[2010] UKFTT 72 (TC)

TC00385
Appeal number: LON/2009/0644

VALUE ADDED TAX - appeal against notice of requirement for security for VAT - whether HMRC acted reasonably in requiring security -para 4 (2) of Schedule 11 VATA 1994 -appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	MERCIECA LIMITED  
		Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (VAT)	Respondents

				TRIBUNAL: Paulene Gandhi 
Mrs C S de Albuquerque

Sitting in public in London on 15 January 2010 

Mr Mathew Howes, finance director, for the Appellant

Ms Gloria Orimoloye of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.  This is an appeal by Mercieca Ltd against the imposition of security by HMRC.  

2.  The facts of this case are not in dispute.  The Appellant, Mercieca Ltd is a limited company which registered for VAT with effect from 8 August 2008.  The business activities of Mercieca Ltd include advertising, marketing, and public relations services.  The directors of Mercieca Ltd are Paul Lawrence Mercieca, Clive Norris, and Rodney John Taylor.  

3.  A notice of requirement to give a security was served by HMRC on Mercieca Ltd on 17 February 2009.  HMRC initially required a security in the sum of £156,500 or £104,050 should Mercieca Ltd wish to render monthly returns.

4.  On 6 March 2009 Mercieca Ltd stated that they accepted the condition of submitting and paying monthly VAT returns but were unable to satisfy the security requirement.

5.  HMRC reviewed their decision to require a security and notified Mercieca Ltd of their decision in a letter dated 19 March 2009.  HMRC reduced the amount of security to £125,600 if Mercieca Ltd continued to render quarterly returns or to £83,700 if Mercieca Ltd rendered monthly returns.  Further an offer was made to Mercieca Ltd to enable them to pay the reduced security deposit in four monthly instalments.    

6.  On 6 May 2009 Mercieca Ltd reiterated that they did not object to the submission of monthly returns.  HMRC on 11 May 2009 therefore revoked the requirement to furnish quarterly returns and directed that Mercieca Ltd instead furnish monthly returns (as per Regulation 25 (1) of the VAT Regulations 1995).  On 14 May 2009 HMRC confirmed that the security was £83,700 due to the rendition of monthly returns. 

7.  The requirement of security was imposed on Mercieca Ltd as HMRC considered that the revenue was at risk of being unpaid due to two of Mercieca Ltd’s directors, namely Paul Lawrence Mercieca and Rodney John Taylor, having previously been officers of companies (Mercieca Communications Ltd and Mercieca PR Ltd) which had similar business activities to Mercieca Ltd.  Both these two companies folded owing significant amounts of VAT.  Mercieca Communications Ltd went into administration on 13 August 2008 and subsequently into creditor’s voluntary liquidation on 21 November 2008.  It owed VAT arrears of £223,806.06 and default surcharges of £32,271.40.  Mercieca PR Ltd was liquidated on 11 September 2008 owing VAT arrears of £218,445.15, default charges of £30,993.49, and interest of £365.98.

8.  HMRC state that the amount of security was calculated using the two most recent returns submitted by Mercieca Ltd and was reduced to take into account the 01/09 return submitted by Mercieca Ltd.  Further exceptionally HMRC made an offer for the security deposit to be paid in four monthly instalments.

9.  A security is required subject to Schedule 11 paragraph 4(2a) of the Value Added Tax Act 1994 (VATA) which states that:
(2) if they think it necessary for the protection of revenue, the Commissioners may require a taxable person, as a condition of his supplying or being supplied with goods or services under a taxable supply, to give a security, or further security, for the payment of any VAT that is or may become due from 
(a) the taxable person….

This applies if it is believed that there is a risk to future revenue.

10. In their Notice of Appeal dated 17 February 2009 Mercieca Ltd state that they started trading in August 2008 under a new VAT registration and they have sought to meet their VAT obligations in a timely manner.  They have accepted the request that VAT returns should be made and VAT paid on a monthly basis but not the request for additional security as this would create severe hardship for a fledgling business and jeopardise its financial health and possible survival.  They feel the request is excessive and that monthly returns are sufficient.  

