Aslanbeigi & Anor (t/a Cuccina) v Customs and Excise [2003] UKVAT V18382 (14 October 2003)

	VALUE ADDED TAX — compulsory registration — takeover of going concern — temporary closure of trading premises — whether sufficient to break link — no — whether turnover of former business above registration threshold — yes— appeal dismissed
PENALTY — late registration penalty — whether to be calculated by reference to tax under-declared or tax due for period when trader not registered — due by reference to tax due — mitigation

MANCHESTER TRIBUNAL CENTRE

ABBAS ASLANBEIGI & MEHRDAD KANANI
trading as CUCCINA	
Appellants
	
- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE
Respondents

				Tribunal:	Colin Bishopp (Chairman)

Sitting in public in Manchester on 2 October 2003 
Abbas Aslanbeigi appeared for the appellants 
Nigel Poole of counsel, instructed by their solicitor’s office, for the respondents

© CROWN COPYRIGHT 2003

DECISION
1	The appellants, Abbas Aslanbeigi and Mehrdad Kanani, trade in partnership in the name “Cuccina”, selling take-away food from premises in Otley, West Yorkshire. Their notice of appeal suggests that they challenge only the imposition on them of a late registration penalty, but since their liability to such a penalty depends upon the correctness of the respondents’ belief that they were liable to register from 30 November 1998, when they apparently took over, as a going concern, part of a business previously owned by a registered trader, and the amount of the penalty is dependent upon figures which led also to an assessment made by the respondents upon the assumption that the appellants should have been registered from that date, the appeal has been treated as one against the decision to register the appellants from 30 November 1998, the assessment and the penalty. 
2	Mr Aslanbeigi represented the appellants at the hearing and gave evidence. The Commissioners were represented by Nigel Poole of counsel, who provided me with a bundle of documents, which Mr Aslanbeigi supplemented.
3	It was common ground that the appellants had bought the business from a Mr Keyghobadi, who had hitherto traded from three shops in the Leeds area. The appellants bought the shop in Otley, while Mr Keyghobadi continued to trade from the two others. Although information provided to the Commissioners by Mr Aslanbeigi indicated that the purchase had taken place on 30 November 1998, some of the documents produced by him at the hearing suggested that it had taken place rather earlier. Mr Aslanbeigi told me in his evidence that before their purchase the premises had been open from 10 am to midnight, operating during the earlier part of the day as a café with tables and chairs for customers, and later as a take-away. After he and Mr Kanani took over, however, they opened only for take-away sales from 5 pm to midnight. 
4	Mr Aslanbeigi told me that, before the purchase, he had spent some time at the shop, observing rather than working, in part with the intention of verifying the takings of the business. Mr Keyghobadi had told him that the weekly takings were about £1600. It was evident that this was an exaggeration; Mr Aslanbeigi’s examination of the till rolls led him to conclude that a realistic figure was between £1100 and £1200. He had tried to find out how much of that sum was due to lunchtime trade, and had been unable to do so; the shop manager claimed to be unable to say, and Mr Keyghobadi was equally unhelpful. I interpose at this point that I found this evidence puzzling. It would not have been difficult to make, at least approximately, an estimation of the value of the evening trade by an analysis of the till rolls, particularly when Mr Aslanbeigi had had the opportunity of observing for himself the volume of that trade. One might also wonder why the appellants proceeded with the purchase if faced with evasive, or at least non-committal, answers about the level of turnover which might be achieved. Mr Aslanbeigi’s explanation was that Mr Kanani had worked in another of Mr Keyghobadi’s shops and had acquired some understanding of the potential of the business. That may well be right, but it does not altogether dispel my surprise that greater efforts were not made to obtain reliable figures for the turnover actually achieved at this shop.
5	Mr Aslanbeigi accepted that Mr Keyghobadi was a registered, or at least registrable, trader immediately before the appellants’ purchase and that, if his estimate of £1100 to £1200 per week were reasonably accurate, the turnover of the Otley shop alone was above the registration threshold, then £50,000 per year. However, he said, it was necessary to close the shop for about three months immediately after the purchase, in order to carry out some refurbishment and redecoration and in order to meet the requirements of the environmental health department of Leeds City Council, the local authority for the area. Among the documents he produced were a notice served by the City Council setting out those requirements. Although there was no evident danger of summary closure—the notice asks no more than that the appellants give attention to various matters before the Council’s next inspection, the date of which is not specified—I can understand why Mr Aslanbeigi felt it desirable to close the premises in order to have all the work, including the refurbishment, carried out properly before the appellants opened for trade. In particular, he said, the food preparation facilities were inadequate. That did not matter when Mr Keyghobadi was the owner, since he could have food prepared in his other shops and brought to Otley, but that was not possible for the appellants. He also told me that there was a considerable delay in obtaining a spare part for a rather elderly dough mixer.
6	Mr Aslanbeigi’s evidence about the period of closure was rather vague, and I am by no means persuaded that it was as long as three months. It was the documents he produced, relating to the work carried out, which cast doubt on the true date of acquisition and the period of closure. The local authority inspection took place on 26 October 1998 but the council’s communications about it are addressed to the appellants, and not to Mr Keyghobadi. The invoice for some of the work is dated 28 November, and the other (only two were produced) 4 December. Those dates might be consistent with some forward planning, but that is not how Mr Aslanbeigi explained them; nor do they support his claim that the premises were closed for as much as three months. Nevertheless, neither party asked me to consider whether the correct date should be some other, within a month or two either side, and I proceed upon the basis that it is as accurate a date as one can achieve. It is, I should add, the date entered by the appellants on their eventual application for registration, which claims that it was both the date of transfer and the date on which the appellants made their first supply; I suspect it accurately reflects the latter but perhaps not the former.
