Melform Ltd v Customs and Excise [2003] UKVAT V18391 (21 November 2003)

 18391
VAT SECURITY  -  requirement for  -  failure of previous business directed by same individual  -  perception of Customs that accounting and payment record of  current business likely to be poor  -  need for security borne out by the facts  - no attendance on behalf of appellant  -  appeal dismissed with costs  

MANCHESTER TRIBUNAL CENTRE

MELORFORM LIMITED 	Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

Tribunal:	Mr M S Johnson (Chairman)
Mr R Presho FCMA

Sitting in public in Newcastle upon Tyne on the 15th October 2003

There was no attendance on behalf of the Appellant

Mr C Owen, of the Solicitor’s office of HM Customs and Excise, for the Respondents

	© CROWN COPYRIGHT 2003
DECISION

1.	This is an appeal against a requirement of the Commissioners of Customs and Excise (“Customs”) that the appellant should deposit security in the amount of £15,100 in the case of quarterly VAT returns, alternatively £10,100 in the case of monthly returns.  
2.	Paragraph 4(2) of schedule 11 of the Value Added Tax Act 1994 (“the Act”) provides that where it appears to Customs requisite to do so for the protection of the revenue, they may require a taxable person, as a condition of his supplying goods or services under a taxable supply, to give security of such amount and in such manner as they may determine, for the payment of any VAT which is or may become due from him.  
3.	Notice of such requirement (“the requirement”) was given to the appellant by Customs on 23 October 2002.
4.	The appellant has appealed against the requirement on the following grounds stated in its Notice of Appeal dated 20 November 2002:
“The VAT affairs and returns of the company are up to date and there is no indication of impending defaults.  The imposition of the requirement would cause hardship to the company and thereby jeopardise its trading position”.
5.	When the appeal was called on for hearing, it was apparent that no-one had attended to represent the appellant.  Seeing firstly that Mr Owen, representing Customs, was in the position to explain the circumstances of the requirement to the tribunal, with the assistance of Customs’ witness Mr Price (Mr Price was responsible for making the requirement), and secondly that the tribunal was in possession of what appeared to be an adequate bundle of documents relevant to the appeal, handed in by Mr Owen, we determined to proceed with the hearing in the absence of any representative of the appellant.   This we are authorized to do pursuant to rule 26(2) of the Value Added Tax Tribunals Rules 1986 (as amended).
6.	We find the following facts.
7.	Mr Tristan Michael Prosser (“Mr Prosser”), of Thorpe Astley, Leicester, was appointed director of a company called A S Décor Ltd (“ASD”) on 14 June 1999.  ASD had been registered for payment of VAT on 29 April 1999.  It was a painting and glazing business.
8.	From 2000 onwards, ASD had a poor accounting and payment record for VAT.  By 2002 it owed a great deal of VAT and was failing to render VAT returns at all.  A certificate issued under paragraph 14(1)(d) of schedule 11 of the Act shows that, as at the date of the requirement, ASD owed to Customs the sum of £59,243.36.  Another certificate issued under paragraph 14(1)(b) of schedule 11 of the Act shows that, as at the date of the requirement, no VAT returns had been received from ASD for the periods 10/01, 01/02, 04/02 or 07/02. 
9.	Mr Prosser was responsible for completing the relevant form VAT 1 for registering the appellant for payment of VAT, seeking registration as from 1 March 2002.  In the event, registration took place on 1 May 2002.  In the registration form, Mr Prosser stated that the estimated value of taxable supplies of the appellant over the next 12 months was £500,000.  The business was similar to that of ASD.  
10.	For the period 06/02, the appellant submitted a VAT claim return, which was then replaced with a tax due return in August 2002.  A certificate issued under paragraph 14(1)(d) aforesaid shows that, as at the date of the requirement, the appellant owed to Customs the sum of £838.66.  However Mr Price informed the tribunal that that sum had in fact been paid on 17 October 2002.  The certificate just mentioned was therefore inaccurate.  Nevertheless the tax due had not been paid in time.
11.	Applying the principle, “Once bitten, twice shy”, Customs formed the view that the appellant, under the direction of the same individual, Mr Prosser, was tending in the same direction as ASD, namely to become a defaulter for VAT and substantial debtor to Customs.  In the interests of the revenue, Customs decided to act sooner rather than later to require security, as they were empowered to do.
12.	The requirement was accordingly made.   
13.	As to the amount of the requirement, Mr Price told the tribunal that this was based on Customs’ appreciation of the expected turnover of the appellant based on Mr Prosser’s estimate.  He calculated 12 months’ projected output tax on a turnover of £500,000, less input tax, ascertaining a net tax liability of £30,310.46 for one year.  On the basis of quarterly VAT returns, Customs would wish to have 2 quarters’ security; on the basis of monthly VAT returns, 4 months’ security.  Rounded down, the requirement was thus for £15,100 for quarterly returns and £10,100 for monthly returns.
14.	Mr Price informed the tribunal that the appellant paid its VAT due in respect of the quarters 09/02 and 12/02 respectively.  These payments demonstrated a six-month turnover of £257,000, indicating the conservatism of the annual turnover of £500,000 adopted for the purposes of the calculation just mentioned.   
15.	With regard to 2003, the tribunal was provided with a copy of Customs’ ledger details for the appellant.   The tribunal was informed that the appellant’s VAT returns for the quarters 03/03 and 06/03 were both outstanding.  Substantial tax was due as at 14 October 2003.  It appears that the appellant has been operating in arrears in meeting its tax liabilities so far in 2003.
16.	We therefore find that the initial premise of the grounds contained in the Notice of Appeal, namely that the appellant was in compliance with its obligations for VAT accounting and payment, was technically correct at the time of service of the Notice, but that Customs’ fears that the appellant would nevertheless descend into non-compliance have been borne out.
17.	We hold that the matters of hardship and jeopardy to the appellant’s business raised in the grounds contained in the Notice of Appeal are not matters that we can properly take into account .
18.	This tribunal is of course only concerned with Customs’ appreciation of the need for security as at the date of the requirement.  Nevertheless it is helpful to have had information, as in this instance, of the up-to-date position vis-à-vis the appellant’s non-compliance with its VAT accounting and payment obligations.  In our view that information has gone to confirm the correctness of the decision taken last year that security was and remains necessary for the protection of the revenue. 
19.	Having regard to the facts, and the nature of our jurisdiction in an appeal of this kind , we have had no hesitation in concluding that the requirement was in order, and we announced at the conclusion of the hearing that the appeal was dismissed.
20.	An application for costs was thereupon made by Mr Owen, on the basis that the appeal was unjustified.  
21.	We are in agreement that this appeal appears to be without foundation.  We accordingly order that Customs’ reasonable costs of and concerning the appeal should be paid to Customs by the appellant.  The chairman will summarily assess the amount of such costs if necessary, on application made for the purpose.

M S JOHNSON
CHAIRMAN
RELEASE DATE: 21 November 2003

MAN/02/0770