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Sloppy HMRC work on disaggregation

23rd Jun 2017
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Whether two or more businesses should be treated as a ‘single taxable person’ is a hardy perennial of the VAT world. Many cases, I suspect, do not reach the Tribunal, as the businesses concerned often lack resources to pursue an Appeal. And, decisions at the FTT are very much fact-specific.

The most recent decision is Graham Belcher & Christine Belcher. First, in 1997, Mr Belcher started a gents’ hairdresser’s business. Only in 2005 did Mrs Belcher commence a women’s hairdresser’s business in a nearby building. Unfortunately, their Accountant submitted partnership tax returns, which highlighted to HMRC a combined turnover in excess of the VAT registration threshold.

The very fact that the two businesses were started on different dates is indicative of there not being artificial separation. HMRC seem to have missed this obvious point, and only highlighted those factors pointing towards there being a single business. In cross-examination, Counsel for the taxpayers challenged HMRC’s procedure in reaching its decision:

33.    Mr Glover (Counsel for the taxpayers) took Officer Atkinson and Officer Hasted in cross-examination to paragraph VATDSAG03200 of HMRC Manuals for the guidance of HMRC staff (VAT Manuals – VAT Single Entity and Disaggregation) where the text is as follows:

‘Before you rule that a separated business is a single entity, you must confirm the trader’s intention when they organised the business …’

and asked them whether at any stage they had enquired about the intention of Mr and Mrs Belcher with regard to whether a single business was being run as a partnership or two business were being run by each of them respectively separately.  Both officers replied that they had they had not asked Mr and Mrs Belcher about their intentions in this regard.

34.    Similarly, Mr Glover took the officers in cross-examination to paragraph VATDSAG03250 of HMRC Manuals, where the text is as follows:

‘The fact that the various parties are related should not influence your decision.  Tribunal decisions have indicated that a wife can quite feasibly help her husband in his business (in her capacity as his wife) and still carry on her own business (in her capacity as a sole proprietor).  You should ask each individual to define the distinction between what they do in their business capacity and what they do to help out as a family member.’

and asked them whether they had followed this guidance in their questioning of Mr and Mrs Belcher.  Both officers agreed that they had not done so.

The Tribunal had no doubt that the Appeal should be allowed. In my view HMRC’s decision was unreasonable in the circumstances.

The decision is here: http://financeandtax.decisions.tribunals.gov.uk//Aspx/view.aspx?id=9860

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