HM Revenue & Customs v Pal & Ors [2006] EWHC 2016 (Ch)

[2006] EWHC 2016 (Ch)Case No CH/2006/APP/0191
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 31/07/2006
Before
MR JUSTICE PATTEN
Between
THE COMMISSIONERS FOR HM REVENUE & CUSTOMSAppellant(1)KAVITA PAL,Respondents(2)RAJINDER PAL, (3)ENRIQUE QUILLEN ALONSO and (4) HICHAM BENLACHGAR EL BOUACHERIRespondent
Miss Nicola Shaw (instructed by David Hogg, Solicitor to HMRC) for AppellantMr Richard Barlow (instructed by Chase Law, Solicitors) representing Mr AlonsoHearing Hearing date: 20 July 2006
JudgmentMr Justice Patten :Introduction
[1]This is an appeal by Her Majesty’s The Commissioners for Revenue & Customs against a decision of the VAT & Duties Tribunal (Mr Rodney Huggins and Ms Rachel Adams FCA) the Tribunal released on 16 January 2006.[2]The Tribunal discharged as invalid an assessment to VAT in the sum of £17,074 plus £939.09 interest dated 26 September 2003 which the Commissioners had issued against Tapas Bar Cerveceria in respect of the period from 1 May 2002 to 31 October 2002.[3]Tapas Bar Cerveceria (“TBC”) is the name of a bar and restaurant which carried on business at 10 Little Clarendon Street, Oxford during the period to which the assessment relates. The assessment was raised against TBC because in the application for registration that was the name supplied to the Commissioners by the third Respondent, Mr Alonso, as the trading name of a partnership which was to run the business. Mr Alonso applied for registration with effect from 1 January 2002. In the accompanying form VAT 2 (which is the prescribed form under regulation 5(1) of the VAT Regulations 1995 where the application for registration is made by a partnership) each of the four Respondents stated that they were partners in the business and signed the form. Accordingly, the Commissioners exercised the power contained in section 45 (1) of the Value Added Tax Act 1994 (“VATA 1994”) and completed the registration in the name of TBC.[4]No VAT returns were made in respect of the relevant period and the Commissioners exercised their powers under s.73 of VATA 1994 to make an assessment against TBC. Copies of the assessment were sent to each of the four Respondents. On 18 December 2003 Mr and Mrs Pal and Mr Alonso appealed. Mr Bouacheri had by then disappeared and is believed to be living somewhere abroad. The Tribunal treated him, however, as a party to the appeal.[5]In their notice of appeal the Respondents took two points:(1) that Mr and Mrs Pal and Mr Alonso had not been involved in the making of taxable supplies at the relevant time; and(2) that the assessment was in any event excessive. There was no challenge in terms to best judgment. At the hearing on 8 December 2005 the Tribunal dealt with the first ground of appeal as a preliminary issue. They found on the evidence that Mr and Mrs Pal had never been partners in the business, but that Mr Alonso and Mr Bouacheri were in partnership from 14 February 2002 until the late summer of that year.[6]On this basis they held that the assessment was invalid but expressed the view that had it been raised against Mr Alonso and Mr Bouacheri alone the only possible challenge to it would have been on grounds of quantum or lack of best judgment.[7]The Commissioners appeal against this decision on three grounds: i) That the Tribunal failed to recognise that the Respondents were all registered for VAT by virtue of the registration in the name of TBC and accordingly were taxable persons for VAT purposes and therefore liable to account for VAT; ii) That by virtue of s.14 of the Partnership Act 1890 (or at common law) the Respondents were estopped from denying their status as partners with regard to the VAT liabilities of TBC as a result of having held themselves out as partners in the application for registration; and iii) That even if Mr and Mrs Pal are not to be treated as partners in TBC the assessment issued against TBC was nonetheless valid against Mr Alonso and Mr Bouacheri in the light of the partnership which the Tribunal found to have existed between them.[8]None of these points was either raised or argued before the Tribunal and the third point was by error omitted from the notice of appeal, although contained in the skeleton argument lodged by Miss Shaw. The hearing before the Tribunal was confined to the issue of whether a partnership had ever in fact been formed between the Respondents and it appears to have been assumed that the assessment could not stand unless all four Respondents were found to have been partners in the business at the relevant time. But all three grounds of appeal raise issues of law which can fairly be determined on the basis of the evidence and the findings of fact made by the Tribunal and I allowed the Commissioners to amend their notice of appeal to raise the third point on terms that Mr Alonso (who is the only Respondent to have participated in this appeal) should be permitted to file a Respondent’s notice out of time challenging the finding of the Tribunal that he was a partner so far as that was based on the terms of the agreement of 8 April 2002 referred to in the Decision of the Tribunal. Relevant legislation[9]The relevant provisions of VATA 1994 are as follows: 1. Value Added Tax “(2) VAT on any supply of goods or services is a liability of the person making the supply and (subject to provisions about accounting and payment) becomes due at the time of supply. 