[2009] UKFTT 305 (TC)

      
			       					        TC00249

 Appeal number LON/2007/1173

VAT – Registration – Voluntary Registration – Taxpayer acquiring and letting out a yacht – Whether in fact there had been charters to associated companies – Whether yacht chartered to or through agent – Whether conducting a business or economic activity – Appeal allowed

FIRST-TIER TRIBUNAL

TAX 

	HEATH HOUSE CHARTER LIMITED	Appellant

	-and- 

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

			             TRIBUNAL: CHARLES HELLIER
						PRAFUL DAVDA	

		
Sitting in public in London on 10, 11 and 30 September 2009

Tim Brown, counsel, instructed by Maclntyre Hudson LLP for the Appellant

Christian Zwart, counsel, instructed by the Solicitor for HMRC.

© CROWN COPYRIGHT 2009

DECISION

1.	This is an appeal against the Respondents’ decisions of 26 June 2007 and 16 October 2008 to uphold its earlier decision not to register the Appellant for VAT.
2.	The heart of the Appellant lies in the question as to whether the Appellant was at the relevant date carrying on a business and intended to make taxable supplies in the course of that business.
3.	The Appellant maintains that in August 2006 it acquired a yacht, the Citadel of Lymington, with the intention of chartering it to other persons as a business.
4.	The Appellant is one of a set of companies who share one or more directors and shareholders. They operate under the flag, “The Beadie Group”. We shall return to some of the detail later.
5.	The Appellant’s case was that the yacht was acquired with financial assistance from two Beadie Group Companies and with a loan from Barclays Bank, and that it was intended, and that in fact it was the case, that the yacht be chartered (a) to Beadie Group Companies, (b) to persons who arranged a charter through an agent, Lymington Yacht Charters (LYC), and (c) to persons, including employees and direction of Beadie Group Companies whose chartering was arranged by the Appellant; and in each case that the chartering be for consideration. This activity was, the Appellant says, properly described as a business of making a taxable supplies.
6.	The Appellant made its initial application on 25 July 2006. The Respondents requested supporting information from the Appellants. Having considered the evidence received they were unclear about the arrangements for the financing of the yacht, and were not convinced that the yacht had been chartered to the Beadie or St John Companies or to directors and employees for consideration. They were also of the view that the arrangement with LYC constituted a single charter of the yacht. They concluded that there was insufficient evidence to be satisfied that the Appellant was carrying on or intended to carry on a business activity and refused to register the Appellant.
7.	Much of the hearing was taken up with an examination of the Appellant’s accounting records in order to determine how the yacht had been purchased and whether and how consideration had been given when it had been chartered. This exercise could have been much more efficiently and expeditiously conducted and the areas of real dispute clearly articulated if the Appellant’s accountant had sat down with the accounting records (and if necessary those of the Beadie and St Johns companies) and had explained to an officer from HMRC precisely what had happened when. Instead the Tribunal was provided with partial records and the evidence of a witness who had almost no knowledge of how they worked. This to our minds indicated a lack of proper response to HMRC’s concerns on the part of the Appellant. It would also have been helpful if the Appellant had provided a witness familiar with the company’s accountancy records.
8.	In our conclusions on the facts we indicate briefly how we have drawn conclusions from the accountancy evidence before us.
The Legislation
9.	Schedule 1 VATA 1994 deals with registration. Paragraph 1 deals with the case when a person’s turnover is such that he becomes liable to the registered. It was not suggested that the Appellant’s turnover was such that it became liable to be registered. Paragraph 9 deals with voluntary registration. It provides:-
“Where a person who is not liable to be registered under this Act and is not already so registered satisfies the Commissioners that he - 	
(a)   makes taxable supplies; or
(b)   is carrying on a business and intends to make 
        such supplies in the course or furtherance of 
        that business,

 		they shall, if he so requests, register him with effect from the day on  
which the request is or from such earlier date or may be agreed             between them and him.”

10.  The argument before us turned on paragraph (b). It was not suggested that, at the time the Appellant’s request to be registered was made (namely 26 July 2006) it was then making a taxable supplies so that paragraph (a) would have been relevant.
11.  Articles 9 to 12 of the Principal Directive address the meaning of taxable person. Article 9 provides:-
“1. “Taxable person’’ shall mean any person who independently carries out in any place any economic activity whatever the purpose or results of that activity
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions shall be regarded as “economic activity’’. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular, be regarded as an economic activity.
2 [not relevant to this appeal]’’.
Article 10 provides:
“The condition in Article 9(1) that the economic activity be conducted “independently” shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationships of employer and employee as regards working conditions remuneration and the employer’s liability.”

Article 12 provides:
“1. Member states may regard as a taxable persons anyone who carries out on an occasional basis a transaction relating to the activities referred to in the second paragraph of Article 9(1) and in particular….’’
12.   Title XII Chapter 1 of the Directive deals with special schemes for small enterprises and permits member states to exempt traders whose turnover falls below certain limits. Under this provision or its predecessors the UK provides, in the legislation set out in Schedule 1 VATA, for the turnover limits for registration. But Article 290 provides that “taxable persons who are entitled to exemption from VAT may opt for the normal VAT arrangements.” That ability to opt is given effect in paragraph 9 of Sch1 VATA.
Summary of the legislative provisions 
13.  Under the EU directive a person who independently carries out an economic activity is entitled to opt for the normal tax regime i.e. to register for VAT. The requirement that the activity be independent excludes employees from being taxable persons. The use of ‘independently’ does not in our view exclude from taxability those persons, like all companies, who carry out their activities through the agency of others or do so with the help of others. Rather it excludes those who provide their services to another in an employment style relationship. Where an activity is the exploitation of tangible property, it will be economic if it is for the purpose of obtaining income on a continuing basis.
14.   In the UK legislation those EU provisions are reflected in the requirement that to be taxable a person must be ‘carrying on a business’ and making or intending to make taxable supplies in the course of that business. Those provisions must be interpreted so far as possible to give effect to the relevant provisions in the Directive.
The Authorities
15.   We were referred to two judgements of the ECJ: Enkler v Finanzamt Hambury [1996] STC 1316, and Lennartz v Finanzamt Munchen [1995] STC 514.
16.    Enkler concerned a caravan which the taxpayer hired out on some occasions but which appears to have been used predominantly for her own private use. The Court addressed two questions of relevance to this appeal. First, whether hiring out tangible property was to be regarded as an economic activity within the first sentence of Article 9 or whether it was such only if it fell within the second sentence. It held that such hiring was an economic activity only if it was done for the purpose of obtaining income therefore on a continuing basis (see para 22).

