20187

REGISTRATION – transfer of going concern – seller registered and trading above the registration limit – Appellant immediately registrable – Customs finally registered the Appellant 4 years and 8 months later – whether registration correct in law – yes – penalty mitigated to nil

LONDON TRIBUNAL CENTRE

	SYED ZUBAIR AHMED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	DR JOHN F AVERY JONES CBE (Chairman)
					JOHN ROBINSON

Sitting in public in Birmingham on 25 May 2007

M A Anwar, accountant, for the Appellant

Pauline Crinnion, Senior Officer of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	Mr Syed Zubair Ahmed appeals against a decision letter of 1 November 2005 that he was required to be registered from 30 April 2001, and a late registration penalty of 15 per cent notified on 7 February 2006.  The Appellant was represented by Mr M A Anwar, and Customs by Mrs Pauline Crinnion.
2.	We had a bundle of documents and we heard evidence from officers Ms Katheryn Kelly and Mrs Sharon Hancox.  We find the following facts:
(1)	The Appellant acquired a business as a hot food takeaway at 12 Ryehill Court, Northampton trading as Duston Balti Tandoori Express as a going concern from Mr S U Rahman on 30 April 2001.  Mr Rahman was VAT registered.  His turnover in he last year was £58,081; the registration limit was then £54,000.  He notified Customs of the transfer of the business as a gong concern on 30 April 2001, giving his home address as the contact address, and the Appellant’s name and the trading address and telephone number, and applied for deregistration.  
(2)	A letter was sent by Customs to “The Proprietor, 185 Drayton Walk, Northampton…,” which is Mr Rahman’s home address, on 19 October 2001 referring to a VAT registration form issued on 21 September 2001 and asking if he was registered of considered that he was not liable to be registered.  There is no evidence about the form being issued on 21 September 2001 but this is normal practice after receipt of notice of a transfer as a going concern.  We find that such form was also issued to the wrong address.  A further reminder was sent to the same wrong address on 7 June 2002.
(3)	A letter was sent by the Joint Shadow Economy Team in Coventry to “The New Proprietor of 12 Rye Hill Court” on 3 October 2002, which is the Appellant’s trading address.  The letter stated “Please note that as the business was previously VAT registered with a turnover in excess of the VAT turnover registration threshold, you are required to be VAT registered from the commencement of trade.”  The letter asked for details of the registration if he was registered, and enclosed a registration form if he was not.  According to Mr Anwar’s (the Appellant’s accountant’s) letter of 10 November 2005 no communication had been received from Customs informing him of the need to register and so he claimed that this letter was not received by the Appellant.  We would have liked to have heard from the Appellant himself about this but he did not give evidence.  Accordingly we make no finding about whether this letter was received.
(4)	An officer made an entry on a progress sheet in the Appellant’s records on 6 November 2003:
“Attended address [unstated] with A Mitchell.  Neighbours suggested 1800 hours & after would be best.  Exam of papers in folder suggests TOGC from VRN→nonregistered tdr ie Drayton Walk to this address.  Name Duston Balti Tandori still above door.  This was name of previous regn.  Previous prop=Shazzard Ur Rahman & new prop on VAT902=S Z Ahmed.  Card left.”  
We accept Ms Kelly’s evidence that this would be a card saying that Customs had called and asking for the recipient to ring them on the number on the card.  From the reference to the name above the door we find that they left the card at the trading premises.  No response was made.
(5)	A further letter was sent from the Joint Shadow Economy Team, Coventry on 24 August 2004 to “Duston Balti Takeaway, 185 Drayton Walk, Kingsthorpe, Northampton…,” the usual wrong address.
(6)	On 29 June 2005 another officer wrote in the same progress sheet “This is the wrong address—NOT 165 Drayton Walk (where previous owner probably lived.  The premises are at 12 Rye Hill Court…  New Owner should be S Z Ahmed.  Changed details on Master spreadsheet…”.    This suggests that either this officer had gone to the usual wrong address or he had noticed that the 24 August 2004 letter had been sent to the wrong address.  The reference to changing the Master spreadsheet suggests that until that date the details of the Appellant held by Customs were wrong, which is consistent with the constant use of the wrong address.  
(7)	Officer Mitchell, who did not give evidence and Mrs Crinnion explained had retired on the grounds of ill health, made a note in the progress sheet of a visit to the correct address with officer Catherine Walker on 16 September 2005 at which details of the type of business, the number of staff and turnover were recorded.
(8)	On 27 October 2005 Ms Kelly gave a receipt for the weekly takings sheets from April 2003 to October 2005 which she collected from Mr A Anwar.  As a result, on 1 November 2005 she wrote the decision letter.
(9)	Mr Anwar wrote back on 10 November 2005 saying that the Appellant stated that he acquired the business from Mr Rahman with the specific understanding that the business was not VAT registered, and that the business had been under the registration threshold since its acquisition.  Although the Appellant did not give evidence to us we accept that he was under the impression that the business had not been VAT registered.  Mr Anwar’s letter indicates that Mr Anwar was aware of the need to register if Mr Rahman had been registered, and so not registering is consistent with the belief that Mr Rahman had not been registered.  Ms Kelly replied saying that Mr Rahman was registered and his turnover had exceeded the limit.  This letter enclosed a registration application form and stated that once registered the Appellant could apply for deregistration.  Not having received any reply she completed the registration form herself on 30 December 2005.  The Appellant was informed of registration on 7 February 2006.  Mr Anwar wrote on 27 February saying that he did not accept the decision to register and asking for a review.  Mrs Hancox reviewed the decision and upheld it on 11 May 2006, following which Mr Anwar appealed on the Appellant’s behalf on 31 May 2006.  