3 Taxable persons and registration(1) A person is a taxable person for the purposes of this Act while he is, or is required to be, registered under this Act 25 Payment by reference to accounting periods and credit for input tax against output tax (1) A taxable person shall— in respect of supplies made by him, and in respect of the acquisition by him from other member States of any goods, account for and pay VAT by reference to such periods (in this Act referred to as “prescribed accounting periods”) at such time and in such manner as may be determined by or under regulations and regulations may make different provision for different circumstances.” 45 Partnerships (1) The registration under this Act of persons— (a) carrying on a business in partnership, or (b) carrying on in partnership any other activities in the course or furtherance of which they acquire goods from other member States, may be in the name of the firm; and no account shall be taken, in determining for any purpose of this Act whether goods or services are supplied to or by such persons or are acquired by such persons from another member State, of any change in the partnership.(2) Without prejudice to section 36 of the Partnership Act 1890 (rights of persons dealing with firm against apparent members of firm), until the date on which a change in the partnership is notified to the Commissioners a person who has ceased to be a member of a partnership shall be regarded as continuing to be a partner for the purposes of this Act and, in particular, for the purpose of any liability for VAT on the supply of goods or services by the partnership or on the acquisition of goods by the partnership from another member State. … (5) Subsections (1) and(3) above shall not affect the extent to which, under section 9 of the Partnership Act 1890, a partner is liable for VAT owed by the firm; but where a person is a partner in a firm during part only of a prescribed accounting period, his liability for VAT on the supply by the firm of goods or services during that accounting period or on the acquisition during that period by the firm of any goods from another member State shall be such proportion of the firm's liability as may be just. 73 Failure to make returns etc (1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.”[10]Regulation 25 of the VAT Regulations 1995 (SI1995/2518) also provides that: 25 Making of returns (1) Every person who is registered or was or is required to be registered shall, in respect of every period of a quarter or in the case of a person who is registered, every period of 3 months ending on the dates notified either in the certificate of registration issued to him or otherwise, not later than the last day of the month next following the end of the period to which it relates, make to the Controller a return on the form numbered 4 in Schedule 1 to these Regulations (“Form 4”) showing the amount of VAT payable by or to him and containing full information in respect of the other matters specified in the form and a declaration, signed by him, that the return is true and complete; provided that— (c) the Commissioners may allow or direct a person to make returns in respect of periods of one month and to make those returns within one month of the periods to which they relate; (d) … where the Commissioners consider it necessary in any particular case to vary the length of any period or the date on which any period begins or ends or by which any return shall be made, they may allow or direct any person to make returns accordingly, whether or not the period so varied has ended…” Background facts[11]The principal findings of fact relevant to this appeal are set out in paragraphs 12 – 22 of the Tribunal’s Decision as follows:12. Mr and Mrs Pal were in partnership together and their business was partially involved in acquiring properties some of which consisted of Head Leases with superior Landlords. Their business was registered for VAT purposes.13. The freehold of Number 10 Little Clarendon Street, Oxford is owned by University College, Oxford University and the College had granted a Head Lease to Mr and Mrs Pal for a term of fifteen years. The premises consisted of a bar and restaurant on the ground floor with a flat on two floors above. The restaurant was in a dilapidated state and needed considerable renovations.14. Mr and Mrs Pal knew a Spaniard Mr Alonso as he was working at a sandwich bar franchise in Oxford and they had another business next door. They introduced him to Mr Bouacheri who had worked for Mr and Mrs Pal in another catering business. Mr Alonso and Mr Bouacheri agreed to renovate the premises and then re-open the restaurant and bar and to pay Mr and Mrs Pal licence fees for the occupation of the premises as neither of them had references of previous business