17.   The second question was in what circumstances such hiring out was to be regarded as done on such a continuing basis. The Court:

(i)	noted that the onus of proof was on the taxpayer (para 24);
(ii)	 said that the national court must evaluate all the   circumstances of the case (para 24);
(iii)	said that the nature of the property was a relevant consideration, in particular if it was capable of being used for private and economic purposes all the circumstances of use had to be “examined in order to determine whether it is actually used for the purpose of obtaining income on a regular basis” (para 27);
(iv)      said that the actual period for which the property is hired, the 
            number of customers, and the amount of earnings are factors 
            which may be taken into account with others. (para 29).

18.    Lennartz concerned the deductibility of input tax on capital goods acquired potentially in one capacity and then later applied for business and other purposes, and the effect that little business use (and consequently more private use) thereafter would have on the right to deduction under Article 20 of the Sixth Directive.

19.   The Court noted (at para 9) that where goods were acquired in a private capacity rather than for a person’s economic activities no right to deduct arose; it was the acquisition of goods for the purposes of an economic activity which gave rise to the right to deduct. At para 21 the Court indicated that whether the goods had been acquired for the purposes of an economic activity was to be determined in the light of all the circumstances including the nature of the goods and the periods between acquisition and use for the economic activity.

20.    In relation to the effect of little business use on the Article 20 rules the Court said at para 35 that the right to deduct in Art 17  arose however small the  proportion of business use’.

21.   In our analysis in this appeal Lennartz affords little help in the determination of whether the Appellant’s activity was an economic one. We note it above because it illustrates the focus of the ECJ on the nature of the goods and the circumstances, and because the phrase ‘Lennartz calculation’ was used in one of the Appellant’s advisers letters to refer to the Article 20 adjustment of allowable input tax on the basis of the uses to which the yacht was in fact put.

22.   We were also referred to a number of UK authorities on the meaning “in the course or furthermore of a business”. The earlier authorities addressed the question without reference to the EU provisions, Mr Zwart relied upon C&EC v Morrison’s Academy Boarding Houses Association [1978] STC 2 for the proposition that the words “in the course of a business’’ suggested that the supply “must be not merely in separated or isolated transactions but continued over an appreciable tract of time with such frequency as to amount to a recognisable and identifiable activity’’ (see p8 e). That requirement for continuity presciently reflects the decision in Enkler that, in relation to hiring goods the activity must be on a continuing basis to be an economic activity, and serves in our view usefully to elaborate the meaning of a ‘continuing basis’.

23.   We were also referred to C&EC V Lord Fisher [1981] STC 238 in which Gibson J, looking only at the UK statute, said (at 245) that six indicia could be “useful tools… for the analysis of an activity’’ although they could not usurp the statutory words, and that there was a difference between an activity for pleasure and enjoyment (such as Lord Fisher’s shoot) and a business (see 248 a-b). Mr Zwart drew our attention to his comment (at 250 g) that tribunals would be able to detect a commercial business dressed up as a pleasure activity -  and inferred that we would be quick to spot the reverse.

24.   The six indicia were these :-

(i)	whether the activity is a serious undertaking earnestly pursued;
(ii)	whether the activity is an occupation or function actively pursued with reasonable or recognisable continuity;
(iii)	 whether the activity has a certain measure of substance as measured by the quarterly or annual value of taxable supplies made;
(iv)	 whether the activity was conducted in a regular manner on sound and recognised business principles;
(v)	 whether the activity is predominantly concerned with the making of supplies to consumers for a consideration; and
(vi)	whether the taxable supplies are of a kind which, subject to differences in detail, are commonly made by those who seek to profit from them.

In Three H Aircraft Hire (a firm) v C&E Comms [1982] see 653(see below) Webster J noted that, since the requirement in that case was whether “any” business was being carried on (i.e. where only some of the activities might constitute a business), the para(v) indicia as phrased may not be apt (see 658 a). It seems to us that it might usefully be restated “whether there are activities which…’’

25.   Institute of Chartered Accountants in England and Wales v C & E Commrs [1994] 1 W&R 701 was the first case (chronologically) we were referred to in which both the Directive and the UK statute were considered. Lord Slynn, having recited the six indicia referred to by Gibson J in Lord Fisher, said that that case indicated that ‘business’ needed to be given an ‘economic’ content, and that although differences between ‘business’ and ‘economic activities’ may arise the appellant in that case was right to accept that there were the same (see 707).

Specific Decisions 

26.   We were referred to four decisions dealing with the particular circumstances of the hiring out of boats or aircraft.

27.   In Kenneth Gordon Coleman v C&E The Commissioners [1976] VATTR 24 Mr Coleman acquired a pleasure barge which he let out to a charterer immediately following its acquisition. In return he was to receive 45% of the hire fees received by the charterer. The agreement for the hire took “effect as a demise of the vessel’’ for a period commencing in May 1975 and expiring after 5 months notice on the 5 November in any year.

28.   The Tribunal found that Mr Coleman was not carrying on a business, The letting of the barge by Mr Coleman enabled the charterer to carry on trade with the vessel - by chartering it out - but Mr Coleman did not participate in the carrying on of that trade. Although Mr Coleman derived income from the letting of the barge to the charterer this was the activity of an ordinary investor not a business.

29.   Three H Aircraft Hire (a firm) v C & E Comms [1952] STC 652 concerned the hiring out by a partnership of an aircraft owned by the partnerships to BLS Aviation Ltd. BLS provided aircraft for private hire. Under the hiring agreement “BLS would take over the aircraft subject to certain rights that the partners had to use it for their own purposes and would hire it out and pay the partnership a hire fee related to the length of time it was hired”. The Tribunal, relying on Coleman, found that partnership was not as a result of this activity carrying on a business.

30.   In the High Court, Webster J (at 655 j) noted that the terms of the agreement with BLS where very similar to, but not identical with, the agreement in the Coleman case. The differences identifiable from Webster J’s Judgement appear to be (a) that in Coleman the charterer had to take reasonable steps to maximise revenue, an obligation not undertaken by BLS, and (b) that certain accounting and administration duties accrued to Coleman which did not accrue to the partnership (see 650 j to 661 b). Webster J found that the Tribunal rightly found Coleman indistinguishable and was fully entitled to adapt the reasoning in that case (see 661 c-d).

31.    One important distinction between both Three H Aircraft and Coleman and the facts in the appeal before us lies in the nature of the agreement between the taxpayer and the chartering entity. In Coleman (and therefore we conclude Three H Aircraft) there was a letting to the Charterer who then sublet on his own account. It will become apparent that such was not the case in the agreement between the Appellant and LYC.

32.   Finally we were referred to two more recent decisions of the Tribunal which consider the issue of chartering a boat in the context of the “economic activity” words of the Directive.

33.   In Mark Berwick and Christine Berwick VATD 17686 (2002), the Berwicks bought a yacht which they let to Sunsail, a yacht chartering company. The decision of the Tribunal records that the letting agreement provided.

