19297
	DEREGISTRATION — Appellant’s application for — whether Respondents acted reasonably — initially no but on review yes — appeal against amended decision dismissed 

MANCHESTER TRIBUNAL CENTRE

 
 	
	LEONARD HENRY FENNING	Appellant

	- and -

	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Lady Mitting (Chairman)
						Susan C Stott	FCA ATII

Sitting in public in York on 27 May 2005 and 26 September 2005

The Appellant appeared in person

Mr J Cannan, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	Mr Leonard Henry Fenning carried on business operating a wine bar, known as “Harry’s Bar”.  He was registered for VAT with effect from 6 August 2001, which the Respondents believed to be his first day of trading, until 8 September 2003, the date of sale of the business.
2.	Mr Fenning was appealing against an assessment to tax in the sum of £8,980 plus interest, covering the period 6 August 2001 to 31 March 2003.  The Respondents had raised a second assessment in the sum of £1,047 for the period 1 July 2003 to 8 September 2003 but this assessment was withdrawn on production of a nil return.  Mr Fenning had also appealed against the Respondents’ decision as to the date of deregistration, his case being, in effect, that having applied for deregistration, it took the Respondents too long to act on his application.  He had not appealed against the date of registration.  However, during the course of Mr Cannan’s opening of the case it became clear that Mr Fenning did not accept that the date of registration was correct either, maintaining that trading had not commenced until 1 November 2001.  We therefore also treated this matter as being under appeal.
3.	On the first day of the hearing during the course of Mr Cannan’s opening, it became apparent that Mr Fenning had extensive documents and records which had not been brought to the tribunal and had never been made available to the Respondents.  We therefore made a direction for production and adjourned.
4.	Between the first and second days of the hearing, Mr Fenning produced his trading records to the Respondents and a meeting took place between Mr Paul Hubbard of the Respondents and Mr Fenning.  It was immediately apparent from the records that trading had indeed begun on 6 August 2001 and the date of registration was therefore accepted by Mr Fenning as correct.  Analysis of the records revealed that for the first year of trading, Mr Fenning’s turnover was slightly below the registration threshold and for the second year, marginally above.  It was apparent to Mr Hubbard that the original assessment level had been too high and he raised an amended assessment in the sum of £7,513, still covering the period 6 August 2001 to 31 March 2003.  Mr Hubbard did not accept the date of deregistration was incorrect.  On receipt of the amended assessment, Mr Fenning confirmed in writing that the quantum of the assessment was no longer in dispute, his only challenge now being to the date of deregistration.
5.	Immediately before the resumed hearing, the Respondents carried out a further review following which they issued an amended decision, revising the date of deregistration to 11 December 2002 and further amending the assessment to reflect the new deregistration date.  Mr Fenning still did not accept the revised deregistration date and continued to contest the amended date of deregistration before us.  The review was so recent that by the time we resumed, the Respondents had not had time to issue an amended certificate of deregistration or an amended notice of assessment but as the review letter of 21 September 2005 clearly refers in two places to it being “a decision”, and not, for example, an offer of settlement, we believe that logic dictates that we should treat the contents of that letter as being the decision under appeal before us.  The decision upon which we are therefore adjudicating is the Respondents’ decision to deregister Mr Fenning with effect from 11 December 2002.  
6.	We heard oral evidence from Mr Fenning, the Respondents not calling any oral evidence.
The Evidence
7.	On 29 October 2001, Mr Fenning submitted an application for registration as a wine bar.  His application indicated that the business had been transferred to him from a Mr Bateson as a going concern, the date of transfer being given as 6 August 2001.  The application anticipated taxable supplies over the next twelve months of £65,000 and indicated the first supply had been made on 15 October 2001, this also being the date given as the date from which Mr Fenning wished to be registered.  
8.	On receipt of the application for registration, the Respondents wrote to Mr Fenning on 2 December 2001 advising him that his registration date should have been the date of transfer, 6 August 2001 and asking why he had chosen 15 October 2001.  Mr Fenning’s accountant replied on 23 January 2002:
“Takings dropped due to new ownership, average takings started picking up but it is still under the registration limit.  Please cancel the VAT application”.
9.	The Respondents replied by letter dated 1 February 2002, requesting evidence that the turnover had dropped below the registration limit and saying that if no contact had been made by 15 February, then Mr Fenning would be registered from 6 August 2001.  No reply was received and by notice of registration dated 23 March 2002, the Respondents confirmed to Mr Fenning that he had been registered with effect from 6 August 2001.
