18891
	
	REGISTRATION  — transfer of going concern — level of turnover — test to be applied by the Commissioners — appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

 
 	
	TARIQ MALIK	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Lady Mitting (Chairman)
						 Mr J T B Strangward (Member)	

Sitting in public in Birmingham on 24 November 2004

The Appellant appeared in person

Mr James Puzey of counsel appeared for the Respondents 

	© CROWN COPYRIGHT 2004

DECISION

1.	The decision under appeal is that of the Commissioners, notified on 9 January 1998, to register the Appellant compulsorily with effect from 31 July 1994.
2.	This was the third time which this case had been listed for hearing in the last three years, the previous two hearings being postponed at the request of the Appellant.  At the outset of the hearing, when we were explaining the procedure to the Appellant, he mentioned in passing that he was to have been accompanied by someone but that that person, for reasons which he did not explain, was unable to attend.  He did not tell us the identity of the person or his status or the capacity in which he was to have been there.  Mr Malik gave no indication that he was in any way unprepared, no request for an adjournment was made and he merely commented that he would be dealing with the case himself.  We make this point because, as the case progressed and Mr Puzey asked him why he had not produced evidence of assertions which he was to make, his reply on several occasions was that had his accountant been there, he would have produced whatever evidence was needed.  Given that this case has now been pending for a number of years and the Appellant has been in possession of the Commissioners’ bundle of documents for at least a couple of years, we see no reason whatsoever for evidence to be produced on the day of the hearing.  Whatever documentary evidence Mr Malik has should have been produced long ago.
3.	Mr Malik gave oral evidence and we also heard oral evidence, on behalf of the Commissioners, from Miss Jane Hyde and Mr Kevin Gilligan.  
The Evidence
4.	In 1994/95, the Commissioners undertook an exercise looking at private car hire firms.  As part of this exercise, on 13 June 1994, officers visited a firm called Amber Cars.  At the time Amber Cars was owned and operated by a Mr Kashmir Singh who was VAT registered and had filed regular returns.  The officers looked at the previous four returns for the period 7/93, 10/93, 1/94 and 4/94.  Certain errors and discrepancies were found and an assessment and subsequently an amended assessment was raised to correct these discrepancies.  Mr Singh was still trading on the 13 June and the officers were able to establish, in interview, that his business included the renting out of radios, contract work and Mr Singh did some of his own driving.  
5.	Mr Singh de-registered for VAT, on his own application, on 30 June 1994.  His final return for April to July 1994 was filed as a nil return which the Commissioners knew to be incorrect as they had observed him trading on the 13 June 1994.  
6.	On 30 July 1994, Mr Singh transferred his business, as a going concern, to Mr Malik.  The date of the transfer and that it was a transfer as a going concern was evidenced by a letter from Mr Singh’s accountant to the Debt Management Unit dated 25 August 1994.  That letter did not give the identity of the purchaser.  Mr Malik did not notify his liability to be registered.  
7.	On the 6 December 1995, Mr Gilligan, accompanied by a Mr C Butler, made an unannounced visit to the business premises.  When they arrived, Mr Malik was not there and the officers spoke to a Ms Botts, the telephone and radio operator, and some of the drivers.  Ms Botts’ role was to take bookings, record them and allocate them to specific drivers.  Each driver had a discrete number, referred to as his ‘call sign’.  The individual drivers were self-employed and rented their radios from Mr Malik.  The officers also ascertained that the firm carried out contract work for three hotels and public houses, which involved running their staff home at the end of the day.  Ms Botts told the officers that on these occasions, the customer would sign a receipt for the journey.  As the hotel or public house would pay Mr Malik direct for the services provided, the value of the journey would be deducted from the weekly rent paid by the driver to Mr Malik.
8.	The officers spoke to three drivers namely a Mr Derek Dunhill, Mr Abdul Khaliq and Mr Mohammed Arif.  Mr Dunhill told the officers that full time rent was £45 per week and part time rent £35 per week.  Full time rent was payable if a driver worked in excess of four days.  He said that if rent was more than a couple of days late, the drivers would be taken off the air.  Mr Khaliq was related to Mr Malik.  He said he worked full time but did not pay rent as he was a manager in the business, helping out in the absence of Mr Malik.  Mr Arif worked five days a week and paid the full time rent of £45.  
9.	It is convenient to state here that on 7 December, the officers interviewed another driver, a Mr Cullen, who confirmed that he also was a full time driver paying £45 per week.  He said that anything over three days counted as full time.