accounts. At that stage it was not feasible for the names of Mr Alonso and Mr Bouacheri to be put forward to the Head Landlords as sub-tenants.15. Heads of Agreement dated 11 June 2001 were drawn up between Mr and Mrs Pal (then trading as “T & J Operations”) of the one part and Mr Alonso and Mr Bouacherie of the other part (who were described as “the Partnership”). In Clause 1 they were granted the full right under licence to enter upon and occupy 10 Little Clarendon Street for the purpose of “there carrying on the business of a restaurant”. This right was stated to be personal to the Partnership and non-assignable. The Heads of Agreement was effectively a document setting out the terms under which Mr Alonso and Mr Bouacheri could purchase all the assets of the business. It was made quite clear in this Agreement that the Partnership had to pay all outgoings for the premises and run the business.16. Mr Alonso and Mr Bouacheri had to pay a licence fee of £64,000 and a deposit of £8,000 being one quarter’s rent due in advance. The term of the licence was one year certain. During the period from 26 June 2001 to 26 December 2002 upon payment of a further substantial sum T & J Operations undertook to “use its best endeavours to have the partnership names introduced onto the Lease of the premises…”17. Mr Alonso sold his house in order to raise funds to pay Mr and Mrs Pal some of the initial licence fee. However, towards the end of 2001 it became apparent that University College would still not agree to Mr Alonso and Mr Bouacheri becoming tenants due to their lack of references and confirmation of financial standing. They were also required to undertake a part-time course at Oxford Brookes University which had not been completed. It was therefore agreed between Mr and Mrs Pal and Mr Alonso and Mr Bouacheri that in order to overcome this impasse they would consider being registered for VAT purposes as partners of the restaurant business as solely a means of surmounting the difficulties posed by the Head Lease. However, the terms of the Heads of Agreement would continue to be the true position.18. Therefore, an application form for registration for VAT was obtained and completed by Mr Alonso and dated 7 January 2002. It stated that the name of the business would be Tapas Bar Cerveceria carrying on the business of catering and requesting registration from 1 January 2002. Paragraph 5 of the form asked “Who owns the business” and the response was “partnership”. Another form VAT2 was completed giving details of the partnership names. Mr and Mrs Pal signed on 10 December 2001 and Mr Alonso and Mr Bouacheri on 7 January 2002.19. Mr Alonso saw his accountants Thurai and Co of 9-11 Arnold Road, Oxford who went through the application form with him and then at his request submitted the application form and the VAT2 to HMCR on or about 8 January 2002 and the business was registered and a VAT number 785 8183 allocated.20. Mr Alonso and Mr Bouacheri took possession of the ground floor of 10 Little Clarendon Street in or about January 2002 and carried out renovations to the premises. They opened for business on 14 February 2002. After a short while, it became obvious that their partnership was not working out as originally planned and on 8 April 2002 they entered into an Agreement relating to the restaurant business through a local solicitor. This provided that their partnership would continue for another two years but the profits from the restaurant and bar would belong to Mr Bouacheri absolutely. He would be responsible for all the liabilities of the business including the rent and would pay Mr Alonso the sum of £1,000 per week and allow his family and himself to occupy the flat of the upper floors free of charge except outgoings specific to the flat. Mr Alonso and his family actually moved into the flat in March 2002 having been living temporarily in a caravan.21. After 8 April, Mr Alonso ceased having anything to do with the actual running of the Tapas Bar as he owned and ran fulltime a sandwich bar in Headington, just outside Oxford, However, Mr Alonso continued to be a partner until he fell out with Mr Bouacheri resulting in an action commenced by Mr Alonso in the Oxford County Court relating to their partnership affairs. This occurred in the summer of 2002. The tribunal was not told at the hearing what happened to this action. By October 2002 it became obvious that Mr Bouacheri had defaulted in his commitment to Mr Alonso and also not paid the suppliers of the business. He had disappeared abroad several weeks earlier and Mr and Mrs Pal with the acquiescence of Mr Alonso were forced to take possession of the premises which were then closed in order that refurbishment could take place paid for by Mr Alonso. He was still having to pay Mr and Mrs Pal licence fees for the premises but made it quite clear to them that he wanted an assignment of the Head Lease when he had paid all that was due to them.22. In or about November 2002, a catering company known as Meltan Limited took over the running of the restaurant and bar. The company paid rent to Mr Alonso who in turn continued to pay Mr and Mrs Pal licence fees. Eventually, later in 2003 Mr Alonso took over the restaurant. He had, by then, completed the part-time business course at Brookes University, and University College were prepared to accept him as a tenant. He continued to run the business down to the hearing of the appeal.[12]In paragraph 54 they set out their findings in relation to the issue of whether TBC was run in partnership and if so, between whom:
