VAT Tribunal Decisions

RICHARD CURTIS reports some recent cases.

The appellant was a property management company, but because it had limited resources it looked to collaborate with others when larger deals were involved. A property in London became available, but at a cost of £3 million. The purchase was financed by another company, Emerald Crown Limited (whose director was known to the appellant company), which bought the title to the property. The property was subsequently sold for £3.6 million. After the payment by Emerald Crown of various fees, a document, drawn up by that company and entitled 'Computation of Profit', stated '20 per cent to Thorstone Securities [sic] (profit share) £84,252.76'. Customs considered that VAT should have been charged on this amount on the basis that it related to a 'supply of goods or services' (section 1(1)(a), VAT Act 1994) and issued an assessment on Thorstone, who appealed.

The appellant argued that there was a partnership between it and Emerald Crown Limited agreeing that it would receive a 20 per cent share of profits (or be liable to bear 20 per cent of any loss). Although Emerald Crown paid expenses and was responsible for fees, Thorstone would have been responsible for these costs if Emerald Crown had defaulted. Furthermore, it had dealt with estate agents, lawyers and others as though it were the principal. There was no formal agreement, matters being dealt with 'on trust' and it was suggested that, in the event of default, ultimately the directors of Thorstone would have had to bear the costs. The fact that there was no agreement to share losses and no joint bank account should not be relevant to whether or not there was a partnership.

Furthermore, the fact that its 20 per cent share of the profit was substantially more than the one per cent paid to the estate agents who found the property and the vendor's agent, showed that this was more than simply a 'finder's fee' and was indicative of its greater involvement.

In the alternative, Thorstone argued that a joint venture existed and that the statement 'all activities of producers, traders and persons supplying services' in Article 4(2) of the Sixth VAT Directive recognised that activities will not always be carried out by individuals acting alone.

Customs argued that there was no partnership. Section 1(1), Partnership Act 1890 required that the following conditions had to be present for a partnership to exist:

• a business;

• carried on by two or more persons in common; and

• with a 'view to a profit'.

Customs agreed that the first and third conditions were satisfied, but disputed whether there was a business being carried on in common. This was evidenced by the lack of minutes and documentation that would have been expected if a partnership had existed.

With regard to the appellant's contention that the two companies were involved in a 'joint venture', Customs said that this business format was not recognised for VAT purposes and, distinguishing Greater London Council (1224), argued that the companies could not be said to be acting 'in concert'.

The tribunal accepted that there was no provision in VAT for a joint venture and thus any transactions between such parties must be subject to VAT. The burden of proof was on the appellant to show, on the balance of probabilities, that there was a partnership. The computation of profit might be evidence of a partnership, but could also indicate a joint venture. The company's oral evidence and a letter from the director of Emerald Crown (which was written after the VAT issue arose) were found to be of little value. Nor was the difference in the fees paid to the estate agents, etc. and to Thorstone as great in monetary terms as the percentages indicated. Consequently, there was insufficient evidence to prove the existence of a partnership and the appeal was dismissed.

(Thorstone Developments Limited (17821).)

The appellant had received a penalty charge of £460 for the late submission of its EC Sales List and appealed under section 66(7), VAT Act 1994. His bookkeeper gave evidence that she had submitted the list to the Southend VAT office within the time limit together with a VAT return, which Customs agreed had been received. In response to Customs' contention that the office would therefore have received the list if it had been sent, the bookkeeper pointed out that correspondence stapled to a previous VAT return had also been detached and lost. Customs referred to Sloan Electronics Limited (16062), where the tribunal had found that a company's system 'for preparing and despatching their (sic) EC sales statements was deficient'. However, the tribunal confirmed that that case, as this, must turn on its own facts. Here, the tribunal found that Customs had not investigated the bookkeeper's claims regarding the previous return and had provided no evidence relating to the procedures in its Southend office, whereas the bookkeeper had provided evidence regarding the events leading up to the posting of the return and list. The tribunal found this 'credible and convincing' evidence that 'the EC sales statement has been submitted on time and in such manner that it was reasonable to expect that it would be received by the Commissioners within the appropriate time limit' (section 66(7)).

The appeal was upheld and costs of £250 were awarded to the appellant.

(Spendlove C Jebb (17811).)