18949
	
	SECURITY  — directors’ involvement in previous companies with bad compliance record — was request for security reasonable — yes — appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

 
 	
	EAST MIDLANDS FREIGHT SERVICES	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Lady Mitting (Chairman)
						 Robert Grice	

Sitting in public in Birmingham on 31 January 2005

Mr Paul Garner, director, appeared for the Appellant 

Mr Bernard Haley of the Solicitor’s office of HM Customs and Excise for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	The decision under appeal is that of the Commissioners dated 15 April 2004 to require the Appellant company to give security in the sum of £22,000 under schedule 11 paragraph 4(2)(a) of the Value Added Tax Act 1994.  
2.	We heard oral evidence from one of the directors of the company, Mr Paul Garner and on behalf of the Commissioners from Mr Martin Whitelegge.  
The Evidence
3.	The Appellant carries on business as a haulage contractor and was registered for VAT with effect from 26 January 2004.  The Registration Unit referred the case to Mr Whitelegge.  His researches revealed to him that two of the directors, Mr Paul Garner and Mrs Margaret Mary Garner, had both previously been involved in other companies which had deregistered with monies owing to the Commissioners. 
4.	Mrs Margaret Mary Garner had traded as Corby Glen Transport from 10 August 1992 to 1 August 1999.  On deregistration, Mrs Garner owed the Commissioners £269.11 which remains unpaid.  However, the compliance record of Corby Glen Transport had been very poor.  From 1997 until deregistration, the delays in payment on the majority of returns had run into years and it was only when the Commissioners attempted bankruptcy proceedings against Mrs Garner that the arrears were paid off leaving the said sum of £269.11 owing.
5.	Mrs Garner’s registration was cancelled when a limited company, Corby Glen Transport Limited was formed, the registration period for this company being 15 May 1999 to 14 April 2004.  Mr Paul Garner was a director of this company and Mrs Margaret Mary Garner was a director and company secretary.  The compliance record of this company was again very poor with the majority of returns, over the last three years trading, being late and payment being late again in some cases for well over 12 months.  Some of the arrears were paid off in early 2003 when winding up proceedings were issued.  The company did not, however, submit returns after 09/03 and went into liquidation on 12 February 2004 owing the Commissioners £35,994, which remains outstanding.  
6.	The Appellant company’s first return was due on 31 March 2004 and was eight days late but the VAT was paid with the return.  
7.	Given the VAT compliance record of the two previous concerns; that all three concerns were operated by the same personnel; that all three concerns were in exactly the same nature of business and all traded from the same premises, Mr Whitelegge believed that there was a risk to the revenue and that security was necessary.  The Appellant’s VAT1 had indicated expected turnover to be £1 million but Mr Whitelegge thought that a fairer way of calculating the security would be to look at the returns for Corby Glen Transport Limited as every indication was that the businesses were identical.  He based the demand on Corby Glen Transport Limited’s returns for 12/02 to 09/03, being the last four submitted returns.  This required security in the sum of £33,000 if quarterly returns were submitted or £22,000 if monthly returns were submitted.  
8.	Mr Garner told us that Corby Glen Transport had been incorporated on the advice of the bank.  Mr and Mrs Garner had worked hard to make the company work but the company had got into trouble with its VAT through bad paying customers.  When the company eventually went into liquidation, Mr and Mrs Garner themselves lost £77,000, being their personal loans into the company.  On the advice of his accountant, Mr Garner paid £40,000 to the receiver to purchase some of the assets to enable the Appellant company to be formed.
Conclusions
9.	As we explained to Mr and Mrs Garner, our jurisdiction is limited to considering the reasonableness of the Commissioners’ decision to require security and we have to look at it in the light of the facts as they were at the time when the decision was made.  We believe that Mr Whitelegge took account of all relevant factors and of none that were irrelevant and he gave proper weight to these factors.  He made no error of law and in our view the decision which he made was not one which no reasonable body of Commissioners could have made.  His decision that security was required was perfectly reasonable and the original amount requested was also correct on the basis of the information which Mr Whitelegge had at the time.
The Amount of the Security
10.	By the time of the hearing, Mr Whitelegge had further information available to him, namely some returns for the Appellant company and he looked at these with a view to reviewing the amount of the security required.  The company is on monthly returns.  The last return submitted was 09/04, the most recent two returns still being outstanding.  Based on all the returns submitted by the company from 02/04 to 09/04, Mr Whitelegge was able to revise downwards the amount of security required to £16,700.
11.	The appeal is therefore dismissed and the requirement for security is upheld in the amended sum of £16,700.
12.	Mr Haley made no application for costs and we make no order.

LADY MITTING
CHAIRMAN
Release Date: 22 February 2005
MAN/04/0347