Hydrofloat Solutions Ltd v Revenue and Customs [2006] UKVAT V19415 (5 January 2006)
19415
SECURITY – no attendance by or on behalf of Appellant — director and company secretary involved in previous insolvent company — was the requirement reasonable — yes — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	HYDROFLOAT SOLUTIONS LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Lady Mitting (Chairman)
						Alban W Holden JP

Sitting in public in Manchester on 8 December 2005

The Appellant did not appear and was not represented

Jonathan Cannan, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	The decision under appeal is that of the Commissioners contained in a letter dated 2 March 2005 to require the Appellant company to give security under paragraph 4(2)(a) Schedule 11 Value Added Tax Act 1994, which said decision was upheld on review by notice dated 11 May 2005.  The amount of security required was £29,100 if quarterly returns were to be submitted or £19,400 on monthly returns.
Background to this hearing
2.	This case had originally been listed for hearing on 31 October 2005.  On 28 October, the tribunal centre received a letter from the Appellant asking for an adjournment on the grounds that the director of the company could not attend due to “unforeseen work commitments” which could not be turned down.  This application was granted prior to the hearing and the case was relisted for 15 November.  This date had been agreed in a telephone conversation between a member of the tribunal centre staff and Mr Massey, the Appellant’s office manager and it was confirmed in writing to the Appellant company at the only address which the tribunal centre had ever had for it. 
3.	On the 15 November, there was no attendance on behalf of the Appellant and the tribunal clerk telephoned the company and spoke to the managing director, Mr T J Monks.  Mr Monks claimed to know nothing of the hearing.  He said that Mr Massey had not told him and that the written notification had not been received because the company had moved address in June or July 2005.  We, the tribunal, took the view that we would have been entitled to proceed to hear the case in the absence of the Appellant because the company had been properly notified of the hearing date, both orally to the office manager and in writing to the only address for service which the tribunal centre had been given.  However, because Mr Monks had told the clerk that he would have wished to attend to give oral evidence, we decided to allow an adjournment subject to a further date being agreed before we rose.  The clerk telephoned Mr Monks with a choice of four dates in November and December.  He chose the last of these, the 8 December.  The tribunal clerk telephoned him back to confirm that date and it was also confirmed in writing by letter dated 15 November 2005 to the new address for the company which Mr Monks had given to the clerk.  
4.	When the case was called on for hearing on 8 December 2005, there was no attendance by Mr Monks or anyone else on behalf of the Appellant.  As Mr Monks was well aware of the date, it having been arranged in conjunction with him and written notice also having been served, we proceeded to hear the case under rule 26(2) Value Added Tax Tribunals Rules 1986.  We have gone into some detail about the various adjournments because it is relevant not only to why we decided to proceed under rule 26(2) but also to the issue of costs referred to at the end of the decision.
The Facts
5.	We heard oral evidence from Miss Lucia Carpanini, whose decision it was to require the security.  
6.	Hydrofloat Solutions Limited (“Hydrofloat”) was incorporated on 19 May 2004.  Its business activity is described in the VAT 1 as marine engineering work.  The company was registered for VAT with effect from 9 November 2004.  The managing director of the company was and is Timothy John Monks and the company secretary, Julie Monks.  
7.	On investigation, it came to Miss Carpanini’s notice that Mr and Mrs Monks had both been involved in a previously registered company, Deeside Diving Contractors Limited (“Deeside”).  Deeside had gone into liquidation on 9 December 2004 owing the Respondents in excess of £127,440.  Records from Companies House show that Mr Monks had been director and Mrs Monks company secretary of Deeside.  Deeside had been registered as from 1 February 1998 and its main business activity had been described as “commercial diving support to the marine civil engineering and shipping industries”.  We were shown a couple of schedules detailing Deeside’s compliance record and statement of account.  From periods 04/98 to 01/01, returns were made but in several cases, they were made very late.  From 01/01 onwards, the returns were made immensely late and payment was not being made.  The majority of returns were not submitted until July 2004.  During the intervening period, the Respondents had raised centrally issued assessments.  They had not been paid but the accumulated indebtedness appeared reasonably modest.  When all the returns were submitted on 9 July 2004, for the first time the full extent of Deeside’s indebtedness became apparent and Deeside ceased trading on 17 November 2004, owing the Respondents accumulated tax, default interest and default surcharges in the total sum of £127,440.  
