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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Wootton & Anor v Customs and Excise [2004] UKVAT V18731 (17 August 2004) URL: https://www.bailii.org/uk/cases/UKVAT/2004/V18731.html Cite as: [2004] UKVAT V18731 |
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VAT
PENALTIES whether the appellants partners in restaurant business whether liable for penalty assessment dishonest
conduct
for purpose of evading
VAT
found proved appellants held to be responsible assessment upheld and appeal dismissed
MANCHESTER TRIBUNAL CENTRE
(1) Mr PETER JOHN WOOTTON Appellant
(2) Mrs SADIE JUNE WOOTTON
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Mr M S Johnson (Chairman)
Mr P J Seward (Member)
Sitting in public in Birmingham on the 25th to 27th June 2003 and the 26th May 2004
Mr R Barlow, counsel instructed by HKM, accountants, Leicester for the Appellants
Mr J Puzey, counsel instructed by the Solicitor for the Customs and Excise, for the Respondents
© CROWN COPYRIGHT 2004
DECISION
Issues in the appeal
1) Whether the appellants were in partnership with their daughter Ms Jan Lorraine Gill-Wootton ("Ms Gill-Wootton") in the restaurant business carried on at Cossington Mill, Syston Road, Cossington, Leicestershire ("the business") between 24 October 1997 and 26 October 1998;
2) Whether the appellants are liable for a penalty assessment ("the assessment") dated 30 October 2000 issued to them and to Ms Gill-Wootton by the Commissioners of Customs and Excise ("Customs") under section 76 of theValue
Added Tax Act 1994 ("the Act"). The assessment, which is for £18,348, is grounded upon alleged dishonest
conduct
in relation to acts or omissions said to have been for the purpose of evading
VAT
payable to Customs in respect of the business, as mentioned in section 60(1) of the Act.
Evidence
Findings of fact
Facts found as to the partnership issue
a) In signed Notification of Self-Employment forms telling the Contributions Agency about their involvement with the business. We have had sight of two such forms, one for each appellant, in which they describe themselves as partners in the business as from 24 October 1997. At the top of each form the following is printed:
"The Contributions Agency will send a copy of the completed form to the Inland Revenue, and Customs and Excise.
"Use this form to tell the Contributions Agency, the Inland Revenue, and Customs and Excise that you have started self-employment".
Immediately above the signatures of the appellant on each form respectively there appears the following:
"I understand and agree that the information on this form will be made available to the Contributions Agency, Inland Revenue and Customs and Excise".
The forms stated that the appellants had an agent to advise them on their tax affairs, whose name was given as Mitchell Ramsden, of 132 Highfield Road, Blackpool, Lancashire. Mitchell Ramsden was a firm of chartered accountants practising at that address.
b) In an Agreement dated 22 October 1998 for the sale inter alia of the business to The New Cossington Mill Limited ("the company"). In that Agreement, the appellants and Ms Gill-Wootton are together described as "the Sellers", both of the business and of the restaurant premises at which the business is carried on. The Agreement relates to the sale of both the business and the property. It provides, in clause 1.1, that the Sellers shall sell and the Buyers (i.e. the company) shall purchase inter alia
"the goodwill of the business of a Restaurant now carried on by the Sellers at Cossington Mill, Syston Road, Cossington, Leicestershire including the right to use the name of 'Cossington Mill Restaurant' in connection therewith ".
In clause 4.2, the Agreement provides that completion of the purchase is to take place on 26 October 1998. By clause 5.1
"Up to the date fixed for completion of the purchase possession of everything hereby agreed to be sold shall be retained and the said business shall be carried on by the Sellers as heretofore and the gross returns or profits thereof shall be received and retained for the Sellers' benefit and all outgoings and liabilities in respect of the said property and business shall be carried on at the Sellers' risk".
Clause 14 is a manuscript addition to the Agreement. It provides that the Buyers will indemnify the Sellers in respect of two agreements with Everards Brewery Limited dated 12 December 1995 and 10 October 1996 and upon completion will become responsible for the two agreements up to a stated maximum sum.
c) In a set of accounts for the business prepared by Mitchell Ramsden and expressed to cover the trading period 1 April 1997 to 22 October 1998. On page 2 of those accounts, it is stated by Mitchell Ramsden:
"In accordance with instructions given to us we have prepared without carrying out an audit the annexedfinancial
statements from the accounting records of [Ms Gill-Wootton and the appellants] and from information and explanations supplied to us".
On the same page, Ms Gill-Wootton and the appellants are described as "Trading as Cossington Mill Restaurant".
Page 4 of the accounts shows the net profit of the business as being divisible between Ms Gill-Wootton and the two appellants; for the previous period, 1 August 1996 to 31 March 1997, the net profit is shown as payable exclusively to Ms Gill-Wootton.
Page 6 of the accounts shows Ms Gill-Wootton and the appellants as having each made drawings from "Partners' Capital Account". The appellants are shown as having introduced capital in the period, but Ms Gill-Wootton is not so shown, although she is shown as having done so in the previous period.
Page 8 of the accounts shows freehold property as a fixed asset of the business as at 1 April 1997 but as having been disposed of as at 22 October 1998.