10.	Going back to the visit of 6 December, Mr Malik was summoned to the premises whilst the officers were still there and they were able to interview him at some length.  He told the officers that the business was jointly owned with his brother, who was a silent partner with no day to day involvement in the business and that they had purchased the business in around July 1994 for £11,900, the purchase being financed from family loans.  Initially, Mr Malik told the officers that full time rent was £40 per week and part-time rent £20 per week.  Later in the interview, he accepted that full time rent was in fact £45 and that the part time rate was variable, up to £35.  Mr Malik initially stated that he had no other source of income, other than the radio rentals.  He initially denied having any contract work although later accepted having the three contracts already referred to.  He said that they were of similar monetary value, bringing in approximately £25 - £30 per week in total.  He also then said that he received income from car rental on a second business vehicle of between £50 and £100 per week and there was his own personal income from driving of between £30 and £40 per week.  He said he collected rent off all drivers except five family members who worked in the business, either as managers, helping to operate the radio or distributing business cards.  In lieu of their wages, he did not collect rent from them.  Mr Malik said that he had recently suffered a burglary when all his records had been stolen or destroyed, the only record available to the officers being the call logs.  Mr Gilligan uplifted the call logs and carried out an analysis.  He took four miscellaneous weeks, spread throughout the year.  For each week, he calculated the number of drivers that had been used.  Those that worked four days or more, he treated as full time and the others part time (this being the information given to him on the 6 December).  He allotted to each full time driver a rent of £45 and to each part time driver a rent of £35, again using the figures given to him in the interviews.  For the week ending Sunday, 13 November 1994, he calculated a total rental income of £1,085 from 21 full time and four part time drivers.  For the week ending 16 July 1995, the calculated income was £1,445 from 29 full time and four part time drivers.  For the week ending 13 August 1995, the calculated income was £1,310 from 26 full time and four part time drivers.  Finally, for week ending 17 September 1995, he calculated a rental income of £1,385 from 23 full time and 10 part time drivers.  
11.	The only information available to Mr Gilligan was the journey log and the answers given in interview and from this available information, he calculated an average gross weekly radio rental income of £1,306.25.  In addition, there was the car rental income of £50 per week giving a total average weekly income of £1,356.  Projected annual turnover was therefore £70,525.  
12.	On 11 December 1995, Mr Gilligan saw Mr Malik again and went through his analysis and calculations with him.  He told Mr Malik that he was considerably in excess of the VAT registration limit and invited him to register voluntarily.  Although Mr Malik did not specifically challenge any particular aspects of the calculation, he refused to register voluntarily and he was told that he would be compulsorily registered.  He agreed to find out the exact date of the transfer of the business and to advise Mr Gilligan by the 15 December.  This he failed to do and Mr Gilligan issued a certificate of registration on the 9 January 1996.  The effective date of registration was given as 1 July 1994, in the absence of a precise date and the registration was of Mr Malik and his brother in partnership as this was the information which Mr Malik had given to Mr Gilligan.
13.	On the 22 May 1996, the Commissioners issued an assessment to tax in the sum of £12,771 constituting arrears from the effective date of registration.  By letter dated 13 February 1997, Mr Malik’s accountant, Mr Taylor, applied for the assessment to be set aside.  In that letter, he also informed the Commissioners that in fact Amber Cars was not a partnership but a sole proprietorship in the name of Mr Taliq Malik.  This letter also confirmed that Mr Malik did a limited amount of driving himself but his main income was derived from the radio rentals.  Mr Taylor said that he had been trading under the VAT limit since commencement.
14.	On the 16 July 1997, a meeting took place between Mr Malik, Mr Taylor and Miss Hyde.  Miss Hyde was told that Mr Malik knew, on purchase, that Mr Singh had been registered for VAT but had de-registered for reasons unknown.  No VAT had been charged on the sale of the business, which Mr Malik took to be further evidence that Mr Singh was not registerable.  Mr Singh had had a couple of  contracts which had not been taken over by Mr Malik and the three which he did take over had finished soon after transfer.  Mr Malik produced a set of rent books which he claimed he had maintained on a weekly basis and which showed far fewer drivers and a far larger percentage of part time rentals than those calculated by Mr Gilligan.  Mr Malik maintained to Miss Hyde that full time only applied to drivers working in excess of six days; that he made no charge to new drivers for the first two to six weeks and that if any driver did not take in any fares, he was let off paying the rent.  He said that three relatives did not pay rent in return for helping out in the business.  He estimated his own driving at approximately ten hours per week bringing in between £25 and £30.  Miss Hyde pointed out that annual accounts for the year to 30 June 1995 showed an own driving income of £70 per week.  Mr Malik explained that this was because, before the purchase, he had in fact started driving for Mr Singh on 9 July 1994.  The meeting concluded with Miss Hyde requesting sight of the sale agreement.  This has never been produced and all that she subsequently received was a completion statement, undated, not naming the vendor or purchaser and showing a purchase price of £12,000.
15.	Miss Hyde concluded that the registration should be amended as she now had evidence (the accountant’s letter) that the purchase had been on 30 July 1994 and that it was a sole proprietorship and not a partnership.  She did, however, reject Mr Malik’s assertion that he had traded below the registration threshold, commenting in her letter that she found it “totally unrealistic” that drivers were not charged for the first two to six weeks or that a driver who did not take in any fares would not pay rent.
