[2012] UKFTT 201 (TC)
TC01896
Appeal number: MAN/2010/8137
VAT – input tax –
insufficient evidence to justify claim – appeal dismissed.
FIRST-TIER TRIBUNAL
TAX CHAMBER
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YEASTFIELD
LIMITED
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE Richard Barlow
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Peter Whitehead
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Sitting in public in Manchester on 10 January 2012
Mr Jonathan Grierson of
counsel instructed by Messrs Alan Rashleigh & Co for the Appellant
Mr John Nicholson, of the
office of the General Counsel and Solicitor to HM Revenue and Customs, for the
Respondents
© CROWN COPYRIGHT
2012
DECISION
1.
The appellant appeals against the respondents’ decision to disallow
£56,100 of input tax claimed by the appellant in the prescribed accounting
period ending 31 July 2009. HMRC originally gave notice that they had
disallowed the input tax in a letter dated 25 June 2010 and gave as the reason
“transactions deemed to be subject to TOGC conditions”.
2.
Following that notice the appellant made submissions in writing to HMRC
which led the latter to review the original decision and, in a letter dated 21
September 2010, HMRC conceded that they then no longer felt they could
“positively demonstrate that a TOGC definitely took place” and the reviewing
officer added the following:
“It is my view that the
evidence provided is insufficient to deem a TOGC. However this lack of
objective, contemporaneous evidence also leads me to support Mrs Blake’s
decision to refuse the deduction of input tax on the assets concerned”.
3.
We do not agree that HMRC can deem a transfer of a going concern has
taken place. Either a TOGC has taken place or it has not. Mr Grierson did not
contend that HMRC could not change their mind about the reasons for refusing
the input tax and he was right to take that view. What is under appeal is the
decision to refuse the input tax rather than the reasons stated for its being
refused.
4.
Nor did Mr Grierson contend that the burden of proof lay on HMRC. As is
well established by authority, in a normal case (in effect usually one in which
dishonesty is not alleged), the burden of proving the facts necessary to found
its case lies on the appellant which it must satisfy on a balance of
probability.
5.
The appellant registered for VAT from 1 October 2004 and described its
business as “a management company for restaurant franchise”. The appellant was
visited at the Oca restaurant in Sale, Cheshire on 29 September 2009 by an
officer of HMRC who raised questions about missing invoices, an apparent
difference between input tax claimed on the return and the working papers for
period 07/09 and observed a reference to the purchase of goodwill from another
company.
6.
Accountants acting for the appellant produced a letter dated 7 October
2009 from Messrs AST Hampsons, solicitors, addressed to the appellant at the
Oca restaurant which read as follows.
“We write to confirm that we
acted on behalf of Cafebridge Limited in connection with the sale of the
goodwill of OCA Restaurant Limited by that Company. The consideration of
£360,000.00 plus VAT of £54,000 was paid by Yeastfield Limited, the funds
having been forwarded by the parent Company Hoecroft Limited”.
7.
That letter does not state when the goodwill was sold but a copy
invoice from Cafebridge was produced, which is dated 1st June 2009,
and which purports to show the sale of the goodwill for £360,000 plus £54,000
VAT. The appellant asks us to infer that the date on that invoice is also the
transaction date.
8.
Further correspondence from the accountants acting for the appellant
stated that Cafebridge Limited acquired the issued share capital of the
appellant company on 21 August 2006 and that Hoecroft Limited acquired the
issued share capital of the appellant on 15 May 2009 (presumably from
Cafebridge). In other words Hoecroft acquired the share capital of the
appellant from Cafebridge only a few days before the appellant bought the
goodwill of the restaurant business from Cafebridge, which the letter from AST
Hampsons says was paid for by Hoecroft on behalf of the appellant.
9.
The appellant’s contention is that after Cafebridge sold its shares in
the appellant to Hoecroft it continued to operate the restaurant. The
accountants stated in a letter dated 8 September 2010 that Cafebridge had
acquired a rental agreement from the appellant on 1st June 2009. The
appellant had a 25 year lease of the restaurant premises which had begun in
2004.
10.
