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VAT Tribunal Reports
Allison Plager reports two recent tribunal cases.
Three businesses are one
Allison Plager reports two recent tribunal cases.
Three businesses are one
VAT Tribunal Reports
Allison Plager reports two recent tribunal cases.
Three businesses are one
The appellant had been in business on his own account as a painter and decorator since 1991. In 1996, he started another business in partnership with his father, and later during the year a third business, this time with his brother. The reasons given for running the three separate businesses related to VAT, but also business strategy. With regard to VAT, it seemed that whenever the VAT threshold of one business was nearly reached, subsequent business would be carried out in the name of one the other businesses. However, the appellant also said that by having three different business names, he could advertise accordingly, and gain more customers. This strategy appeared to work.
Eventually, in July 1998 Customs told the appellant that he had been required to notify his liability to register for VAT not later than 1 October 1996, and his failure to do so rendered him liable to a penalty under section 67(1)(a), VAT Act 1994. A year later, Customs told the appellant that the three businesses were in fact a single legal entity and should be covered by one VAT registration. Customs concluded this because:
although each business had its own bank account, the appellant was the sole signatory for each of them;
there was no evidence of purchases and overheads being charged to the partnerships with the father or brother;
all the business equipment appeared to belong to the appellant, rather than the partnership businesses.
On this basis, the business's turnover exceeded the VAT threshold by the end of September 1995, and so the business should have been registered from November 1995. Assessments were issued accordingly and a civil penalty charged. The penalty was mitigated and charged at 15 per cent.
The tribunal accepted that the assessments were made to Customs' best judgment. However, while it also accepted that it had not been the intention of the appellant to defraud Customs, lack of awareness was not an allowable excuse. Customs were therefore correct to impose a penalty. However, in view of Customs' delay in dealing with the matter, and the ensuing uncertainty and anxiety caused to the appellant, the penalty was reduced to nil.
(Stephen John Whereat (16751).)
Students' union supplies
A recent tribunal decision concerned whether or not a students' union was an eligible body within the meaning of note 1(e) of Group 6 of Schedule 9 to the VAT Act 1994 and, if it was, whether it was making the principal supply of education within the meaning of item 4(a) of Group 6 of Schedule 9. The circumstances were that the appellant claimed that output tax had been wrongly accounted for by the University of Leicester Students' Union on the sale of soft drinks from its shop, as the supplies were made to students and the drinks were intended for consumption on the campus.
Customs said the union shop did not fall within the definition in note 1(e), because it was not a provider of education. However, Customs accepted that the University of Leicester itself was an eligible body. The appellant could not successfully claim that it formed part of that university, because:
the shop was separately registered in 1973;
although it was unincorporated, it could be a person for the purposes of section 3, VAT Act 1994;
Article 4.1 of the Sixth Directive defined taxable person by reference to persons independently carrying on specified economic activity.
Customs maintained that the university and the shop were correctly separately registered, and the two organisations could not be the same eligible body for the purposes of Group 6. Furthermore, the university and the shop clearly worked independently, and the principal activities undertaken by each was completely different.
The appellant's spokesman, on the other hand, conceded that the shop was not an eligible body under Group 6. But he said that under revised guidelines, known as the 'concordat', relating to universities, a students' union could be treated as either part of the parent institution's VAT registration, a separate VAT registration, or as a separate legal entity not registered because its taxable income is below the registration limit. However, the concordat was terminated in September 1997, and each union now had to negotiate separately with Customs.
The appellant's spokesman went on to say that under the university's royal charter, it was stated that there should be a convocation of the university and the students' union. He said that the various committees of the university nearly all had a representative from the students' union, and that the union was represented on the joint committees of council and senate. Clearly the appellant could not operate without the university and the two were inextricably linked. Under section 46, VAT Act 1994 the university was a body corporate, and the appellant could only be registered for VAT with its consent.
The tribunal agreed that the appellant was an eligible body because it was an integral part of the university. This was shown by the royal charter, and the fact that the appellant was reliant upon the university for the use of its buildings. The position with regard to VAT and universities had not been clear in 1973, but for the purposes of section 46 the tribunal said that registration by the appellant could have only been applied for with the university's consent. As the appellant was part of the university, it was an eligible body and party to the supply of education.
