[2009] UKFTT 107 (TC)

TC00075

SECURITY – four associated companies – large indebtedness to the Revenue – reasonableness of Commissioners’ decision – appeal dismissed

MANCHESTER TRIBUNAL CENTRE

LOUGULA LTD	Appellant
DECISION VISION LTD
POINT FOUR DECISIONVISION LTD
PLANET EPOS LTD

- and -

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Lady Mitting (Chairman)
					
Sitting in public in Manchester on 11 March 2009

Mr. Patrick Bowden for the Appellant

Bernard Haley of the Solicitor’s Office, General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2009
DECISION

1.	On 3 April 2008 the Commissioners served upon each of the four Appellant companies a Notice of Requirement to give Security under Schedule 11, paragraph 4 (2)(a) Value Added Tax Act 1994.  In respect of Lougula Ltd (“Lougula”) the security required was £38,890.31 if quarterly returns were submitted or £33,240.31 if monthly returns were submitted.  In the case of Decision Vision Ltd (“Decision Vision”) the sum of £20,796, was required as monthly returns were already being submitted by this company.  For Point Four Decisionvision Ltd (“Point Four”) the amounts required were £18,750 on quarterly returns or £12,500 on monthly returns.  In respect of Planet Epos the amounts required were £239,012.81 on quarterly returns or £207,212.81 on monthly returns.  Each of the Appellant companies appealed the decision requiring the security.
2.	With the agreement of both parties the order of proceedings was reversed, with the Commissioners presenting their case first and for whom we hear oral evidence from Mr. Ian Pumfrey.  The Appellant companies were all represented by their managing director, Mr. Patrick Bowden.
3.	Mr. Pumfrey’s first involvement with these companies was at the end of 2007 when Decision Vision was referred to him as a new registration but at a time when two associated companies (Point Four Digital Media Ltd and Planet Epos) were considerably indebted to the Commissioners.  All three companies were run by Mr. Patrick Bowden and his daughter; they traded from the same address and were in associated trades.  On the basis of the poor compliance record of the two existing companies, Mr. Pumfrey was concerned that the new company may be a phoenix of one or both or, even if not, as they were going to be operated by the same individuals might have similar compliance problems.  He decided a requirement for security was necessary and this requirement was raised on 15 January 2008.  Following representations by Mr. Bowden, the requirement was lifted by letter dated 30 January 2008.  In his representations, Mr. Bowden had advised that Decision Vision was not trading, that action had been taken to downsize the existing companies and the companies were trying very hard to meet all outstanding liabilities.  The decision letter withdrawing the notice contained the following paragraphs:
“This is an exceptional decision to allow you to come to an agreement with the Debt Management arm of the Department to clear the substantial debts on Planet EpoS Ltd and Point Four Digital Media Ltd.  The decision has been made on the basis that Decision Vision Ltd is not currently trading.
We will be closely monitoring this situation and you should note that security action may be re-started without warning.”
4.	The first return for Decision Vision – for period 12/07 – was due on 31 January 2008.  It was not received and a centrally-issued assessment in the sum of £1,626 was raised.  This went unpaid and at that point the case was referred back to Mr. Pumfrey.  Mr. Pumfrey then reviewed all four of the Appellant companies plus Point Four Digital Media Ltd (upon whom a Notice of Requirement was also served but which has not been appealed).  His review of the companies revealed that all five were run by Mr. Patrick Bowden and his daughter, Rachel Bowden; all traded from the same address; all traded in a similar field and four of the five had returns outstanding and a degree of indebtedness to the Commissioners.  In respect of Lougula, the 09/07 return was outstanding and the Commissioners were owed £21,930.31.  Planet Epos had not rendered its 12/07 return and owed £165,177.72.  Point Four Digital Media had not rendered its 12/07 return and owed £291,166.38.  Decision Vision had not rendered its 12/07 return and still on file was the centrally-issued assessment of £1,626.  In respect of Point Four, the first period of trading was 03/08 and there was no outstanding liability as the first return had not yet fallen due.  Given the common ownership of all five companies, their similar trading activities from the same address and the considerable indebtedness which between them they had built up Mr. Pumfrey decided that Notices of Requirement should be served on all five companies.  He was also influenced by the fact that in the representations Mr. Bowden had made in January, he had anticipated that the debt problem would have been addressed but it had not been.  The amounts of the security were calculated in accordance with the usual formula and Mr. Bowden did not challenge the calculation of the quantum.  The only point which Mr. Bowden sought to bring out in cross-examination of Mr. Pumfrey was to attain his confirmation that the centrally-issued assessment in respect of Decision Vision had been withdrawn and that the quantum for that company would therefore be recalculated.
5.	Mr. Bowden told the tribunal that from 1992 to 2006, all of his business activities were properly and correctly conducted without problem and with all returns being rendered on time.  The main trading activity was to provide the electronic scanning systems and software used by small retail outlets at their cash outs.  During 2005 the small retail outlets which had been Mr. Bowden’s customers were bought up rapidly by the larger supermarket chains, seeking to provide their own small outlets and in the space of three months at the tail end of 2005 / beginning of 2006, Mr. Bowden lost four out of his top five accounts.  Sainsbury’s and the Co-Op did ask Mr. Bowden to put systems in place for them and entered into five year contracts but with no notice both companies cancelled in mid-2006.  Mr. Bowden, still mindful of the interests of the small, independent convenience stores, sought to find some other form of revenue earner and came up with the idea of small screen on shelf advertising for specific ranges of products.  This was new technology which had to be designed and developed, a process which took place throughout 2006 and 2007 and the first screens were installed in time for Christmas 2007.  