19314
	VAT — SECURITY — REQUIREMENT FOR — director of Appellant previously involved in several companies which failed owing VAT — deterioration in payment record of Appellant — cheques in payment of VAT dishonoured — requirement for four month’s security on footing of monthly VAT returns found to be reasonable — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	RLS EMPLOYMENT LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Michael Johnson (Chairman)
						Roland Presho FCMA

Sitting in public in North Shields, Tyne & Wear on 13 October 2005 

There was no appearance on behalf of the Appellant 

Bernard Haley, of the Solicitor’s office for HM Revenue and Customs,
for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	In this security appeal, the Appellant RLS Employment Ltd is disputing a Requirement to Give Security under paragraph 4(2)(a) of Schedule 11 of the Value Added Tax Act 1994 (“the requirement”).  Notice of the requirement was given on 1 March 2005.  

2.	No representative of the Appellant has attended on the hearing of the appeal.  From the folder of documents provided to the tribunal, this does however appear to be a very clear case, so we have nevertheless decided to proceed with the hearing, as we are enabled to do under rule 26(2) of the Value Added Tax Tribunals Rules 1986 (as amended).

3.	Mr Haley has represented Her Majesty’s Revenue and Customs (“Customs”).  He called as a witness to give oral evidence Mr David Price, who is the officer of Customs responsible for the requirement.  In addition, Mr Haley has provided us with the folder of relevant documents mentioned above.

4.	The folder shows that the business of the Appellant is directed by Mr Gary Deans.  Mr Deans has been involved, as director and/or company secretary, with a number of other companies, which have become insolvent or have apparently ceased trading, owing Customs substantial sums of VAT.  These companies have included in particular the following (the amount of VAT owed by each company being stated in brackets) – 

•	Millenium Recruitment North-East Ltd (£33,548.20);

•	Nationwide Commodities Ltd (£22,033.00); and

•	Ray Williams Logistics Services Ltd (£43,773.88).

5.	Mr Deans is also apparently still concerned as director of a company called G D Corporate Services Ltd, which although registered for VAT, has failed to lodge VAT returns and has been centrally assessed for tax.

6.	The Appellant was registered for VAT with effect from 1 January 2004.  In view of Mr Deans’ record of involvement with companies which had failed whilst owing VAT, Customs placed the Appellant under an obligation to make monthly VAT returns and to account for VAT due on a monthly basis.  Mr Price told the tribunal that this was in lieu of a requirement to give security which Customs initially imposed but on reflection withdrew.  He is of the view that the Appellant was fortunate to avoid the obligation to give security at that stage.

7.	From January to August 2004, inclusive, the Appellant lodged its VAT returns and paid VAT due without giving cause for concern.  However from September to December 2004, inclusive, the position was completely different.  In respect of each of those months, the Appellant purported to pay its VAT by cheques which were dishonoured by its bank on presentation.  There were four such cheques.  The amount covered by the first such cheque was in due course paid.  The amount covered by the remaining three cheques, a total of £16,136.62, remains unpaid.

8.	In early 2005, when he reviewed the case, Mr Price became convinced that the risk to the revenue was such that the requirement could no longer be postponed.   

9.	In a letter to Customs dated 9 March 2005 in which he acknowledged notice of the requirement and indicated his intention to appeal, Mr Deans wrote that the business of the Appellant had gone through a slow trading period from November 2004 to January 2005.  Mr Deans stated –

“Our trading is now beginning to pick up again and plans are in place to ensure low trading does not occur in future.”

10.	We however observe that the level of trading in November and December 2004 does not appear to have been low, compared with June to August 2004, when the Appellant duly paid its VAT.

11.	In a letter to Customs dated 18 March 2005, Mr Deans offered to pay the arrears, which by then stood at £18,413.89, by monthly instalments of £2,500 commencing on 15 April.  However in the grounds attached to the Appellant’s Notice of Appeal, dated 20 April 2005, Mr Deans states that he does not personally have any assets and that his house is mortgaged to its full value.  He states that the Appellant cannot look to any financial institution to secure its indebtedness.

12.	Mr Deans’ case is that he worked as a freelance company accountant, assisting companies in preparing accounts, invoices, and with payroll and company secretarial matters, and that he did not have any decision-making function in the companies with which he was formerly involved.  If this is offered as a reason why he should not be regarded as having a degree of responsibility for the failure of the previous companies for which he worked, it is in our judgment a very poor one.  As director and/or company secretary of those companies, he would be deemed to be acquainted with company law, to appreciate that companies must not trade whilst insolvent, and he would moreover be personally equipped, according to his own description of his functions within these companies, to help to obviate large unpaid tax liabilities.

13.	For two reasons, therefore, we think that Customs were eminently justified in their decision to insist upon the requirement.  The first reason is Mr Deans’ involvement with companies that have previously failed owing tax, an involvement which we are satisfied connotes a degree of responsibility on his part for the failures.  The second reason is the poor tax-paying performance of the Appellant from September 2004 onwards, which threatened a repetition of failure.

14.	Security of £38,200 was sought on the footing of monthly returns, calculated at four times the average monthly VAT shown to be due by the Appellant’s tax returns from January to November 2004.  Mr Price explained to the tribunal why four months’ security was sought, and his explanation, and the methodology of his calculation, seem to us to be entirely reasonable.   

15.	We are informed by Mr Haley that the Appellant has been deregistered for VAT with effect from 1 August 2005, on the application of Mr Deans.  This appears to indicate that Mr Deans will now be concentrating on his other businesses, which we were told about, but which we need not mention further for the purposes of our decision.

16.	We indicated at the conclusion of the hearing that this appeal was accordingly dismissed.  Mr Haley applied for costs, quantified in the reasonable amount of £100.  In the circumstances mentioned above, we felt that this application for costs was justified, and we acceded to it.

MICHAEL JOHNSON
CHAIRMAN
Release Date: 27 October 2005
MAN/2005/0279