18715	

SECURITY– Protection of Revenue – Appellant company had links with other companies with poor records of VAT compliance – the links included same directors, same type of business, same registered address -–Whether Respondents’ actions in requiring a security reasonable –Yes- Appeal dismissed- VAT ACT 1994 Schedule 11 p 4(1)- Appellant engaged in delaying tactics- order for costs against the Appellant.

LONDON TRIBUNAL CENTRE

GASTROMODE LTD	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal: Michael Tildesley	 (Chairman)
					     Michael Sharp FCA FHCIMA  (Member) 

Sitting in public in  London on 8 July 2004

Appellant did not appear

Jonathan Holl, Advocate  for the Respondents

© CROWN COPYRIGHT 2004

DECISION

The Appeal

1.	The Appellant gave Notice of Appeal dated 14 April 2003 against a Notice of Requirement to give Security under Paragraph 4 (2) of the VAT Act 1994 issued on the 27 February 2003.

2.	The Appellant’s grounds of  Appeal  were as follows:	

“The reasons given for the requirement to provide security are inadequate. Those reasons appear in a letter dated 12 March 2003 and the Appellant had no earlier notice of them and so no opportunity to consider or rebut them before the notice was issued. The principal reason is stated to be the compliance history of the directors, but this appears to refer to a single default by the other company which was remedied as soon as brought to the director’s attention. There is also a reference to the Appellant’s current VAT status. It is entirely unclear how this status supports the requirement for security. The Appellant’s first VAT return, which was not even due at the time the notice was issued, had required a small adjustment following a control visit but that is not sufficient reason for issuing the notice ”.

3.	Quastels Avery Midgen, the Appellant’s representatives by fax dated 8 July 2004 advised the Tribunal that the Appellant was currently taking advice from an insolvency practitioner with the result that the Appellant would not be attending the hearing.

4.	The Respondents requested the Tribunal to hear the application in the absence of the Appellant pursuant to Rule 26(2) of The Value Added Tax Tribunals Rules 1986. We agreed with the application because the Appellant had chosen not to attend the hearing and there was no request for an adjournment from the Appellant company. Also the nature of the proceedings required resolution because they were based on the premise of a real risk to the protection of the revenue.

The Issue

5.	The issue for the Tribunal was whether the Respondents had acted in a way in which no reasonable panel of Commissioners of Customs and Excise could have acted, or whether they had taken into account some irrelevant matter, or disregarded something to which they should have given weight when imposing the security requirement on the 27 February 2003. In exercising this jurisdiction the Tribunal must limit itself to considering facts and matters which existed at the time the challenged decision to require a security was taken.

The Legislation

6.	Paragraph 4(2), Schedule 11, of the VAT Act 1994 provides that

“If they think it is necessary for the protection of the 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 security , or further security , for the payment of any VAT that is  or may become due from –

a)	the taxable person, or
b)	any person by whom or to whom relevant goods or services are supplied.” .
The Evidence

7.	The Tribunal heard evidence from Mr M Jarvis, an Officer of the Respondents. A bundle of documents was presented to the Tribunal. 

8.	On 27 February 2003 the Respondents issued the Appellant with “A Notice of Requirement to Give Security” in the sum of £39,900 or in the sum of £26,600 if monthly VAT returns were submitted.   

9.	The Appellant Company traded as “The Hill” from 94 Haverstock Hill, London NW3 2BD which was registered for VAT on 16 September 2002 under registration number 801 9158 44. The Appellant operated a restaurant business. The registered address for the business was 45 Ledbury Road W12 2AA.

10.	The Directors for the Appellant company were Mr Brett Hayes Newmark, Mr Anthony Eric Newmark and Mr Graham Rebak. The application for VAT registration for the Appellant  was signed by “B Newmark” and declared the estimated value of taxable supplies in the next 12 months as £750,000.

12.	Messrs Graham Rebak and Brett Hayes Newmark were Directors of Beach Blanket Babylon Ltd which was also in the restaurant business and traded from the same registered address for the Appellant company of 45 Ledbury Road. Mr Robert Kenneth Newmark was also a Director of the company but he resigned his position of 21 March 2001. A “Notice of Requirement to Give Security” in the sum of £133,437 (£88,950 if monthly returns) had been issued against Beach Blanket Babylon Ltd on 26 June 2002. The Respondents withdrew the notice as a gesture of goodwill when the company proposed a voluntary arrangement under the Insolvency Act 1986. The Respondents voted in favour of the voluntary arrangement, under which they were owed unpaid VAT in the sum of £86,279. The company cancelled the arrangement on 18 December 2002.