10.	Registration having been completed, Mr Fenning would have received a return in June 2002 for his first long period from date of registration to 30 June 2002.  On 27 June 2002, Mr Fenning telephoned the Respondents’ National Advice Service.  This was the first of several telephone calls, all of which were fully documented by the agents taking the calls on enquiry sheets, which were produced to us.  The following paragraphs set out the calls as recorded.  As we detail later on, Mr Fenning did not accept the accuracy of the Respondents’ record of the calls.  
11.	On 27 June, Mr Fenning told the Respondents (Ms Heather Simpson) that he was registered for VAT, that his first return was due but he had not yet made any supplies and he did not think it worth his while to continue to be registered.  He was advised that if he had not traded at all, he should fill out the return as nil and submit it.  He would be sent a deregistration application, which he should again complete and return.  He would then receive a final return which he should complete and return as nil.  The record shows Mr Fenning was sent a deregistration application form and booklet and also records a new address to which it was to be sent.
12.	The Respondents received the first return for the long period on 1 July 2002.  It was a nil return.  
13.	The second return for 09/02 would have been received by Mr Fenning at the beginning of September and on 3 September 2002, he telephoned the National Advice Service, Ms Clare Stafford, again explaining he had received his return for 09/02 and asking whether he should complete this as a nil return.  He was asked if he had made any supplies during the period to which he replied that he had and he was therefore advised that VAT had to be accounted for on these supplies and that a nil return should only be submitted if he had not traded at all.  Mr Fenning apparently repeated that he wished to apply for deregistration and a further deregistration application is recorded as being sent out to him.  
14.	A further telephone call was received on 14 October 2002 (Folasade Adebiyi), in which Mr Fenning requested help in filling out his return because he believed he was below the threshold and did not therefore have to account for anything on the return.  He was advised that as he was registered, he had to account for VAT on sales and purchases made even if he was below the threshold and he was again told that he should only complete a nil return if he had stopped trading or had not made any taxable supplies.  Mr Fenning said that he would give the return to his accountant to complete together with the application for deregistration.
15.	The return was not submitted and a centrally issued assessment was therefore generated which provoked a further telephone enquiry to Ms Louise Hindmarsh on 26 November 2002.  Mr Fenning said he had received an assessment but explained that he had not sent in his return because he thought that he did not have to if he was under the threshold.  He was advised that he must keep sending in the returns until fully deregistered.  He was advised to send in the return at which time the assessment would be withdrawn.
16.	The Respondents received an application to deregister on 11 December 2002.  It put the value of taxable supplies over the next twelve months at £49,400 and sought deregistration with effect from 30 September 2002.  
17.	Having received the application for deregistration, by letter dated 19 December 2002, the Respondents requested the submission of the return for 09/02 without which his application could not be processed.  This prompted a further telephone call (Ms Erica Lonergan) on 7 January 2003 during which Mr Fenning was advised that the submission of the return would result in the cancellation of the assessment and deregistration could go ahead.  The Respondents, on 15 January 2003, received the returns for both 09/02 and 12/02, again both being nil returns.  
18.	A further telephone call was received by the Respondents on 14 April 2003, by which time Mr Fenning would have received his return for 03/03 and he was asking why he had not been deregistered as he had done exactly as he had been requested and had sent in the return for 09/02.  For some reason, and Mr Cannan accepted that the Respondents were clearly in error here, the submission of the 09/02 return was not identified and in fact by letter dated 13 May 2003, the Respondents wrote again to Mr Fenning saying that they had had no response to their letter of 19 December.  They had clearly not identified the submission of the return for 09/02 in that it had neither been actioned nor queried.  In response to the letter of 13 May, Mr Fenning sent in yet a further application for deregistration, this application being received on 12 June 2003.  It requested deregistration as from 10 June 2003 and estimated taxable supplies over the next twelve months of £24,000.  The application recited that Mr Fenning’s VAT had never reached the minimum threshold.  Mr Fenning also, on 16 April 2003, submitted his 03/03 return, again as a nil return.
