Sam's Bistro Ltd v  Revenue & Customs [2007] UKVAT V19973 (10 January 2007)

19973

Vat – Compulsory Registration – transfer of a going concern for VAT registration purposes – whether distinct from a transfer of a business at point of purchase - whether the business carried on by the Appellant was previously carried on by a taxable person, and was transferred to the Appellant as a going concern, no fundamental break in trading or change in nature of business, previous trader sold premises and goodwill to a purchaser who transferred goodwill to Appellant by means of a lease.  Appeal dismissed – VATA 1994 s. 49.

EDINBURGH TRIBUNAL CENTRE

SAM’S BISTRO LIMITED	Appellant

- and -

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

Tribunal:	 T GORDON COUTTS, QC  (Chairman):
DR HEIDI POON (Member)

Sitting in Edinburgh on 25 October 2006.

for the Appellant(s)		Mr John Shearer

for the Respondents		Ms Julie Strachan, Shepherd & Wedderburn,
WS
© CROWN COPYRIGHT 2007

DECISION

INTRODUCTORY
	The Appellant’s appeal against a requirement to be compulsorily registered on 18 March 2005, a date subsequently amended to 24 March 2005, because, according to the Respondents, the Appellant was put in possession of a going concern.   There was some confusion about dates and about the applicable authorities and in the course of the hearing reference was made to a decision of the ECJ Zita Modes [2004] 2 C.M.L.R 24, [2005] STC 1059.   Because the reference to that case was made late and neither party had the opportunity to consider it properly, let alone the Tribunal, the case was adjourned so that written submissions could be made by both parties.     Written submissions were made and considered. but we did not require further oral argument.   

Various other cases, noted below, were cited to the Tribunal in oral argument.  In the light of that we think it essential to note what in fact is the issue here.   The question for the Tribunal was whether there had been a transfer of a going concern (TOGC) for VAT registration purposes.  If it had been a TOGC for VAT registration purposes, then compulsory registration obtained from the date of transfer of ownership.  If it had not been a TOGC for VAT registration purposes, then compulsory registration would not obtain until the registration threshold was reached by the new business.   This Tribunal is not concerned to determine in this instance whether tax should or should not be charged on the transfer of the business at the point of purchase.   

There is confusion, reasonably enough, in the approach to the concept of a transfer of a going concern for VAT registration purposes and for the transfer of a business for ownership purposes..   It was acknowledged by the Respondents in their written submissions that there is not one universal definition of what constitutes a transfer of a going concern in the United Kingdom.  It was also acknowledged in those submissions that the two concepts of a transfer of a going concern in the law are easily confused, and that “the HMRC commentary in this area does not make a clear distinction”.

THE FACTS
The essential facts were demonstrated by the productions and to an extent by statements given by the Appellant’s representative supported by Mr Barker.    On 2 March 2005 missives were concluded between the proprietors of Taylor’s Coffee Shop in Dollar, Gillian Taylor and Susan Grant, and Neil Barker for not only the premises but also: 
“1.2	The Goodwill of the business, including the exclusive right of the purchaser to make use of the business name and to present himself as the proprietor of the business in succession to the seller.
1.3	The whole moveable fittings, fixtures, equipment and effects in and upon the subjects of every kind and description used in connection with the business, an Inventory of which will be adjusted and agreed between the purchaser and the seller within fourteen days of conclusion of missives to follow hereon, failing which the purchaser will be entitled to resile without penalty.
1.4	The interest of the seller in all licences, consents and others relative to and necessary for the carrying on of the business whether held in the name of the seller or its nominee or pertaining to the subjects or any part thereof.
1.5	The benefit of all work in progress, orders and engagements, existing at the date of entry aftermentioned.
1.6	All files, records, customer lists, bookings and other like materials, however stored or recorded.”

Entry was to be taken on 23 March 2005.   Meantime Mr Barker had sought and obtained a liquor licence for the premises.   He had had to make early application in order to meet the date of the relevant meeting of the licensing authority.

Mr Barker did not, as an individual, carry on a restaurant business or intend to do so.  He was, however, the controlling director of the Appellant.

By a contract of lease with an entry date of 24  March 2005 Mr Barker as landlord leased the premises to the Appellant on a full repairing lease in a document  reading as follows:
“The Landlords both as proprietors of the premises aftermentioned and also of the goodwill of the licensed business carried on therein in consideration of the rent and other prestations hereinafter specified and subject to the conditions, provisions and declarations aftermentioned, hereby let to the Tenants ALL AND WHOLE the licensed premises known as and forming Taylor’s Coffee shop, Twenty four Bridge Street, Dollar all as registered in the Land Register of Scotland under Title Number CLK 7652 all as belonging to the Landlords and all hereinafter referred to as “the premises” which includes the fittings and fixtures and plant machinery and equipment and appurtenances in, on or attached to the said premises so far as belonging to the Landlords.”

