HM Revenue & Customs v Pal & Ors

Registration of a partnership business for VAT in its firm name does not make persons who were never partners liable for VAT. The taxable person is the actual collection of individuals carrying on the business in partnership. An assessment issued in the firm name may nevertheless remain effective against the individuals who were genuine partners during the relevant period.

Estoppel or holding out cannot satisfy a statutory condition requiring an actual partnership. Section 14 of the Partnership Act 1890 requires a representation and reliance involving the giving of credit to the firm. VAT registration alone is not such a transaction. A person’s signature on a VAT partnership registration form therefore cannot, without more, create liability for supplies which that person did not make.

HM Revenue & Customs appealed from a decision of the VAT and Duties Tribunal, which had discharged as invalid a VAT assessment of £17,074 plus interest issued against Tapas Bar Cerveceria for the period 1 May to 31 October 2002.

The registration application named four respondents as partners. The Tribunal found that Mr and Mrs Pal had never been partners, while Mr Alonso and Mr Bouacheri carried on the restaurant business in partnership during the relevant period. The appeal concerned whether the registration and assessment were effective against all four respondents, whether the Pals were liable by holding out, and whether the assessment remained valid against the actual partners.

1. The appeal was allowed to the extent stated. The assessment was ineffective against Mr and Mrs Pal, but valid against Mr Alonso and Mr Bouacheri, subject to the issue of quantum.

2. Under Value Added Tax Act 1994, sections 3 and 45, the taxable person in a partnership registration is not the partnership as a separate legal entity. Registration in the firm name operates as a collective registration of the individuals who actually carry on business in partnership. The reasoning in CCE v Glassborow [1975] 1 QB 465 was followed.

3. The registration could not impose liability on persons who were never partners. The statutory conditions required an actual partnership, and the Pals did not form part of the taxable person. Their inclusion on form VAT2 was ineffective against them.

4. Holding out under section 14 of the Partnership Act 1890 is an application of estoppel by conduct. It requires an unequivocal representation and reliance on that representation. The statutory reference to giving credit to the firm denotes a private-law transaction with the partnership. It does not include the Commissioners’ act of registering the business for VAT. More generally, estoppel cannot create the actual partnership required by section 45 of the Value Added Tax Act 1994. The analogous reasoning in re C & M Ashberg (The Times, 17 July 1990) was applied, and Nationwide Building Society v Lewis [1998] Ch 482 was explained.

5. The assessment issued against TBC was effective against the actual partners. Section 45(1) had to be construed sensibly so as to include persons who would carry on the partnership business after registration. The Tribunal was entitled to find that the agreement of 8 April 2002 preserved a partnership, notwithstanding that all profits belonged to Mr Bouacheri and Mr Alonso received a fixed weekly sum.

• High Court (Chancery Division): allowed HMRC’s appeal to the extent that the assessment was valid against Mr Alonso and Mr Bouacheri but ineffective against Mr and Mrs Pal.
• VAT and Duties Tribunal: discharged the assessment as invalid after finding that Mr and Mrs Pal were never partners, although Mr Alonso and Mr Bouacheri were partners during the relevant period.