16.	The Commissioners put in evidence an analysis of Mr Singh’s pre-cessation returns.  His declared turnover, as amended and assessed by the Commissioners, produced an annual turnover of £49,836, thus being in excess of the then registration threshold of £45,000.  There was also put in evidence four rent books for the period 1995 to 1998 inclusive.  Miss Hyde was asked about these books which she doubted were genuine.  She thought that they were too neat in appearance, too pristine, the entries were all very similarly written and the driver numbers far too consistent to be credible.  The rent books recorded rents in 1994 and 1995 from no more than 20 drivers of whom getting on for half were only part time and a total rental income considerably beneath the registration threshold.
17.	Mr Malik told us, in evidence, that he knew that Mr Singh had de-registered and saw no reason for himself to register.  With the exception of Miss Hyde, whom he described as helpful, he was highly critical of the attitude of the other officers and believed that they had made their minds up and took no account of anything which he told them.
18.	With regard to rental income, he said that full time rent was only paid if a driver was willing to work day and night shifts.  He offered a rent free introductory period because hiring drivers was a competitive market and an incentive had to be offered to induce them to work for him rather than somebody else.  Although his relatives did help him out in the business, they did not do very much and they were let off the rent not because of the work they did but because they were related. 
19.	He also stated, and this was the first time that this had emerged, that the car rental income had been limited to a two week period only, when a driver had had an accident and Mr Malik had lent the driver his car for the two weeks that the car was off the road being repaired.  
20.	Mr Malik explained that when he had taken over the business a number of drivers had left and also that most of Mr Singh’s contracts had ceased leaving him only with three small ones.  He referred us to a schedule which the Commissioners had prepared of Mr Singh’s contracts, the major one of which by far was with IBM but that was not a contract which Mr Malik took over.  
21.	Mr Malik had never received any tax advice on the purchase and had never sought any advice on registration, as he did not believe he had to be registered.  When asked about the rent books, he maintained that he had kept them on a week-by-week basis, although he could not remember whether or not he had kept a book for 1994 and if he had, he did not know where it was.  He was unable to explain why he had not been able to produce the rent books to Mr Gilligan on the December 1995 visit.  When asked by Mr Puzey to explain the discrepancy between Mr Arif’s evidence that he was paying a full time rent for five days hire and his (Mr Malik’s) assertion that full time was for seven days work, Mr Malik replied that Mr Arif had his own agenda which was to minimise the days he was working and thus reduce his tax bill.  He could not explain why Mr Cullen should have given a similar answer and neither could he explain Mr Dunhill’s assertion that late payment resulted in being taken off the air.  Mr Malik was also asked in cross-examination about his treatment of the drivers’ income from the contract work.  He had initially told Mr Gilligan and Ms Botts had said precisely the same, that he deducted the value to the driver from the driver’s weekly rent.  However, he had told Miss Hyde that he in fact deducted the value in his annual accounts from the figure given for his own personal driving.  Mr Malik explained this by saying that the amount was only very small and that in fact he did most of the driving anyway. 
22.	Mr Malik sought to explain the discrepancies between the number of drivers contained in his rent book and the number of drivers which Mr Gilligan had calculated had been used by asserting that he had, on a number of occasions, had to farm work out to other companies because he did not have sufficient drivers and the chances therefore were that a number of the drivers’ journies referred to in the log analysed by Mr Gilligan were in fact not his own drivers who paid him rent but belonged to another company.  This assertion had been made in Mr Malik’s cross-examination of Mr Gilligan.  Mr Gilligan had met the question by saying that he had been led to believe by Mr Malik that the records included only details of Mr Malik’s business.
Legislation
23.	The relevant statutory provisions are as follows:
Section 49(1) of the Value Added Tax Act 1994 (“the Act”) which provides that: 
	“When 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 transfer shall be treated accordingly.”
Paragraph 1(2) of Schedule 1 of the Act which provides that:
“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-paragraph (3) to (7) below, the transferee becomes liable to be registered under this Schedule at this time if:
(a)	the value of his taxable supplies in the period of one year ending at the time of the transfer has exceeded £45,000,
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 transfer will exceed £45,000.
	Paragraph 1(3) of Schedule 1 of the Act provides:
		“A person does not become liable to be registered by virtue of sub-paragraph 1(a) or 2(a) above if the Commissioners are satisfied that the value of his taxable supplies in the period of one year beginning at the time at which, apart from this sub-paragraph, he would become liable to be registered will not exceed £45,000”.

