Hawes & Curtis Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 December 2012 |
| Neutral Citation | [2012] UKFTT 758 (TC) |
| Date | 11 December 2012 |
| Court | First-tier Tribunal (Tax Chamber) |
[2012] UKFTT 758 (TC)
Judge Malachy Cornwell-Kelly, Mr John Agboola FCCA
Mr Touker Suleyman, chairman of the appellant company, appeared for the taxpayer
Ms Gloria Orimoloye of HMRC Solicitor's Office appeared for the Crown
VATA 1994, Value Added Tax Act 1994 section 24s. 24 - input tax - supplies not made to taxpayer - whether input tax reclaimable - whether supplies to agent on behalf of taxpayer - taxpayer ultimate beneficiary - absence of relationship between supplier and beneficiary - appeal dismissed
The First-tier Tribunal decided that a taxpayer company could not deduct, as input tax, the tax on the rent of properties it occupied but formally leased to a trustee company. The taxpayer had not established that the landlords made or intended to make supplies to it, through the agency of the trustee company. Furthermore, the trustee company was not VAT registered and had not opted to tax property rents. Thus, it could not pass the right to deduct tax on the rents to the taxpayer.
The taxpayer company's appeal concerned a claim to deduct, as input tax, the tax on the rent of properties it occupied but formally leased to another company ("LPP").
In 2001, the taxpayer's business as high class shirtmakers and shirtsellers was on the verge of bankruptcy when it was bought by Mr S. At that point, the taxpayer was the lessee of 23 Jermyn Street but the landlords would only permit the business to be continued there on a more reliable covenant. LPP, which was controlled by Mr S and which was not VAT registered, was put forward for that purpose.
In 2002, a lease of the shop was granted to LPP, providing explicitly that the premises could be used as a shop, trading under the name or style of the taxpayer. LPP would act as trustee and that the taxpayer would indemnify it against any claim that might arise.
The taxpayer submitted that notwithstanding what the formal documentation showed, the continuing services supplied by the grant of the leases were effectively supplied to the taxpayer and not to LPP. Thus, the input tax on the rents should be recoverable by the taxpayer.
HMRC submitted that the landlords had no relationship with the taxpayer and would not have agreed to have one if they had been asked to. The correct analysis was that LPP had sublet to the taxpayer, in consideration of its paying the rents on the properties. However, as LPP was not VAT registered, that would be an exempt supply.
Whether the taxpayer could deduct as input tax, the tax on the rent of properties it occupied but formally leased to LPP.
Held, dismissing the taxpayer's appeal:
The Tribunal held that the taxpayer had not been able to establish that the landlords of the shops it traded in made or intended to make supplies to it, or ever intended to deal with it, whether through the agency of LPP or otherwise, or even that they acquiesced in the taxpayer as a limited company occupying their premises. Since LPP was not, at the material times, registered for VAT and had not opted to tax property rents, it could not pass the right to deduct tax on the rents to the taxpayer. The essentially technical failures in the property leasing arrangements in this case resulted in a substantial liability for the taxpayer which could have been avoided. However, the Tribunal had no jurisdiction to do other than apply the law.
1.This appeal concerns a claim by the taxpayer to be able to deduct as input tax £361,348, being the tax on the rent of properties it occupied but formally leased to another company called Low Profile Properties Limited. The periods in question go from 05/06 to 05/09.
2.When the case was first heard on 30 January 2012, it became apparent that the unrepresented appellant had not brought to the tribunal copies of the leases in question or the contested rent invoices, and we adjourned the matter for these to be produced. They were produced promptly and it is regrettable that it has taken so long to fix a resumed hearing of the appeal.
3.We thus received documentary evidence and heard oral evidence from Mr Suleyman, and from Mr M Dilonsky an in-house solicitor of the taxpayer. We find the following facts proved at least on the balance of probabilities.
4.The business of Hawes & Curtis as high class shirtmakers and shirtsellers, long established in Jermyn Street in London's west end, is now a hundred years old, but in 2001 Hawes & Curtis Limited was on the verge of bankruptcy when Mr Suleyman bought the company and its business, together with its then considerable financial liabilities. The company was, at that point, the lessee of 23 Jermyn Street but the landlords, the Crown Estate Commissioners, would only permit the business to be continued there if a new lease was granted to a lessee with a more reliable covenant. Low Profile Properties Limited (LPP), a company in Mr Suleymans' control, was therefore put forward for the purpose and a lease of the shop was granted to it on 15 February 2002, providing explicitly that the premises could be used as a shop "trading under the name or style of Hawes & Curtis", enabling the goodwill and name of the business to be retained.
5.The minutes of a board meeting LPP on 24 January 2002 had recorded:-
The chairman of the company reported to the meeting that having recently acquired the business of Hawes & Curtis Limited by acquiring the company it was necessary for some new retail shop units to be acquired and that some landlords would insist on a covenant of some strength. Hawes & Curtis Limited was a company with a very limited trading record over recent years and as such was not a covenant of any strength. In the circumstances, it was requested by Hawes & Curtis Limited that Low Profile Properties Limited enter into on its behalf leases of retail units, so as to ensure that Hawes & Curtis could open new units with a view to expanding its business.
It was resolved that Low Profile Properties Limited enter into such leases and obligations on behalf of Hawes & Curtis Limited on the basis that it would do so only as trustee and that no liability would arise for the company and that indeed Hawes & Curtis Limited would indemnify Low Profile Properties Limited against any claim or claims that may arise. All relevant costs of obtaining the lease and maintenance of the lease will be the responsibility of Hawes & Curtis.
6.On the same date, the board minutes of Hawes & Curtis Limited had recorded:-
It was reported to the meeting that the company of Hawes & Curtis Limited had recently been acquired by Low Profile Holdings Limited and that the intention was to expand the business as rapidly as possible. In order...
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