“54. At the hearing, the tribunal was told that because the Head Landlords (University College) were proving difficult over Mr Alonso and Mr Bouacheri taking occupation of the premises to run the business, it was decided to make a VAT Registration Application in the name of the four of them. Although this was a foolish thing to do, in the light of the circumstances of this sale transaction it is probable that was the only intention and was part of the terms. In our judgment, the only partnership that existed by the Partnership Agreement (following on from the Heads of Agreement) was between Mr Alonso and Mr Bouacheri. On the balance of probabilities, there was never a Partnership Agreement involving Mr and Mrs Pal. There could not be two Partnership Agreements for the running of the business in existence at the same time.”
Who was the taxable person?[13]The power of the Commissioners to make an assessment under s.73 VATA 1994 arises inter alia if a person has failed to make a return required under the Act. That obligation rests (under regulation 25) on the “taxable person” under s.3 as the person who is or is required to be registered.[14]The assessment was issued against TBC which was the name in which the registration was made. In this case no returns at all have been made in respect of the restaurant business for the relevant period. The requirement to be registered arises when a person makes taxable supplies to a value above the prescribed limits: see VATA 1994 Schedule 1 para 1 (1). Clearly, there was a taxable person in existence in respect of TBC during the period in 2002 when the supplies were made and therefore the conditions for the issue of an assessment under s.73 were satisfied. But the Tribunal regarded the assessment that was issued as invalid because it sought to recover tax from four individuals as partners in TBC, two of whom had never in fact been partners in that business. The power contained in s.73 is limited to the recovery of tax due from the taxable person. Mr and Mrs Pal, not being members of the partnership had not, they argued, made any taxable supplies and were not therefore liable for the VAT. But because they were not partners the assessment as a whole was also regarded as invalid even against Mr Alonso and Mr Bouacheri on the basis that it sought to recover the VAT from a four person partnership which had not existed.[15]The first argument of the Commissioners is that all four Respondents were taxable persons for VAT purposes because each of them was at the date of the assessment registered for VAT by virtue of the registration in the name of TBC regardless of whether they were in fact partners in the business. Miss Shaw submitted that the Tribunal failed to recognise that VAT represents an exclusive code which often operates outside the ordinary legal position and by way of example she referred me to a passage in the judgment of Laws J in CCE v Reed Personnel [1995] STC 588 (a case on the vexed question of the nature of supplies) where (at p.595) he refers to the parties’ contractual understanding of the nature of the supplies not being conclusive as to their nature for VAT purposes.[16]She also submitted that it was not the responsibility of the Commissioners to inquire into the arrangements between the Respondents so as to ensure that there really was a partnership between them. They were entitled to rely on the statements made by the Respondents in the application for registration and to deal with them on that basis.[17]It seems to me important not to confuse the issues raised by the first and second grounds of appeal. Clearly, if the effect of signing the VAT2 forms is to make the Respondents liable for VAT as partners in the firm on the basis of a holding out, then the objections to the assessment (other than as to amount) fall away. All four Respondents would fall to be treated as partners for VAT purposes and would be liable as the taxable person accordingly. But the first ground of appeal needs to be considered on the assumption that the Tribunal’s finding that Mr and Mrs Pal were never partners is correct and cannot be upset by the second argument under s.14 of the Partnership Act.