Such was the interest in the idea that the company even won an award for it in 2008.  However as Mr. Bowden admitted, despite a huge amount of interest in the development, he got his timing completely wrong and the advertising needed to fill the screens could not be found.  He had also underestimated the fact that the large advertisers who would be interested did not do things on a small scale.  They would need a vast number of screens in a vast number of outlets and there were just not enough available.  The final blow to Mr. Bowden was when four of his most senior staff - including his financial controller – left and set up in competition, taking with them Mr. Bowden’s software.  This departure was not the worst of it, however, because before leaving the four had quite deliberately set out to sabotage Mr. Bowden’s companies.  Bills had been concealed and not paid and as Mr. Bowden later found out VAT returns had not been submitted and debts built up.  This led to writs being served on the companies and the companies’ credit worthiness was destroyed.  Leasing companies terminated the leases overnight and the bank stopped supporting the companies.  This all came to light in approximately April 2008 when Mr. Bowden and his daughter made the decision that they would either have to struggle on or cease trading, in which case nobody would get paid.  The decision was made to carry on.  Mr. Bowden and two of his daughters remortgaged their homes, enabling £900,000 to be put into the companies.  Mr. Bowden and his daughter had complete faith in their own technology and they struggled on through 2008 when a breakthrough came when he was asked to give presentations to a digital media trading organisation.  Contracts have followed; several venture capital companies have expressed an interest and most importantly the Bank is also looking to support the companies more positively.  As Mr. Bowden readily admitted the companies are not yet out of the woods but for the first time in a couple of years things are looking promising.  It is Mr. Bowden’s intention, and he believe he can do this in the next couple of weeks, to reach a repayment agreement with the Commissioners and if this is done the Bank have intimated that they would offer support to meet it.  There are no funds available from any source to pay the security requested.  If payment is demanded then the companies would have to cease trading.
6.	In cross-examination, Mr. Haley asked only two questions to which Mr. Bowden replied that he fully understood why Mr. Pumfrey had made his decision and he accepted that it had been a reasonable one to make.
7.	The jurisdiction of the tribunal is limited to considering the reasonableness of the Commissioners’ decision.  Did the Commissioners take into account any irrelevant matters; did they disregard something to which they should have given weight or did they make an error of law? The tribunal must be satisfied that the decision to require security was not a decision which no reasonable panel of Commissioners could have reached.  In answering these questions the tribunal has to limit itself to considering the facts in existence at the time at which the decision was made.  If it is found that some relevant factor was not taken into account, the tribunal can still dismiss an appeal if the decision would have inevitably been the same even had that material been considered.
8.	The matters which concerned Mr. Pumfrey were the common ownership of the five companies, their similar trading activities and most importantly their poor compliance record.  For all these reasons he believed that there was sufficient risk to the Revenue to merit raising a Notice of Requirement.  We cannot fault this reasoning.  Additionally Mr. Pumfrey had the fact of the January Notice of Requirement, which was removed upon representations from Mr. Bowden that the problems were being addressed but some three months later there was no indication that this had been so and in fact the indebtedness had increased.  These were all factors which Mr. Pumfrey was perfectly entitled to take into account and on the information known to him I believe that these Notices of Requirement were reasonably raised.
9.	However, one further factor arises in this case in that some of what Mr. Bowden told the tribunal was completely new to Mr. Pumfrey.  Mr. Pumfrey, when recalled, advised that he had had no knowledge of the desertion of the four senior members of staff and the steps which they had taken to destroy the credibility of the company.  When asked if that was a factor which he would have taken into account had he known it, he stated that he would certainly have considered it and might well have gone back and asked further questions but he did not believe it would have changed his overall view.  Even with this knowledge, it was still clear to Mr. Pumfrey that the business was being run off the back of tax revenues and the capital which had been promised earlier by Mr. Bowden had not materialised. 
10.	The tribunal is reviewing the rationality and lawfulness of the Commissioners’ decision.  Mr. Pumfrey did not know and had no reason to know of the staff actions.  He could only take into account matters known to him.  This issue, not raised until the hearing, cannot therefore affect the reasonableness of his decision.  For all the above reasons, the appeal must fail and the tribunal must uphold the Commissioners’ decisions.  I should say that I found Mr. Bowden to be straightforward and I have no reason to doubt the truthfulness of what he told the tribunal – in fact none of what he said was challenged by Mr. Haley in cross-examination.  I have every sympathy for the plight in which he and his companies find themselves.  Mr. Bowden had anticipated that within the next couple of weeks he could, with his Bank’s support, agree a repayment schedule with the Commissioners.  I very much hope that Mr. Bowden’s optimism and confidence are well founded and if so I was led to understand by Mr. Haley and Mr. Pumfrey that the Commissioners would not necessarily immediately claim their security.  This is not a matter for the tribunal and all I can say is that I hope that some resolution can be found whereby the Commissioners are repaid and Mr. Bowden’s companies can continue to trade and indeed trade with the success which he anticipates.
11.	In summary the appeal is dismissed.  The Commissioners made no application for costs and I make no order.  
MAN/08/717, 718, 719 & 720

LADY MITTING
CHAIRMAN
Release Date: 18 May 2009