Background factsIn February 2007, the Appellant sold a property to a company called Ticketaction Ltd and sought to treat this as a transfer of a going concern ("TOGC"), so that it was neither a supply
Background facts
In February 2007, the Appellant sold a property to a company called Ticketaction Ltd and sought to treat this as a transfer of a going concern ("TOGC"), so that it was neither a supply of goods nor a supply of services.
HMRC did not accept this, on the basis that there was no VAT registration number for Ticketaction, and in November 2009 raised an assessment on the Appellant (and sought interest and imposed a misdeclaration penalty).
The Appellant's position, which it maintained prior to the proceedings and throughout, was that the TOGC provisions state that a purchaser must "immediately become as a result of the transfer, a taxable person", and accordingly that a liability on the purchaser to become VAT registered, rather than an actual VAT registration number, sufficed.
One week before the hearing of the appeal was due to take place (in March 2012), HMRC withdrew the assessment. The Appellant subsequently sought its costs under Rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 on the basis that HMRC had acted unreasonably in defending or conducting the proceedings.
The decision
HMRC submitted that there had been a misunderstanding between the parties and that it was not until they were served with the Appellant's witness statement (which was not served until March 2012) that they appreciated what the Appellant's case was.
The Tribunal rejected this submission by HMRC. It said that "The case for the Appellant had been set out clearly both prior to and throughout proceedings", but "at no point did HMRC address the argument raised by the Appellant as to liability to be VAT registered as an alternative to actual VAT registration." It held that, because HMRC had failed to consider properly the documents provided by the Appellant or the Appellant's case as a whole, their conduct had been unreasonable. The Appellant was awarded its costs under Rule 10(1)(b).
Comment
The facts of this case are unusual. It seems to have been accepted by the parties that, save the point raised by HMRC, all of the TOGC conditions had been met as regards the transfer; and the point raised by HMRC was baseless. The relevant legislation does not require the vendor to evidence that the purchaser has a VAT registration number before it is able to treat the transfer as a TOGC. Paragraph 5(a)(ii), Value Added Tax (Special Provisions) Order 1995, SI 1995 No 1268 provides that the relevant condition in a case where the transferor is a taxable person is that "the transferee is already, or immediately becomes as a result of the transfer, a taxable person" and s.3(1), Value Added Tax Act 1994 provides that "a person is a taxable person for the purposes of this Act while he is, or is required to be, registered under this Act." (our emphasis). But, it seems that neither the original HMRC officer, nor the reviewing officer, nor HMRC Solicitor's Office nor HMRC's Counsel considered this, despite the repeated urgings of the Appellant, until a week before the hearing. It is hard to see how such an approach by HMRC could not be seen as "unreasonable".
Although the Tribunal will make costs orders under Rule 10(1)(b) relatively sparingly, taxpayers should appreciate that it has this discretionary power and, in appropriate cases, will exercise it.
In February 2007, the Appellant sold a property to a company called Ticketaction Ltd and sought to treat this as a transfer of a going concern ("TOGC"), so that it was neither a supply of goods nor a supply of services.
HMRC did not accept this, on the basis that there was no VAT registration number for Ticketaction, and in November 2009 raised an assessment on the Appellant (and sought interest and imposed a misdeclaration penalty).
The Appellant's position, which it maintained prior to the proceedings and throughout, was that the TOGC provisions state that a purchaser must "immediately become as a result of the transfer, a taxable person", and accordingly that a liability on the purchaser to become VAT registered, rather than an actual VAT registration number, sufficed.
One week before the hearing of the appeal was due to take place (in March 2012), HMRC withdrew the assessment. The Appellant subsequently sought its costs under Rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 on the basis that HMRC had acted unreasonably in defending or conducting the proceedings.
The decision
HMRC submitted that there had been a misunderstanding between the parties and that it was not until they were served with the Appellant's witness statement (which was not served until March 2012) that they appreciated what the Appellant's case was.
The Tribunal rejected this submission by HMRC. It said that "The case for the Appellant had been set out clearly both prior to and throughout proceedings", but "at no point did HMRC address the argument raised by the Appellant as to liability to be VAT registered as an alternative to actual VAT registration." It held that, because HMRC had failed to consider properly the documents provided by the Appellant or the Appellant's case as a whole, their conduct had been unreasonable. The Appellant was awarded its costs under Rule 10(1)(b).
Comment
The facts of this case are unusual. It seems to have been accepted by the parties that, save the point raised by HMRC, all of the TOGC conditions had been met as regards the transfer; and the point raised by HMRC was baseless. The relevant legislation does not require the vendor to evidence that the purchaser has a VAT registration number before it is able to treat the transfer as a TOGC. Paragraph 5(a)(ii), Value Added Tax (Special Provisions) Order 1995, SI 1995 No 1268 provides that the relevant condition in a case where the transferor is a taxable person is that "the transferee is already, or immediately becomes as a result of the transfer, a taxable person" and s.3(1), Value Added Tax Act 1994 provides that "a person is a taxable person for the purposes of this Act while he is, or is required to be, registered under this Act." (our emphasis). But, it seems that neither the original HMRC officer, nor the reviewing officer, nor HMRC Solicitor's Office nor HMRC's Counsel considered this, despite the repeated urgings of the Appellant, until a week before the hearing. It is hard to see how such an approach by HMRC could not be seen as "unreasonable".
Although the Tribunal will make costs orders under Rule 10(1)(b) relatively sparingly, taxpayers should appreciate that it has this discretionary power and, in appropriate cases, will exercise it.