The High Court held that taxpayers who carried on business in partnership were jointly and severally liable for VAT under an assessment raised in the name of the partnership, although the partnership name had changed during the relevant years of assessment.

Facts

The taxpayers had traded in partnership under the name Gloria Hair Fashions before changing the partnership name to The Cutting Edge. Customs subsequently notified the taxpayers that the partnership would be compulsorily registered for VAT under its new name pursuant to the VATA 1994, s. 45(1) which entitled Customs to register taxpayers carrying on business in partnership in the name of the firm. Customs then required the partners to submit VAT returns and when they failed to do so, an assessment and penalty notice were raised. Both the assessment and penalty notice were issued in the new partnership name even though they related to a period when the taxpayers were in fact trading under both names. The taxpayers appealed to the VAT tribunal against both the compulsory registration and the assessment and penalty notice. Dealing with a preliminary issue, the tribunal ruled that the notice of assessment was valid even though the partnership was not known by the name specified in the notice at the start of the assessment period. The taxpayers appealed to the High Court contending that VATA 1994, s. 45(1) conferred a discretion on Customs to register a partnership in the firm's name and once it had been so registered, the partnership acquired a distinct personality for VAT purposes separate from the individual partners. Customs argued that the liability for VAT remained with the partners by virtue of VATA 1994, s. 45 and the Partnership Act 1890, s. 6 and 9.

Issue

Whether the notice of assessment was valid.

Decision

Blackburne J (dismissing the appeal) said that VATA 1994, s. 45(1) was permissive and concerned merely with matters of regulation. It did not create a separate legal or taxable personality for VAT purposes. The fallacy in the taxpayers’ argument was that it was predicated on the assumption that the liability to account for VAT vested in the partnership as an entity. Whether the persons carrying on the partnership or the firm itself had been registered for VAT under VATA 1994 was irrelevant. It was the partners, and not the partnership, as taxable persons, who were liable to make returns of VAT under the provisions of the Value Added Tax Regulations 1995 (SI 1995/2518). Section 45(1), (2) and (5) of VATA 1994 and s. 6 of the 1890 Act made it clear that the liability for VAT was that of the members of the partnership subject to apportionment where appropriate. Under VATA 1994, s. 3, a person was taxable while he was or was required to be registered for VAT. On that basis, compulsory registration was not a prerequisite to liability to make returns.

Whatever the name of the partnership during the relevant period, each of the partners had been properly notified of the assessment so that they became jointly and severally liable under s. 9 of the 1890 Act (C & E Commrs v Evans & Ors (t/a The Grape Escape Wine Bar) (1981) 1 BVC 455 considered).

Chancery Division. Judgment delivered 14 July 2006.