Sole Trader Or Partnership
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have “blurred” structures as many members of the family help and “lend
with the tasks needed.
The question of
an operation was a sole trade or a partnership was looked at in the
case of G Christodoulou (TC2819).
This can be
important for all types of tax reliefs – from VAT status for the
artificial separation or inheritance to see who is involved.
hairdressing salon in 1998. Five years later he opened a restaurant.
was co-owner of the restaurant because this was a condition of the
licence, but the freehold of the premises was in his name only. She
the restaurant but received no money for this. The restaurant closed in
it was not financially viable.
the VAT registration limit
HMRC said that
taxpayer was a sole trader in the hair salon and restaurant businesses.
salon’s turnover exceeded the VAT registration threshold from September
and the taxpayer registered for VAT. HMRC said that sales from the
should also be subject to VAT, despite the turnover not reaching the
because it was one of the taxpayer’s businesses.
saying that he and his wife ran the restaurant in partnership, and it
therefore a separate legal entity. As such there was no VAT liability
payment for labour
was satisfied that the restaurant licence and liquor licence were in
of the taxpayer and his wife. The judge noted also that the wife worked
restaurant. The fact that she was not paid for her labour indicated
was not an employee, but that she and her husband considered themselves
running the business together.
Factors in favour
taxpayer being the sole proprietor of the business were that revenue
restaurant were paid into the husband’s account and that he alone
income from the business on his tax returns. However, this did not rule
taxpayer and his wife working in partnership.
evidence, the tribunal concluded that, on balance, the restaurant was
run as a
This means that
separate businesses the partnership of the restaurant did not have to
output VAT. Many would consider that the taxpayer did well to convince
tribunal that there was a separate legal entity for the restaurant.
evidence pointing both ways so the conclusion had to be reached based
balance of probabilities.
licence more important than bank
The fact that
names were relevant to both the restaurant and liquor licences was
to be more relevant than bank account information and self-assessment
returns, which is surprising.
appeal but made the comment that the balance of probability was ‘only
favour of the taxpayer.
The key in such
fact, fact and more facts. All businesses must have clarity as to who
and who controls the business.
About the Author
Supplied by Julie
F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24
Tel: 01962 735544. Email:
F.C.A. is the author of Tax Planning for
Farm and Land Diversification (Bloomsbury
Professional), Equine Tax Planning ISBN:
0406966540, and Stanley: Taxation of Farmers
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Article Published/Sorted/Amended on Scopulus 2014-06-11 09:10:29 in Tax Articles