8.	Hydrofloat’s application for registration has been dated 9 November 2004 and requested registration from the same date. As this preceded the cessation of trading of Deeside, Miss Carpanini took the view that the Appellant company was a phoenix of Deeside.  They both operated from the same address, were both in the same line of business and both had the same director and company secretary.  
9.	At the time of raising her requirement, the Respondents had received the first VAT return for Hydrofloat but this was a repayment return and no tax was therefore payable on it.  The second return had not yet become due.  
10.	Miss Carpanini also had in front of her the creditors voluntary liquidation questionnaire relating to Deeside.  Mr Monks had given as the reasons for Deeside’s failure, the loss of a major contract and increased time lapse for debtor payments.  He had become aware that the company could no longer pay its debts in July / August 2004.  
11.	On the basis of all this information, Miss Carpanini believed that Hydrofloat posed a risk to the Revenue and she therefore raised her request for security.  The security was based on the Appellant’s estimated value of taxable supplies of £500,000.  She gave an allowance for input tax and then based the amount of requirement on six months takings for quarterly returns and four months for monthly returns.  
12.	Mr Monks’ response to the requirement was to request a review, which he did by letter dated 30 March 2005.  In his letter, he pointed out that Hydrofloat had now retained a firm of reputable chartered accountants and that the company’s returns were up to date.  The review officer upheld the requirement for security on much the same grounds as Miss Carpanini had raised it in the first place but also pointing out that the previous company had had a poor compliance record, notwithstanding that it also had employed a professional accountant. 
13.	The notice of appeal to the tribunal is dated 20 June 2005 and three grounds of appeal are given:
(i)	The company has the services of a reputable chartered accountant to handle its affairs
(ii)	The quarterly VAT returns were up to date
(iii)	If security was required, the company would have to cease trading and lay off its workforce.
14.	Looking at these grounds in turn, we note that Deeside had also been advised and represented by a firm of chartered accountants.  Secondly, as at 20 June, it is not correct that the company’s VAT returns were up to date as the return for 03/05 had not been received and was in fact not received until 2 August.  Third, it is the Respondents’ duty to protect the revenue.  That must be their primary concern and the revenue cannot be risked because of a threat to the continued trading of the company and the consequent laying off of staff.
Conclusions
15.	Our jurisdiction is supervisory and we are limited to considering the reasonableness of the Respondents’ decision, such consideration to be limited to those matters prevailing at the time the decision was made.  Although at the time of the request, Hydrofloat’s compliance record was good, only one return had become due and that, a repayment return which the Respondents had met.  Against this was the appalling record of Deeside and in our view Miss Carpanini quite rightly and reasonably concluded that such was the similarity between Deeside and Hydrofloat that there was a clear risk to the revenue.  She quite properly took into account the similar trading activity of the two companies, that they traded from the same address and that their managing director and company secretary were the same.  We know of no matters which she should have taken into account but failed to.
16.	We, for these reasons, find that the decision to require security was reasonable and the appeal is dismissed. 
17.	Mr Cannan made an application for the costs of today’s hearing, which we grant in the sum of £500 made up in the main of counsel’s brief fee and Miss Carpanini’s travelling and accommodation expenses (having travelled from Cardiff).  On 15 November, Mr Cannan had reserved the Respondents’ position on costs but, given the failure of Mr Monks to attend today, he made an application also for the costs of 15 November in a similar sum.  We grant this application.  Not only had the earlier hearing been adjourned specifically at the request of Mr Monks because he had expressed his wish to attend but the new hearing date had been listed at his convenience.  Given this, and our view that the 15 November hearing had been properly notified and we would have been justified in proceeding then, we think an order for the costs of that hearing is entirely appropriate.
18.	In summary, therefore, the appeal is dismissed and we direct the Appellant to pay the Respondents’ costs of both 15 November and 8 December in the total sum of £1,000.   

LADY MITTING
CHAIRMAN
Release Date: 5 January 2006
MAN/05/0452