19.	Mr Fenning telephoned the National Advice Centre again on 1 September 2003 to ask why he had received yet another assessment.  He was told it was because his latest return had not been received (06/03).  Mr Fenning informed the Centre that he had ceased trading but he was told that he still had to complete his returns and submit them until he had been notified that deregistration had taken place.  The Respondents requested further information as to the cessation of the business and Mr Fenning responded by letter dated 10 September 2003 that he had sold the business on 8 September 2003.   The Respondents thus deregistered him as from that date.  On 3 September 2003, the Respondents received the return for 06/03, again a nil return. 
20.	It fell to Mr Hubbard to review Mr Fenning’s returns, all of which had been nil returns, even though it had been clear from the telephone calls and from the applications for deregistration that some trading had taken place.  Mr Hubbard wrote to Mr Fenning on 1 October 2003 asking him for the true output tax and input tax for the period 06/02 to 06/03 inclusive.  He also, in that letter, set out a draft assessment which he said he would raise if no information was provided.  This draft assessment was based on the estimated turnover from the application for registration and the two further figures given in the two applications for deregistration.  Mr Fenning responded by telephone providing turnover information as follows:
i)	from the date of registration to end August 2002 - £53,869
ii)	1 September 2002 – 31 March 2003 - £57,706
21.	Purchase information was also given sufficient for Mr Hubbard to raise an amended assessment based entirely on Mr Fenning’s figures.
22.	Mr Fenning’s evidence was that he had no previous experience of operating his own business and had opened the wine bar on his retirement.  His recollection of his application for registration was hazy and his evidence, in part, contradictory.  He accepted that he and his accountant had, as at 29 October 2001, estimated his turnover would be £65,000.  Yet he also told us that he knew by then that his turnover would not reach that figure because one of his predecessor’s major customers had been a firm of architects which had relocated.  He had no recollection of receiving the Respondents’ request for information dated 2 October 2001 but accepted that he must have done so because it had been answered.  Mr Fenning was, however, adamant that he never received the request dated 1 February 2002.  He described this document as the most important document in the whole process which he would never have ignored had he received it.  He told us that he only went into the wine bar two or three times a week and it was managed for him by a Mr Fisher who was responsible for dealing with all incoming post.  Mr Fisher would apparently deal with correspondence addressed to the wine bar, would bin junk mail and would pass to Mr Fenning correspondence addressed to him personally.  Mr Fenning could only surmise that somehow, perhaps because of the amount of junk mail received, Mr Fisher had not passed this letter on.  
23.	Mr Fenning’s recollection of the phone calls differed from the Respondents’ record.  Of his phone call on 27 June, Mr Fenning denied he had told Ms Simpson that he had not made any supplies.  Mr Fenning’s recollection was that he had told her he had applied for and was waiting for deregistration and asked whether in view of this he had to complete a return.  Her advice to him was that he should submit a nil return while his application was pending.  He went on to say that the return was completed line by line, over the telephone with Ms Simpson telling him what to put.  He could not recall whether he received the deregistration application which Ms Simpson sent him.  He thought probably not as he would have phoned for advice on its completion.  
24.	Similarly on 3 September, when he spoke to Ms Stafford the VAT return for 09/02 was filled in over the telephone with Ms Stafford dictating each nil answer.  Again, he understood Ms Stafford to be telling him that he had to enter a nil return because he had told her of his pending deregistration application.  He believed he would have sent the completed return off immediately after this call as he would have had no reason not to.  Again, he does not think he received the deregistration forms which she sent out to him.  
25.	Mr Fenning’s evidence in relation to each and every call was consistent.  Each return was completed at the dictation of the agent to whom he was speaking over the telephone.  He told each agent, on each call, of his pending application for deregistration and was told on each occasion that in order for the application to be processed, he had to submit nil returns.  The application for deregistration, received by the Respondents on 11 December 2002 was completed by Mr Fenning and his accountant jointly.  This much, Mr Fenning could tell us from the handwriting on it but he could not remember the circumstances under which it was completed, what triggered its completion and he did not know how the proposed cancellation date of 30 September 2002 had been reached.  
26.	In addition to his oral evidence, Mr Fenning put in some written notes to us which we have read with care.  These notes really amplify what we have set out above.  
Submissions
