20387
VAT REGISTRATION — Greek restaurant — change of premises — partnership to company status — two week cessation of trading — held transfer of going concern — appeal dismissed — Commissioners requested costs on ground that appeal frivolous — no direction as to costs
MANCHESTER TRIBUNAL CENTRE
STELIANA'S AND SAPHOS LIMITED Appellant
- and -
THE COMMISSIONERS FOR
HER MAJESTY'S REVENUE AND CUSTOMS Respondents
Tribunal: Elsie Gilliland (Chairman)
John Lapthorne
Sitting in public in Birmingham on 25 July 2007
Kenneth Anderson, Tax consultant, for the Appellant
James Puzey of counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2007
DECISION
- The appeal before the tribunal was that of Steliana's & Saphos Limited (the Appellant) against a decision of Customs set out in two letters from them dated 24 March 2006 and 22 December 2006 that the Appellant should be registered for VAT with effect from 13 March 2005 in accordance with section 49(1) and Schedule 1, paragraph 2 of the Value Added Tax Act 1994 ("the Act"). The Appellant's business is that of a Greek restaurant.
- It is not in dispute that a restaurant known as Steliana's & Sapho's Greek Taverna operated from premises at 7 Old Blacksmith's Yard Sadler Gate Derby (Sadler Gate). This was run by a partnership of Andreas Georgiou Economides and Shirley Anne Economides, his wife. The partnership was registered for VAT and was trading above the VAT registration threshold. On 15 March 2005 Mr Economides wrote to Customs informing them that the business was hoping to move to new premises and a copy of that letter is in Customs bundle of documents with the tribunal.
- In his evidence to us, Mr Economides explained that the business at Sadler Gate had ceased to trade on 12 March 2005 and there are with the Appellant's bundle of documents a set of business accounts for the period ended 12 March 2005, prepared by a firm of accountants Sibbald & Co., described to us as the final accounts of the partnership. He told us that, on the advice of the accountants, a company was set up on 10 March 2005, namely the Appellant, of which he is a director and his wife a director and company secretary and that it is the Appellant which runs the business of a Greek restaurant at the new premises situated at 115 London Road Derby (London Road). A copy of unaudited financial statements of the Appellant for the period ended 31 March 2006 is also with the papers.
- Mr Economides described to us the taverna and the reasons for the move. He and his wife had been at Sadler Gate, which was a city centre location for a number of years. He was the chef and as the business built up his wife had taken over a front-of-house role. However in recent years he had become uneasy about the Sadler Gate area at weekends where he considered there was unacceptable degree of drunken and rowdy behavior. The new premises found are on the outskirts of the city opposite the Infirmary and with offices and businesses nearby. Although the road is busy during the day the evenings are quieter and there is no unpleasantness. His aim had been to acquire a better clientele and increase his prices. He confirmed in his evidence as he had also informed Customs that there had been a gap of two weeks between the taverna at Sadler Gate closing and that at London Road opening.
- The issue to be determined by the tribunal is whether there has been a transfer of a going concern that is of the restaurant business between the partnership and the Appellant. The Appellant did not apply for registration until 22 November 2005 and did not become registered for VAT purposes until the effective date of 1 January 2006. We were told by Hilary Rhodes, the officer who wrote the decision letter of 24 March 2005, that she had visited the Appellant at London Road on 15 March 2006 as she could not trace a VAT registration number but it was confirmed by Mr Economides that the business was registered. She had looked into the matter further and entered into correspondence with Mr Economides and the accountants. She formed the view that whilst there had been a change in legal entity there had not been any change in the identity of the business and this she set out in her letter. Her decision was reviewed and upheld by a review officer on 22 December 2006. The Appellant appealed setting out as its grounds in its notice of appeal on 11 January 2007 that " the business was not transferred as a going concern, and consequently should not have been registered for value added tax from 13 March 2005".
- Ms Rhodes had based her decision on six main factors and these were dealt with by the representatives of both parties in their submissions. In her opinion there had been a transfer of assets, stock, staff, name and telephone number from the partnership to the Appellant and as to the gap in trading that the period of two weeks between the business closing at Sadler Gate and re-opening at London Road was not "a significant period of time". We shall address these in coming to our decision.