No business carried on with the benefit of a liquor licence existed on that date but there had been until 23 March 2005 a business providing refreshment facilities.   After a short spell of time devoted to refurbishment and the provision of new fitments the Appellant’s present business began in April 2005.   The new business was more “up market” than previously and it was stated that the clientele were entirely different after the Appellant began trading.  However, the previous business was described as a coffee shop in its promotional literature and the “new” business as a “coffee house and bistro”.  The Tribunal find as a matter of fact that there was no essential difference in the nature of the business carried on albeit it had been enhanced by the provision of licensed bistro facilities.   There could be no doubt that at the time the former proprietors left Taylor’s Coffee shop it could have been continued as a business as it then existed;   and indeed there was continued a business providing other, and  similar facilities.
ARGUMENT FOR THE APPELLANT
The Appellant put forward the contention originally that the nature and essence of the business had changed.  This we could not accept.    However his principal argument was that, because there had been an intervening legal entity between the sale of Taylor’s Coffee House and the conducting of a business by the Appellant, there could not be a transfer of a going concern.    He founded upon a statement in Customs & Excise Brief 700/9/02 (updated May 2004), paragraph 2.3.3 where it was said there must not be a series of immediately consecutive transfers of the business.   “Where (A) sells it assets to (B) who immediately sells these assets on to (C),  because (B) has not carried on the business the TOGC provisions do not apply to any of the transactions”.    It requires to be noted however that para 2.3 of the said notice deals with whether transfers of going concerns are or are not taxable supplies for the purpose of transferring ownership.   They have nothing to do with VAT registration.

It was argued by the Appellant that dicta in Zita Modes supported the proposition that motive was important; and that if the owner of premises did not intend to carry on the business himself that constituted a break; and that when an incoming tenant began business of new, and the new business was not required to be registered until it made  supplies exceeding the applicable threshold.

The Appellant’s response to the cases cited by the Respondents, which were Kenmir Limited v Frizzel & Others [1968] 1 WLR 329, Customs & Excise Commissioners v Dearwood Limited [1986] STC 327, Montrose DIY Limited v The Commissioners (EDN/87/98), Donald McPherson t/a Comet Bar v The Commissioners (EDN/92/315), Houshang Tahmassebi t/a Salepepe v The Commissioners (MAN/94/197), G A & P Andrews v The Commissioners (Vat Decision 13310), Sandra Dollard v The Commissioners (Decision 18656) and MPH Leisure Limited v The Commissioners (Decision 19778)  was that none of these was directly in point since none of them considered the situation of a proprietor acquiring premises and then leasing them to someone else whether or not he acquired a business and goodwill along with the premises in the first place.

ARGUMENT FOR THE RESPONDENTS
Properly considered there are two aspects in which the use of the concept “transfer of a going concern” arises in VAT law.   Particularly in the clear and careful written submissions made on behalf of the Respondents by Miss Strachan the distinction between there has been a transfer of a going concern on a transfer of a business and the question of whether there had been such a transfer for registration purposes was clearly set out.  UK law has always had different requirements for the transfer of a going concern in these circumstances.   Although there has not been a universal definition of what constitutes a transfer, UK legislation and case law have treated those requirements differently where the question at issue was whether VAT was to be paid on the sale of a business and whether there has been a transfer of a going concern for registration purposes.    The context and analysis in Zita Modes deals exclusively with the first aspect.    The reasoning in Zita Modes cannot affect the interpretation of the transfer requirements in the UK.   Zita Modes decision does not affect the case authority cited, above referred to, particularly MPH Leisure a Decision of 19 September 2006 which rehearses Kenmir Ltd v Frizzell and Others and Donald McPherson.   Reference was made to Chevenings Ltd (1990) 6171 which  concerned assets which had been acquired by the transferee from the liquidator of another company and not the company itself.  The reasoning of the Tribunal can be found at paragraph 27 which reads as follows:
“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 go 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 affected in a single transaction.  We also attach weight to our finding that the Appellant had an expectation of taking over a going concern.”

DECISION
Despite the interesting legal excursion into Zita Modes, this Tribunal, following authority, feels bound to hold that there was a transfer to the Appellant of a going concern and therefore registration for  VAT purposes was required.   It accepts the argument and approach of Ms Strachan for the Respondents as soundly based on  principle and authority and dismisses the appeal.

T GORDON COUTTS, QC

CHAIRMAN

RELEASE:       10    JANUARY 2007.

EDN/06/30