whitts, the Club and the Harpers was to put the Harpers in possession of the business previously carried on as a going concern by the Whitts, the activities of which said business, the Harpers could and did carry on without interruption.
  
18.	The fundamental difference between this case and the public house cases is that the Harpers changed the trading name and as Mr Mason would argue, there was a consequential absence of any transfer of good will.  However, this has to be seen in the context of the business being carried on and in relation to this business, we think that to be virtually meaningless.  The Whitts and the Harpers were not in competition with other providers for the business of the general public to whom a name would probably mean a lot.  They were providing inhouse catering to the closed membership of the golf club and presumably their guests.  They were not competing for clientele.  The Harpers, in effect, inherited the exact same clientele which the Whitts had served.  We were not told whether the Club opened its catering facilities to outsiders but even if it did, we assume this would be such a small percentage of its trade as to be insignificant.  The Harpers were in post to provide a service, exactly as the Whitts had been, to the members of the club and to them the change in name would be immaterial.  

19.	We do not believe the Kwik Save case has any bearing here.  Article 12(1) provided that there should be treated as neither a supply of goods nor a supply of services, the supply by a person of the assets of his business to a person to whom he transferred his business as a going concern.  The point in issue there was whether or not there was such a supply and, as the Chairman stated, the Article was drafted on the basis that the supplier of the assets and the transferor of the business were one and the same.  We are not considering whether or not the transactions here constituted a supply but whether or not those transactions constituted the transfer of a business as a going concern.

20.	For all these reasons, we uphold the Commissioners’ decision that there was a transfer of a going concern and as such the Commissioners were correct in registering the Appellants with effect from 10 October 2005.  The appeal is therefore dismissed.  The Commissioners made no application for costs and we make no order.  

LADY MITTING
CHAIRMAN
Release Date: 30 May 2007
MAN/06/0363