27.	It was Mr Cannan’s submission that there were two separate processes in train here.  First, there was the registration process which culminated in the issue of the Notice of Compulsory Registration on 23 March 2002.  The application of 2 December 2001 submitted by Mr Fenning’s accountant for cancellation of the application for registration was, in effect, just that.  It was not an application for deregistration, but was merely a part of the registration process.  Once registered, the deregistration process did not begin until the application for deregistration received on 11 December 2002.  This, contended Mr Cannan, was the first application for deregistration and was thus the earliest date on which the Commissioners could deregister Mr Fenning.  The registration of Mr Fenning had been perfectly reasonable in the circumstances and the current stance now taken by the Respondents in their amended decision on deregistration was also reasonable.  
28.	Mr Fenning submitted, with further submissions made on his behalf by his son, that he had kept in touch with the Respondents at all times, speaking to them every time he had received some communication.  He ignored nothing and complied with every request made of him.  It was quite unreasonable for an application for deregistration made in December 2001 not to be processed until September 2003.  Mr Fenning also criticised the Respondents for their acceptance of his nil returns.  Mr Fenning at all times genuinely believed that an application for deregistration was being processed by the Respondents and he believed the advice he was being given was to submit nil returns.  If this advice was wrong, the nil returns should not have been accepted by the Respondents.
Conclusions
29.	Our jurisdiction is strictly supervisory.  The burden of proof being on Mr Fenning, in order to succeed in his appeal, he has to satisfy us that the Respondents acted unreasonably in either registering him in the first place or failing to cancel his registration from a date earlier than 11 December 2002.  It is not open to us to reach a completely fresh decision and direct what the deregistration date should be.  We can only adjudicate on the reasonableness of the decisions made by the Respondents.  
30.	There is common ground between the Respondents and Mr Fenning on several key facts.  The date of commencement is agreed as is the date of cessation and the date of sale of the business.  Mr Fenning’s trading records and his takings are also agreed.  There is, however, a fundamental and critical dispute over the contents of the telephone conversations.  On the one hand are the officers’ recorded entries on their enquiry sheets.  On the other are Mr Fenning’s recollections of what was said.  We totally accept Mr Fenning’s assertion that much more was said than appears on the notes.  We accept that he would have outlined his position in some detail to the officers and that their advice would have been given in rather more detail than is contained in the entry.  However, this is not unusual.  The note is not meant to be a verbatim record but merely to record such key issues as the nature of the query, the advice given and any publications to be sent out to the caller.  We also accept that Mr Fenning has not tried to mislead us in any way.  He has, we are sure, done his best to recollect what was said but a mixture of confusion (both then and now) and the passage of time, leads us to the view that Mr Fenning’s memory of the calls is no match for the accuracy of the officers’ contemporaneous notes.  We are strengthened in this view by the consistency of the notes – all taken independently by different officers.  Also, on occasion, if Mr Fenning’s recollection of one call was accurate, it would make a nonsense of subsequent calls.  For example, Mr Fenning was adamant that on 3 September 2002 he completed the 09/02 return over the telephone with Ms Stafford and then submitted the completed return.  However, on 14 October 2002, Folsade Adebiyi records helping to complete the same return.  Further, on 26 November, Ms Hindmarsh records being told that the 09/02 return had still not been submitted and in fact we know it was not submitted until 15 January 2003.  Equally, Mr Fenning was certain that he told each officer he spoke to that he had made an application for deregistration which was pending.  If that was so, why should both Ms Stafford and Ms Simpson send out to him deregistration applications.  They both clearly understood Mr Fenning to be telling them, not that he had applied for deregistration, but that he wished to.  Neither can we accept that Mr Fenning would be repeatedly told by different officers that, regardless of whether he had traded, he should submit nil returns.  This is so clearly wrong that it is inconceivable that one officer would say it, leave alone more than one.  Mr Fenning may well not have made himself clear to the officers to whom he spoke.  It may equally be that Mr Fenning misunderstood what he was being told at the time or that he had misremembered it but for the reasons give above, we accept as accurate the officers’ records of the conversations.