	Paragraph 7 of Schedule 1 of the Act which provides that:
	“(1)	A person who becomes liable to be registered by virtue of paragraph 1(2) above shall notify the Commissioners of the liability within 30 days of the time when the business is transferred.

	(2)		The Commissioners shall register any such person (whether or not he so notifies them) with effect from the time when the business is transferred.”

Submissions 

24.	Mr Puzey submitted that the transfer of the business from Mr Singh to Mr Malik was a transfer of a going concern and that at the time of transfer Mr Singh had been taxable.  Accordingly, Mr Malik was himself liable for registration from the date of transfer on 30 July 1994.  Only if the Commissioners were satisfied at the time of transfer that the value of Mr Malik’s taxable supplies would not exceed the then registration limit could Mr Malik have avoided the liability to register at that time.  Any decision by the Commissioners to register at the point of transfer must be judged according to the information available to them at the date from which registration would take effect (Gray t/a William Gray & Son v Commissioners of Customs and Excise 2000 STC 880).  There was in any event, in Mr Puzey’s contention, abundant evidence that Mr Malik himself traded above the threshold.
25.	Mr Malik’s principal contention was that at all relevant times, he traded below the threshold for registration and was not therefore registerable.  He described himself as a simple taxi driver and asserted that the entire problem could have been sorted out if the Commissioners had been more helpful.  He attacked Mr Gilligan’s selective analysis from the journey log.  First, it was wrong to select individual weeks and Mr Gilligan should have analysed the entire log.  He should then have double checked the number of journeys each driver made.  The Commissioners had repeatedly closed their minds to what Mr Malik had told them whereas if they had double checked this information, they would have realised that it was correct and it would have proved that Mr Malik was trading under the limit.  Examples of this were that the officers failed to check with other taxi firms that it was universal practice to offer a rent-free period.  Equally, they failed to check that the drivers listed in the journey log were in fact employed by Mr Malik.  Had that check been carried out, they would have realised that Mr Malik was farming jobs out to other firms.  In Mr Malik’s contention, it was wrong and misleading to judge his turnover by Mr Singh’s pre-transfer turnover.  This was because Mr Singh’s main source of income had been contract work, most of which fell away when Mr Malik took over and Mr Malik generally traded at a much lower level than had Mr Singh.
Conclusions
26.	The liability upon Mr Malik to have registered for VAT arises out of the transfer to him of a going concern by a taxable person.  Mr Malik did not seek to argue that Mr Singh was not a taxable person nor did he suggest that the business had not been a going concern at the time of transfer.  However, for the sake of completeness, we believe we should address both these issues.  First, we are quite satisfied that Mr Singh was a taxable person.  True, he had de-registered, but for what reasons we do not know.  We know that his final return had been put in as a nil return but we also know that this was incorrect.  We accept the Commissioners’ calculation of Mr Singh’s annual turnover prior to transfer.  Neither the calculation nor methodology were challenged by Mr Malik and from the schedule we can do no other but to conclude that Mr Singh was, at the time of transfer, a taxable person and should have been registered.
27.	We are also perfectly satisfied that the business transferred to Mr Malik was a going concern at the time of transfer.  The Commissioners had visited the premises on 13 June 1994 and Mr Singh was trading then.  Even more importantly, there is Mr Malik’s own evidence that he began driving for Mr Singh during July 1994 and further in oral evidence, we were told that Mr Singh continued to drive for Mr Malik for a week or two after the transfer.  Conclusively, there is the letter from Mr Singh’s accountant referring to the transfer of a going concern.
28.	We have no doubt that Mr Singh, a taxable person, transferred a going concern to Mr Malik on 30 July 1994, thus giving rise to the liability to register.
29.	Paragraph 1(3) adds a proviso, however, that Mr Malik would not have become liable to be registered if the Commissioners had been satisfied that the value of his taxable supplies in the year after transfer would not exceed the then limit of £45,000.  The case of Gray, cited by Mr Puzey, addressed two issues.  First, at what date should the Commissioners look at the position in making their decision under Paragraph 1(3) and secondly, what evidence should be taken into account in making that decision.  In answer to the first question, at Paragraph 23, Ferris J concluded:
