18859
	
	REGISTRATION — compulsory registration arising from transfer of an hotel business — turnover at transfer over registration threshold — Appellants believed that refurbishment coupled with wife’s illness would lead to reduction of turnover therefore registration unnecessary — failure to provide appropriate evidence to Commissioners — compulsory registration properly imposed — case dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	STEPHEN CLARKE and HILARY CLARKE	Appellants

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 David S Porter LLB (Chairman)
						 J David Kippest	

Sitting in public in Birmingham on 18 October 2004

The Appellants in person 

James Puzey of counsel instructed by the Solicitors’ office of Customs and Excise, for the Respondents

	© CROWN COPYRIGHT 2004

DECISION

1.	By a Notice of Appeal dated the 10 February 2004 Stephen Clarke and Hilary Clarke (the Appellants) appealed against the compulsory registration of their Bed and Breakfast business. They purchased an hotel from the previous owner but believed that with the refurbishment costs and Hilary Clarke’s subsequent debilitating illness, they would not exceed the threshold for registration purposes. The Commissioners consider that they acted properly in compulsorily registering the business because it had exceeded the threshold for the first year of trading.
2.	James Puzey of counsel appeared for the Commissioners, and called Richard McKenna and Anna Hudson who are officers for the Commissioners to give evidence and produced a bundle of copy documents. He referred to the case of Gray (trading as William Gray & Son) V Customs and Excise Commissioners STC 2000 page 880. The Appellants appeared in person and we heard evidence from Stephen Clarke.  He produced a loose bundle of documents including some details of the bankings for the business for the period in question.
3.	We find the following facts. Stephen Clarke confirmed that the Appellants purchased Tudor Court Hotel on the 10 October 2000 having acquired the business as a going concern from the previous owner. The previous owner had deregistered on the 1 October 2000 and advised that his turnover was £69,794. The Appellants decided to refurbish the Hotel and turn it in to a bed and breakfast business. The accommodation consisted of nine rooms and a bar area. One room was converted for their own use.
4.	The Appellants had been asked to complete a VAT1 application for registration purpose on 11 December 2000 and had been sent a reminder on 2 January 2001, which they had returned on the basis that they were not liable to be registered. Stephen Clarke believed that as they were refurbishing the hotel the turnover would be adversely affected by the additional costs and would not exceed the threshold. He said that he did not appreciate that they needed to justify their belief to the Commissioners. Officers from the Commissioners visited the Appellants premises on 8 March 2001. They examined the books and diary, which indicated that the turnover had grown steadily after Christmas. The Commissioners wrote to Lawrence & Co the Appellants Accountants and advised that they would register the Appellants from 10 October 2000 for VAT purposes unless the Appellants could produce evidence that they were not exceeding the threshold.
5.	In January 2001 Hilary Clarke developed breast cancer and as a result underwent surgery and received chemotherapy from 16 January 2001 to 19 June 2001 and radiotherapy form 26 July 2001 to 16 August 2001. As a result of Hilary Clarke’s illness the Commissioners had allowed some time for a response to their questions. Even then Stephen Clarke had not produced the Bank statements he had been asked for. In spite of the fact that Hilary Clarke had been seriously ill it was she who had responded to all the telephone calls as her husband had been unavailable In April 2002 Stephen Clarke had been called to the hospital for a long awaited cataract operation and again stated that he was unable to obtain the bank statements because of his illness. We are of the opinion that he was avoiding handing over the statements because he knew that they would show the real extent of his turnover.   
6.	On 17 February 2003 Officers from the Commissioners attended again at the business and were given some of the bank statements, but there were some 31 statements missing. All of those have still not been produced although some of them were brought to the tribunal hearing. On 5 June 2003, Anna Hudson wrote to Stephen Clarke and advised that she calculated the Appellants’ weekly turnover for the rooms only, excluding function and bar revenue, as £1,997.60, which gave an annual turnover of £103,875. As a result she proposed to register the business from 10 October 2000 and she sent the Appellants the appropriate forms on 5 June 2003. As they had not completed them she did that for them on 30 June 2003.
