In David Love Marketing Ltd v HMRC [2015] TC04644 the first tier tribunal (FTT) allowed the taxpayer’s appeal against HMRC's cancellation of its VAT registration on the grounds that whilst there had been no taxable sales, commercial activities did continue.
HMRC may cancel a VAT registration with effect from the day on which it ceased to be registerable (VATA 1994, Schedule 1, Paragraph 13).
The last evidence that HMRC had of any taxable supplies made by David Love Marketing Ltd (DLM) was a receipt on 22 June 2010. In December 2013 HMRC cancelled the VAT registration with effect from 23 June 2010, issuing an assessment for input VAT reclaimed on subsequent VAT returns submitted for periods up to 30 April 2013.
Although the scale of the business had reduced from 2007, DLM contended that it continued to carry on its business after that by entering into agreements with yacht brokers, making one sale and narrowly missing out on at least one other. DLM had also written to the editor of Yachting Monthly on 6 October 2011, trying to convince him to run an editorial on its yachts.
DLM also argued that the potential for making sales of new boats still existed but the nature of a trade involving high-value items was that sales can be infrequent and the trade was affected by the recession.
The FTT agreed that there had been evidence of business activity after 23 June 2010, although there was none since 6 October 2011, and also noted that it ‘was perfectly possible for a person to be carrying on an activity with reasonable or recognisable continuity and with the intention of making taxable supplies for a substantial consideration but not be successful in achieving any sales’.
A person is entitled to be registered for VAT if they make taxable supplies or are carrying on a business and intend to make taxable supplies in the course of that business (VATA 1994 Schedule 1, Paragraph 9).
The FTT concluded that HMRC had not been entitled to cancel DLM’s registration from 23 June 2010, as there had been evidence of activity until October 2011.
Comment
This case is noteworthy because the FTT agreed that a commercial business could exist for a considerable period of time despite the absence of any sales. It also re-confirms the importance of keeping evidence of activity even where that activity is not directly linked to any specific cost or receipt.
Case reference: David Love Marketing Ltd v HMRC [2015] UKFTT TC04664
