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Munir (t/a Favourite Chicken) v Customs and Excise [2004] UKVAT V18612 (27 May 2004)
VALUE ADDED TAX - liability for registration - transfer of business as a going concern - business of transferee alleged to be distinct from previous business - partnership business continued by one former partner as sole proprietor - transferee liable to be registered irrespective of turnover of business since transfer - appeal against decision that transferee liable to be registered dismissed
MANCHESTER TRIBUNAL CENTRE
KAMRAN MUNIR
TRADING AS "FAVOURITE CHICKEN" Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Mr M S Johnson (Chairman)
Sitting in public in Birmingham on 19 April 2004
Mr C Gibbons, counsel instructed by Mushtaq & Co, solicitors, for the Appellant
Mr J Puzey, counsel instructed by the Solicitor for the Customs and Excise, for the Respondents
© CROWN COPYRIGHT 2004
DECISION
- In this appeal the appellant disputes his liability to be registered for VAT from the date he took over a take-away food business on 5 February 2001. His case is that his turnover was below the registration threshold until 1 June 2002. Pursuant to section 49(1)(a) and paragraph 1(2)(a) and (b) of Schedule 1 of the Value Added Tax Act 1994 ("the statutory provisions"), the Commissioners of Customs and Excise ("Customs") decided that he should have been registered from the moment he began trading, and have consequently assessed him for VAT in the amount of £3,312.00 plus interest ("the assessment"). The validity of the assessment and the appellant's liability to be registered as mentioned are the matters for the determination of the tribunal.
- The appellant has given oral evidence and has been cross-examined by Mr Puzey, counsel appearing for Customs. The appellant was the only witness who gave evidence in support of his case. Mr Puzey called two witnesses, both officers of Customs, namely Mr Julian David Cook and Mrs Valda Gates. They were cross-examined by Mr Gibbons, counsel appearing for the appellant. The tribunal has in addition had the benefit of a folder of documents relevant to the case, provided by Mr Puzey, and a number of additional loose documents, provided by Mr Gibbons and Mr Puzey during the course of the hearing.
- The additional loose documents made available to the tribunal [1] are these:
a) A copy of a Lease of 21 The Morledge, Derby, dated 5 February 2001;
b) A copy of the appellant's P60 from B & Q plc relating to his employment in the Tax Year to 5 April 2001;
c) Copies of the Accounts and Balance Sheet for the business "Tariq Mahmood, Trading as Favourite Chicken & Ribs", for the period 1 April 2000 to 4 February 2001;
d) Copies of the Accounts and Balance Sheet for the business "Kamran Munir, Trading as Favourite Chicken & Ribs", for the period 5 February 2001 to 31 March 2001;
e) Copies of the Accounts and Balance Sheet for the business "Kamran Munir, Trading as Favourite Chicken & Ribs" for the year ended 31 March 2002;
f) A manuscript VAT calculation for the period 1 January 2001 to 4 February 2001;
g) Copies of the VAT Return for the appellant's business for the period 12/02, in which it is mentioned that the name of the business has been changed to "Express Chicken" from November 2002, and of the cheque in payment of VAT in respect of that period;
h) A copy of Mr Cook's notes of an interview he had with the appellant; and
i) A copy of a schedule of sales apparently relevant to the appellant's business, provided to Mrs Gates by T & L "A Taste of Italy", of Braithwaite Street, Leeds, on 4 April 2003.
- The following are the facts found by the tribunal.
- Mr Tariq Mahmood applied to Customs to register for VAT a take-away franchise food business carried on at 21 The Morledge, Derby, under the name "Favourite Chicken & Ribs". The application, in form VAT 1, was dated 16 February 2000, and it gave 5 February 2000 as the date of the first supply of the business, and as the date from which the applicant had to be registered. It stated that the business was a partnership. Form VAT 2 was supplied to Customs along with VAT 1, giving the details of 3 partners, who were Mr Tariq Mahmood, the appellant and Mr Ansar Mahmood (brother of Mr Tariq Mahmood).