[18]The definition of “taxable person” in VATA 1994 s.96 (1) is “a person who is a taxable person under section 3”. “Person” is not a defined term under the Act but is defined in Schedule 1 of the Interpretation Act 1978 as including an un-incorporated body of persons. Under English law (unlike the law of Scotland) a partnership is not recognised as a legal entity. But if the effect of the definition of “person” in the Interpretation Act is to treat the partnership trading as TBC as the taxable person in itself, then the validity of the assessment cannot be impugned simply on the basis that Mr and Mrs Pal were not partners at the relevant time. The assessment would be an assessment against the partnership as a separate entity in its own right and would be limited to recovering the tax due from the partnership as such. It would therefore only affect those who were at some time partners and had not given notice of change to the Commissioners under s.45 (2). If (as in the case of Mr and Mrs Pal) the individuals concerned had never been a partners, then they would be unaffected by the registration of the partnership, or by any assessment made to recover any VAT due from the partnership. In this case, only Mr Alonso and Mr Bouacheri would be affected by the assessment made against TBC but the assessment would be valid to that extent. Only if no partnership at all had ever existed would an assessment directed to the partnership as the taxable person be of no effect.[19]As indicated earlier, this construction of s.3 of VATA 1994 was not pursued by Miss Shaw because it does appear to be contrary to authority. In CCE v Glassborow [1975] 1 QB 465 the Divisional Court rejected a submission that the scheme of what was then the Finance Act 1972 was to provide for separate registration of businesses and that a partnership was to be treated as the taxable person regardless of the identity of the individuals making it up.[20]Mr and Mrs Glassborow owned two businesses; an estate agency and a land development business. They were the only parties in each business under separate partnership agreements. They sought separate registrations for each partnership. The Divisional Court held that registration under s.22 (1) of the Finance Act 1972 (the equivalent to what is now VATA 1994 s.45 (1)) was the collection of individuals carrying on the partnership rather than the partnership as an entity in itself and that this registration was sufficient to cover any other partnership business conducted by the same individuals where they were the only partners.[21]Two passages in the judgment of May J are relevant for present purposes. At p.473 he dealt with the question of what is meant by the “taxable person” in the case of a partnership:
“the scheme of the Act is to register "persons" as accountable for VAT, not the business or businesses which they may carry on. Further, the necessary corollary of this conclusion and approach to the Act is that any one "person" is entitled to only one registration under the Act, save as particular sections of it otherwise specifically provide. Hence, even if one man runs a number of separate and distinct businesses, he remains one person and is entitled to only one registration. Similarly with a limited company, it is entitled to only one registration - unless it carries on business in several divisions and with the consent of the commissioners each division is separately registered under section 23 (1) of the Act of 1972. What then is the position of a number of individuals trading together in partnership? By virtue of section 19 of the Interpretation Act 1889 the word "person" in Part I of the Act of 1972 must, unless a contrary intention appears, be construed as including an unincorporated body of persons, which more often than not will be the persons trading in partnership - though section 23 (2) of the Act enables the commissioners to make regulations to govern the registration of other unincorporated bodies, such as members' clubs. However, although we frequently use the words "a partnership" as a collective label for the individuals who trade together in partnership this is in my view strictly erroneous, save as a convenient shorthand. One cannot equate the word "partnership" with the word "person" in section 4 of and Schedule 1 to the Act of 1972 by virtue of section 19 of the earlier Act of 1889. It will be noticed that in section 22 (1) of the Finance Act 1972 the draftsman has been careful and, as I think, accurate in the words he has used. With this concept in mind it was conceded by Mr. Slynn on behalf of the commissioners, and I think rightly conceded, that A carrying on business on his own account is for the purposes of the Act a different "person" from A and B carrying on business in partnership. Similarly the "person" comprising A, B and C trading in partnership is different from that comprising A, B and D so trading, because the two bodies of persons are different: they consist of different individuals. On the other hand he contended that the "person" comprising Mr. and Mrs. Glassborow trading as Glassborow and Glassborow is the same "person" as that comprising the same husband and wife trading as Bertram & Co., because the body of persons, the collection of individuals, is the same in each case. ”
At p. 474 he went on to identify what the effect of a registration in the partnership name was:
