Judgment summary
This is an appeal by Chandra Bahadur KC under section 83(1)(a) VATA against HMRC's decision to register him for VAT with effect from 13 November 2019 (1, 6). HMRC's decision was notified on 6 June 2024 and upheld on review on 12 September 2024 (6).
HMRC contended that Mr KC took over the takeaway business of Wok to Box Limited as a going concern when that company was dissolved on 12 November 2019, and that the company's taxable supplies in the year before the transfer exceeded the VAT registration threshold, so that Mr KC became liable to register under Schedule 1 VATA (7).
The Tribunal dismissed the appeal, finding that there was a transfer of a going concern, that Wok to Box Limited was a taxable person because its turnover exceeded the VAT registration threshold, and that Mr KC was liable to be registered under paragraph 1(2), Schedule 1 VATA, with no applicable exception under paragraph 1(3) (5, 42-44). The Tribunal varied HMRC's decision so that registration took effect from 12 November 2019, the date of transfer, rather than 13 November 2019 (43-44).
Background
Wok to Box Limited was incorporated on 11 November 2015 (originally named Everest Wok Limited, renamed on 6 April 2016) and was owned by one of Mr KC's daughters, who was sole director (11-12). The company operated a takeaway business from premises at 80 Crwys Road, Cardiff, which Mr KC leased (15). The company was dissolved on 12 November 2019 (13).
Mr KC told the Tribunal he had worked as an employee helping his daughter in the kitchen while the company ran the business, and was unaware of its VAT position (16). His income tax returns showed employment income from Wok to Box Limited in 2017-18, no returns for 2018-19 or 2019-20, and self-employment income from a Chinese takeaway in 2020-21 and a noodle takeaway in 2021-22 (17).
HMRC obtained sales data from online food-ordering intermediaries including Just Eat, Uber Eats, Hungry House, Deliveroo and Kukd.com, covering December 2015 to March 2022, showing sales connected to Mr KC and/or the 'Wok to Box' trading name at the Crwys Road premises (18). During the ADR process, Mr KC provided further documents and HMRC reduced certain figures, but concluded turnover still exceeded the VAT threshold (22).
Mr KC accepted that the business was originally run by Wok to Box Limited and that he took it over around 2019/2020, but argued that since the company was never VAT registered, HMRC could not retrospectively treat him as having taken over a VAT-registered business, and that his own turnover never exceeded the threshold (8).
Core dispute
The issue for the Tribunal was whether HMRC were correct to register Mr KC for VAT (10). This turned on whether there was a transfer of a going concern of the takeaway business from Wok to Box Limited to Mr KC, and whether Wok to Box Limited was a 'taxable person' for VAT purposes at the time of transfer within the meaning of section 3 VATA, given that the company had never actually registered for VAT (7, 8, 30, 33).
A further question was whether the exception from VAT registration in paragraph 1(3), Schedule 1 VATA applied, on the basis that Mr KC's own turnover after taking over the business never exceeded the VAT registration threshold (8, 39-40).
Court findings
The Tribunal found on the balance of probabilities that Wok to Box Limited operated the takeaway business until it was dissolved, and that Mr KC took over the business once the company had been dissolved, relying on the company's corporation tax returns, Mr KC's income tax returns showing employment income from the company, and the continued trading from the same premises after dissolution (26).
The Tribunal found there was a transfer of a going concern of the takeaway business from Wok to Box Limited to Mr KC on 12 November 2019, noting continuity of trading activity, premises, trading name and business operation before and after dissolution; Mr KC accepted this point at the hearing (31).
The Tribunal held that a 'taxable person' under section 3(1) VATA includes a person required to be registered, regardless of whether they actually registered, and that whether Wok to Box Limited was registered or whether Mr KC was aware of its VAT position was irrelevant (32-33, 42).
HMRC's sales data from online intermediaries showed turnover exceeding the VAT registration threshold consistently from September 2017 until the 12-month period ending November 2019, with a figure of £86,125.99 against a threshold of £85,000; these figures were not disputed by Mr KC (23, 35, 37). The Tribunal accepted HMRC's evidence and found Wok to Box Limited was a taxable person before the transfer, regardless of whether the transfer occurred in November 2019 or as early as January 2019 (37).
The Tribunal considered the exception in paragraph 1(3), Schedule 1 VATA, though not argued by Mr KC, and found no evidence that turnover was expected to reduce at the time of transfer, so the exception did not apply (39-41).
The Tribunal accepted Mr KC's explanation that income received into his bank account before 12 November 2019 was due to his daughter using his account for her business, rather than indicating an earlier transfer date (19).
Outcome
The appeal was dismissed (5, 45). The Tribunal found that Wok to Box Limited carried on the takeaway business until its dissolution on 12 November 2019, that Mr KC took over the business as a going concern on that date, that the company's taxable supplies exceeded the VAT registration threshold in the relevant period, and that Mr KC therefore became liable to be registered for VAT from the date of transfer (44).
The Tribunal varied HMRC's decision so that Mr KC is registered for VAT with effect from 12 November 2019, rather than 13 November 2019 as originally decided by HMRC (43-44).
Major issues / areas of contention
- Whether there was a transfer of a going concern of the takeaway business from Wok to Box Limited to Mr KC.
- Whether Wok to Box Limited was a 'taxable person' for VAT purposes despite never having actually registered for VAT.
- Whether the value of Wok to Box Limited's taxable supplies in the year before transfer exceeded the VAT registration threshold.
- Whether the exception from registration under paragraph 1(3), Schedule 1 VATA applied to Mr KC.
- The correct effective date from which Mr KC should be registered for VAT.