Withington KFC Services Ltd and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 August 2020 |
| Neutral Citation | [2020] UKFTT 319 (TC) |
| Date | 05 August 2020 |
| Court | First-tier Tribunal (Tax Chamber) |
[2020] UKFTT 319 (TC)
Judge Christopher McNall, Miss Susan Stott FCA CTA
Value added tax – Food takeaway – Sale of business by First Appellant to Second Appellant – Was Second Appellant's turnover in excess of registration threshold? – Best judgment – Yes – Was HMRC's registration of NNS correct? – Yes – Was this a Transfer of a Going Concern from First Appellant to Second Appellant? – Yes – Back calculation of Second Appellant's turnover to First Appellant – Was this to best judgment? – Yes – Was First Appellant Liable No Longer Liable? – Yes – Should First Appellant's appeal against the Assessment be struck out in the absence of First Appellant making a return: VATA 1994, s. 83(1)(p)(i)? – Yes – Appeal of First Appellant against Registration Decision dismissed – Appeal of First Appellant against Assessment struck-out (but, if not struck-out, would nonetheless have been dismissed) – Appeal of Second Appellant against Registration Decision dismissed.
[1] The First Appellant, Withington KFC Services Ltd (“Withington”), owned and operated a takeaway business (known, at all times material to these appeals, as “Finger Licking Chicken”) in a busy area of south Manchester with a significant student population.
[2] Withington was not registered for VAT. In June 2016, Withington transferred its business to the Second Appellant (“NNS”): “the 2016 Transfer”. The transfer was said to have been done by way of a sale.
[3] NNS was not registered for VAT either. But, a few months later, in the circumstances described more fully below, HMRC came to form the view that NNS's turnover was such that it should have been registered for VAT.
[4] On the footing that the 2016 Transfer was a Transfer of a Going Concern (“TOGC”) HMRC, having calculated NNS's turnover on a best judgment basis, then back-calculated that turnover into the period of Withington's earlier ownership (i.e., pre-June 2016). Having done so, HMRC formed the view that Withington too should have been registered for VAT, but (having ceased to trade) was no longer liable (Liable No Longer Liable: “LNLL”).
[5] That is the underlying, simple, structure of these appeals, which the Tribunal directed should proceed and be heard together.
[6] This simplicity has to some extent occluded by a number of other issues, both procedural and substantive:
- Whether the 2016 Transfer was a Transfer of a Going Concern;
- Whether HMRC was entitled, as a matter of law, to issue a Certificate of Registration to NNS in the way that it did;
- Whether NNS could appeal (and, if so, what it could appeal) when it had not been assessed.
[7] Underneath most of this lies the conventional issue – the mainstay of this appeal – of whether the assessment against NNS, being made in the absence of any return from NNS, was made to best judgment; and, if it was, whether it could be back-calculated to the period of Withington's operation of the business.
[8] Withington's appeal is made by way of a Notice of Appeal dated 2 August 2018 against HMRC's decisions (made on 27 February 2018):
- That Withington should have been registered for VAT with effect from 1 May 2013, and needed to be registered for the period from 1 May 2013 to 31 May 2016 (the Withington Registration Decision); and
- To issue an assessment for VAT, pursuant to section 73(1) of the Value Added Tax Act 1994, in the sum of £52,380.54 (the Withington Assessment).
[9] The Withington Assessment was a “best judgment” assessment.
[10] On 3 September 2018, HMRC issued a Personal Liability Notice of £32,999.74 against Withington's sole director, Dr Abood, geared at 63% of Potential Lost Revenue, for the period 1 May 2013 to 31 May 2016. But at the beginning of the hearing, Mr Rayner helpfully confirmed that there was no appeal against this penalty.
[11] NNS's appeal is made by way of a Notice of Appeal dated 18 November 2018 against HMRC's decision of 22 May 2018 (upheld at departmental review on 25 October 2018) that NNS was and remains registrable for VAT: “the NNS Registration Decision”.