(i)	for Sunsail to use best endeavours to charter the yacht,
(ii)	for Sunsail to pay a monthly fee of 10% of the price of the yacht for an initial period and thereafter to pay 25% of the net chartering income,
(iii)	for Sunsail to maintain and repair the yacht at its cost and
(iv)	for Sunsail to have 29 days use of the yacht “or another yacht owned by Sunsail’’.

There was no express finding in the decision as to whether the yacht had been demised to Sansail, but the provisions quoted do not to us indicate an agency agreement and are consistent with a charter of the boat into the possession of Sunsail for the period of the agreement. (See also Stockdale in next paragraph). (Helpfully the chairman of the Tribunal in Stockdale was the same as in Berwick, and made clear, at para 34, that in Berwick there was a four year agreement under which the yacht was given over completely to Sunsail). The Tribunal found that the letting of the yacht was a single isolated transaction which was without the requisite continuity for the exploitation of the yacht to amount to an economic activity for the purpose of the Directive.

34.   Trevor Brian Vaux Stockdale VATD 18757 (2004) again concerned whether an appellant’s yacht chartering was a business for VAT purposes. The Tribunal concluded that the letting of the boat was an economic activity. In doing so it placed reliance upon: (a) Mr Stockdale’s continuing involvement in decision making over the boat, (b) the fact that Mr Stockdale was the emergency contact, (c) the fact that Mr Stockdale invoiced the charterer for the chartering and (d) that he was responsible for insurance and some repair costs.

35.   The terms of the agreement in Stockdale as they appear in the decision have similarities to those in this appeal, but it is not made expressly clear in the decision whether or not the charterer took possession of the boat under a demise of it, or merely acted as Mr Stockdale’s agent. It seems more likely that it was the latter.

36.    From this review of the authorities we draw the following guidance:-

(i)	hiring out tangible property can be a business or economic activity of it is done for the purpose of obtaining income on a regular basis i.e. with the necessary element of continuity over an appreciable tract of time rather than in sporadic or isolated transactions;
(ii)	the indicia in Lord Fisher are helpful tools in deciding whether a business or economic activity is conducted;
(iii)	the period of hire, the number of customers and the earnings are relevant factors in assessing continuity;
(iv)	a single demise of a vessel for a long period of time is unlikely to have the necessary continuity; and
(v)	in determining whether there is a business, private enjoyment indicates that there may not be one, and in relation to an asset capable of private enjoyment there needs to be a careful examination of all the circumstances.

The Evidence and Our Findings of fact.

37.    We heard oral evidence from Nigel Lewis a director of the Appellant and from Janet Commock, the officer in HMRC’s Registration Appeals team who made the review decision of 16 October 2008 against which the appeal was made. We had before us bundles of copy documents and correspondence including the information available to HMRC at the time of that review decision. Further documentary evidence was provided during the hearing at our request and, to his Final Observations and Submissions Mr Brown appended certain other documents. Save as indicated in the remainder of this decision our conclusions are not made on the basis of the later documentary evidence.

38.    We were greatly assisted in our assessment of the evidence by Mr Zwart’s written closing submissions which highlighted in detail the deficiencies and inconsistencies in the evidence adduced by the Appellant. We deal with the detail of the evidence and the reasons for our conclusion under four of the headings below. But we deal in greater detail with some of the issues raised by Mr Zwart in an Appendix at the end of this decision.

(i) the companies and individuals

39   In 2006-2008 there were 15 or so companies which had shareholders and directors drawn from four people:  Mr Lewis, Mr Thompson, Mr Deville and Mr Nutt. (whom we call the “Principals”). We shall call them the Beadie Group Companies although they were not all part of a Companies Act or Taxes Act Group. Most of these companies were concerned with property holding and development. Among them were:-
(i)	the Appellant;
(ii)	Samuel Beadie (Properties) Limited (‘’SBP’’);
(iii)	St John Spencer Estates & Development Limited (‘’St Johns’’);
(iv)	Pickenham Estates Limited (“Pickenham’’); 
(v)	Pickenham (Romford) Limited; and
(vi)	Elstow Retail Centre Limited

40. Mr Deville was the majority shareholder in SBP; Mr Lewis, Mr Deville, Mr Thompson, and Mr Nutt held 25% each in the share capital of St Johns. Mr Lewis, Mr Deville, Mr Nutt and Mr Thompson were all directors of the Appellant. The company secretary of the Appellant was Mark Robinson.

41. The Beadie Group companies shared administrative facilities: a common office,
secretarial and accounting staff; telephone facilities which enabled each company to have a separate phone number (distinguished by its last four digits) and for the office staff to be able to answer on common handsets calls for any one of the companies; and an email address, “@beadiegroup.com”, which enabled staff and directors to be contacted without specifying the relevant company in the address, although Mr Robinson and Mr Lewis also had separate e-mail addresses: “@heathhousecharter.co.uk”.

42.  It was clear to us from Mr Lewis’s evidence that the Principals and the companies cooperated in their business activities and that there was a measure of overlap, but also of difference, between the business activities of each company (other than the Appellant which had no property interests).
43.  Companies in the Beadie Group entertained advisers customers, staff and contractors. Before 2007 sailing yachts had been chartered by them for corporate events. Mr Lewis told us, and we accept, that confining a group of people on a boat for a day was a very good way of getting a deal done.

44.  Mr Lewis and two other directors were qualified skippers, and under the terms of 
the insurance policy were qualified to skipper the boat if it was chartered. Having heard Mr Lewis we formed the view that he enjoyed sailing.

45.  The Appellant had no employees. Its administration was conducted by its directors, Mr Robinson and the staff of other Beadie Group Companies. Until July 2006 the Appellant had no activities.

(ii) the ownership and financing of the yacht.
46.  More detail for our findings under this heading is set out in the Appendix to this 
decision. We find that the yacht was purchased by the Appellant from Sea Ventures Ltd on 4 August 2006. The total invoiced price of the yacht was £413,104.74 but £9,196.78 of this related to work on the boat that had not yet been done. Thus £403,907.96 was due. Of this St Johns paid £100,000 on behalf of the Appellant and SBL paid £294,704.74 on the Appellant’s behalf. The balance of £9,203.22 appears to have been held back pending rectification work, but was probably eventually met by SBL on behalf of the Appellant.

47.  On 18 September 2006 Barclays Bank lent the Appellant £252,759 secured on the 
yacht. £250,000 of receipt was applied in reducing the Appellant’s indebtedness to SBL. As a result the Appellant owed:

£100,000 to St Johns
£252,754 to Barclays
£44,704 plus additional amounts to SBL.
48.  Further fitting out costs were incurred after delivery of the yacht and were paid 
by SBL on behalf of the Appellant thereby increasing SBL’s indebtedness to the Appellant.

