Graham Belcher and his wife Christine Belcher appealed against HMRC’s decision registering them for VAT as a partnership from 1 January 2006.

Their home premises has a shop on the lower ground where Mr Belcher runs a barber’s shop. Mrs Belcher runs a hairdressers in their converted garage, which is a separate building from their house, with her running the accounts of both the businesses.

HMRC received self-assessment partnership returns and individual self-assessment returns submitted by the couple. The partnership returns declared Mr and Mrs Belcher as partners, the trading name as ‘Crewe Cuts’ and the description of the business as ‘Hair Dresser’. There was no dispute regarding the figures on the returns and the total income was split equally between the two.

Regarding VAT registration, Mrs Belcher claimed that they were running two separate businesses despite their only being one set of accounts which covered both businesses and that the businesses had separate tills, staff and business rates.

Calculations based on the self assessment partnership return showed that Crewe Cuts had exceeded the limit at which registration for VAT was mandatory in November 2005, meaning that the effective date of registration should have been 1 January 2016. Therefore HMRC calculated that the VAT liability was £136,691.

The reasons HMRC claimed that the couple were running one business were:

• the partnership self assessment is one as Crewe Cuts;
• the partnership annual accounts are Crewe Cuts one business not separate;
• they share business rates and utilities;
• Crewe Cuts have one telephone number for customers not separate;
• 25 Monies from both ladies and barbers are pooled at night and placed into one business account;
• purchases for both ladies and barbers have one suppliers account not separate; and
• the partnership split profits 50/50 on the self assessment returns.

The FTT held that Mrs Belcher had sought advice from HMRC, who had confirmed that, on the basis that she was intending to open a ladies’ salon as her own business, the accounts could be consolidated with the accounts of the barber’s shop. The couple never agreed between themselves to operate the barber’s shop and hairdressing salon in partnership and there were separate entrances to the shops.

It was concluded that: ‘Mr and Mrs Belcher have each of them operated a separate business and that each of them is a ‘taxable person’. We add that, in the context of a husband and wife living together, we regard the two separate businesses as having been sufficiently at arm’s length from each other and as having had sufficiently normal commercial relationships with each other to avoid aggregation for the purposes of registration for VAT.’

Stan Dench, a Wolters Kluwer tax writer said: ‘The issue was fact sensitive. Naturally, HMRC emphasised the fact that Mr and Mrs Belcher had for some years submitted self-assessment returns for income tax purposes on the basis that they were in partnership carrying on one business.

‘The HMRC Manual Single Entity and Disaggregation states “The fact that the various parties are related should not influence your decision. Tribunal decisions have indicated that a wife can quite feasibly help her husband in his business (in her capacity as his wife) and still carry on her own business (in her capacity as a sole proprietor). You should ask each individual to define the distinction between what they do in their business capacity and what they do to help out as a family member.” However, HMRC confirmed that they had they had not followed this guidance when questioning Mr and Mrs Belcher.’

Belcher [2017] TC 05891 is available here.