19303

SECURITY – Notice of requirement – Appellant’s quarterly returns outstanding – Appellant’s outstanding debt due to Commissioners – Associated company deregistered owing amount to Commissioners – Whether requirement reasonable – Yes – Appeal dismissed

LONDON TRIBUNAL CENTRE

	EUNETICS LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	STEPHEN OLIVER QC (Chairman)

Sitting in public in London on 13 October 2005

The Appellant did not appear 

Pauline Crinnion for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	Eunetics Ltd appeals against a Notice of Requirement to give security under Schedule 11 paragraph 4(2) of the Value Added Tax Act 1994.  The Notice of Requirement requires Eunetics to give security in the sum of £11,950 if quarterly returns were to be rendered or the sum of £7,950 if monthly returns were to be rendered.

2.	The Notice of Appeal of Eunetics was lodged on 4 April 2005.  The Grounds of Appeal are expressed as follows:

“SALES FIGURES

I do not agree with the sales figures as I think sales have been duplicated.  I have a sales figure of £101,943.17 as of 31 December 2004 and then this figure has escalated to £219,414.97 as at 31 March 2005.  As this appeal needs to be submitted as soon as possible I do not have a definite to the above but am presently working on it.  

PURCHASES FIGURES

These figures need to be adjusted by an amount of £48,678.95 and the VAT on this figure amounts to £8,518.91.

As it can be seen from the above the figures previously supplied were not correct.  This is the main reason that I am lodging this Appeal to allow me time to try and solve the problems.”

The appeal was listed for 10.30am on 13 October.  On 23 September, I understand, Mrs Crinnion telephoned Eunetics and ascertained that they were aware of the hearing.  She called again on 27 and 29 September and her understanding was that Eunetics was in the process of getting the correct figures together.  When the appeal was called on for hearing at 10.30am, there was no one to represent Eunetics.  I waited until 11.15am and then decided to go ahead and hear it in the absence of the Appellant, indicating that, should a representative arrived by midday, I will be prepared to start the hearing again. The reason for this cause was that the Northern Line was not operating on the day of the hearing and this might have accounted for the absence of a representative for Eunetics. No one had arrived by midday. I therefore decided the appeal in the absence of Eunetics.  

3.	Rule 26 of the Tribunals Rules gives the tribunal the right to go ahead and hear an appeal in the absence of one or other of the parties.  I took this course.  Rule 26 goes on to state that the absent party may, within 14 days after the release of the decision, apply to the tribunal to have the decision set aside on such terms as it thinks just.  Rule 26 goes on to state that a party making an application to have the decision set aside must appear at the hearing of that application.  So, bearing in mind the opportunity Eunetics have to make an application to the tribunal within 14 days to have this appeal set aside, I cannot see that Eunetics is prejudiced by the decision to go ahead in their absence.

4.	I heard evidence from Jane Houghton of the Debt Management Unit in the Southampton VAT office.  She has been personally involved in the circumstances leading to the issue of the Notice of Requirement that has been appealed against.  

The background facts

5.	Eunetics was registered for VAT with effect from 10 September 2001.  It carries on business as a firm specializing in computer cabling, software installation and support.  It operates from premises in Bournemouth.

6.	At the time when the Notice was issued G T Davis was the sole director.  Her husband, K Davis, had been a director until his registration in 2003.  The company secretary was David Wills.  

7.	At the time when the Notice of Requirement was served Eunetics had a debt due to the Commissioners of £15,730.61.  The Appellant’s annual turnover, taken from declarations made by the Appellant (no returns having been submitted since July 2004) was £292,775, tax exclusive, as at 31 June 2004.  That debt included default surcharges, centrally issued assessments for non-submission of the 9./04 and 12/04 returns and outstanding tax debt on return submitted to 30 June 2004.  

8.	At the date of the Notice the Commissioners ascertained that G Davis and David Wills were also director and company secretary respectively of another limited company, New Forest Care Agency Ltd.  That company had been registered since July 2004 and provided agency staff for care both at clients’ homes and in care homes.  New Forest Care Agency Ltd had, at the time of the Notice of Requirement, deregistered for VAT leaving a debt of £5,875 due to the Commissioners.  That debt had not been recovered.  

9.	Eunetics’ record of compliance records that no returns had been made for the periods 9/04, 12/04 and 3/05.  The return for the 6/04 period had been submitted 108 days late.  At the date of the Notice of Requirement returns for the periods 9/04, 12/04 was still outstanding.  

The calculation of the security

10.	To calculate the security, for purposes of the Notice of Requirement, the Commissioners aggregated the tax due, as shown in the returns for the periods 9/03 until 6/04.  This worked out at £23,999.  On the basis that quarterly returns were to be rendered, the amount of security worked out at six months worth of the tax due, i.e. £11,999.  On the basis that monthly returns were to be made, the amount of the security worked out at £7,999, being four months of the aggregate for those twelve months.  

Points taken by Eunetics in grounds of appeal

11.	In the first place the Commissioners have not used Eunetics’ sales figures as shown in their returns.  They have calculated the security by reference to the net tax due for the twelve month period referred to above.  If the sales figures were incorrect, Eunetics have done nothing to put them right.  In particular they have not taken the opportunity of making a “voluntary disclosure” showing the sales figures to be in, for example, lower amounts.  

12.	The same goes for the purchase figures which Eunetics claim should be adjusted.

13.	Clearly it is right that Eunetics should have time to resolve the accounting problems.  But six months have gone by since the issue of the notice of requirement and nothing, I understand, has been done by Eunetics to resolve these problems.

Conclusions

14.	The facts of this case speak for themselves.  It was, in my view, reasonable for the Commissioners to conclude, on the information available to them, that it was necessary to require Eunetics to provide security in the amounts stated.  The Commissioners correctly took into account the failure on the part of Eunetics to submit and pay outstanding returns for 9/04, 12/04 and 3/05.  The Commissioners correctly took into account Eunetics’ history of non-compliance.  The basis on which the calculations of the security were made seems to me entirely reasonable.  

15.	There are certain features about this appeal that make it essential for Eunetics to address the VAT issues.  While this was not relevant to the decision taken in February 2005, it appears that the debt due to the Commissioners from Eunetics has increased and that Eunetics have still not notified the Commissioners of the correct tax liability for periods 9/04, 12/04 and 3/05. Unless Eunetics address these issues, they will become liable to prosecution. As mentioned earlier, Eunetics now have the opportunity (if they so choose) to apply to the tribunal within 14 days of the release of this decision to have this decision set aside and to have a full hearing of the appeal.  The Tribunal is not bound to accept the application, but it is the only course open to Eunetics.

16.	Appeal dismissed.

STEPHEN OLIVER QC
CHAIRMAN

RELEASED:24 October 2005

LON/05/429