“I conclude, therefore, that in cases of late registration as well as in cases where the trader notifies in due time, the commissioners must give effect to para 1(3) by considering the case as at the date from which registration would otherwise take effect and, by looking forward, asking themselves whether they are or are not satisfied that turnover will not exceed the threshold amount.  Obviously they cannot do this otherwise than on the basis of what they consider to be likely.  But if they reach a conclusion which would be open to a reasonable body of commissioners considering the relevant evidence, an appellate tribunal cannot interfere with their decision.  It is not enough that the appellate tribunal thinks that it would have reached a different conclusion on the same evidence.”
30.	In answer to the second question, Ferris J concluded that the information to be taken into account by the Commissioners was only that which was available to them at the date of transfer.  Were the position otherwise, a person registering late could benefit from his failure by pointing to subsequent events, thus putting him at an advantage compared to a person who notified on time.  
31.	We accept that this is the true test.  As at 30 July 1994, the only information available to the Commissioners related to Mr Singh and consisted of the officer’s visit report and Mr Singh’s VAT returns.  All the information available to the officers at that time led them to the conclusion that Mr Singh had been registerable and it must therefore follow that, in the absence of any information to show a lower level of trading by Mr Malik, Mr Malik was also registerable.  From the information available to them at the time of transfer, the Commissioners could do no other than to conclude that Mr Malik should have been registered.  They had no reason whatsoever to suppose anything different.  On this basis, the decision to register Mr Malik compulsorily with effect from 30 July 1994 was correct and should stand.
32.	Again, for the sake of completeness, we will address the question of Mr Malik’s turnover during his first year of trading.  Mr Gilligan carried out, in our view, as thorough an investigation as he could have been expected to.  The only records presented to him were the journey logs.  He spoke to Ms Botts and four drivers.  Their evidence was more or less consistent on all important points and Mr Gilligan applied the information which he had obtained from the drivers to his calculations from the logs.  His calculation of the radio rental income alone put Mr Malik’s turnover considerably in excess of the threshold.  It had at no time been suggested that any of the drivers were employed by other firms and would not pay rent to Mr Malik.  Neither had it been suggested that Mr Malik allowed a rent free period to any driver, nor that they were let off their rent if they did not make much money.  Mr Gilligan also took into account the car rental of £50.00 per week which Mr Malik told him he made.  There was no suggestion at that time that the car rental only operated for two weeks, but as we say, even without the car rental income and on the basis of radio rentals alone, Mr Malik would have traded above the threshold.  Beyond this, Mr Gilligan’s calculation took no account of Mr Malik’s own income as a driver, nor the value of contract work or the services rendered by family members, which would have constituted a supply of services for a consideration.
33.	We can find nothing unreasonable in Mr Gilligan’s conclusion that Mr Malik was trading above the threshold.  
34.	When the case came before Miss Hyde, the suggestion was made for the first time that a rent free period was given to drivers.  Although Miss Hyde was experienced in taxi firms, she had never come across this before and it did not seem likely to her.  We do not believe it was incumbent upon Miss Hyde to make enquiries of other taxi firms but rather upon Mr Malik to provide evidence that it was common practice.  
35.	Miss Hyde was also shown the 1995 rent book which showed fewer drivers than had been calculated by Mr Gilligan from the log.  She doubted the veracity of the rent book for reasons which we have already outlined and we cannot say that this was an unreasonable view for her to take, especially as no evidence was put to her by Mr Malik to show that the journey log was inaccurate.  No suggestion was made at that time that Mr Malik used drivers from other firms from whom he did not collect rent.  Also, there was no rent book produced for the first few months of trading in 1994.
36.	Miss Hyde was also told of the netting off of contract work which would, in any event, have resulted in understatement of sales in the annual accounts.
37.	Miss Hyde therefore also concluded, in our view perfectly reasonably, that Mr Malik had traded above the threshold for the first twelve months.  This is not a conclusion which was unreasonable and is not one which we, the tribunal, could or would disturb.  
38.	For all these reasons, we find that Mr Malik was liable to be registered with effect from 30 July 1994 and the Commissioners’ decision to so register him was correct.
39.	The appeal is therefore dismissed.  Mr Puzey made no application for costs but referred us to an order on 12 March 2001 when the case was adjourned on the application of Mr Malik at the last minute, when an order was made that Mr Malik should pay the costs of that day. That direction, of course, will stand.  We hope that agreement can be reached between the parties as to the level of those costs but if not, then they should be determined by a single tribunal chairman.

LADY MITTING 
CHAIRMAN
Release Date: 29 December 2004

MAN/99/0747