- There was no written partnership agreement. The involvement of the partners in the business was unequal. The appellant, who is a young man born on 24 February 1980, played a minor role. He became a partner through the influence of his father, who encouraged him to associate in business with Mr Tariq Mahmood. The appellant's extended family put £28,000 into the business to get it going. The appellant went into the business not because he had any business expertise – he did not – but because his father wanted him to acquire experience of business, in view of his lack of qualifications.
- The appellant was not involved in the administration side of the business. Mr Tariq Mahmood appears to have accepted him as partner because of his family's financial contribution. The appellant, indeed, had a YTS job in 2000/01 working part-time for his local B & Q warehouse.
- Following the commencement of trading, Mr Tariq Mahmood frequently approached the appellant's family asking for more money. The family, which had hoped to be repaid the money put into the business, saw the prospects of repayment gradually dwindling. Eventually, when Mr Tariq Mahmood indicated that he was thinking of selling the business, the family borrowed a further £15,000 to buy him and his brother out. The two Mahmoods accordingly dropped out of the business, which became the sole property of the appellant on 5 February 2001. This was reflected by the grant of a 10-year Lease of the business premises, 21 The Morledge, by the lessor Riahana Bi to the appellant as sole lessee on 5 February 2001.
- The business was a "Favourite Chicken" franchise business. The appellant initially professed to have had no contact with the franchisors, but I find that this is not correct, although the appellant may possibly have been referring at this point in his evidence only to the period of the partnership.
- The appellant stated that he intended, when he bought out his partners, to "finish with" the "Favourite Chicken" connection. He stated that he had spoken to the area manager of "Favourite Chicken", at or just before the time he took over the business, concerning changes that he planned to make. However, when he applied for VAT registration on 1 July 2002, giving 1 June 2002 as the date from which he had to be registered, the appellant described his trading name in form VAT 1 as "Favourite Chicken". This was, of course, over a year after he had taken over the business.
- Indeed, I find that he continued to use the "Favourite Chicken" name right through until November 2002. He informed Customs in January 2003, along with his VAT Return for his trading period 12/02, that the name of the business had been changed to "Express Chicken" only from November 2002. He continued to buy "Favourite" Fillet Strips and Fries up to and including October 2002. I accordingly find that, whatever the attitude of the franchisors to his continued trading may have been – I have no evidence with regard to that – the appellant in practice held himself out as a "Favourite Chicken" outlet from February 2001 until November 2002.
- I find that the reality was that, although the business belonged to the appellant, it was run as a family affair from 5 February 2001 onwards. All three Munir brothers, and their mother, helped in the business. The appellant's father suffered from heart disease, but he gave what assistance he could. There were two waged employees. One of them, Mr Ghani, who was not a member of the family, I find to have been a key figure in helping to run the business. He acted, in effect, as manager and did most of the ordering.
- When Mr Cook of Customs visited the business in November 2002, he met and discussed the position of the business with Mr Ghani as well as the appellant. It appeared to Mr Cook, from discussing the position of the business with both of them, that the business had been operating just as it always had done, namely as a "Favourite Chicken" franchise outlet. I conclude that what the appellant lacked in business knowledge and acumen, Mr Ghani and the appellant's family made up for.
- In evidence, the appellant professed ignorance that Mr Ghani was still having dealings on behalf of the business with "Favourite Chicken" during the appellant's period of sole ownership, but I do not accept that. If the appellant was ignorant of that, it was because he had trouble understanding, or did not want to understand, the reality of how the business continued to be operated. It unfortunately became clear, during the course of the appellant's evidence in tribunal, that there was much about which he was uncertain, because of his inability or unwillingness to comprehend what he was being asked. I find that this was not by reason of language or communication difficulties, but because of the appellant's state of mind. I regard him as an unsatisfactory witness by reason of his lack of appreciation of, and failure adequately to deal with, the evidence in this case contradicting his standpoint.
