HM Revenue and Customs v Pal and Others

Approved Judgment

Hearing date: 20 July 2006

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction

This is an appeal by Her Majesty's The Commissioners for Revenue & Customs against a decision of the VAT & Duties Tribunal (Mr Rodney Huggins and Ms Rachel Adams FCA) the Tribunal released on 16 January 2006.

The Tribunal discharged as invalid an assessment to VAT in the sum of £17,074 plus £939.09 interest dated 26 September 2003 which the Commissioners had issued against Tapas Bar Cerveceria in respect of the period from 1 May 2002 to 31 October 2002.

Tapas Bar Cerveceria (“TBC”) is the name of a bar and restaurant which carried on business at 10 Little Clarendon Street, Oxford during the period to which the assessment relates. The assessment was raised against TBC because in the application for registration that was the name supplied to the Commissioners by the third Respondent, Mr Alonso, as the trading name of a partnership which was to run the business. Mr Alonso applied for registration with effect from 1 January 2002. In the accompanying form VAT 2 (which is the prescribed form under regulation 5(1) of the VAT Regulations 1995 where the application for registration is made by a partnership) each of the four Respondents stated that they were partners in the business and signed the form. Accordingly, the Commissioners exercised the power contained in section 45 (1) of the Value Added Tax Act 1994 (“ VATA 1994”) and completed the registration in the name of TBC.

No VAT returns were made in respect of the relevant period and the Commissioners exercised their powers under s.73 of VATA 1994 to make an assessment against TBC. Copies of the assessment were sent to each of the four Respondents. On 18 December 2003 Mr and Mrs Pal and Mr Alonso appealed. Mr Bouacheri had by then disappeared and is believed to be living somewhere abroad. The Tribunal treated him, however, as a party to the appeal.

In their notice of appeal the Respondents took two points: (1) that Mr and Mrs Pal and Mr Alonso had not been involved in the making of taxable supplies at the relevant time; and (2) that the assessment was in any event excessive. There was no challenge in terms to best judgment. At the hearing on 8 December 2005 the Tribunal dealt with the first ground of appeal as a preliminary issue. They found on the evidence that Mr and Mrs Pal had never been partners in the business, but that Mr Alonso and Mr Bouacheri were in partnership from 14 February 2002 until the late summer of that year.

On this basis they held that the assessment was invalid but expressed the view that had it been raised against Mr Alonso and Mr Bouacheri alone the only possible challenge to it would have been on grounds of quantum or lack of best judgment.

The Commissioners appeal against this decision on three grounds:

i) That the Tribunal failed to recognise that the Respondents were all registered for VAT by virtue of the registration in the name of TBC and accordingly were taxable persons for VAT purposes and therefore liable to account for VAT;

ii) That by virtue of s.14 of the Partnership Act 1890 (or at common law) the Respondents were estopped from denying their status as partners with regard to the VAT liabilities of TBC as a result of having held themselves out as partners in the application for registration; and

iii) That even if Mr and Mrs Pal are not to be treated as partners in TBC the assessment issued against TBC was nonetheless valid against Mr Alonso and Mr Bouacheri in the light of the partnership which the Tribunal found to have existed between them.

None of these points was either raised or argued before the Tribunal and the third point was by error omitted from the notice of appeal, although contained in the skeleton argument lodged by Miss Shaw. The hearing before the Tribunal was confined to the issue of whether a partnership had ever in fact been formed between the Respondents and it appears to have been assumed that the assessment could not stand unless all four Respondents were found to have been partners in the business at the relevant time. But all three grounds of appeal raise issues of law which can fairly be determined on the basis of the evidence and the findings of fact made by the Tribunal and I allowed the Commissioners to amend their notice of appeal to raise the third point on terms that Mr Alonso (who is the only Respondent to have participated in this appeal) should be permitted to file a Respondent's notice out of time challenging the finding of the Tribunal that he was a partner so far as that was based on the terms of the agreement of 8 April 2002 referred to in the Decision of the Tribunal.

Relevant legislation

The relevant provisions of VATA 1994 are as follows:

1. Value Added Tax

“(2) VAT on any supply of goods or services is a liability of the person making the supply and (subject to provisions about accounting and payment) becomes due at the time of supply.

3 Taxable persons and registration

(1) A person is a taxable person for the purposes of this Act while he is, or is required to be, registered under this Act

25 Payment by reference to accounting periods and credit for input tax against output tax

(1) A taxable person shall—

(a)

in respect of supplies made by him, and

(b)

in respect of the acquisition by him from other member States of any goods,

account for and pay VAT by reference to such periods (in this Act referred to as “prescribed accounting periods”) at such time and in such manner as may be determined by or under regulations and regulations may make different provision for different circumstances.”

45 Partnerships

(1) The registration under this Act of persons—

(a) carrying on a business in partnership, or

(b) carrying on in partnership any other activities in the course or furtherance of which they acquire goods from other member States,

may be in the name of the firm; and no account shall be taken, in determining for any purpose of this Act whether goods or services are supplied to or by such persons or are acquired by such persons from another member State, of any change in the partnership.

(2) Without prejudice to section 36 of the Partnership Act 1890 (rights of persons dealing with firm against apparent members of firm), until the date on which a change in the partnership is notified to the Commissioners a person who has ceased to be a member of a partnership shall be regarded as continuing to be a partner for the purposes of this Act and, in particular, for the purpose of any liability for VAT on the supply of goods or services by the partnership or on the acquisition of goods by the partnership from another member State.

…

(5) Subsections (1) and (3) above shall not affect the extent to which, under section 9 of the Partnership Act 1890, a partner is liable for VAT owed by the firm; but where a person is a partner in a firm during part only of a prescribed accounting period, his liability for VAT on the supply by the firm of goods or services during that accounting period or on the acquisition during that period by the firm of any goods from another member State shall be such proportion of the firm's liability as may be just.

73 Failure to make returns etc

(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.”

Regulation 25 of the VAT Regulations 1995 ( SI1995/2518) also provides that:

25 Making of returns

(1) Every person who is registered or was or is required to be registered shall, in respect of every period of a quarter or in the case of a person who is registered, every period of 3 months ending on the dates notified either in the certificate of registration issued to him or otherwise, not later than the last day of the month next following the end of the period to which it relates, make to the Controller a return on the form numbered 4 in Schedule 1 to these Regulations (“Form 4”) showing the amount of VAT payable by or to him and containing full information in respect of the other matters specified in the form and a declaration, signed by him, that the return is true and complete; provided that—

(c) the Commissioners may allow or direct a person to make returns in respect of periods of one month and to make those returns within one month of the periods to which they relate;

(d) …

where the Commissioners consider it necessary in any particular case to vary the length of any period or the date on which any period begins or ends or by which any return shall be made, they may allow or direct any person to make returns accordingly, whether or not the period so varied has ended…”

Background facts

The principal findings of fact relevant to this appeal are set out in paragraphs 12 – 22 of the Tribunal's Decision as follows:

12. Mr and Mrs Pal were in partnership together and their business was partially involved in acquiring properties...