[12] The NNS Registration Decision has the following background:
- On 6 February 2018, HMRC issued NNS with a Certificate of Registration for VAT (a Form VAT 4) with, on the face of it, an Effective Date of 1 June 2016 (the First Certificate);
- NNS sought a review of the decision to issue the First Certificate;
- On 11 May 2018, a Review Officer in HMRC's Solicitor's Office and Legal Services wrote a review conclusion letter:Concluding that the decision to register with effect from 1 June 2016 should be withdrawn on a technical matter (sic);Expressing the identification that the decision to register [NNS] from 1 June 2016 is invalid; andConcluding that the decision to register with effect from 1 June 2016 was withdrawn, albeit without prejudice to any further action which HMRC may take;Re-referring the file to the decision-making officer, Officer Royle;
- On 22 May 2018, Officer Royle wrote, expressing what he described as an amended decision, being that NNS should have been registered with an effective date of 6 June 2016 rather than 1 June 2016. He also calculated VAT due of £37,549.37 for the period 6 June 2018 to April 2018. He expressed the conclusion that he intended to register NNS with an effective date of registration of 6 June 2018;
- On 16 July 2018, HMRC issued NNS with what was described as an Amended Certificate of Registration for VAT with an effective date of 6 June 2016. It is amended by virtue of the insertion of the typed word Amended and the statement of the effective date of registration as 6 June 2016 rather than 1 June 2016 (the Second Certificate);
- On 17 July 2018, an officer of the VAT Registration Service wrote to NNS that he had been asked to change the EDR, and had done so. The letter went on to set out options as to What you can do if you disagree with my decision;
- On 2 August 2018, NNS wrote to ask for a statutory review of what was described as being HMRC's new decision to register NNS for VAT with an EDR of 6 June 2018. That letter was acknowledged on 9 August 2018. NNS chased on 27 September 2018. The review conclusion letter dated 25 October 2018 upheld the decision to register NNS with an EDR of 6 June 2018.
[13] The basis of the NNS Registration Decision was said to be that NNS had purchased Withington's business on 6 June 2016 and should have been registered from that date under the Transfer of Going Concern (TOGC) rules: see section 49 of the VAT Act 1994 and Schedule 1 of the VAT Act 1994.
[14] HMRC has not issued any assessment against NNS.
[15] According to its Statement of Case, HMRC have also issued a penalty against NNS under Schedule 41 of the Finance Act 2008 in the amount of £17,742. That is not referred to in the Notice of Appeal, and HMRC do not refer to it further in their Statement of Case. It was issued on 5 September 2018, geared at 47.25% of Potential Lost Revenue of £37,549.37 for the period 6 June 2016 to 30 April 2018. At the beginning of the hearing, Mr Rayner helpfully confirmed that there was no appeal against this penalty.
[16] Withington's Grounds of Appeal are, in full, as follows:
The decisions relied on the registration of the buyer of the business [NNS]. That registration was fundamentally flawed, and consequently that of the Appellant [Withington], on the following grounds:
- The original registration of the buyer NNS made on 8 February 2018 was found to be invalid
- That original registration of NNS although invalid, was amended and is under review
- HMRC's estimated turnover of NNS calculated from the purchases of supplies, invigilations and seasonal fluctuations was statistically incompetent
- The argument is that because the buyer (NNS) was registrable the Appellant was registrable and because the Appellant was registrable the buyer was registrable (TOGC) (Transfer of Going Concern). This argument is circulatory (sic) and either unlawful or unreasonable in the sense of being illogical.
[17] The outcome which Withington seeks is either that the Withington Registration Decision is invalid, or the Withington Assessment is excessive.
[18] HMRC's response to Withington's Appeal is contained in HMRC's Statement of Case dated 1 November 2018. In short, HMRC contends that Withington was liable to be registered for VAT from 1 May 2013 to 31 May 2016 “as his [sic] turnover has far exceed [sic] the VAT registration threshold in this period”. HMRC contend that Withington had not provided HMRC with any business records for this period to demonstrate its turnover; and that the backcalculation from NNS' turnover was appropriate as NNS had continued the same business from the same premises with the same staff with “a gap of just two days.”
[19] HMRC also argues that the Withington Assessment is, in any event, not an appealable matter since Withington has not filed a VAT return: see section 83(1)(p)(i) of the VAT Act 1994.
[20] NNS's Grounds of Appeal are set out more extensively. In summary, these are:
- The First Certificate was unlawful;
- The Second Certificate is void, because the act of entering a trader on the register is a legal procedure and can only be cancelled and not amended;
- There were various defects with a visit by HMRC on 5 October 2016;
- The decision that Withington was registrable postdated the first registration of NNS: The regulations required Withington to be registered to enable a TOGC to be lawful. The registration of Withington relied on the registrability of NNS which relied on calculated turnover in May 2017. Registrability of NNS depended on Withington's registration at the time of transfer. This is circulatory and unimpressive, each relying on the other. NNS was first registered before Withington's registration which suggests duplicity;
- The May 2017 turnover calculation...
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