49.  The terms of the Barclays loan required by the Appellant to make monthly 
payments by direct debit of £2,844.37. A schedule dated 15 January 2007 from Barclays shows that these payments represented interest on the loan plus repayment of capital. After four months the capital outstanding had reduced by some £2,200.

50.  There was no evidence of a loan agreements for the lending by SBL and St Johns. 
The evidence before us indicated that no interest was paid on the indebtedness. We conclude that the credit given by SBL and St Johns was interest free and that there was no formal loan agreement. This was an arrangement informally made between companies controlled by a group of business friends.

51.  The Appellant had in 2006 no assets other than the yacht and, until mid 2007 earned no income. It thus did not then have the funds to pay for the direct debits on the Barclays loan or for the costs of the upkeep of the yacht. These costs were met by SBL which also transferred to it moneys to pay the £2,844.37 direct debits.  SBL also paid on its behalf invoices for the upkeep of the yacht. These payments, under an informal arrangement between SBL and the Appellant made through their directors, increased the Appellant’s indebtedness to SBL pro tanto.

52.  The Appellant insured the yacht for “Skipper Charter plus Private and Pleasure 
use’’.

(iii) the Agreement with Lymington Yacht Charters.
53. On 15 August 2006 the Appellant entered into agreement with Sea Venues Ltd trading as Lymington Yacht Charters (‘’LYC’’) for the chartering of the yacht. Under that agreement:-
(i)   the Appellant appointed LYC “as the manager and broker of the yacht’s charter operation, acting as agent on behalf of the Owner’’;

(ii)  LYC was given authority to enter into contacts for the purpose of managing the chartering of the yacht;	

(iii)  LYC had to use all reasonable endeavours to charter the yacht. It had to do so at rates which were not less than 20% of a Target rate previously agreed with the Appellant (unless the Appellant agreed to a lower rate);

(iv)  LYC had to keep the yacht in good order, doing  monthly checks on her, but the costs of repair were to be reimbursed by the Appellant. Individual expenses in excess of £500 required the Appellant’s prior approved; LYC was given discretion by the agreement in relation to smaller sums (but Mr Lewis told us that in practice everything was agreed in advance); and

(v) the Appellant was obliged to pay LYC a fixed quarterly fee of £1,625 plus 30% of all (LYC) charter income

54.    Three paragraphs of the Agreement need to be set out in full:-
 	Under paragraph 3 ‘’Owner’s Rights and obligations …. 
3.9 to notify [LYC] before 31 March in each year of the days which are to be reserved for the Owner’s use during the year, provided that any charter previously agreed by [LYC] prior to receiving notice…. shall take priority.
“3.10 Owner’s reservation in the High Season shall not exceed three periods of up to in week each and shall not include Cowes week unless agreed by the Manager. There shall be no such limitation on low season reservations.’’
            and under paragraph 4 ‘’[LYC]’s Rights and obligations 
	“4.1 ….. to manage the Yacht’s charter operation (as agent for 
	the owner) in accordance with sound charter management 
	practices, arranging all bookings and administration relating 
	to chartering of the Yacht.’’

As we shall note later, HMRC draw attention to the word “all” in this last paragraph.
55.  The agreement provided for monthly notification and invoicing: LYC would notify the Appellant of charter income earned and the Appellant would invoice LYD for the charter fees earned, LYC would invoice the Appellant for the 30% fee it earned on that income. Invoices were also to be rendered in respect of expenses incurred by LYC.
56.  LYC were independent of the Appellant and managed about 24 yachts.
57. Mr Lewis told us, and we accept, that in practice clause 3.9 and 3.10 of the agreement with LYC were operated less formally. In February of March he would meet LYC and agree the periods for which the Appellant wished to book the yacht for Beadie Group use.
58. The agreement provided for termination on two months notice expiring in December in any year. Mr Lewis told us that in practice it was renewed yearly after discussion with LYC.
59. The sailing season lasts from about April to October each year. In 2007 LYC chartered the yacht out for 14 days (seven one day charters plus one longer charter) at a usual fee of £1,221 per day, a total of about £17,100. In 2008 LYC chartered it out for 12 days (5 one day charters plus one longer charter) at about the same daily rate bringing in a chartering income of some £13,500. Where a yacht is agreed to be chartered but the weather is bad the charter is not taken or paid for. There were a couple of occasions in which a booking did not materialise for that reason.
(iv) the use of the yacht by Beadie Group Companies and by directors and employees of the Appellant.
60. We find that during the sailing season in both 2007 and 2008 the yacht was used by Beadie Group Companies and by officers of the Appellant. In total for those seasons we find that the use was as follows:-
Charterer 				 Days		No of Charterers
SBP					29 days		7
St Johns				13 days		2
Pickenham Romford			7 days			2
Elstow Retail Centre			2 days			1
Mr Lewis				6 days			1
Mr Robinson				4 days			2
Mr Deville				4 days			1
In the table above we have attributed 4 days use to Mr Deville. The Appellant prepared schedules showing by whom the yacht was booked in the 2007 and 2008 sailing seasons. There were two versions of their schedule before us for both years. The schedules were updated as the seasons progressed. In one version of the 2007 schedule (exhibited to Mr Lewis’ witness statement) Mr Deville was recorded as having booked the yacht for 4 days between 29 May and 1 June. In the other, which was sent to HMRC in September 2007 and shows amounts billed or to be billed, Mr Deville’s booking does not appear. Although it is possible that Mr Deville’s trip was rained off we heard no evidence that it had been and concluded that it was more likely then not that Mr Deville had used the yacht on those days.
