Simon James McDonald & Christine Mary Mcdonald t/a S McDonald Charters v Her Majesty's Revenue & Customs

Facts

The appellants, Mr Simon James McDonald and his mother Mrs Christine Mary McDonald, claimed to trade in partnership as yacht charterers under the name S McDonald Charters. Mr McDonald junior, a car body re-spray specialist living in Sheffield, registered for VAT as a yacht charterer with effect from 16 May 2001, intending to buy a yacht alone; when Capital Bank required a third party as partner rather than merely guarantor, his mother joined him, and the registration number was re-allocated to the partnership on 3 October 2001. On 23 April 2001 they bought a new 32.2 foot Jeanneau Sun Odyssey from Westways of Plymouth Limited for £59,614, partly funded by a £40,509 marine mortgage, and Mr McDonald junior entered into a Yacht Management Agreement under which Westways chartered the vessel for 40 per cent of gross charter income. The yacht was chartered three times in 2001; it was sold in October 2001 and replaced by a second-hand 37 foot yacht costing £81,000, chartered four times in 2002. By a decision of 19 November 2003 the Commissioners cancelled the partnership's VAT registration on the ground that it was not in business, and sought recovery of £23,447.89 in net repayments. The partners appealed.