The accounts are dated 27 January 1999 by the accountants. A second set of accounts covering the same period was prepared and dated 1 December 1999 by the accountants. In contrast to the first set, these accounts show the business as that of Ms Gill-Wootton as sole trader. We note that in this second set, in contrast to the first set, the accountants have signed the accounts in manuscript on page 2. However neither set of accounts in the tribunal bundle has been signed by those to whom they were addressed.
In the second set of accounts, the freehold property is again shown as a fixed asset at the beginning of the period but not at the end, and at the samevalue
as in the first set of accounts.
d) In a letter written by KPMG Tax Advisers dated 28 April 1999 to Mr Smith of Customs. This was in response to a letter written by Mr Smith dated 21 April 1999, in which he sought information from KPMG as to what he described as "the legal entity of the business". The letter from KPMG was signed by Mr Malcolm McFarlin, Manager, Indirect Tax Investigations. Mr McFarlin's letter stated that, with effect from 1 August 1996, the partners in the business were Ms Gill-Wootton and the appellants, until 22 October 1998 when the restaurant was sold.
Mr McFarlin wrote to Mr Smith again on 12 May 1999. That letter is expressed to be written further to Mr McFarlin's letter dated 28 April 1999, and is a three-page letter, dealing with a number of matters including the evidence of Mr Tutin (see paragraphs 40 to 42 below). The letter does not add to or subtract from what was said in Mr McFarlin's letter of 28 April 1999 about the existence of the partnership.
It appears that the existence of the partnership was not denied in correspondence until a letter dated 2 September 1999, written by HKM to Mr Parsons of Customs, in which it was asserted that the appellants had " no association with the business at all from a legal partnership point ofview".
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Analysis of facts found as to the partnership issue
Facts found as to the responsibility issue
"It is my clients [4] contention that the takings figures of the business were falsely increased purely to assist Mr Hallam, the prospective purchaser, in obtaining finance from the bank, and that this was done with Mr Hallam's full agreement at the time".
Analysis of facts found as to the responsibility issue
The submissions of Mr Puzey
"It is quite plain that by the mere use of a well-known legal phrase you cannot constitute a transaction that which you attempt to describe by that phrase. Perhaps the commonest instance of all, which has become before the courts in many phases, is this: Two parties enter into a transaction and say 'It is hereby declared there is no partnership between us'. The court pays no regard to that. The court looks at the transaction and says, 'Is this, in point of law, really a partnership?' ".
IRCv
Williamson [1928] 14 TC 335 is to the same effect.
The submissions of Mr Barlow
"It is no longer right to infer either partnership or agency from the mere fact that one person shares the profits of another. It may be, and probably it is true, that if all that is known is that one person carries on business and shares the profits of that business with another, prima facie those two are partners, or prima facie the person carrying on the business is carrying it on as the agent of the person with whom he shares his profits. That may be true, and I think is true even now; but when you have a great deal more to consider it appears to me to be a fallacy to say that you are to proceed upon the idea that sharing profits prima facie creates a partnership or an agency, and that prima facie presumption has to be rebutted by something else [5] ".
Decision of the tribunal with reasons
"(1) the partnership is not a legal entity; (2) the partners carry on the business of the partnership in common with aview
to profit ; (3) each does so both as principal and as agent for each other, binding the firm and his partners in all matters within his
authority;
(4) every partner is liable jointly with the other partners for all the debts and other obligations of the firm ; and (5) the partners own the business, having a beneficial interest in the form of an undivided share in the partnership assets including any profits of the business".
"Partnership is the relation which subsists between persons carrying on a business in common with aview
of profit".
Costs
We heard submissions from counsel as to costs at the conclusion of the hearing. The appellants have lost on both issues for our determination. We accordingly think that the only fair result is for costs to follow the event. We accordingly order that the appellants are to pay Customs' costs of the appeal, to be the subject of detailed assessment if not agreed.
MR M S JOHNSON
CHAIRMAN
Release Date: 17 August 2004
MAN/01/0125
Note 1 These were: Mr Andrew Edward Smith, officer of Customs; Mr Paul Frederick Tutin, chartered accountant; and Mr Michael Anthony Parsons, officer of Customs.
[Back] Note 2 (although by the time of final submissions, Mr Barlow appeared to have relented from this). [Back] Note 3 As provided in a Consent Order made by District Judge Merriman in the Leicester County Court dated 29 August 1997, in which the partnership in the Cossington Mill Restaurant between the former Mr & Mrs King was acknowledged to have been dissolved on 31 July 1996. A copy of the Order is contained in the tribunal bundle. [Back] Note 4 The word clients does not contain an apostrophe as typed in the letter. However, it appears, and we find, that Mr McFarlin had for the purposes of writing that letter one client, namely Ms Gill-Wootton. [Back] Note 5 Mr Barlow emphasized the passage that we have highlighted in italics.
[Back] Note 6 It is within the experience of the Chairman that multi- Note 7 See Barton Note 8 See Gandhi Tandoori Restaurant vendor
sale agreements are often drawn without specificity as to which interest(s) precisely, within the entire subject-matter of the sale, particular
vendors
may be agreeing to sell. [Back]
v
Morris [1985] 1 WLR 1257, a decision of Nicholls J (as he then was). [Back]
v
C & E Comrs [1983]
VATTR 39. [Back]