61.  The number of days in the table above should be taken with a margin of error +/- 20%. The days are complied from an examination of invoices, accounts and the booking schedule. There are discrepancies between those sources which may reflect changes in plans or weather or clerical inaccuracy. But we believe that within such a margin the figures are probably correct.
62. The fee at which the yacht was chartered out by LYC was £1,221 per day. This charter rate included the provision of a skipper, crew and some refreshment. When the yacht was used by Beadie Group Companies or their officers and staff, not all these items were needed: directors of groups companies such as Mr Lewis were qualified skippers, the crew could be provided either by the companies or by guests, and separate arrangements could be made for refreshment. Further the 30% fee charged by LYC was not exigible on charter income which did not arise through LYC.
63. Mr Lewis told us that the charge made to individuals such as Mr Robinson or himself for chartering the yacht was fixed at £854.90 per day – which was 70% of the LYC rate (thereby reflecting the absence of LYC’s 30% fee), and that when the yacht was taken by Beadie Groups Companies who took it for a week or so at a time a round sum of £10,000 was charged for such a period.  (The accounting evidence indicated however that for some shorter periods a sum of only £4,500 was charged).We were shown copies of invoices from the Appellant relating to the use of the yacht in 2007. These invoices were to LYC in respect of the charters arranged by it and also to SBL and St Johns. The LYC invoices were dated shortly after the relevant charter, the SBL and St Johns invoices were dated 31 July 2007 – the date one month after the Appellant’s year and the invoices. Invoices were not numbered. Mr Brown’s closing submissions appended an invoice dated 31 July 2009 for Mr Lewis’ use of the yacht between 22 and 27 May 2008 – an invoice therefore dated more than a year after its use, and after the 2008 year end. Mr Lewis’ oral evidence that this had been paid was supported by bank statements appended to Mr Brown’s closing submissions.
64. The Appellant uses a SAGE accounting system. We were shown a copy of the account maintained within that system which showed the movements on the intercompany loan balance with SBL. To this account had been credited the monies expended by SBL in paying for the yacht and its maintenance on the Appellant’s behalf, and payments made to the Appellant to fund its direct debit obligations to Barclays. On 31 July 2007 there was a debit to this account of £20,000 which in our view represented invoices raised on that date for SBL’s use of the yacht. However in the copy documents before us there were copies of three invoices of £10,000 to SBL dated 31 July 2007 (at page 77 of the Appellant’s bundle, pages 152 & 190 (duplicates) and pages 153, 191 and 179 (duplicates of the Respondents’ bundle) each for the yachts use for a different period; thus the debit to SBL’s account should have been £30,000. In addition the summary sheets for the use of the yacht showed use by SBL between 19 and 25 August 2007 in respect of which there was no invoice before us. But the copies of further parts of the SAGE accounts provided later by Mr Brown enabled a later debit entry in SBL’s account to be attributed in part to a charge of £14,000 for this use. Those copies also enabled changes for SBL’s recorded use in 2008 to be traced to 2008 debits in its account. Copies of accounting entries provided in the course of the hearing and with Mr Brown’s closing submissions also indicated debits to St John’s account for its invoices and recorded use of the yacht.
65. There was no documentary evidence before us that Mr Deville had been invoiced or had paid for the use of the yacht in the period 29 May to 1 June 2007 in which the (earlier) 2007 booking schedule showed he had booked it. Neither was there any documentary evidence of invoice or payment by Mr Robinson for his use of the yacht. The nearest evidence was a column in the 2008 booking schedule showing that two charges of £1,709.80 were to be made for his use. Mr Lewis however told us that all employees’ and officers’ use was to be paid for and arms length billing to associated companies and employees and directors were agreed at the outset.
66.  We conclude that where the yacht was used by Beadie Group Companies a charge was made for the use, and in the case of charges to SBL and St Johns those charges were accounted for as a reduction in the balance which the Appellant owned to St Johns (as a debit entry in that account).
67.  Where the yacht was used by officers and employees the position is different. In a letter dated 18 January 2008 from MacIntyre Hudson, the Appellant’s advisers, to HMRC it is said that “it is accepted that any private use of the yacht by the directions of [the Appellant] is subject to a ‘Lennartz’ calculation and that VAT must be accounted for as output tax”. That of course carries the assumption that such use would not be paid for. It seems to us likely that the idea that an actual charge be made to directors and officers for their use came late in the day, probably in 2008 and that Mr Lewis’ recollection in this regard is faulty. We have found that it was likely that: Mr Deville used the yacht in early 2007 without payment, payment by Mr Robinson for his 2008 use was envisaged in the bookings schedule but we have found no evidence that it was made or the charge pursued, the payment by Mr Lewis for his 2008 use was foreshadowed in the bookings schedule but only invoiced and paid in late 2009. Mr Lewis’ evidence reflects we believe the intentions developed in 2008 rather than the reality of 2007 and 2008. 