7.	At the hearing Stephen Clarke produced an analysis of the Bank account. This revealed a figure of £57,447 for the period 10 October 2000 to 8 October 2001 which is above the registration threshold. Information was also produced relating to cash payments of £7,340 received from outside the business but no satisfactory evidence was given as to its source. We are of the opinion that the cash payments should be ignored for the purposes of this appeal.
The Law
8.	Registration
Section 49 (1) Value Added Tax Act 1994 (“ the Act”) 
“Where a business carried on by a taxable person is transferred to another person as a going concern, then
(a)	for the purposes of determining whether the Transferee is liable to be registered under this Act he shall be treated as having carried on the business before as well as after the transfer and supplies by the transferor shall be treated accordingly”
Paragraph 1(2) of schedule of the Act provides (as at 10 October 2000) that:
“Where a business carried on by a taxable person is transferred to another as a going concern and the transferee is not registered under this Act at the time of the transfer, then, subject to sub-paragraph (3) to (7) below, the transferee becomes liable to be registered under this schedule at the time if: 
(a)	the value of his taxable supplies in the period of one year ending at the time of the transfer have exceeded £52,000;
(b)	there are reasonable grounds for believing that the value of his taxable supplies in the period of 30 days beginning at the time of the transfer will exceed £52,000”
Paragraph 1(3) of Schedule 1 of the Act provides (as at 10 October 2000) that:
“A person does not become liable to be registered by virtue of sub-paragraph 1(a) or 2(a) above if the Commissioners are satisfied that the value of his taxable supplies in the period of one year beginning at the time at which, apart from this sub-paragraph, he would become liable to be registered will not exceed £52,000”
Paragraph 7 of schedule 1 of the Act provides that 
(1)	“A person who becomes liable to be registered by virtue of paragraph 1(2) above shall notify the Commissioners of the liability within 30 days of the time when the business is transferred
(2)	The Commissioners shall register any such person  (whether or not he so notifies them) with effect form the time when the business is transferred”
Summing up
9.	Stephen Puzey submitted that the issue is whether the Commissioners have correctly exercised their powers under paragraph 7 of schedule 1 of the Act to compulsorily register the appellants. He produced a skeleton argument, which is in the bundle. The previous owner had declared a turnover of £69,794 at the time of the transfer. The appellants would not have had to register if they could show that their taxable supplies would not have exceeded the registration limit. Substantial efforts were made by the Commissioners to obtain the necessary information to be able to make that decision and by 30 June 2003 no such information had been forth coming. In the circumstances on the evidence available to them, they were right in registering the Appellants compulsorily for VAT. The Commissioners’ decision to register from the point of transfer must be judged according to the information available to the Commissioners at the time. If the decision was one which was open to a reasonable body of Commissioners considering the relevant evidence the Tribunal cannot interfere with that decision (see Gray (trading as William Gray & Son) v Customs and Excise Commissioners STC 2000 page 880).

10.	Stephen Clarke submitted that in view of the refurbishment work and his wife’s and his own illness he had not believed it was possible for the VAT registration threshold to be achieved. He had not appreciated that there was any urgency in the production of either the Bank statements or any other information with regard to the business. He had indicated that he would notify the Commissioners when he considered the threshold would be achieved.  In the circumstances he considered he had done nothing wrong and the business should not be registered from 10th October 2000.

The decision
11.	My Colleague and I have considered the facts in this appeal and we have decided that the Commissioners acted reasonably in registering the business from 10th October 2000. It was not reasonable for the Appellants to think that they need not register. They were aware of the level of the turnover when they acquired the business and must have appreciated that the provision of the bank statements would go some way to identify their liability. It is not so difficult to obtain bank statements and we are of the opinion that Stephen Clarke knew very well that the business was trading above the threshold. We therefore dismiss the appeal.
12.	As neither party asked for costs we award none.

DAVID S PORTER
CHAIRMAN
Release Date: 9 December 2004

MAN/04/0088