[2009] UKFTT 73 (TC)

TC00041
Appeal number LON/2006/1146

VAT – Late registration – Assessments and penalty – Hairdresser operating “chair rental” scheme – Registration and assessments based on direct tax information – Appeal heard in the absence of the Appellant – Application for adjournment refused but direction made that new evidence and submissions would be considered by the Tribunal if received from the Appellant within 28 days of the release date of this Decision – Failing that the appeal would stand dismissed without a further hearing

FIRST-TIER TRIBUNAL

TAX 

	MICHAEL HOWE	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Value Added Tax)	Respondents

				TRIBUNAL: 	JOHN WALTERS QC
						MICHAEL JAMES

Sitting in public (as the VAT and Duties Tribunal) in Plymouth on 22 January 2009

The Appellant did not appear and was not represented

Jonathan Holl, Advocate, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	We heard this appeal constituted as a VAT and Duties Tribunal.  Mr. Michael Howe (“the Appellant”) did not attend the hearing of the appeal and we allowed an application made by Mr. Holl for the Respondents (“HMRC”) that we should hear and determine the appeal in the absence of the Appellant pursuant to rule 26(2) of the VAT Tribunals Rule 1986.
2.	We were informed that the Appellant (who had spoken to Mr. Holl on the telephone) had requested a vacation or postponement of the hearing of the appeal.  We decided to reserve our decision on whether to grant and vacation or postponement and to proceed to hear the appeal subject to that decision.  We indicated at the conclusion of the hearing that we would provide the Appellant with a further opportunity to introduce evidence and make submissions provided he complied with a timetable which we would set out. We would make directions to bring finality to the appeal if the Appellant did not comply with the timetable.  These matters are dealt with in the directions which are set out at the end of this Decision.
3.	The appeal is against (1) HMRC’s decision dated 19 September 2005 that the Appellant is liable to the registered for VAT as from 1 November 1998; (2) two consequential assessments to VAT in the amounts of £47,875.01 and £13,238.00 respectively; and (3) a penalty of £7,840 for belated notification of liability to be registered for VAT.
4.	We understand that there is no dispute in relation to the figures, which are based on the Appellant’s self-assessment income tax returns.
5.	Mr. Howe ran a hairdressing salon using a system of renting chairs out to stylists.
6.	We heard oral evidence from two witnesses for HMRC, Mr. Anthony William Hume, an Inspector of Taxes, and Mrs. Sheila Margaret Newman, a Higher Officer with responsibility for managing a team providing tax education to new businesses.
7.	Mr. Hume’s evidence was that HMRC had conducted an enquiry into the Appellant’s 2002 income tax return, during which it had been established that his turnover figures had been understated in the return. The resulting amendment to the self-assessment (from a declared turnover of £51,539 to an amended turnover of £67,373) had been accepted by the Appellant.
8.	Mr. Hume said that the explanation for the shortfall was in the bad record keeping of the Appellant.  He stated that the Appellant had cooperated full with his enquiry, producing the original sales records.
9.	Mr. Hume had passed the case to Mrs. Newman, once he had established the Appellant’s turnover and checked that it exceeded the VAT registration limit.
10.	Mrs. Newman looked at the figures and decided to take action to establish the correct VAT position.  She visited the Appellant on 19 January 2005 at his commercial premises in Mutley Plain, Plymouth.  The premises were a shop in a parade, with “Michael Howe Hair Care” displayed on the facia board.  She saw only Mr. Howe, as the visit took place on a day when the shop was not open for business.
11.	There appears to have been a dispute as to the effect for VAT purposes of the Appellant’s contractual arrangements with the stylists who operated from the shop.  Mrs. Newman was told that the Appellant could not provide any copies of contracts with stylists as they (and other records) had been damaged in a flood which had taken place in August 2004.
12.	After the visit Mrs. Newman was in communication with a Mr Peters, of Parkhurst Hill, Accountants, acting for the Appellant.  Mr. Peters apparently told Mrs. Newman that he thought that all chair rentals were exempt from VAT.
13.	We understood that the effective date of VAT registration, 1 November 1998, had been determined by Mrs. Newman as a result of calculations made by Parkhurst Hill.  
14.	However because no figures had been supplied from which a precise calculation of VAT liabilities could be made, Mrs. Newman had adopted a “flat rate scheme” whereby she made a percentage allowance against turnover to compensate for input tax credit to which the trader was presumably entitled.
15.	On 2 August 2005 Mrs. Newman made a request to HMRC’s VAT registration unit in Wolverhampton to register the Appellant compulsorily.
16.	A belated registration penalty at the rate of 15% was subsequently notified.  No mitigation was allowed.
17.	It appears that the only substantive point taken by the Appellant or his representatives in correspondence is that the Appellant’s arrangements for “chair rentals” to stylists affect the amount of his turnover for VAT purposes.  The Appellant has stated that 3 self-employed stylists started operating from his shop after 2000.  The Tribunal notes that this was after the determined effective registration date, 1 November 1998.
18.	In his submissions, Mr. Holl referred the Tribunal to the decision of Blackburn J in Holland and Vigdor Ltd. v HMRC [2008] EWHC 2621 (Ch.).  This authority strongly suggests that the Appellant’s point on his “chair rental” arrangements with self-employed stylists is likely to be without substance.  It would be very surprising if self-employed stylists did not need the use of the salon as a whole to carry on their respective businesses.  If they did need the use of the salon as a whole then it would follow that the Appellant had supplied all the facilities needed to the stylists and whatever he received in payment would rank as consideration for standard rated supplies.
19.	On the basis of the evidence and arguments which we have heard, our decision is that the Appellant’s appeals fail.  HMRC’s determination that the Appellant is liable to the registered for VAT as from 1 November 1998 appears to us to be correct on the balance of probabilities. The two consequential assessments to VAT in the amounts of £47,875.01 and £13,238.00 respectively appear to us to have been made to the best of HMRC’s judgment and therefore ought to be upheld.  We are not persuaded that the penalty of £7,840 for belated notification of liability to be registered for VAT ought to be reduced or cancelled.
20.	Nevertheless, as we indicated at the end of the hearing, in all the circumstances we consider that the Appellant should have a further opportunity to advance evidence and submissions.  
21.	We refuse the Appellant’s application for vacation or postponement of the hearing of the appeal but we will consider any Witness Statements and/or Skeleton Argument which is sent on behalf of the Appellant and received by the Tribunal within 28 days of the date of release of this Decision.
22.	 If any such Witness Statements and/or Skeleton Argument is/are received within that time limit then we will make further Directions in relation to the appeal.
23.	If, however, no such Witness Statements and/or Skeleton Argument is/are received within that time limit, then the appeal will stand dismissed without a further hearing.    

      JOHN WALTERS QC
TRIBUNAL JUDGE
RELEASE DATE: 24 April 2009