(iv) Financial Results
68.  Mr Lewis told us that the genesis of the Appellant’s acquisition of the yacht     lay in a discussion (in 2005) between three of the people who became directors of the Appellant. They concluded that if a company was formed to purchase a yacht it could generate sufficient income if it (a) chartered the yacht to Beadie Group Companies, (b) obtained third party chartering income through LYC and (c) tried to obtain income from their own third party chartering. The acquisition of the yacht by a company in the Beadie Group would also ensure the control and availability of the yacht for Beadie group Companies. They estimated income of £40,000 pa from Beadie group Companies, £25,000 pa from LYC charters and £30,000 pa from letting the boat out themselves. That was total income of £95,000 pa. Against that the estimated costs of £70,000 pa. That left a profit of £25,000 pa. before interest and depreciation. He told us that they expected that it would be a couple of years before they came into profit. However no formal business plan or budget was put before us and we conclude none was produced. 
69.  Mr Lewis explained that they had been advised by their accountant that an arm’s length change should be made for the use of the yacht.
70.  We were shown unaudited accounts for the Appellant for the year ended 30 June 2007. That year end is unfortunate since it is half way through the sailing season. By 30 June 2007 the Appellant had owned the yacht for some 10 months but had been able to use it for only three. Thus the result disclosed may be a little unrepresentative of the profitability of the company. That result was a loss of £50K for the period after charging £46k of depreciation and £13K of interest on the Barclays loan.
71. The best evidence before us of the aggregate cash costs incurred by the Appellant was the intercompany account with SBL through which most of the expenses of the company seem to have been routed. This suggested that in the 25 months to October 2008 some £135k of expenses had been incurred. In that period the chartering income was about £30k from LYC and very roughly probably about £100k from Beadie Group Companies. Thus we estimate that it is likely that the Appellant at most broke even or made a modest loss in that period. That estimate is before taking account of depreciation on the yacht but to some extent that omission is compensated by the fact that the cash costs include capital repayments on the Barclays loan of possibly some £24K over the period.
The Parties’ submissions.
72.  Mr Brown says that the hiring out of tangible property constitutes exploitation of such property which, if it is done for the purpose of obtaining income therefrom is a business. On the evidence he says:
(i)	that the supplies made by the Appellant to its associated companies were supplies for consideration, and that these, together with the contract with LYC, constituted an economic activity; and 
(ii)	even if the supplies to the Beadie Groups Companies are ignored, the charters through LYC were numerous and for consideration. The Appellant did not simply hand the yacht over to LYC: it carried on an economic activity. He says that Coleman and Three H. Aircraft Hire can be distinguished.
73. Mr Zwart makes a number of criticisms of the evidence provided by the Appellants and warned us against attaching value to the Appellant’s seemingly disorganised records. He says:-
(i)	 it is for the Appellant to show it was carrying on a  
       business;
(ii)	 what must be shown is that that the Appellant was 
  	                               “independently” carrying out an economic activity i.e 
			        making supplies on a continuing basis;
(iii)	  under the Appellant’s contract with LYC it divested itself 
        of its rights in the boat to LYC, giving LYC a sole 
        discretion in relation to its chartering.
(iv)	  in reality and contractually it was LYC and not the  
        Appellant which exploited the yacht for LYC’s profit.
(v)	  the isolated single transaction with LYC was not the  
        making of supplies on a continuing basis. The Appellant’s 
        receipts arose from that single transaction;
(vi)	  either the evidence of other transactions was inadequate 
        or, if there were other transactions by the Appellant, they 
        were occasional and not on a continuing basis.
Discussion
(1) The contract with LYC
74. Under clause 1 of this contract LYC is appointed to act as “agent’’ on behalf of the Appellant as the ‘manager and broker’ of the charter operation. Under clause 2 LYC is given authority to contract. Under clause 4.1 LYC is to manage the charter operation “as agent for the owner”.
75. There is in our judgement nothing in the language of the contract, and there was nothing in any of the other evidence before us, to suggest that the contract did not appoint LYC as agent of the Appellant in the common law sense of that term. Although clause 8 of the contract provided for the Appellant to invoice LYC rather than the charterer, that provision reflects in our view (a) the probable invocation by HMRC of section 47(3) VATA (see below), and (b) the commercial need for LYC to invoice the charterer promptly and in its own name. The provision appears mechanical and not intended to have a substantive effect on the nature of the relationship between the parties.
76.  Nor does the agreement transfer any ownership in the yacht to LYC. The LYC is given no right to use the yacht for its own purposes. Clause 3.1 required the owner to “deliver the yacht to [LYC] at Lymington …fit and ready for chartering’’ but there is no transfer of possession of the yacht to LYC. The Appellant is clearly implicitly required to make the yacht available when LYC had arranged a charter, but when not so used the Appellant expressly retains its use)(see clause 3.11 : “the owner may have the use of the yacht….when not required for charter.”)
77. The effect of those provisions is in our judgement that: when LYC agreed a charter it did so as agent of the Appellant and that the Appellant was bound – and could enforce – those contracts; those contracts bound the Appellant to make the yacht available to the charterer for the period of the contract; and the yacht supplied under that contract was the Appellant’s and the monies payable, although paid by the charterer to LYC, were received by LYC in a fiduciary capacity for the Appellant.
78. There is nothing surprising in the context of legal and non-natural periods of the actions of their agents being treated as the actions of the corporation : a company can only act through the individuals who are its agents – whether they be those to who authority is to act is customarily given such as directors and some employees, or agents specifically appointed. The act of the agent is the act of the company and the nature of the company activities is determined by the nature of its agent’s acts.
79. Mr Zwart points to clause 4.1 of the contract where under the heading “Manager’s Rights and Duties”, appears: “from the starting Date to manage the yacht’s charter operation….arranging all bookings and administration relating to the chartering of the yacht’’.  He reads this clause as an entitlement of the manager to be the exclusive organiser of bookings to the exclusion of the owner. However, even if that is the correct reading of their clause it does not in our view affect the agency nature of the relationship between the parties.  In any event the chartering to the Beadie Group Companies indicates (on the basis of Mr Lewis’ evidence, which we accept, that these matters were discussed with LYC) that it was not taken by the parties to have the effect for which Mr Zwart contends, or that the contract if necessary was varied to that extent.
80. The VAT Act 1994 recognises the effect of agency, and makes particular provision in relation to agents who act in that same name. Section 47(3) provides
“Whenever services are supplied through an agent who acts in his own name the Commissioners may, if they think fit, treat the supply both as a supply to the agent and as a supply by the agent’’.
There is implicit in this an acceptance that a supply made by a principal through an agent is, absent such provision, to be treated as a supply by the principal to the persons with whom the agent has contracted. Nor in our view does this provision, even if the Commissioners take advantage of it to treat the Appellant’s supply as being to the agent (LYC) rather than the charterer, mean that one is required therefore to treat all the individual supplies made to LYC as a single supply.
81.  Mr Zwart says that the nature of the discretion given to LYC under the contract is of such an all embracing nature - LYC is given a complete discretion over chartering: that the agent’s actions should not be regarded as those of the Appellant. We do not agree. If this was right then where, as it is normal, the directors of a company possess comprehensive powers to act as it agent, these actions would not be attributable to the company for VAT purposes. We do not regard the word “independently” in Article 9 affects this conclusion: it is intended to refer to the employment style relationships in Article 10 – and the relationships with LYC was not of that nature.
82.   Mr Zwart contrasts the position of LYC with that of an employee with an agency power who would be bound to use it to maximise the profitability of the employer. Here by contrast he says LYC has no such obligation. Mr Brown replied by drawing our attention to LYC’s obligations under clause 4.3 to use all reasonable endeavours to charter the yacht. But even without such a provision we cannot see by what principle such a lack of a duty for an agent should cause the agent’s acts not to be treated as those of his principal for VAT purposes. We return however to this point in part (iii) of this section below in relation to continuity and profit motive.
