19513
	Value added tax - whether the appellant’s business as a manufacturer and retailer of ice cream should be assessed for VAT in conjunction with his other business selling the ice cream from an ice cream va n- Yes - appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	SHAH NAWAZ KHAN	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	David S Porter  Chairman)
						Mary Ainsworth  Member

Sitting in public in Manchester on 15 February 2006

James Puzey of counsel instructed by the acting solicitor for the Commissioners for H M Revenue and Customs, for the Respondents

No one appearing for the Appellant

	© CROWN COPYRIGHT 2006

DECISION

1.	Shah Nawaz Khan  (“the Appellant”) appeals against an assessment raised by the Commissioners on 7 June 2004 in the sum of £5418 for the quarterly tax periods 07/01 to 07/03 inclusive. The Commissioners allege that his business manufacturing ice cream and retailing the same should be assessed with his business selling ice cream from an ice cream van as they are a single legal entity. The Appellant says that the manufacturing and retail business is run in partnership with his wife and the sales from his ice cream van relate to his business alone and that the businesses should be treated as separate entities.

2.	Mr Jonathan Cannan of counsel appears on behalf of Her Majesty’s Revenue and Customs and no one appearing for the Appellant. This tribunal determined to proceed under rule 26(2) of the Value Added Tax Tribunals Rules 1986 (as amended). We were referred to the case of Burrell (trading as The Firm) v Commissioners of Customs and Excise 1997 STC 1413

3.	Prior to the outset of the hearing a preliminary issue arose because of the failure of the Appellant to attend the hearing. The chairman asked his clerk to contact the Appellant to ascertain why he was not appearing. His clerk advised that she had spoken to the Appellant, who said that he was unaware of the hearing; that he had not received any documentation and he had asked that the appeal be adjourned. The Chairman then arranged for IVC Vat Consultants of 21-27 St Paul’s Street Leeds LS1 2ER to be telephoned because they had written on 8 February 2006 as follows:-

“Please note the record that we no longer act for the Appellant and therefore shall not be representing him at the hearing on 15 February 2006
Copies of the relevant documents held by this firm including a copy of the Statement of Case have been forwarded to the Appellant who has been advised that he should attend the hearing in person.”

IVC confirmed that the documentation had been sent to the Appellant by recorded delivery. As a result we have decided that the Appellant was fully aware of the hearing and as he had decided not to attend, we would hear the case in his absence.

4.	In the absence of the Appellant, we have to rely on the facts contained in the bundle provided by the Commissioners and the evidence given under oath by Mrs Ann Jones a higher office with the compliance team at Halifax. The facts are as follows:

5.	The Appellant registered the business of manufacturer and retailer of ice cream on the 11 July 2003. Against the question “who owns the business?” the box for a “Sole Proprietor” has been ticked. We understand that the property at 141, Richmond Road, Listerhills, Bradford West Yorkshire from which the business operates is registered in his name. The Appellant had indicated to Mrs Jones that he was going to change the ownership to that of himself and his wife, but this does not seem to have taken place. The Appellant maintains that he is operating a partnership with his wife.  This appears to be unlikely as H Raja Associates, accountants to the Appellant, advised the Commissioners:-

•	the invoices for the building works are in the Appellant’s name,
•	the bank account and the loan from the Bank are all in his name. 
•	There is no partnership deed, and .
•	his wife Maqsood Bibi has not introduced any money into the business account. It would appear that her only involvement is to clean the building and offices from time to time. She has two young children and four older ones to look after.

6.	The only documentation which suggests that the manufacturing and retail business is owned as a partnership, is the annual accounts. They were prepared after discussions with H Raja Associates, when the Appellant was advised to keep the two activities separate in order to keep the selling price of the retail ice cream down. No copies of the accounts for the Manufacturing and retail business were produced, but Mrs Jones referred to her contemporaneous notes which revealed the following:

The figures for the period 15 November 1999 to 31 January 2001 :

Sales 					£123,213
Net Profit				£    8,997

For period to 31 January 2002 

Sales 					£142,197
Net Profit				£    9,038

            The business has been paying VAT in relation to the sales.