- In opening the appeal, Mr Gibbons made it plain that the standpoint of his client was that the appellant never intended to succeed to the "Favourite Chicken" franchise operated by the partnership, and that his business was therefore distinct from that of the partnership. The appellant would show, said Mr Gibbons, that he did not take over the franchise. The business carried on by the appellant was not, Mr Gibbons said, a continuation of the partnership business. Mr Gibbons presented this as the issue between the parties.
- Mr Gibbons informed the tribunal that it was accepted that, at the time that the appellant became sole owner, the partnership business had been trading for 12 months above the de-registration threshold, including in the final month before 5 February 2001, and further that, for the purpose of Customs' VAT Notice 700/9, there was no break in trading between the conclusion of the partnership and the commencement of the appellant's sole proprietorship [2] . In other words, Mr Gibbons accepted that the statutory provisions cover this case, unless the tribunal should find, as the appellant set out to prove, that the appellant's business was not one that had been transferred as a going concern.
- So this appeal has proceeded on the basis firstly that the appellant was liable to be registered for VAT from 5 February 2001, and secondly that the assessment was properly issued, subject only to the above issue identified by counsel.
- Mr Puzey submitted that the burden of proof on the appellant had not been discharged and that accordingly the appeal must be dismissed.
- In his submissions, Mr Gibbons urged three matters upon the tribunal. Firstly, he submitted, the tribunal should draw no conclusions from the paperwork submitted to Customs, for which the appellant should not be held responsible. Secondly, he drew attention to the Lease dated 5 February 2001 and the additional £15,000 paid, which showed, in his submission, a complete fresh start. Thirdly, he asked the tribunal to bear in mind that the appellant lacked trading experience and to conclude that his family proceeded to carry on a business distinct from that of the partnership. He described the appellant as having "special educational needs".
- In my view there is no doubt, from the facts I have found, that the business owned by the appellant was the same business as had, immediately before 5 February 2001, been carried on by the partnership. All that happened was that the appellant bought out his two partners. The effect was that the three partners transferred their business to one of their number. It is unnecessary to rely upon the registration documentation to be sure of this. It follows from the knowledge that, whilst two of the three owners left, one remained. Continuity was thus ensured in the person of the one remaining partner.
- The grant of the Lease is equivocal. It commonly happens that, instead of an existing lease being assigned to the new owner of a business (or in this case, the one remaining owner out of three), a fresh lease is granted in place of the old. That is just an alternative means of providing title to the business premises. The £15,000 paid did not, in my view, indicate the advent of a new business; it was the consideration for the release to the remaining partner of the interests in the business of the outgoing partners. There was accordingly no fresh start, but rather a continuation of what was there already, in the hands of the one former partner who was left.
- The appellant fails on the "Favourite Chicken" issue. It is clear on the facts that he continued to trade as a "Favourite Chicken" outlet long after he became sole proprietor, holding himself out as such. I do not accept that this was done without his knowledge and approval. The appellant is saddled with responsibility for the business as it was conducted by his manager and family. It is the business itself to which the statutory provisions are directed, not the belief of the appellant about the business. It is neither here nor there that the business was in reality, as I have found, run by the appellant's manager and family on his behalf.
- I therefore conclude that the business was transferred as a going concern. Having regard to the admissions made on the appellant's behalf, it follows that the statutory provisions must apply. I indicated at the conclusion of the hearing that the appeal was accordingly dismissed. This decision now sets out, for the record, the tribunal's reasons for the dismissal.
- No application for costs was made, and none are awarded.
MR M S JOHNSON
CHAIRMAN
MAN/03/0434
Note 1 (further copies of the appellant’s accounts from 5 February 2001 to 31 March 2002 are also contained in the bundle provided to the tribunal by Mr Puzey) [Back]
Note 2 Accordingly, whilst these matters were, for completeness, strictly proved by Customs’ witnesses, they were not really in issue.
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