83.	  Accordingly in determining whether or not the Appellant conducts an economic activity (on a continuing basis) we regard each charter by LYC as a separate charter by the Appellant. We note that in Coleman and Three H Aircraft the arrangements were not so regarded. There is nothing however in the reports of those cases which indicates that the manager was acting as agent of the taxpayer and, as noted above we believe that such was not the case. Here the position is quite different.
(2) Applying the indica in Lord Fisher.
(a) was the activity of the Appellant a serious undertaking earnestly pursued?
84.	There is no doubt that buying a yacht for £400K and paying for its upkeep is a serious matter. Likewise the contract with LYC seem to have been seriously undertaken, and the sums earned under it were not insubstantial. There was a plan for the acquisition and financing of the yacht and, as anticipated, Beadie Group Companies used the yacht and provided consideration for so doing.
85.	  But on the other hand there was an element of informality in the arrangements – the absence of formal loan agreements between the companies, the absence of a formal business plan, and the somewhat slow delivering of invoices. There was also little evidence of the earnest pursuit by the Appellant of charters to third parties:  at length it set up a one page website but there was no evidence of serious marketing effort.
86.	  We tend to the view that this was quite a serious undertaking moderately earnestly pursued.
(b) was the activity actively pursued with a reasonable degree of continuity?
87.   The boat could not be let during the winter, but one would not regard a ski hire operation as lacking this quality because skis could not be hired out in summer. What is relevant is whether over a reasonable tract of time there was continuity. In our view there was. Over 2007 and 2008 the Appellant supplied the yacht to other persons on about 24 occasions in the yachting season: LYC as the Appellant’s agent contracted for its chartering over that period. There was not just one letting of the boat but many.
(c) Does the activity have a certain measure of substance as measured by the annual value of supplies made?
88.  It seems to us that even having regard only to the supplies made by the Appellant through LYC, that this answer to this question is: Yes
(d)  Was the activity conducted in a regular manner and on sound business principles?
89.  The lack of a formal business plan, of some budgetary exercise more than a back of the envelope calculation, and of formal loan arrangements indicates a degree of irregularity. We are in particular perturbed by the apparent failure to take account of depreciation and interest changes in the informal budgeting described by Mr Lewis. On the other hand some thought was given to these issues, a proper contract was made with LYC, charges were made to Beadie Groups Companies, and accounts were kept.
(e) Whether there are activities which are predominantly concerned with making taxable supplies to consumers for consideration?
90.  It seems to us that – predominantly – it was. There was some use by directors and officers which may not originally have been intended to be for consideration but the majority of the use of the yacht appears to have been in letting it out to other persons for consideration.
(f))  Were the supplies of a kind which are commonly made by those who seek to profit from them?
91.  The supplies made through the agency of LYC were in our view such supplies.  Likewise the supplies to the Beadie Groups Companies.
Summary
92. Overall consideration of these factors suggests to us that on balance that the Appellant did conduct a business, albeit a business which was a little informal at times.
(3)  Private Pleasure and Enjoyment?
93. The use made of the yacht by those to whom it was chartered is irrelevant to this issue.
94.   In this case the letting of the yacht free of charge to the Appellant’s directors and employees would in our view be non business activities. But, the fact, if it were the case, that its directors enjoyed sailing and obtained that enjoyment from the boat when it was chartered to Beadie Group Companies for good value does not prevent those charters from being activities in the course of a business. Neither would extensive use by the directors free of charge prevent charged-for chartering (which subsided their enjoyment) being a business activity. It is in those latter circumstances that a Lennartz charge could arise.
(4) The Enkler Tests
95.  The fact that the nature if the yacht was such that it was suitable for private enjoyment mean that careful consideration needs to be given to the circumstances. However:
(a)   the yacht was hired out through the agency  of LYC to 12 persons over two seasons each for period of either 1 day or a week; and to SBL, St Johns, Pickenham Romford and  Elstow Retail on a total of about 12 occasions for periods of about a week each.
(b)	The income received was not insubstantial.
We conclude that the hiring out of the yacht was something not done sporadically or as an isolated transaction but as something with such a measure of continuity that it is right to regard it as having been done for the purpose of obtaining income on a regular basis.
96.  The hiring for consideration was the exploitation of the yacht. We conclude that such hiring was therefore an economic activity for the purpose of the Directive notwithstanding any private pleasure which might also have accrued to the Directors from the ownership or unpaid use of the yacht.
(5) Informality – Partnership?
97.  Whilst the Appellant’ arrangement with LYC was well documented and appears to have been pursued in a business like manner, its arrangements with the Beadie Group Companies display some less formal characteristics – the lack of formal documentation for lending, the invoicing for use at the time when year end accounts were prepared rather than following use, and ad hoc arrangements for funding from SBP were examples of that informality. In our experience such informality is often a constituent part of dealings between closely connected companies especially those without well qualified and staffed accounting departments. But the informality raised a question alluded to in HMRC’s statement of case, namely whether it could be said that the arrangements constituted some form of partnership between the Beadie Group Companies involved rather than the making of supplies by the Appellant to these companies.
98.  In our view the draft accounts prepared by the Appellant, the accounting entries in the Appellant’s boats, and Mr Lewis’ evidence of the genesis of the acquisition of the yacht indicate that there was not such a partnership and the income from chartering the yacht belonged beneficially solely to the Appellant.
(6) Conclusion
99.  We conclude that the activities of the Appellant in the period from its acquisition of the yacht for the end of the sailing season in October 2008 constituted an economic activity for the purposes if Article 9 of the Principal Directive, and that, for the purposes of paragraph 9 Sch 11 VATA the Appellant was in that period carrying on a business in the course of which it made supplies for consideration.
(7) The nature of our jurisdiction.
100.  Both Mr Zwart and Mr Brown said that our jurisdiction in this appeal was not supervisory (we were not concerned with whether or not the decision made by HMRC was reasonable) but was a full appellate jurisdiction (we had to determine on the relevant evidence whether we were satisfied that the conditions in para 9 Sch 1 were met). We agree that such is our jurisdiction: although para 9 does not provide, as do other parts of the Act that the taxpayer “satisfies the Commissioners, or on appeal the Tribunal” that the conditions are satisfied, there are not considerations (such as those relating to requiring security) which indicate that certain matters should be left to the Commissioners; further the nature of the right given by Article 290 of the Directive requires the existence of full rights of appeal against HMRC’s decision.
101.	It was suggested to us, however, that in determining what evidence was relevant for our decision we should be guided by the approach indicated by Dyson J in C&E Comm V Peachtree Enterprises Ltd [1994] STC 747 where at p 751 he said that the Tribunal must limit itself to considering facts and matters which existed at the time the challenged decision was taken by the Commissioners. In this appeal that would require us to ignore anything before us which was not before the Commissioners on 16 October 2008.
102.	We do not believe that this is the correct approach. Dyson J was speaking in the context of the exercise of a supervisory jurisdiction. The question of whether a decision was reasonable must be taken by reference to facts and matters existing at that time; but in the exercise of a full appellate jurisdiction the Tribunal must take into account all the evidence before it.
103.	In the light of the Peachtree suggestion we have endeavoured to highlight in this decision those matters when we have relied upon evidence (such as later accounting records, ownership certification and parts the evidence of Mr Lewis) which were not available to the Commissioners when they made their decision on 16 October 2008. However, standing back and looking at the evidence available to HMRC at that date and ignoring that later evidence we would have come to the same overall conclusion.
Result
104.	We allow the appeal.
Costs
105.	 Mr Brown asked for costs if the Appellant were successful. As we said at the start of this decision we felt that much of the argument could have been avoided if the Appellant had produced and clearly explained its accounting records to HMRC at an earlier date. Nevertheless at the heart of the appeal lay the proper interpretation of the contact with LYC on which in our judgement the Appellant succeeds. Accordingly, we direct that the Respondents pay 40% of the Appellant’s costs in the appeal such costs, if not agreed within 2 months, to be taxed by a taxing master of the Supreme Court.
Appeal
106.	The right of the parties to appeal against this decision are set out in the notice which accompanies this decision and which form part of it.

