Gilbert (t/a United Foods) v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 November 2011 |
| Neutral Citation | [2011] UKFTT 705 (TC) |
| Date | 03 November 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 705 (TC)
SMG Radford (Tribunal Judge) (Chairman), R Thomas
The Appellant in person
Mrs E Gardiner for the Respondents
Appeal against the disallowance of entrepeneurs' relief by HMRC on the sale of part of the appellant's business - appeal allowed
1.This is an appeal against the decision of HMRC to amend the Appellant's self-assessment for the tax year 2008-09 and to disallow his claim to Entrepeneurs' relief when calculating the chargeable gain arising in respect of the sale of assets used in his business by the Appellant.
2.The Appellant claimed that the sale had been part of a separate and definable business and as such it was entitled to the relief.
3.The Appellant commenced trading as United Foods in 1995. He had worked in the food industry for many years before this.
4.The business provided inexpensive sales representation to manufacturers and suppliers, mainly to UK catering wholesalers, on a commission basis. This saved the supplier expensive sales personnel.
5.The Appellant added 1% extra to the supplier's price on its invoice to the customer and on payment to the supplier by the customer the Appellant would raise an invoice and the supplier would pay it the commission. The Appellant characterised his business as that of a food "broker".
6.The Appellant supplied this service to some nine suppliers and he represented them in relation to about 120 customers.
7.One of these suppliers was Fayrefield Foods Limited ("FFL"). In August 2008 agreement to purchase a business as a going concern was reached with FFL. The sale agreement defined the "Business" sold as that part of the Appellant's business consisting of the sale of FF Ltd products to customers. The agreement stated that the purchase was to include the customer database relating to the Business and the goodwill, the trade marks which the Appellant had registered relating to the Gyma and Diploma brands (which were among the FFL products) and business information together with the benefit and burden of unperformed contracts and the records.
8.After the sale the Appellant could no longer use the trademarks nor have any contact at all with the customers of FFL. The Appellant stated that after the sale his gross commissions were reduced by 55% and his customer base was reduced to 35.
9.The Appellant mentioned that he had subsequently arranged to sell the remainder of the Appellant's business so that he could retire.
10.In his tax return (including a self-assessment) for 2008-09, the Appellant had shown a gain from the disposal of the assets to FFL of £285,000, and a claim to Entrepreneurs' Relief which reduced the amount of the gain by four-ninths, making the relief, in terms of tax at 18%, £22,800.06. HMRC enquired into the return and on 9 February 2011 notified the Appellant of their conclusion, which was that Entrepreneurs' Relief was not due.
11.Entrepreneurs' Relief is found in Taxation of Chargeable Gains Act 1992 part 5 chapter 3Chapter 3 Part 5 Taxation of Chargeable Gains Act 1992 ("TCGA"). Section 169I TCGA (in that Chapter) states:
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(1)There is a material disposal of business assets where-
(a) an individual makes a disposal of business assets (see subsection (2)), and
(b) the disposal of business assets is a material disposal (see subsections (3) to (7)).
(2)For the purposes of this Chapter a disposal of business assets is-
(a) a disposal of the whole or part of a business,
(b) a disposal of (or of interests in) one or more assets in use, at the time at which a business ceases to be carried on, for the purposes of the business,
12.Section 169L of the TCGA states:
(1)If a qualifying business disposal is one which does not consist of the disposal of (or of interests in) shares in or securities of a company, entrepreneurs' relief is given only in respect of the disposal of relevant business assets comprised in the qualifying business disposal.
(2)In this Chapter "relevant business assets" means assets (including goodwill) which are, or are interests in, assets to which subsection (3) applies, other than excluded assets (see subsection (4) below).
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(3)This subsection applies to assets which-
(a) in the case of a material disposal of business assets, are assets used for the purposes of a business carried on by the individual …
13.HMRC submitted that for the Appellant to qualify for Entrepreneur's Relief it was not enough for him to make disposals of assets used in the business; there needed to be the disposal of an identifiable part of the business which on its own was separately definable.
14.Whilst the Appellant sold the brands and customer base, in the scheme of how the business itself operated, HMRC did not consider that those disposals amounted to the disposal of a separately definable business. The business carried on after the disposal was the same as that carried on before, albeit on a smaller scale.
15.HMRC contended that even the disposal of substantial assets was not enough to demonstrate that part of the business had been disposed of even if the business was reduced considerably in size after the sale. In order to qualify for the relief there had to be what the cases have recognised as the sale of part of a business.
16.HMRC accepted that if the changes to the business caused by the sale of the assets could lead to the conclusion that the position after the sale is wholly different from the position before the sale then it might be reasonable to say that the business after the sale was not the same as the one before so that part of the business must have been sold. However HMRC did not consider that this had happened. HMRC contended that the operation of the business did not appear to have changed wholly or even noticeably after the disposal of the brands/customer base.
17.HMRC submitted that on the facts the same business was being carried on after the sale as before. The scaling down of activities was not enough to show that assets disposed constituted the disposal of part of the business, so in HMRC's view the disposal did not...
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Carver
...have involved selling capacity for cash.[41] Reference was then made to the first instance decision in Gilbert (t/a United Foods) TAX[2011] TC 01542, in which ER was allowed on the sale of a business as a going concern; what was sold was found by the tribunal to be a viable section of the b......
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Thomson
...relief cases, it has only been previously considered for business asset disposal relief purposes in Gilbert (t/a United Foods) [2011] TC 01542 (where the taxpayer was successful largely because the assets sold could be operated as a separate business) and Amin [2016] TC 05265 (taxpayer unsu......