(10)	The notice of appeal completed by Mr Anwar also states that officers had visited the premises on two or three occasions and conducted a thorough of the business records and had informed the Appellant that he did not need to register for VAT.  Customs’ statement of case states that apart from the visit in 2003 when the records were not examined there were no visits until September 2005.  In the absence of evidence from the Appellant we make no finding that there were any such visits, although we consider it possible that Customs did investigate the Appellant as an unregistered business without the record of it being matched up with the other records of the Appellant (or Mr Rahman), not least because of their constant use of the wrong address, which we know from the 29 September 2005 notebook entry was not corrected on the master spreadsheet until then.
(11)	A penalty of 15 per cent of the unquantified tax liability from 30 April 2001 to 23 November 2005 was issued on 7 February 2006.
3.	Mr Anwar, the son of Mr A Anwar whose correspondence with Customs has been summarised above, who told us that the had taken over the practice on his father’s death, drew attention to many unsatisfactory features of the case but did not put forward any serious argument against registration.  Indeed at the hearing he still seemed unable to understand the reason why Customs were trying to register a business that had traded below the registration limits since acquisition.
4.	Mrs Crinnion referred to paragraph 1(2) of Schedule 1 to the Value Added Tax Act 1994, which at the relevant time read:
“(2) Where a business carried on by a taxable person is transferred to another person as a going concern and the transferee is not registered under this Act at the time of the transfer, then, subject to sub-paragraphs (3) to (7) below, 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 ending at the time of the transfer has exceeded £54,000; or
(b) there are reasonable grounds for believing that the value of his taxable supplies in the period of 30 days beginning at the time of the transfer will exceed £54,000.”
This should be read with s 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;…”
Accordingly she contended that because Mr Rahman was registered and above the registration limits the Appellant was immediately registrable.  She left the question of any mitigation of the penalty to the Tribunal, and seemed embarrassed that she was not receiving instructions to drop it.
5.	Mrs Crinnion is clearly right about registration.  The Appellant was registrable from 30 April 2001 on the ground that Mr Rahman was registered and trading above the registration limits up to the transfer as a going concern.
6.	That is the limit of our jurisdiction but we feel that we must add a comment.  Mr Rahman correctly informed Customs of the transfer as a going concern on the day it took place, 30 April 2001.  Since Customs knew that he had been trading above the registration limits, the one certainty was that the Appellant, for whom Customs had been given the correct address and telephone number, was registrable from that date.  One might have expected that Customs would do something about making sure that the Appellant registered immediately (or obtaining confirmation that he was already registered), such as telephoning him or making a visit with a registration form so that the position could be explained.  What they did was to send a registration form to the wrong address on 21 September 2001 (5 months later), and reminders to the same wrong address on 19 October 2001 and 7 June 2002 (13 months later).  The first communication to the right address was on 3 October 2002, nearly 18 months after the transfer, which the Appellant says he did not receive, about which we were unable to make any finding.  In spite of there being no reply to that letter, nothing happened for another year when the first visit to the right address was made on 6 November 2003 (2½ years after the transfer) at which a card was left.  In spite of there being no response, the next action was a reminder sent 9 months later to the usual wrong address on 24 August 2004, followed 10 months later by either a visit by an officer to the usual wrong address on 29 June 2005 or a realisation by the officer that they had been writing to the wrong address.  The first face-to-face meeting was on 16 September 2005 (4½ years after the transfer).  The registration form was finally completed by Customs on 30 December 2005 (4 years and 8 months after Customs knew that the Appellant was registrable).  We express the hope that Customs will examine their conduct of this matter before trying to collect tax from the Appellant going back to 2001 (and if the result is not satisfactory to the Appellant he can contact the Adjudicator, The Adjudicator's Office, 6th Floor, Haymarket House, 28 Haymarket, London SW1Y 4SP. telephone: 020 7930 2292).  If Customs had registered the Appellant immediately he would have been in a position to discuss de-registration, which has been denied to him.  We make no criticism of the officers who gave evidence to us, who seem to have been involved first in 2005 and 2006.
7.	So far as the penalty is concerned, we have power to mitigate the penalty to such amount (including nil) as we think proper (s 70(1)).  Having accepted that the Appellant was under the impression that Mr Rahman had not been registered, we consider that the lateness of the registration is almost entirely Customs’ fault in failing to communicate with the Appellant, and failing to follow up such communications as they did make.  We mitigate the penalty to nil.
8.	Accordingly we dismiss the appeal against registration and allow the appeal against the late notification penalty.

JOHN F AVERY JONES

CHAIRMAN
RELEASE DATE: 5 June 2007

LON/06/611