12.	Mr Robert Kenneth Newmark was the Director of Tigergrade Ltd which traded from 45 Ledbury Road and was in the restaurant business. The company was liquidated on 5 September 2001 owing VAT in the sum of £496,779.60. Mr Graham Rebak took over the assets of this company. Messrs Brett Hayes Newmark and Robert Kenneth Newmark lived at the same address of 3 Lyndhurst Terrace, London NW3 5QA.

13.	There were two other companies registered for VAT trading from 45 Ledbury Road. Sonic View operated as a catering consultancy and had Messrs Graham Rebak and Brett Hayes Newmark as Directors. The other company was Magnaset Ltd which provided management consultancy services with Messrs Brett Hayes Newmark and Robert Kenneth Newmark as its Directors. Neither of these companies owed VAT at the time of the issue of the Notice of Security upon the Appellant company. The Application for VAT registration of the Appellant company mentioned another company, namely Jadegrill Ltd but the Respondents knew nothing about this company.

14.	Mr Jarvis, the Customs and Excise Officer who issued the “Notice of Requirement” to the Appellant company explained to the Tribunal that he had been previously dealing with Beach Blanket Babylon Ltd which owed a considerable amount of VAT following the takeover of the assets from Tigergrade Ltd. Mr Jarvis spoke with Graham Rebak, a Director of Beach Blanket Babylon Ltd, who assured him that he was not involved with Tigergrade Ltd and had simply taken over the assets of that failed company. Mr Rebak told Mr Jarvis that he wanted to do right to the creditors. Mr Rebak   stated to Mr Jarvis that he was running Beach Blanket Babylon Ltd and that the presence of “the Newmarks” was inconsequential. Mr Jarvis withdrew the “Notice of Requirement” issued to Beach Blanket Babylon Ltd on the understanding that the company would enter into a voluntary agreement with its creditors and pay off its debts including the substantial VAT due to the Respondents. He did not wish to place an unnecessary burden with the “Notice of Requirement” on a company which he perceived to be doing its best to meet its debts.

15.	Mr Jarvis was disappointed when Mr Rebak failed to deliver on his promises. Beach Blanket Babylon Ltd defaulted on its VAT return immediately after entering the voluntary agreement with its creditors incurring a further VAT debt of £8,936. The company cancelled its voluntary agreement on 18 December 2002. Mr Jarvis became aware that Mr Rebak had formed another company, the Appellant Gastromode Ltd, as a successor company to Beach Blanket Babylon Ltd. The application for VAT registration of Gastromode Ltd was signed by “B Newmark”, which contradicted Mr Rebak’s assertion he was running the company not the “Newmarks”.

16.	On discovering this information Mr Jarvis decided to issue a “Notice of Requirement to Give a Security” on the Appellant company. He decided that the Appellant posed a real risk to the revenue because the previous company Beach Blanket Babylon Ltd had failed to honour its voluntary arrangement with its creditors, the Appellant company was trading in the same type of business from the same registered address as Beach Blanket Babylon Ltd. Messrs Brett Hayes Newmark and Graham Rebak were Directors of both companies. The continued presence of the “Newmarks” in the Appellant company was also a concern, particularly in view of Mr Rebak’s prior assertion about their inconsequential presence. Mr Jarvis considered that the Appellant company posed an immediate risk which was why he did not wait until it submitted VAT returns.

17.	Mr Jarvis calculated the amount of the security using the estimated yearly turnover for the Appellant company as declared in its application for VAT registration from which was deducted an amount for input tax. Mr Jarvis used a “ratio allowance” to determine the amount of input tax. The allowance represented the average ratio of input tax to output tax for businesses in the same trade and location expressed as a percentage. The allowance used by Mr Jarvis for the Appellant company was that which applied to restaurants in the West End. The security required was for six months liability for VAT or in the case of monthly returns: four months liability for VAT.

18.	Mr Jarvis would have been prepared to negotiate on the amount of the security provided the Directors showed willingness to be compliant and could demonstrate that the amount was too much a financial burden on the new business. The Directors of the Appellant company had not been in touch with Mr Jarvis since the issue of the “Notice of Requirement”.  The restaurant business was essentially a cash business which enjoyed prompt delivery of the VAT charged and collected.

19.	Since 05/03 the Appellant company has failed to submit VAT returns. The company, however, has paid the amount of VAT demanded by central assessment which appeared to be an underestimate of the company’s correct liability for VAT.

Reasons for Our Decision

20.	Our starting point is to consider whether the Mr Jarvis had acted in a way in which no reasonable panel of Commissioners of Customs and Excise could have acted, or whether he had taken into account some irrelevant matter, or disregarded something to which he should have given weight when imposing the security requirement on the 27 February 2003. In exercising this jurisdiction we must limit ourselves to considering facts and matters which existed at the time the challenged decision to require a security  was taken.