7.	When Mrs Jones attended at the premises on 4 July 2003 there were several ice cream vans parked at the premises. Some of these belonged to the extended family of the Appellant and one of the vans belonged to and was used by the Appellant. We were told that the Appellant had never manufactured the ice cream, that it was bought wholesale, delivered to the business premises and then sold to the various van drivers including the Appellant.  Accounts for the ice cream business sent to the Commissioners by the Accountants were produced to the tribunal for the years 31 March 2002 and 31 March 2003. The last set of accounts showed sales of £32,260 and a net profit for the year of £11,998. The Appellant alleged that he kept the money from the ice cream van separate from those of the wholesale business.  Mrs Jones was not shown any separate books or bank statements. The Appellant had indicated to Mrs Jones that the wholesale business was not sustainable without the profits from his ice cream van.

8.	As a result of her visit Mrs Jones took the view that the two businesses should be treated as one and raised an assessment as follows:

Calculation of underdeclared Value Added Tax in respect of retail sales

From the annual accounts

Year ended 31 March 2002

Sales			         £20,410.00
Output tax due @7/47					£ 3.039.79

Purchases		         £   8,173.00
Petrol & oil		         £   2,021.00
Motor repairs		         £      422.00		
				------------
			         £  10,616.00 
Input Tax @ 7/47					£ 1,581.11

Net tax							£ 1,458.66
Net tax for period 					£     364.67

Year ended 31March 2003

Sales				£32,260.00
Out put tax due @7/47				£  4,804.68

Purchases			£ 12,813.00
Petrol & oil			£   2,122.00
Motor repairs			£   1,141.00
				---------------
				£ 16,076.00
Input tax @ 7/47					£  2,394.30

Net Tax						£  2,410.38

Net tax for period					£     602.60

Mrs Jones explained that the dates for the assessments for 2002 and 2003 were incorrect and that they should have been for the periods 31 March 2001 and 2002.  The calculations were however correct. There were no accounts for the later period but if these were produced then the figures could be adjusted. The Commissioners had not raised any assessments for the earlier period because of the three year capping rule.

9.	Mr Cannan referred us to paragraphs from Lindly one of the standard texts on partnership Law. Whether there is a partnership or not is a question of fact. The accounts showed that the Appellant and his wife shared the profits. As Lindley states;

“The receipt by a person of a share of the profits of a business is prima facia evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of the business, does not of itself make him a partner in the business…. There must be an element of risk in being a partner”

That risk is best demonstrated by the loss of any money put into the business by the way of capital. The Appellant’s wife Maqsood Bibi has no capital in the business. It is however, possible for one partner to own the property and the other to put in some expertise that the former does not have.  The fact that the property is not jointly owned would not necessarily negate a partnership. Mrs Bibi was not involved in the running of the business and at best cleaned the premises from time to time.

10.	Mr Cannan submitted that there was no partnership. It is necessary to look at the substance of the arrangement. Ognall J confirmed:

A tribunal … “should examine the substance and reality and should only conclude that there are only separate tax entities if (1)  the so-called separate businesses are sufficiently at arms’ length each from the other; and (2) the businesses have normal commercial relationships each with the other”

	He conceded that some latitude could be given for a partnership between husband and wife. In this case so far as the wholesale and retail business is concerned; there is no partnership deed; Mrs Bibi has put no money into the business; it is doubtful whether she worked in the business at all; the property is in the Appellant’s name as are all the Bank accounts and loans. The businesses are not sufficiently at arms’ length nor is there a commercial relationship with the Appellant and his ice cream van business.

The decision

10	We have considered the evidence and are satisfied that there is only one business. In our judgment the fact that Mrs Bibi has no capital in the wholesale and retail business and appears to do very little work indicates that she has no substantial involvement in running the business. It is significant to our minds that the suggestions as to the separate business have only arisen since Mrs Jones visit in July 2003. The accountant has prepared the accounts for the wholesale business on the basis of a partnership. Even given that the business is ostensibly run by a husband and wife we do not consider that the substance and reality of the arrangement is sufficient to create two businesses. We therefore confirm the assessment and dismiss the appeal

11.  	Mr Cannan asked for costs of £750 on the basis that the Appellant has not    appeared this morning. We award costs accordingly. We would add that as the Appellant has not appeared this morning it is open to him to ask that the case be re-heard within 14 days of the released date of this decision.

David S Porter
 
CHAIRMAN
RELEASE DATE: 27 March 2006

MAN/04/0374