18916
VALUE ADDED TAX — security — VATA 1994 Sch 11 para 4(2)(a) — Appellant acquiring assets, trading name and premises from company in liquidation and with poor compliance record and continuing same trade — predecessor company and Appellant having same sole director — security properly demanded — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	P & PR LTD T/A P & F PRINT FINISHING 	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal: Colin Bishopp (Chairman)
					      Mohammed Farooq

Sitting in public in Birmingham on 9 December 2004

John Fitzpatrick, director, for the Appellant
Richard Mansell of the Solicitor’s office of HM Customs and Excise for the Respondents

	© CROWN COPYRIGHT 2005
DECISION
1.	This is an appeal by P & PR Limited, which trades as P & F Print Finishing, against a notice of requirement to give security, set out in a letter dated 25 February 2003.  The amount of security demanded is £5,600, calculated upon the assumption that the Appellant would continue to make monthly returns.
2.	The Company was represented by its only director, John Fitzpatrick, and the Respondents by Richard Mansell of their solicitor’s office, who provided us with a bundle of documents. 
3.	We heard evidence from Mr Fitzpatrick and also from Ian Pumfrey, the officer whose decision it was to impose the requirement.
4.	Mr Pumfrey’s evidence, which was not challenged by Mr Fitzpatrick, was that a company named P & F Print Finishing Ltd had entered into insolvent liquidation owing the Commissioners about £53,000.  The Appellant had acquired the assets of that company from the liquidator, and was carrying on the same business from the same premises; its principal (and now only director) was Mr Fitzpatrick, who had also been the principal director of the failed company.  The Appellant became registered for VAT immediately it began to trade, in November 2002.  
5.	Mr Pumfrey explained that he learnt about the sale of the assets of the old business to the Appellant when information was supplied to him by the Inland Revenue; he thereupon examined the Appellant’s application for registration against the records of the defunct company, which showed not only a substantial outstanding debt, but also a poor compliance record.  It was for those reasons that he decided that it was necessary to impose a security requirement in accordance with paragraph 4(2)(a) of Schedule 11 to the Value Added Tax Act 1994.
6.	Although it is not relevant to our decision, we think it appropriate to record that, in the months following the giving of the notice, Mr Pumfrey and Mr Fitzpatrick met and corresponded with a view to finding a way of helping the Appellant through the difficulties to which we will shortly come, and that Mr Pumfrey suspended the operation of the notice for a substantial time.   Unfortunately Mr Pumfrey’s indulgence did not have the desired effect and, ultimately, he felt obliged to insist on compliance with the notice.  We merely comment that we are satisfied that Mr Pumfrey did his best to avoid enforcing the notice until it became inescapable.
7.	Mr Fitzpatrick told us that P & F Print Finishing Ltd had been established in 1984 by himself and a business partner, whom he bought out in 1992; he thereafter remained as the company’s sole director.  In 1997 he suffered a stroke and was unable to work at all for some seven months.  His wife, who had no experience in the print finishing business, attempted to deal with the company’s affairs during his convalescence but, since she had also to care for Mr Fitzpatrick and run their home, it proved very difficult for her to run the company effectively and, by the time Mr Fitzpatrick was able to return to work, it was evident that the company’s fortunes had declined considerably.  He had, he said, managed to retain his staff (most of whom have been with him from 1984 to the present time) but a number of customers had drifted elsewhere.  In an attempt to restore the company’s fortunes, he had invested a great deal of time and his own money in it but his efforts were, ultimately, unsuccessful and the company entered first into administration and then into liquidation.  He agreed that its VAT compliance had deteriorated and that when it entered into liquidation, it owed a significant sum to the Respondents.
8.	He had set up the Appellant in order that it could acquire the assets and trading name of the defunct company, and thereafter carry on in the same business with the same staff.  However, the Appellant lacked trading capital; the record of the defunct company made it difficult to borrow, and suppliers generally demanded immediate payment, while the Appellant had to grant its own customers usual credit terms. Consequently, as he conceded, the Appellant had found it impossible to discharge its VAT liabilities on time.
9.	We accept Mr Fitzpatrick’s evidence; we are satisfied that the defunct company’s problems were attributable to his illness and that the Appellant’s difficulties are a legacy of those problems.
10.	Unfortunately for the Appellant, while culpability might be a relevant factor, it is not the test.  The Commissioners have the discretion to demand security where (to adopt the words of paragraph 4(2)(a)) they think it necessary for the protection of the revenue, whatever the cause of that necessity might be.  As Mr Fitzpatrick himself accepted, there was an obvious risk to the revenue at the time the notice was issued, when the Appellant had, for all practical purposes, taken over an existing business with a poor history, and both the predecessor company and the Appellant were run by the same person.  
11.	We hope that Mr Fitzpatrick will be able to overcome the Appellant’s difficulties, and we are confident from what Mr Pumfrey told us that the requirement of security will be maintained for no longer than is reasonably necessary.  The appeal, however, must be dismissed. 

COLIN BISHOPP
CHAIRMAN
Release Date: 21 January 2005
MAN/01/131