(University of Leicester Students' Union (16792).)
Allison Plager reports two recent tribunal cases.
Three businesses are one
The appellant had been in business on his own account as a painter and decorator since 1991. In 1996, he started another business in partnership with his father, and later during the year a third business, this time with his brother. The reasons given for running the three separate businesses related to VAT, but also business strategy. With regard to VAT, it seemed that whenever the VAT threshold of one business was nearly reached, subsequent business would be carried out in the name of one the other businesses. However, the appellant also said that by having three different business names, he could advertise accordingly, and gain more customers. This strategy appeared to work.
Eventually, in July 1998 Customs told the appellant that he had been required to notify his liability to register for VAT not later than 1 October 1996, and his failure to do so rendered him liable to a penalty under section 67(1)(a), VAT Act 1994. A year later, Customs told the appellant that the three businesses were in fact a single legal entity and should be covered by one VAT registration. Customs concluded this because:
although each business had its own bank account, the appellant was the sole signatory for each of them;
there was no evidence of purchases and overheads being charged to the partnerships with the father or brother;
all the business equipment appeared to belong to the appellant, rather than the partnership businesses.
On this basis, the business's turnover exceeded the VAT threshold by the end of September 1995, and so the business should have been registered from November 1995. Assessments were issued accordingly and a civil penalty charged. The penalty was mitigated and charged at 15 per cent.
The tribunal accepted that the assessments were made to Customs' best judgment. However, while it also accepted that it had not been the intention of the appellant to defraud Customs, lack of awareness was not an allowable excuse. Customs were therefore correct to impose a penalty. However, in view of Customs' delay in dealing with the matter, and the ensuing uncertainty and anxiety caused to the appellant, the penalty was reduced to nil.
(Stephen John Whereat (16751).)
Students' union supplies
A recent tribunal decision concerned whether or not a students' union was an eligible body within the meaning of note 1(e) of Group 6 of Schedule 9 to the VAT Act 1994 and, if it was, whether it was making the principal supply of education within the meaning of item 4(a) of Group 6 of Schedule 9. The circumstances were that the appellant claimed that output tax had been wrongly accounted for by the University of Leicester Students' Union on the sale of soft drinks from its shop, as the supplies were made to students and the drinks were intended for consumption on the campus.
Customs said the union shop did not fall within the definition in note 1(e), because it was not a provider of education. However, Customs accepted that the University of Leicester itself was an eligible body. The appellant could not successfully claim that it formed part of that university, because:
the shop was separately registered in 1973;
although it was unincorporated, it could be a person for the purposes of section 3, VAT Act 1994;
Article 4.1 of the Sixth Directive defined taxable person by reference to persons independently carrying on specified economic activity.
Customs maintained that the university and the shop were correctly separately registered, and the two organisations could not be the same eligible body for the purposes of Group 6. Furthermore, the university and the shop clearly worked independently, and the principal activities undertaken by each was completely different.
The appellant's spokesman, on the other hand, conceded that the shop was not an eligible body under Group 6. But he said that under revised guidelines, known as the 'concordat', relating to universities, a students' union could be treated as either part of the parent institution's VAT registration, a separate VAT registration, or as a separate legal entity not registered because its taxable income is below the registration limit. However, the concordat was terminated in September 1997, and each union now had to negotiate separately with Customs.
The appellant's spokesman went on to say that under the university's royal charter, it was stated that there should be a convocation of the university and the students' union. He said that the various committees of the university nearly all had a representative from the students' union, and that the union was represented on the joint committees of council and senate. Clearly the appellant could not operate without the university and the two were inextricably linked. Under section 46, VAT Act 1994 the university was a body corporate, and the appellant could only be registered for VAT with its consent.
The tribunal agreed that the appellant was an eligible body because it was an integral part of the university. This was shown by the royal charter, and the fact that the appellant was reliant upon the university for the use of its buildings. The position with regard to VAT and universities had not been clear in 1973, but for the purposes of section 46 the tribunal said that registration by the appellant could have only been applied for with the university's consent. As the appellant was part of the university, it was an eligible body and party to the supply of education.
(University of Leicester Students' Union (16792).)