On the face of it therefore Cafebridge were running the restaurant until
1st June and intended to continue to do so, as the acquisition of
the rental agreement seems to suggest, but on the same date as it acquired the
rental agreement from the appellant it sold the goodwill to the appellant.
11.
The explanation given to us by Mr Grierson for the sequence of
transactions was that Yeastfield intended to act as a holding company
concerning the operation of the restaurant and to charge a licence fee for the
occupation of the premises under its lease and some sort of fee for granting to
Cafebridge the right to operate the business of which Yeastfield had just
acquired the goodwill.
12.
The appellant’s accountant said in correspondence that Cafebridge failed
to continue to run the restaurant because it had “encountered refinancing
difficulties, for requirement arising from the property market downtrend, fire
damage and litigation costs, unconnected with the operation of the restaurant.
Cafebridge in effect vacated on Sunday 28 June without prior warning”. The
accountant added that the appellant then “decided to work a trial period in
full control [of the restaurant] which proved to be commercially viable and is
set to continue, although a true, experienced operator is still the preferred
option for the operation of the site”.
13.
The input tax disallowed includes £1,350 in respect of the sale of a van
by Cafebridge to the appellant and of fixtures and fittings sold to the
appellant by “the relevant owners” which the appellant’s accountant claimed
were to be added as a further revenue generating charge to the licence fee to
be charged to Cafebridge as part of the cost of continuing to run the
restaurant.
14.
The accountant stated that apart from an invoice for the licence fee for
the three month period ending August 2009 “no formal paperwork had been
finalised” for the transactions between the appellant and Cafebridge.
15.
Mr Grierson told us that the shareholders of the relevant companies were
all resident overseas and that he did not know in which country they were
resident. He had not been instructed as to their identity or as to the
identity of the directors of the companies in question.
16.
Mr Nicholson for HMRC told us that Cafebridge had failed to make its tax
returns for the periods ending March and June 2009, the latter being the one on
which the output tax relating to the sale of the goodwill should have been
accounted for.
17.
Mr Nicholson contended that the appellant had not proved that the
transactions as described in the correspondence had actually taken place or
that, if some such transactions had taken place; their true nature was not
proven. He pointed out that AST Hampson’s letter, which the appellant claims
confirms the sale of the goodwill and which we have quoted in full in paragraph
6 above, does not even state when the payment was made and that it does not clearly
state between which parties the payment was made.
18.
We acknowledge that the fact that Cafebridge has not accounted for
output tax does not prevent the appellant from claiming input tax.
19.
Mr Grierson referred to the well known case of Customs and Excise Commissioners
–v- Redrow [1999] STC 161 and relied upon it for the proposition that as
long as the appellant received something that would be of benefit to it in the
making of taxable supplies in the course of its business, that would entitle it
to claim the input tax. He argued that the transfer of the goodwill enabled
the appellant to charge the licence fee for the continued operation of the
restaurant and indeed we agree that if that had been proved to be the case we
would have found that the tax charged on that supply would have been
recoverable as input tax.
20.
However, we find that the appellant has proved nothing. The evidence is
wholly defective in that regard. No evidence was given that satisfied us on a
balance of probabilities that any such transaction as that contended for had
occurred. The letter from AST Hampsons, whilst no doubt a truthful statement
of their belief that the sale of goodwill had occurred, does not prove the true
nature of the transaction from the VAT point of view. It was clearly only one
of or part of a number of possibly separate or possibly connected transactions
contended for by those acting on behalf of the appellant. The surrounding
circumstances of the alleged transactions and the fact that, for whatever
reason, the operation of the business of the Oca restaurant did come into the
hands of the appellant raise sufficient questions to require evidence to
clarify the true nature of the transactions. The absence even of documentary
evidence purporting to provide that clarification let alone the testimony of
witnesses is fatal to the appellant’s case because of the burden of proof that
lies upon it.
21.
We find that the appellant has come nowhere near proving the facts on
which its case depends and that the appeal is therefore dismissed.
22.
This document contains full findings of fact and reasons for the
decision. Any party dissatisfied with this decision has a right to apply for
permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. The parties are referred to “Guidance to accompany a Decision from
the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this
decision notice.
Richard Barlow
TRIBUNAL JUDGE
RELEASE DATE: 28 February 2012
