18961
	
	SECURITY  — very large turnover — under capitalisation of the business — sale of the entire shareholding to a company with no knowledge of the business activity — reasonableness of the Commissioners’ decision — appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

 
 	
	SCKORLIUM INTRATEC PLC	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Lady Mitting (Chairman)
						 John M Lapthorne	

Sitting in public in Birmingham on 13 January 2005

The Appellant did not appear and was not represented

Mr N Poole of counsel instructed by the Solicitor for HM Customs and Excise for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	The decision under appeal was that of the Commissioners, contained in a letter dated 13 February 2004, requiring the Appellant to give security in the sum of £214,141 under paragraph 4(2)(a) of Schedule 11 to the Value Added Tax Act 1994.
2.	There was no appearance or representation by or on behalf of the Appellant.  We assured ourselves that the notice of hearing had been properly served on the Appellant’s nominated representatives and proceeded to hear the case under Rule 26(2) Vat Tribunals Rules 1986.  The only indication which we were given of the nature of the Appellant’s case was their stated grounds of appeal, namely:
“The decision has been made in substitution for an earlier decision made on 25th November 2003 which has now been withdrawn.  The Commissioners continue to be wrong to conclude that the company represents a risk to the revenue.  The decision is based on mistaken beliefs relating to Choicebrand Ltd the parent company of Sckorlium Intratec PLC.   The reasons stated do not amount to a proper reason for requiring the deposit of security.”
3.	On behalf of the Commissioners, we heard oral evidence from Ms Joanne Osbourne, whose decision it was to require security.  On the basis of Ms Osbourne’s evidence and the documentation in front of us, we find the facts to be as follows.  The Appellant registered for VAT with effect from 10 April 2003.  The company was in the telecommunications business, buying and selling mobile phones and computer chips.  It traded from Suite 19, Imex Business Park, Burton on Trent.
4.	When Ms Osbourne began investigating the company, the listed directors were named as Roger Charles Yates and Andre Albertus Olivier.  The named company secretary was Alexander Office Services Limited.  Ms Osbourne discovered that Mr Olivier was also a director of a company called Thunderdraw.com Limited which had traded from Suite 56, Imex Business Park and of which the authorised official for VAT purposes was one David Alexander, of Alexander Office Services.  Thunderdraw.com traded in the buying and selling of mobile phones and had been issued with two veto letters by the Commissioners with respect to dealing with deregistered traders.  Thunderdraw.com had gone into voluntary liquidation on 28 April 2003, owing the Commissioners £39,000.
5.	Ms Osbourne was also concerned that on its VAT1, the Appellant had stated its business was to make sales to other EC member states, thereby being in a repayment situation.  The anticipated turnover declared on the VAT1 was £10,000,000.  However, deal logs obtained by the Commissioners revealed that between 12 September 2003 and 31 October 2003 inclusive (a period of 50 days), the Appellant had recorded sales to the value of £24,703,472.80.  Ms Osbourne calculated that if trading was to have continued at that rate, the approximate annual turnover would equate to £180,335,351.  The paid up shares of the Appellant company totalled 50,000 of £1 each.  Of this shareholding, David Alexander held all but £2.  There was, therefore, in Ms Osbourne’s view, insufficient funding in place to substantiate the enormous level of turnover.
6.	Ms Osbourne was of the view that for all these reasons the company represented a significant enough risk to the Revenue to require security and she issued a Notice to that effect on 26 November 2003.  The Appellant’s representatives thereafter corresponded with Ms Osbourne giving her further information, of which she had not previously been aware, and pursuant to which, Ms Osbourne withdrew the Notice and issued a fresh Notice, the one currently under appeal.
7.	The information given to Ms Osbourne by the representatives were that Mr Olivier had sold his shareholding in the company on 20 October 2003 to a company called Choicebrand Trading Limited and pursuant to the sale, Mr Olivier and “those associated with him” also resigned their positions as directors of the company.  They were replaced by a Mr Kiem Trinh and Ms Jade Phan, both nominees of Choicebrand.
8.	On receipt of this information, Ms Osbourne investigated the affairs of Choicebrand and found that it had previously been registered for VAT as an intending trader in the field of television repairs but was deregistered as it never traded.  She also ascertained that the paid up share allocation for Choicebrand was only £200.  She also came into possession of a letter from the Appellant dated 11 November 2003, which had been signed by Mr Olivier as Business Project Manager, thus indicating to her that although he may have given up his directorship, he had not given up his entire interest in the Appellant company.  Further, although the representatives had said that Mr Olivier and those associated with him had resigned their positions, Alexander Office Services Limited remained company secretary so it was clear that Mr Alexander at least and his company had not given up their interest in the business.
9.	Ms Osbourne remained convinced that the Appellant company, in its new structure, still posed a risk to the Revenue.  She had the concerns which she had previously held relating to the company being in a repayment situation with an enormous turnover and being considerably under-funded to support such a turnover.  She also was aware that not all the previous officers of the company had given up their involvement in it and she was extremely concerned that Choicebrand had no obvious experience in the nature of the business.  The business had been sold to Choicebrand for £120,000, which seemed to Ms Osbourne to be a considerable under value when set against the level of turnover.  She was given no indication that any valuation of the company had been obtained by Choicebrand before the purchase.  
10.	Ms Osbourne also discovered that her colleagues were having little success in attempting to verify the Appellant’s VAT return for the period 11/03.  This was a repayment return in the sum of £250,000 and an investigating officer had visited the company and had written to it on 7 January 2004 and again on 20 January 2004 but none of the verification information sought had been provided.  No supporting documents were produced to show that the recorded deals had taken place and no export documentation was made available either. 
11.	For all these reasons, Ms Osbourne believed that the Appellant company still represented a risk to the Revenue and issued the Notice under appeal.  Her calculation of the amount of security was based on the declared turnover of £10,000,000 given in the VAT1, giving allowance for input tax and based on four months net tax.  Other than the stated grounds of appeal, nothing has been heard from the Appellant and its case has been no more fully particularised.
12.	The question which we, the tribunal, must address is whether or not the Commissioners have acted in a way in which no reasonable panel of Commissioners could have acted; if they had taken into account any irrelevant matters or had disregarded something to which they should have given weight or had made an error in law.  We limit ourselves to considering the facts and matters which existed at the time Ms Osbourne took her decision.
13.	Applying this test to the facts as we have found them to be, we believe Ms Osbourne’s decision was entirely reasonable, all the factors which she took into account were, in our view, relevant and she did not take any irrelevant factors into account.  Her decision was not one which no reasonable body of Commissioners could have made.  The appeal is therefore dismissed.
14.	In view of the Appellant not attending the hearing, Mr Poole made an application for costs in the sum of £350 which we grant.

LADY MITTING
CHAIRMAN
Release Date: 24 February 2005
MAN/04/0143
££Sckorlium Intratec Plc v Customs and Excise [2005] UKVAT V18961 (24 February 2005)