CHARLES HELLIER
TRIBUNAL JUDGE
REELASE DATE 13 November 2009

Appendix
Mr Zwart urged us to treat the evidence of a single director of the Appellant who was also a director of other companies said to have hired the yacht with some circumspection. He draws our attention to the Tribunal’s decision in The Wilkies Inn Ltd [1996] BVC 4332 in which apart from accounts and invoices there was no evidence of the relevant arrangement and the Tribunal found that the Appellant had not satisfied the burden of proof. We have taken that into consideration but we also note that there was nothing in the evidence to indicate, and it was not suggested to us, that the accounts and invoices before us were fabrications. 
Ownership of the Yacht.
Mr Zwart points to the Bill of Sale included with Mr Brown’s Final observations and submissions. The Bill of Sale is dated 4 August 2006 and records the sale by Sea Ventures Ltd to the Appellant for consideration of “£1.00 (one pound) and other considerations.” £1.00 is not the same, he says, as the £413,104.74 which is said to have been paid in full on the invoice to the Appellant of the same date. Mr Zwart notes that a certificate of British Registry (similarly produced by Mr Brown) issued by the Maritime and Coastguard Agency records the Appellant as owner, but says ‘A certificate of registry is not proof of ownership’. Mr Zwart notes the invoice to the Appellant for £413,104.74 in respect of the yacht. He says that if it was acquired for £1 then it cannot have been acquired for £413,104, and suggests that the evidence therefore shows that Sea Ventures Ltd must have sold the yacht twice – once to the Appellant for £1 and once to someone else for £413,104 invoiced to the Appellant.
It seems to us that the most likely interpretation of this evidence is that Sea Ventures sold the yacht to the Appellant for £413,104.74 which sum it invoiced to the Appellant. The entries in the Appellant’s SAGE accounts and Mr Lewis’ evidence indicate to us that it is probable that the price was paid by SBL and St Johns on behalf of the Appellant. The Bill of Sale records the consideration to be £1 “and other consideration”, not simply £1. Those words encompass a larger consideration than £1. We think it likely that the words used were intended to indicate that the price paid was more than £1. We do not find that those words cast significant doubt on the Appellant’s claim that the yacht was transferred to it for £413K. We do not need to speculate on the reasons for this form of words.
The indebtedness for the yacht’s acquisition
Mr Zwart argues that if the price of the boat was £1, the Appellant could have become indebted to SBL and thus the credit entries in the SBL account cannot represent consideration for its use.
We do not believe the purchase price of the yacht was £1. Whilst it might be possible to imagine situations where the yacht might have been effectively given to the Appellant, the most likely transaction was the fairly simple one under which the Appellant acquired the boat with financial help from other companies.
Mr Zwart notes that in cross examination Mr Lewis had said in relation to the SBL account in the Appellant’s books that Mr Deville had said that SBL would make money available to the Appellant for the purchase. But the figures showed a shortfall:

	Invoice price       		£413,104.74
	Interco Loan (SBL)  	(294,740.00) (per SAGE Accounts)
					--------------
	Balance			119,364.74
					--------------
He says that the £119,364 is unaccounted for. It remained unaccounted for even after the Barclays Loan of £252K was taken into account because that that appeared to have been used to reimburse SBL.
We do not share Mr Zwart’s concern. A statement of account received by the Appellant from Sea Ventures on 30 October 2006 and dated 25 October 2006 shows:
	“Main boat invoice			413,104.74
	Additional invoice		   	    5,989.45
						419,094.18
Less
Payment received  		2/8/06 		 42,624.12
Payment received 		4/8/06		 57,375.88
Payment received 		4/8/06             294,704.74
Winter jobs not yet started		   	    9,196.78		(403,901.52)
                                      -------------    		----------------
Amount now due				                                      £15,192.66”
The first two payments received add up to £100,000. This is the amount of the credit which appears in the SAGE account for St Johns. That indicates to us that this amount was paid by St Johns on behalf of the Appellant. We do not find that in Mr Lewis’ mention in cross examination of SBL only casts doubt on this conclusion. It seems more likely that Mr Deville arranged a part of the payment through St Johns.
The figure of £294,704.74 is the first entry in the SAGE account for SBL. It is a credit entry reflecting money due to SBL. It is thus, in our view, most likely that this was paid by SBL on behalf of the Appellant. On one copy of the Sea Ventures statement someone has written  “Hold – 7K pending rectification of [unreadable]’’. From the figures set out above it will be seen that although the invoice price was £413,104.74, certain winter jobs had yet to be started and that £9,196.78 (which is later deduced since it relates to those jobs) was not yet considered due. Thus rather than £413,104 being due for the boat, £403,907.96 was due. Against this £100K plus £294,704.74 equals £394,704.74 had been paid leaving £9702.12 outstanding. It seems likely that some withholding in respect of rectification may have been the reason for this balance.
A later statement of account dated 17 May 2007 tells a similar story.  A further payment of £12,895 on 12 December 2006 is also reflected, as a credit to SAL, in the SAGE account.
The statements of account, the invoices accompanying them, and the history they show of payments, withholdings and credits points for us a convincing and real story of the acquisition of a major asset. The only element in the evidence which casts some doubt on our conclusions was an invoice dated 4 August 2008 from Sea Ventures which was the main invoice for the yacht as a whole. This invoice listed all the extras and options taken and came to £413,104.74, but at the end said “Paid in full 4 August 2006”. How could it have been paid in full on that date when the later statement showed (a) a postponement of charge for works not yet done, and (b) a retention? This invoice was in a bundle of papers connected to the yacht’s registration. We suspect the ‘Paid in Full’ legend was obtained by someone twisting Sea Ventures’ arm in order to get the registration completed smoothly.
Mr Zwart says the evidence does not support Mr Lewis’ contention that the monies from Barclays were used to repay SBL. He says that £252,759 was drawn from Barclays but that there was no bank account evidence showing how it had been dealt with.
It seems to us that, bearing in mind that the Barclays documentation indicates the release of £252,54 to the Appellant on the security of the yacht on 18 September, and that on 19 September the SAGE account of SBL shows a credit of £250,000 that it is likely that £250,000 was transferred to SBL and £2,754 kept in the Appellant’s bank account to pay the October direct debit to Barclays.
We agree with M Zwart that it is a pity that the Appellant did not provide a witness who understood the accounts of SBL. But the lack of a witness to explain them did not prevent the Tribunal from understanding them. Mr Zwart makes a number of other points about the unsatisfactory nature of the evidence but in our view there was enough to enable someone with an understanding of accounts to reach the conclusions we have done.
Accounting Entries
Mr Zwart points to a number of errors or inconsistencies in the accounting entries in the Customer Activity Reports provided by Mr Brown including:-
(i)	   in  the 2008 Pickenham Romford activity report 
         there is a duplication of an entry for use  
         between 10 Sept and 12 Sept 2008
(ii)	   in the 2008 SBL activity report, the inclusion of 
          2007 usage
(iii)    duplication of invoices in the SBL activity 
          report of 2008
(iv)	    fees of £10,000 apparently charged for a single 
          day’s intercompany usage.
(v)	    an invoice to St Johns for a day’s use on a day the yacht 
          appears to have been invoiced  
          to SBL.
(vi)	    apparent overlaps of start dates in charges to 
          Elstow Retail Centre.
It is true that Mr Zwart’s analysis throws into question the accuracy of some of the entries in the SAGE accounting records, but some of them are understandable mistakes and others in our view arise from the operation of the system to produce year end figures. The points he makes do not persuade us that the records produced to us represented fictitious transactions, but did persuade us that we should treat the records as providing 100% accurate information. Our conclusions as to the use of the yacht by Beadie group companies reflect this.