“…notwithstanding the provisions of the Interpretation Act 1889, I think that in the particular context of the opening words of section 22 (1) which I have quoted it is impossible to read the word "persons" other than in its ordinary and natural meaning, that is to say, individuals in the plural, and that consequently, although Glassborow and Glassborow has been registered as a firm name the persons who have in truth been registered under Part I of the Act are those carrying on business in partnership as such, namely, Mr. and Mrs. Glassborow. This being so, the registration is apt to cover the taxable activities of these two individuals trading alternatively as Bertram & Co. In my judgment section 22 is permissive and procedural only, and once a firm name has been registered, the effect of the registration is as though the names of all the individuals trading under that name from time to time were recorded. ”
[22]These passages make it clear that it is not the partnership as such which is the taxable person. Nor is registration under s.45 (1) the separate registration of each of the partners as individuals. They are deemed to be registered on a collective basis so that one or other of them would become liable to separate registration as the taxable person in relation to another business carried on either solely or in a different combination.[23]This gives rise to two issues. The first is whether the registration under s.45 (1) in the name of TBC can be relied on by the Commissioners in itself as imposing a liability on non-partners such as the Pals. It seems to me that the answer to that question is clearly no. The VAT claim must be the Commissioners’ best assessment of what is due from the partners in TBC collectively as the taxable person. For s.3 to apply not one but two conditions have to be satisfied. There must be a person and that person must be registered or liable to be registered. In this case the first of those conditions was not satisfied in respect of Mr and Mrs Pal. There was no partnership comprising the four Respondents and therefore they could and did not constitute together a person for the purpose of s.3. Absent a partnership between all four Respondents, the assessment was therefore ineffective to impose any liability on Mr and Mrs Pal unless the signature by them of the VAT2 form had the effect of holding them out and rendering them liable as partners to the Commissioners for VAT purposes.[24]The second question is whether the assessment against TBC was nonetheless valid and binding against Mr Alonso and Mr Bouacheri. This depends on what are the limits and effect of a registration under s.45 (1) in relation to non-partners. This is the third ground of appeal in this case which I deal with later in this judgment. But the short answer, I think, is that the assessment was binding on the partnership which did exist between Mr Alonso and Mr Bouacheri. Because Mr and Mrs Pal were never partners in TBC registration under s.45 (1) was not effective against them. But it was effective against the two Respondents who were partners during the relevant period. Holding out[25]A finding that Mr and Mrs Pal held themselves out as partners would expose them to a liability for the VAT, due in respect of the relevant period. It is impossible in this case to view the position of Mr and Mrs Pal with any sympathy. On the findings of the Tribunal they set out to deceive University College into granting a lease to Mr Alonso and Mr Bouacheri by allowing themselves to be registered for VAT as partners in the TBC business. On one view they have little justification for complaining about the situation they now find themselves in.[26]But the question whether a person who signs form VAT2 as a partner is thereby estopped from subsequently denying his liability for partnershipVAT may have important implications in other cases where no collateral fraud or deception is involved and needs to be considered as a matter of general principle.[27]The argument for the Commissioners is that by signing and submitting form VAT2 listing themselves as partners in TBC Mr and Mrs Pal (and for that matter Mr Alonso and Mr Bouacheri) deliberately and unequivocally represented that they were partners entitled to qualify for registration under s.45 (1) in the name of TBC and that the Commissioners have relied and acted on that by making the registration in the form sought. In paragraph 56 of the Tribunal’s Decision it is suggested that the Commissioners might have discovered the true position at the time of the investigation prior to the making of the assessment. But the relevant time for testing reliance for the purposes of the Commissioners’ argument is the date of registration, not the date of the assessment. Miss Shaw submitted that they acted to their detriment by allowing the partnership to be registered on what she described as the ordinary basis: i.e. making quarterly rather than monthly returns and without having to provide any security.[28]Section 14 of the Partnership Act 1890 provides that:
“14Persons liable by “holding out” (1) Every one who by words spoken or written or by conduct represents himself, or who knowingly suffers himself to be represented, as a partner in a particular firm, is liable as a partner to any one who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made.”
