19437
	VALUE ADDED TAX — security — VATA 1994 Sch 11, para 4 — whether demand reasonable — directors involved in other businesses which owed HMRC substantial sums — Appellant’s own compliance record poor — demand reasonable — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	MEDIAPORT ENTERTAINMENT LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Colin Bishopp (Chairman)
						John Lapthorne

Sitting in public in Birmingham on 10 January 2006

The Appellant was not represented 

Richard Mansell of the Solicitor’s Office of HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2006

DECISION

1.	This is an appeal by Mediaport Entertainments Limited (“Mediaport”) against the imposition on it by the Respondents of a requirement to provide security as a condition of its continuing to make taxable supplies.  The requirement was imposed in accordance with the powers conferred on the Commissioners by paragraph 4(2)(a) of Schedule 11 to the Value Added Tax Act 1994.  Originally, the amount demanded was £47,000 but that amount was reduced, in two stages, to £18,445.38.  
2.	Mediaport did not appear by one of its directors, and was not represented at the hearing. Richard Mansell, of their solicitor’s office, who appeared for the Commissioners, asked us to proceed in Mediaport’s absence, in accordance with rule 26(2) of the Value Added Tax Tribunals Rules 1986 (SI 1986/590) as amended, and we agreed that it was appropriate to do so.  Notice of the hearing seemed to have been properly served and we had no explanation of Mediaport’s failure to attend or be represented.
3.	We heard evidence from the three officers who had been involved in the case, Ian Pumfrey, Martin Whitelegge and Ruth Morris.  We can, we think, summarise their evidence, which we accept, fairly briefly.
4.	Mediaport applied for VAT registration in December 2004.  Its application for registration, properly, disclosed the involvement of its directors in the management of other businesses which had been VAT-registered and its doing so prompted a check, which was undertaken by Mr Pumfrey.  The other businesses, he learnt, had directors in common with Mediaport.  One, Mediaport Limited, had become insolvent owing the Commissioners over £60,000.  Another, Viewpoint Communciations, a partnership between two of Mediaport’s directors, was still trading but had an outstanding debt of over £30,000.  Mr Pumfrey concluded from that background, he told us, that Mediaport itself represented a risk to the Revenue and he decided to impose the requirement for security.  At that stage, the only information he had on which he might calculate an appropriate amount was the prediction of turnover contained in Mediaport’s application for registration, which it put at £2 million.  Mr Pumfrey calculated the output tax liability which would arise from sales of that magnitude (all of which would be standard-rated), made an allowance for deductible input tax, and determined that the appropriate sum was £47,000.
5.	The requirement was duly served on Mediaport and it led to a request for reconsideration. That reconsideration was undertaken by Mr Whitelegge.  Mediaport challenged the imposition of the requirement, contending that Mediaport Limited had unreasonably been forced into insolvency by its bankers, and maintaining that the new business was on a sounder footing.  It also contended that its annual turnover was projected to be only £600,000 rather than the £2 million set out in the application for registration.  Mr Whitelegge was not persuaded that there were grounds for withdrawing the notice, which he considered remained necessary, but he recalculated the amount, adopting the same approach as Mr Pumfrey, and reduced it to £19,600.  He wrote to Mediaport setting out his conclusions.
6.	Mediaport then submitted its first VAT return, and asked for a further reconsideration.  Mrs Morris dealt with this request.  A single return was, she felt, insufficient evidence on which she could rely as an indicator of future turnover.  Although the return in question was a repayment return, it suggested that Mediaport’s turnover would be greater than the £600,000 which Mr Whitelegge had assumed, but she decided there was no need to increase the amount, while there were also no grounds for withdrawing the requirement.  She wrote accordingly to Mediaport.
7.	Mediaport then requested a further reconsideration and on this occasion, Mr Whitelegge and Mrs Morris visited it in order to examine its records and make a fair estimate of its likely turnover.  They were still not persuaded by the request for reconsideration that the requirement for security was unnecessary – and no new grounds were put forward – but were willing to review the amount in the light of the true turnover for the business.  As it happened, the information which emerged again suggested that the true turnover was greater than the £600,00 on which Mr Whitelegge had based the reduced demand but Mrs Morris did not alter her decision not to increase it.  She so informed Mediaport, which asked for yet another reconsideration, maintaining that its apparent turnover had been distorted by two unusual orders which (we infer) it did not expect to be repeated.
8.	The matter was referred back to Mr Pumfrey.  There was, we are satisfied, no reliable further evidence available to Mr Pumfrey  about Mediaport’s turnover but by the time he came to reconsider the matter, it had been trading for several months and, as he was to discover, despite its assurances that its VAT liabilities would be met on time, it had rendered payment for two of its returns late and for the most recent had made no payment, and it had built up arrears of £8,445.38.  Mr Pumfrey concluded that the appropriate figure to be demanded was £18,445.38, being the outstanding arrears plus £10,000 as security for future liabilities, overall a modest reduction in the figure determined by Mr Whitelegge.  He issued a revised notice in those terms on 4 August 2005, and it is against that requirement which Mediaport now appeals.
9.	This tribunal has a limited jurisdiction in appeals of this kind.  We may allow the appeal only if we are satisfied that the Commissioners have reached an unreasonable conclusion, by taking account of the irrelevant, disregarding the relevant or misdirecting themselves about the law.  We cannot adjust the amount of the security but may merely allow or dismiss the appeal (although, if the amount of security demanded is unjustifiable, the demand itself is likely to be unreasonable).  Here we are satisfied not only that there are no grounds on which we could say that the decision was unreasonable, but that the decision was entirely reasonable.  We were, indeed, impressed by the lengths to which the officers had gone to ensure that the demand was not oppressive in amount, and to deal with Mediaport’s objections.  We agree with them that the imposition of a requirement for the giving of security was appropriate.  Mediaport’s compliance record since registration was, alone, sufficient to justify Mr Pumfrey’s decision.
10.	The appeal is, therefore, dismissed.

COLIN BISHOPP 
CHAIRMAN
Release Date: 26 January 2006
MAN/05/0684

££Mediaport Entertainment Ltd v Her Majesty's Revenue and Customs [2005] UKVAT V19437 (26 January 2006)