31.	Looking firstly at the application for registration, the first thing to note is that the application was not made until the business had already been trading for almost three months.  The Respondents would know that the previous owner of the business had been registered and had been trading well above the threshold.  The estimated takings of Mr Fenning were equally stated to be well above the threshold.  The only query the Respondents had was the date chosen for registration which they rightly took up with Mr Fenning.  Mr Fenning’s response was to ask for cancellation of the application for registration because of a drop in takings.  Again, the Respondents acted perfectly properly in asking for evidence and in stating quite clearly that if they did not receive a response by 15 February 2002 then Mr Fenning would be registered with effect from 6 August 2001.  The Respondents received no response.  They were not to know that their letter may not have reached Mr Fenning personally, they knew they had sent it to the correct address and it had not been returned to them.  They were perfectly entitled to assume that it had been received and that Mr Fenning was, for reasons best known to himself, not responding.  
32.	We can find nothing unreasonable in the way in which the Respondents dealt with the application for registration.
33.	Mr Cannan contends that the request for cancellation of the application was merely part of the registration process and was not an application for deregistration.  In practice, this distinction is not really as clear cut as that sounds.  First, the Respondents’ letter of 1 February 2002 refers quite clearly to Mr Fenning being deregistered as from 1 February 2002 if he could prove his turnover had dropped below the registration limit.  Equally, we were told that if Mr Fenning had replied satisfactorily to the letter of 1 February 2002 and the Commissioners had been satisfied that his future turnover would be below the threshold then he would have been deregistered with effect from 2 December 2001.  For all practical purposes, the distinction or blurring of it is probably immaterial because the same criteria apply either way.  If the Respondents acted reasonably in not deregistering, then their decision stands.  Our view is that even if there was a request for deregistration, the Commissioners dealt with it perfectly reasonably in asking for evidence which was never forthcoming.  
34.	There is no evidence that throughout the next twelve months, Mr Fenning was in any way mislead by the officers into believing that he had an application for deregistration pending.  As far as the Respondents were concerned, there was no such pending application even though Mr Fenning believed it still to be current.  
35.	For some reason, Mr Fenning was triggered into making a further application for deregistration received by the Commissioners on 11 December 2002.  On receipt of the application, the Respondents perfectly properly requested the submission of the return for 09/02.  Mr Fenning duly submitted it on 15 January 2003 but the Respondents then, for reasons unknown, failed to act upon its submission or to process or query it and after a delay of some months, they closed the deregistration case.  This quite clearly was an error and thus unreasonable.  It has now been accepted by the Respondents to have been unreasonable and they accept that they failed to act properly upon the application for cancellation.  The Respondents have also conceded that, based on turnover information submitted by Mr Fenning, had they acted properly at the time of application for cancellation, they would have deregistered him with effect from 11 December 2002.  This is the reason why, on the recent review, the Respondents have made a further decision that Mr Fenning should have been deregistered as from that date.  This seems to us to be a perfectly proper response and we cannot find that in their amended decision, the Respondents have acted in any way unreasonably.  They have, in effect done, precisely what they should and would have done had they not overlooked the submission of the 09/02 return.  It is therefore our view that the Respondents’ amended decision to deregister with effect from 11 December 2002 is a proper decision reasonably reached and should therefore stand.
36.	We would just comment on Mr Fenning’s assertion that the Respondents should have picked up the submission of nil returns.  In fact, by the time the application for deregistration was made on 11 December 2002, only one return had been submitted, this being for the first period of trading, albeit a long period.  We would not have expected the Respondents to immediately query the submission of one return although had their been a run of nil returns they almost certainly would have done.  
37.	We have every sympathy for Mr Fenning in the position in which he has found himself, but as we say, we have to judge the actions of the Respondents and as they, in our view, acted reasonably, we cannot upset their decision.  This, of course, leaves Mr Fenning with an assessment to tax.  We are not aware of his current financial position but if he finds difficulty in paying the assessment, we would very strongly urge the Respondents to agree a sympathetic repayment schedule with him.
38.	The appeal is therefore dismissed.  No application was made for costs and we make no order.

LADY MITTING
CHAIRMAN
Release Date: 18 October 2005
MAN/04/0479