Liability as a partner includes joint liability with the other partners for all the debts and obligations of the partnership incurred while that person is a partner: see s.9. And this will continue until the partner in question gives notice to the creditor of his ceasing to be a partner. Until then the creditors are entitled to treat all apparent members of the firm as still being members: see s.36. In the case of VAT s.36 is reinforced by VATA 1994 s.45(2). Liability for VAT again continues until notice of a change in the partnership is given to the Commissioners.[29]The provisions of s.14 are derived from the general principles of estoppel by conduct. In Hudgell Yeates & Co v Watson [1978] QB 451 Megaw LJ (at p.470) said: “ But what is the effect of a holding-out of someone as being a partner? A holding-out is relevant, and relevant only, as an estoppel. As it is put in Lindley on Partnership, 13th ed. (1971), p. 100: "The doctrine that a person holding himself out as a partner, and thereby inducing others to act on the faith of his representations, is liable to them as if he were in fact a partner is nothing more than an illustration of the general principle of estoppel by conduct." For an estoppel to exist it is necessary to show, not only that there has been an unequivocal representation (here the holding-out), but also that the person seeking to assert an estoppel has acted on the faith of the representation: Freeman v. Cooke (1848) 2 Ex. 654. This requirement is stressed by Lord Blackburn in his speech in Scarf v. Jardine (1882) 7 App.Cas. 345, 357, where he says: "I put rather an emphasis on those last words 'against those who acted upon the faith that the authority continued.” "The doctrine that a person holding himself out as a partner, and thereby inducing others to act on the faith of his representations, is liable to them as if he were in fact a partner is nothing more than an illustration of the general principle of estoppel by conduct."[30]In Nationwide Building Society v Lewis [1998] Ch 482 the Court of Appeal did not attempt to decide what was meant by the words in s.14 “has….given credit to the firm” but accepted that they were narrower than the requirement at common law to show that the person seeking to rely on the representation has acted to his detriment as a result of it. In Lindley & Banks on Partnership (18th edition) para 5-56 the editors state that the words should not be construed in a technical or restrictive sense but as describing any transaction with the firm.[31]The view of the Commissioners as expressed in their Internal Guidance Notes (V1-28 para 3.4.6) is that the reference to “giving credit” can be construed as including a holding out for VAT purposes by the completion of form VAT2. There is no direct authority on this point although in an unreported Tribunal decision in Morris v CCE (MAN/76/88) there is a reference to a partner who signed the application form for registration as a partnership but subsequently denied he was a partner having held himself out as a partner. The Tribunal however concluded that there had been an actual partnershipand the issue of estoppel did not therefore arise.[32]Mr Barlow (for Mr Alonso) disputes the application of either s.14 or the general principles of estoppel by conduct to the Respondents’ liability for VAT. The Commissioners, he says, have not “given credit” to the Respondents and the use of that phrase is indicative of an intention that it should apply only to transactions between the apparent members of a partnership and third parties and not to their tax position. The latter depends on the provisions of VATA 1994 and the regulations. For the Respondents to be liable for VAT on the basis of the current assessment they must actually have been partners in TBC. Section 45 permits the collective registration only if persons are “carrying on a business in partnership” and does not extend to those merely purporting to carry on business as partners. An incorrect representation or statement in the application for registration that they are partners cannot of itself satisfy the statutory conditions. The remedy for the Commissioners if liability is challenged is to cancel the existing partnership registration and assess those who are actually carrying on the business.[33]I agree that the reference to giving credit in s.14(1) however widely interpreted, does not include the registration of the applicants for VAT as partners. It denotes a private law transaction of some kind with the partnership which arises either directly or indirectly out of reliance on the representations made. I should add that even if it could include dealings with the Commissioners in relation to VAT there is no evidence in this case that the Commissioners were in fact influenced by the inclusion of all four Respondents as partners into not requiring security and permitting returns to be made on a quarterly rather than a monthly basis. The only obvious consequence of the VAT2 form was a registration of the business in the name of TBC.[34]If one steps away from s.14 and considers the question of estoppel more generally, then the position does not, in my judgment, change. It seems to me difficult to regard the possibly incorrect registration of TBC as a partnership as a detriment sufficient in itself to render non-partners liable for VAT on supplies which they have not made and from which they have derived no benefit.