21.	Mr Jarvis decision was based upon a series of interconnecting factors from which he concluded that the Appellant company posed a real risk to the revenue. The factors he took account of were that the Appellant company shared the same registered address as two other companies, Tigergrade Ltd and Beach Blanket Babylon Ltd which had poor records of VAT compliance and owed significant amounts of VAT. All three companies were in the same business, the restaurant trade. Mr Rebak and Mr Brett Newmark were Directors of the Appellant company and Beach Blanket Babylon Ltd. Although neither of them were Directors of Tigergrade Ltd, there were links between Mr Bret Hayes Newmark and the Director of Tigergrade, Robert Kenneth Newmark, because they lived at the same address and were Directors of Magnaset Ltd which shared the registered address of the Appellant. 

22.	We consider that Mr Jarvis was correct in giving weight to these sets of facts. In our view they were relevant in assessing risk to the protection of revenue. We find no evidence to suggest that Mr Jarvis took into account some irrelevant matter in coming to his decision on the 27 February 2003.

23.	We consider that Mr Jarvis’ actions were a proportionate response to the perceived risk posed by the Appellant company. In respect of Beach Blanket Babylon Ltd he listened to Mr Rebak’s assertions that he was going to do right to the company’s creditors with the result that Mr Jarvis exercised his discretion to the benefit of the company by withdrawing the “Notice of Requirement to Give a Security”. Mr Jarvis was misled by Mr Rebak about the company’s intentions and its management. Mr Rebak was in our view duplicitous, the voluntary agreement to pay the creditors was cancelled not long after the “Notice for Requirement” was withdrawn. His assertion that he ran the company and the “Newmark” presence was inconsequential was contradicted by the presence of  Mr Brett Hayes Newmark  as a Director of the Appellant company and as signatory of its application for VAT registration . In our view Mr Jarvis was right to take swift action against the Appellant company in the light of Mr Rebak’s duplicity. 	

24	The proportionate response was also evident in Mr Jarvis’ calculation of the amount of security. He based the amount upon the estimated taxable supplies declared by Mr Brett Hayes Newmark on behalf of the Appellant company. Mr Jarvis told the Tribunal that he would have been prepared to negotiate a lower amount if the Directors of the company had approached him and given good reasons. No approach was made to Mr Jarvis from the company’s representatives. Mr Jarvis also had regard to the nature of the Appellant’s business which was a cash business with prompt delivery of the VAT due. Thus the potential hardship to the Appellant by the imposition of a security was less than a business where there was a delay in the payment for work done by its customers. 

25	The Appellant states in its “Notice of Appeal” that it had no opportunity to consider or rebut the reasons before the “Notice of Requirement” was issued and that its issue was precipitate. We disagree. Mr Jarvis was entitled to take swift action because of Mr Jarvis’ duplicity. The Appellant contends that there was no history of poor compliance on the part of its Directors except a single default which was remedied as soon as possible. The facts found by the Tribunal contradict the Appellant’s assertion. Beach Blanket Babylon Ltd owed a significant amount of VAT. Tigergrade Ltd owed almost £500,000 in VAT at the time of its liquidation, and although neither of the Appellant’s Directors was a Director of that company we are satisfied on the evidence that they had links through the Directorship of Robert Kenneth Newmark with Tigergrade Ltd. 

26.	For the reasons set out above we have decided that the issue of the “Notice of Requirement to Provide a Security” dated 27 February 2003 on the Appellant was reasonable. We, therefore, dismiss the Appeal. 

27.	The Respondents applied for costs of £500. The current policy of the Respondents is not to seek costs against unsuccessful Appellants except in certain narrowly defined cases. One of those cases is where the Appellant fails to appear before the Tribunal. The Appellant reason for not attending the hearing was vague. The Appellant had indicated from early on that it was strongly disputing the issue of the “Notice of Requirement” and that Counsel had been instructed to act on its behalf. We find it difficult to reconcile the Appellant’s avowed intention to challenge the “Notice” with its failure to attend the hearing, which drives us to the conclusion that the Appellant was engaged in delaying tactics. We also understand that the Respondents prior to the hearing invited the Appellant’s representatives to take instructions to withdraw the Appeal. In the circumstances we consider that the Respondents have made out an exception to their current policy and order the Appellant to pay the Respondents its costs of £500 within 21 days of release of this decision.

28.	 The Appellant or any other person interested in this matter can apply to the Tribunal within 14 days after the date of release of this decision to set aside the decision in accordance with rule 26 (3) of the 1986 Tribunal Rules.

	

MICHAEL TILDESLEY
CHAIRMAN

RELEASED: 29/07/04

LON/03/358