7	The appellants did not register for VAT in or about November 1998. Mr Aslanbeigi said that the turnover of the business, despite the refurbishment, was then  below the registration threshold. The first set of accounts available to me, stated to be for the year ended 28 February 2000, show the turnover for the year to be £50,985: the threshold was £51,000 in February 2000. The turnover for the following year is shown to be £51,844; in February 2001 the threshold was £52,000. In March 2001 Alan Keighley, a Customs officer, wrote to the appellants asking for various details of their trading which would enable him to determine whether they were liable to register. Mr Keighley was unable to recall, he told me when he gave his evidence, whether his enquiry was part of a general check on local unregistered businesses or was prompted by an enquiry from Mr Aslanbeigi, as the latter suggested—he said that by this time he was conscious that the appellants’ turnover had probably exceeded the threshold and that they would need to register.
8	Whatever the cause of the letter, it led the appellants to complete an application for registration, and to a meeting between Mr Aslanbeigi, Mr Keighley and another Customs officer, Mrs Finn, on 18 September 2001. At that meeting, the officers concluded that the appellants should have been registered from 30 November 1998, as they had taken over a going concern. In addition, Mr Keighley said, his recollection was that Mr Aslanbeigi had told him that the turnover of the shop, after the take-over, was between £1100 and £1200 per week; if so, the appellants were required to register because of their own turnover, irrespective of their having taken over a going concern; and, if they had taken over a going concern, then even on the figures in their accounts (just under £1000 per week in each of the two years) they were ineligible to deregister as their turnover exceeded the requisite figures (£49,000 and £50,000 respectively). Despite various representations from Mr Aslanbeigi, which were considered on review, the Commissioners continued to maintain that the correct registration date was 30 November 1998.
9	The Appellants were required to, and did, submit a “long” return for the period from 30 November 1998 to 30 November 2001 which, Mr Keighley said, declared a very low tax liability. A subsequent visit revealed that the tax declared related only to the last nine months of the three-year period, and the assessment which is the subject of this appeal was made in order to recover the tax due but which had been excluded from the return on the strength of the appellants’ belief that, despite having been registered, they were not liable to be registered. The amount assessed is based upon the appellants’ own accounts and, as I understood it, Mr Aslanbeigi did not challenge the arithmetic of the assessment. Mr Poole volunteered that no input tax allowance had been made since no details were available to the assessing officer, but even now the Commissioners would reconsider if evidence were produced. Armed with some information about the amount of the appellants’ liability the respondents were able also to calculate the penalty due from them for late registration, and that penalty was imposed.
10	Section 49(1) of the Value Added Tax Act 1994 provides:
“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 ….”
11	Paragraph 1 of Schedule 1 to the Act, so far as material and as it read in November 1998, provides:
“(2) 	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-paragraphs (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 £51,000; or
(b) 	there are reasonable grounds for believing that the value of his taxable supplies in the period of 30 days beginning at the time of the transfer will exceed £51,000.
(3) 	A person does not become liable to be registered by virtue of sub-paragraph … (2)(a) above if the Commissioners are satisfied that the value of his taxable supplies in the period of one year beginning at the time at which, apart from this sub-paragraph, he would become liable to be registered will not exceed £49,000.”
Sub-paragraphs (4) to (7) are irrelevant to this case.
12	The first question I must consider, therefore, is whether the appellants took over a going concern. There is no definition within the 1994 Act of a “going concern” and the term has to be interpreted as an ordinary English phrase. Case law suggests a number of factors which might be important in cases of doubt, but in my view there can be no possible doubt here that what the appellants acquired was a going concern: it was the business, actively pursued immediately prior to their acquisition of it, of selling take-away food which the appellants intended to carry on, in largely though not wholly the same way, from the same premises using the same equipment and under the same name. Mr Aslanbeigi’s case was not so much that the appellants had set up a new business, but that their intention of carrying on with the old, without interruption, was frustrated by the need to comply with the local authority’s requirements and to carry out some repairs and alterations, so that the three-month interlude in trading broke the continuity.
13	I do not accept that argument. I have already expressed some doubts about the true length of the period of closure, but even if I accept in the appellant’s favour that it was of three months’ duration, that seems to me to be far too short to support the argument that the business on re-opening was materially different from that before closure, even if, which I also doubt, the period of closure alone could be regarded as enough. There were changes of proprietor, of opening hours and of the range of goods offered, but the core business was the same before and after the closure. A customer would notice that the shop had been closed but on its reopening he would not consider that the business conducted from it was materially different from that before.