[35]But I also think that Mr Barlow is correct in his basic submission that an estoppel of this kind (whether under s.14 or generally) cannot operate to satisfy statutory conditions which depend on a particular state of affairs. So for example in re C & M Ashberg (The Times 17th July 1990) Mr Gavin Lightman Q.C(sitting as a Deputy High Court Judge) held that for the purposes of giving the Court jurisdiction to wind up an insolvent partnership under ss.220 and 221 of the Insolvency Act 1986, it was not sufficient for the petitioner to prove that by virtue of s.14 of the Partnership Act someone had allowed himself to be held out as a partner. For ss. 220-221 to apply there had to be an insolvent partnership. The jurisdiction to wind up could not be conferred by a process of estoppel between the would be partner and the petitioning creditor. It depended upon the existence of an actual partnership. This case is not concerned with questions of jurisdiction as such, but the same principle seems to me to apply. For all of the Respondents to be the taxable person they must be carrying on business in partnership within the meaning of s.45(1). Those words seem to me to mean what they say. They require there to be an actual partnership and not a situation in which some of the individuals involved merely hold themselves out as partners by entering their names on form VAT2. I do not accept that the conditions set out in s.45(1) can be satisfied by a process of estoppel. A taxing statute requires them actually to exist. Was the assessment valid in respect of Mr Alonso and Mr Bouacheri?[36]The Commissioners third ground of appeal is that the assessment was valid and enforceable against the third and fourth Respondents even if it was unenforceable against Mr and Mrs Pal. Mr Alonso and Mr Bouacheri were on the Tribunal’s findings in partnership during the relevant period to which the assessment relates and notice was never given by Mr Alonso that he had ceased to be a partner.[37]As I have already indicated, I think that this is correct. Although not all four Respondents could constitute the “taxable person” Mr Alonso and Mr Bouacheri clearly could do so and the Tribunal stated in its decision that an assessment raised against those two individuals alone would have been effective. I agree with this but, in my judgment, that was the effect of the assessment of 26 September 2003. It was raised against TBC and notified to all of the Respondents. For the reasons already explained, the assessment would have been invalid and ineffective to seek to recover tax due from non-partners, but it would only have had that effect if the individuals registered under s.45(1) included Mr and Mrs Pal.[38]They were never partners in the business and did not therefore satisfy the conditions set out in s.45(1). It seems to me that a registration under s.45(1) is only effective to include in the collection of individuals registered under the partnership name those who were at the relevant time carrying on business in partnership within the meaning of s.45(1) Only a “person” who makes taxable supplies may be registered (see VATA 1994 Sch. 1-3) and the inclusion of non-partners on form VAT2 is of no effect in relation to other individuals. The registration can only take effect in relation to those on the form who are partners and can therefore constitute a taxable person for VAT purposes. The registration was therefore effective in this case to include Mr Alonso and Mr Bouacheri as partners in TBC and the assessment issued against TBC was therefore correctly raised against the third and fourth Respondents. The issue for them is only one of quantum.[39]Mr Alonso raises two points in answer to this. The first is that at the date of registration in January 2002 there was as yet no partnership in existence. That is correct, but s.45(1) has, I think, to be construed in a sensible way so as to include persons who will be carrying on a business in partnership after the registration takes effect. The present has to include the future tense.[40]The second point is a challenge to the Tribunal’s construction of the agreement of 8 April 2002. Although this is described in terms in the document as a partnership agreement, Mr Barlow submits that it contains a number of terms which are inconsistent with a partnership. In particular, Mr Bouacheri is to pay Mr Alonso a capital sum and a fixed sum of £1000 per week but all profits of the business are to belong to Mr Bouacheri absolutely. But a partnership does not require the equal division of net profits and the provisions of the agreement are consistent with this being a business carried on in common with a view to profit within the meaning of s.1 of the Partnership Act. The agreement also contains a number of clauses which impose the traditional obligations to be just and faithful and to account and contains provisions to deal with capital on death or dissolution. The Tribunal was clearly entitled to come to the conclusion that Mr Alonso and Mr Bouacheri were partners in TBC and there are no grounds for my interfering with that finding. Conclusion[41]I will therefore allow the appeal to the extent indicated in this judgment. I will hear Counsel on the form of Order and any other consequential matters.

Cited in 1 later judgment