- We set out the relevant legislative provisions as follows. Section 49 (1) of the Act states:
" Where a business carried on by a taxable person is transferred to another person as a going concern then -
(a) For the purpose 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 1 of the Act provides:
"Where a business carried on by a taxable person is transferred to another person 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 that time if –
(a) the value of his taxable supplies in the period of one year ending at the time of the transfer has exceeded [£60000]."
- We look first at stock and whilst the Appellant's representative sought to contend that "only a bag of flour and [2/3] cases of wine" passed the accounts show some £1,000 of wet and dry stock was transferred. It had been stated in correspondence that the normal level of stocks to which the Appellant's business built up was approximately £3,000. Taking into account the nature of the taverna menus and as emphasised by Mr Economides the importance of fresh produce and the short trading gap the stock transferred appears to us to constitute a reasonable amount. No debts or bank balances are shown to have been transferred these having been dealt with by the "previous business".
- As to the chattels from the information made available to us we identify those handed on to the Appellant as an electric cooker and a fridge with also some tables and chairs. We accept that extra items were purchased some from the landlord of the new premises and some from other suppliers and these include a gas cooker, two fridges and a quantity of tables chairs cutlery crockery glassware pots and pans and tablecloths. The value placed on the items from the partnership by the accountants was £200 as against a total of £7,026 for items purchased.
- So far as staff were concerned a previous part-timer was given full-time employment with the move and we were informed that another full time employee is being sought the rates of pay and conditions having been improved.
- A name board, which had been in place at the Sadler Gate premises, was taken to and used at the London Road premises and a particular feature of this was that it stated that the business was established in 1986. Mr Economides told us that the board was retained to avoid unnecessary additional cost and to make clear that he was experienced in Greek cooking.
- Mr Economides confirmed also that the telephone number had not been changed so that the former better customers would be aware of where the taverna was.
- The last of the six factors listed by the Commissioners as leading to their decision that this was a transfer of a going concern related to the break in trade. This was a period of two weeks but was not considered by Customs to be a significant period.
- The Appellant's representative has submitted that there were two separate and distinct businesses and a change in status as the first business had been run by a partnership but the new on was a registered company.
- It is clear to us that what we must do in this case is look at the substance of the transfer rather than the form. The effect of the transfer must be to put the Appellant in the possession of a business which can be operated as such. Whilst we would accept that certain assets taken in isolation may be insufficient for a business to be operated we consider that what is required is not to take a list of items and examine them independently of each other but to make an overall assessment reviewing the operation of the two enterprises as described to us.
- That this is the correct approach is borne out to our mind by the case of Kenmir v Frizzell [1968] 1WLR 329 to which we were referred by counsel for Customs. Although not a case on VAT it did consider what would constitute a transfer of business and we quote from that case at page 335 as follows:
"The absence of an assignment of premises stock in trade or outstanding contracts will likewise not be conclusive if the particular circumstances of the transferee nevertheless enable him to carry on substantially the same business as before".
- Mr Economides based his evidence on his declared intention to move up-market to upgrade his premises and acquire a better kind of clientele who would be prepared to pay higher prices. As part of this the partnership would become a company.
- We do not consider that the change in legal entity determines the issue before us particularly as the directors and secretary are the former partners. Nor is there in our view any significant change in the nature or operation of the business. Mr Economides prudently did not wish to lose the customer-base that had been built up; the telephone number was unchanged so that there would be no loss of contact; the name and advertising board were retained; the business was still a taverna and the menu even though it was perhaps wider to justify higher prices still offered what one would expect to eat in a Greek restaurant.
- As a matter of accounting no goodwill was shown as transferred from the final accounts of the partnership. However it is to our mind clear that the Appellant was taking steps to ensure that the long-established reputation and the clientele of the taverna would be retained together with such items of stock and equipment which could be used in the London Road premises. In substance the business was unchanged and we find that there was a transfer of a going concern from the partnership to the Appellant.
- The appeal is dismissed.
- Customs have sought their costs in respect of the conduct of their case on the grounds that the appeal brought was "frivolous". Although the appeal has failed we do not consider that it was frivolous or without any prospect of success. In view of the Sheldon and Brooke statements we make no direction as to costs.
ELSIE GILLILAND
CHAIRMAN
Release Date: 5 October 2007
MAN/07/0036