11. Mr Howes elaborated at the hearing on the difficulties the imposition of a security would place on the company.  He said he was ensuring the current business was run properly with the proper structures in place to enable it to do so.   The company has been paying its monthly VAT and submitting the returns as agreed with HMRC.  They have paid £372,327.43 in VAT so far.  Given the way the business is now run there is no need for a security as there is no risk to the revenue as all the VAT has been paid on time.  As the company is paying on a monthly basis it is easy for HMRC to monitor them.  There was a VAT inspection of the new business and apart from a few minor issues everything was found to be in order.  These minor matters were rectified.    Mr Howes states that the turnover of the business has been £4 million in 17 months so the profit was £100,000 at most.  It is a cash hungry business as the work is done up front and jobs can continue for some months and then the company may have to wait some months for payment.  Further the last 12-18 months has not been the best time for the business as advertising has suffered due to the economy.  The money earned is reinvested back into the business and the payment of a security would extract a lot of money from the business.

12. Having considered all the evidence in this appeal we find that the HMRC acted reasonably in requiring a security and the amount of the security of £83,700 was fair and reasonable.  We find that HMRC reasonably and properly took into account all relevant matters.  They did not act in a way in which no reasonable panel of HMRC could have acted and they did not take into account irrelevant matters or disregard something which they should have given weight to.  

13. We accept that Mercieca Ltd is currently meeting all its VAT obligations both in terms of submitting the monthly returns and paying the VAT.  However as HMRC submit all the evidence Mr Howes relies upon on behalf of Mercieca Ltd is after HMRC required the security.  We have no discretion in this matter.  Regardless of the fact that Mercieca Ltd is now meeting its VAT obligations (and regardless of the fact that Mercieca Ltd can ask for the requirement to be removed in light of the present position of the company and can appeal against any decision to maintain the requirement) we must only consider the facts as they were when the requirement for security was imposed i.e. in February 2009.  

14. Christopher John Wraith MAN/2008/801 at paragraph 6 states that the Tribunal must examine whether HMRC had rightly exercised their power to require security.  The Tribunal must consider whether HMRC had acted in a way that a reasonable panel of Commissioners could have acted, whether they had taken into account some irrelevant matter or had disregarded something to which they should have given weight.  It is not for the Tribunal to exercise a fresh discretion, as the protection of revenue is not the responsibility of any court or tribunal.  The Tribunal should not have regard to facts and matters arising after the date of the decision of HMRC to require security.

15. Customs and Excise Commissioners v Peachtree Enterprises Ltd [1994] STC 747 states that the Tribunal had to limit itself to considering facts and matters which were known when the disputed decision was made.  Accordingly as an appeal to the Tribunal lay only against a specific identifiable decision, it was the matters and facts which were in existence at the date of the specific identifiable decision in dispute to which the Tribunal had to have regard in assessing whether the decision was reasonable.  In the instant case the specific identifiable decision in dispute was the Commissioner’s decision to require a security and in determining whether that decision was reasonable the Tribunal should only have taken into account matters known to the Commissioners at the date of their decision.  

16. At the time the security was required in our view it was reasonable of HMRC to require it as the new company, Mercieca Ltd, had two of the same directors as the two previous companies, Mercieca Communications Ltd and Mercieca PR Ltd, which had gone into liquidation.  Mercieca Ltd was in the same advertising business and in the same trading premises as the two previous companies.  The previous two companies had gone into liquidation owing significant amounts of VAT at around the same time as Mercieca Ltd began trading.  Mr Howes accepts that HMRC had probably been too generous in its dealings with the previous companies.  For all intents and purposes the new company did appear to us to be a resurrection of the two other companies.  HMRC acted reasonably in that they reduced the amount of the security and even made an offer for it to be paid in instalments over a four monthly period.  HMRC took into account, when making this offer that as a new company Mercieca Ltd needed time to bed down.  They took into account any hardship that would be caused to the company in paying a security and the current economic climate.  However at the time the security was imposed, we find that there was still a risk to the revenue based on the fact that two of Mercieca Ltd’s directors,  namely Paul Lawrence Mercieca and Rodney John Taylor, had been company officers for the two liquidated companies of Mercieca Communications Ltd and Mercieca PR Ltd.  
 
17. We find that the HMRC have acted reasonably and thus we dismiss the appeal.  

TRIBUNAL JUDGE 

RELEASE DATE: 16 February 2010

The Appellant has a right to apply for permission to appeal against this decision pursuant to rule 39 of the rules. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this Decision Notice.