14	I was not, moreover, persuaded that any period of closure was inescapable—it seemed to me to be a matter of, albeit understandable, choice rather than necessity—but if I were to assume for the purpose of argument that the closure was forced that fact too does not, in my view, support the argument that there was a break in continuity. The purpose of the closure was not to transform one business into another, which might be regarded as sufficient in an appropriate case, but precisely to enable the appellants to carry on essentially the same business as that carried on by their vendor. Mr Aslanbeigi’s evidence showed that the appellants were interested in the turnover of the existing business and its potential for the future. In my view those factors too amount to a clear indication that it was the appellants’ intention, at all times, to carry on essentially the same business as their vendor.
15	Even if one were to take the lowest of the available figures, £1100 per week, the turnover achieved by Mr Keyghobadi in the shop during the year before the transfer—deemed by subsection 49(1) to be the appellants’ income—exceeded £50,000, the threshold in November 1998. There is no documentary evidence available to support the figure: enquiries of Mr Keyghobadi  made by Mr Keighley were fruitless. All Mr Aslanbeigi had received was an estimated profit and loss account, covering all three of Mr Keyghobadi’s shops without division between them, for the two years ended on 31 March 1997. If the figure shown is correct, the average turnover of each of the shops was over £60,000 per year. Mr Aslanbeigi suggested that the Otley shop was the most recently established and was therefore likely to have the lowest turnover of the three. That must be speculation, but even if he is right one can draw no conclusion about the true turnover of the shop. The best, albeit poor, evidence is that which came from Mr Aslanbeigi himself, of £1100 to £1200 per week, and from his belief that the turnover which the appellants were able to achieve—itself very close to the threshold—was lower than the turnover before their purchase. It cannot possibly be said that the appellants have discharged the burden of showing, on the balance of probabilities, that the turnover of the Otley shop was below the registration threshold. On the contrary, the evidence points to the conclusion that it was above that threshold.
16	From that conclusion, and from paragraph 1(2) of Schedule 1, it follows that the appellants should have registered from the date they took over the business. Despite the doubts about that date, it can be said with confidence that it was not later than 30 November 1998. That is the date which the appellants have themselves put forward, and I do not think it is open to them to argue that if, after all, the date should be earlier, the respondents’ decision to register the appellants compulsorily from 30 November 1998 is faulty. I therefore dismiss the appeal against the decision to register the appellants from that date. Since the only challenge to the assessment was that it relates to a period when the appellants were not liable to be registered, it follows that the assessment must also stand, save that it remains open to the appellants, within any applicable time limits, to provide evidence of any input tax for which they are entitled to credit.
17	Mr Aslanbeigi argued that the penalty for late registration should have been calculated by reference to the amount assessed rather than by reference to the total amount of tax due for the period for which the appellants were not, but should have been, registered. Since the Commissioners did not have an accurate figure for that period, they took the total amount determined to be due for the three-year “long” period, and then apportioned it on a daily basis between the parts of the three-year total which fell respectively before and after the date on which the appellants had eventually applied for registration. 
18	Mr Aslanbeigi’s argument seems to me to be misconceived. Section 67 of the 1994 Act, which provides for the imposition of such penalties, prescribes (by subsection 3(a)) that the base figure by reference to which the amount of the penalty is to be determined is the VAT due from a taxable person for the period starting on the date from which he should have registered and ending on the date on which he notified the Commissioners of his liability to register: that is the amount which the Commissioners’ calculation was designed to determine, even if in a rough and ready manner. The penalty is not calculated by reference to the tax eventually under-declared, as Mr Aslanbeigi’s argument requires; the extent of the under-declaration, if any, is a separate unrelated question.
19	The only remaining question is whether the amount of the penalty should be mitigated, in accordance with section 70 of the Act. It was evident from the correspondence that the Commissioners had not considered mitigation, but it is open to me to do so. I have to leave out of account insufficiency of funds, and reliance on others, but neither of those considerations arises here. Unfortunately for the appellants, I can find no other circumstance which suggests that there is any ground for mitigating the penalty. Mr Aslanbeigi’s own evidence showed that he had not considered properly, if even at all, whether Mr Keyghobadi was registered, though he imagined he was, and he had not thought about the consequences of his having been registered. In fact, it appeared, he had made no enquiries at all about the appellants’ need to register until March 2001, over two years after they began to trade. Even if I assume in their favour that the appellants’ enquiries then were not prompted by the Commissioners’ letter to which I have referred, that period seems to me to be much too long to be disregarded. This is not, in short, a case in which the appellants might reasonably have thought that their predecessor’s turnover did not render them liable to register; they seem instead to have ignored all the warning signs. Nor is it one in which their own turnover has fallen substantially below the registration threshold: here, it was very close to it, and a deregistration application (had the appellants registered at the time of their takeover) would have been refused since at all times their turnover was above the deregistration threshold. The penalty may need to be recalculated if the appellants produce evidence of input tax for which relief is available, but subject to that the appeal against the penalty must be dismissed.
20	I make no direction in respect of costs.

COLIN BISHOPP
CHAIRMAN
Release Date: 14 October 2003
MAN/02/0264