Ice Technology Ltd v Revenue and Customs [2006] UKVAT V19494 (09 March 2006)

19494

VAT – Notice of requirement to give security – Whether decision reasonable – Value Added Tax Act 1994 Sch 11  para 4(2) – Appeal dismissed

LONDON TRIBUNAL CENTRE

	ICE TECHNOLOGY LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	DR KAMEEL KHAN (Chairman)
						M M HOSSAIN FCA, FCIB

Sitting in public in London on 13 February 2006

Mr R Hughes, Director, for the Appellant 

Mr S Chambers, Advocate, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	Ice Technology Limited (“the Appellant”) appeals against a Notice of Requirement to give security under paragraph 4(2) of Schedule 11, Value Added Tax Act 1994.  The Notice of Requirement dated 25 April 2005 requires the Appellant to give security, in the sum of £5,750 for the payment of value added tax which is or may become due or alternatively £3,850 if monthly VAT returns were to be rendered.

2.	The Background Facts

1.	The Appellant was incorporated on 27 September 2004 and registered for value added tax with effect from 19 January 2005.  The main business of the company is the supply of disabled equipment, vacuum moulding and injection moulding.

2.	The Appellant trades from Unit 5a, Modern Moulds Business Centre, Commerce Way, Lancing, Sussex BN15 8TA.

3.	Mr Hughes, a director and shareholder, is in charge of sales and product development. There are two other directors, who are also shareholders, Martin Paine and T H  Hakewill, who acts as the Company Secretary. The Company’s main customers are the fast food restaurant chain, MacDonalds.  The Company has factored its trading receipts and receives 70% of invoice value. It  has a turnover of approximately £185,000 per annum

4.	HMRC are concerned about the role of Martin Paine who is a director of the associated company, Techvac Plastics Limited (“Techvac”), which trades from the same address and provides contract production work to the Appellant.  Techvac has a poor compliance record and has an unpaid VAT bill of over £12,000. Mr Paine, as a director of the Appellant signed the VAT 1 (Application for Registration) and some VAT returns. Mr Hughes accepts that Mr Paine had power and authority to sign those documents on behalf of the Appellant. The Certificate of Service of the Notice of Requirement to give security was also signed by Martin Paine.

5.	The amount of security required was calculated by HMRC using information provided by the Appellant in their VAT 1 form. The taxable turnover was stated to be £250,000 and the “Tax Performance Ratio” for the Appellant’s trade classification is 0.45. The calculations for the security amount were done in accordance with HMRC standard calculations. The Tribunal requested an explanation of the calculation which was provided by HMRC by separate letter with a copy sent to the Appellant. HMRC’s witness, Mrs S Ogburn, provided evidence at the hearing of how the calculations were done and details of the service of the Notice of Requirement.

Arguments for the Appellant

4.	Mr Hughes, for the Appellant, made the following points in his submissions:

1.	Mr Paine is no longer a director of the Company and his shareholding is soon to be purchased by the Company.

2.	All VAT returns would now be prepared by the Company’s accountants and signed off by Mr Hughes.

3.	The company has had a difficult trading year and members of staff 	were concentrating on product development rather than company 	administration.

4.	Mr Paine was a signatory to the Company’s cheque but this is no longer the position.

5.	A requirement for security would place an undue financial hardship on the Company.

Arguments for HMRC

5.	Mr Chambers for HMRC presented the following arguments for the Respondents:

1.	Mr Paine is a Director of the Appellant and the associated company Techvac, which has a poor history of compliance and of not paying monies due.

2.	The debt owing to the Crown for unpaid VAT by the associated company  is £12,517.66.

3.	The compliance record of the associated company has been poor since its registration.  The first return (a repayment return) was submitted late and the return for 04/03 was not received until 05/04.  The returns for periods 10/03, 01/04 and 04/04 were not submitted until 1 October 2004.  No returns have been submitted since, which has resulted in assessments being raised for the periods  07/04, 10/04 and 01/06.

4.	Mr Paine works at the same address, has the same phone number, power to sign Appellant’s documents including cheques, VAT returns, registration forms and exercises influence over the running of the Appellant.

Conclusion

6.	The Tribunal’s jurisdiction in this type of appeal is limited. We may allow the appeal only if satisfied that, at the time the requirement was imposed, the Commissioners could not reasonably have decided to impose it. We cannot allow this appeal merely because we might have come to a different conclusion. We cannot take into account matters arising after the requirement was imposed. The requirement was based on HMRC’s perceptions that the involvement of Mr Paine with the Appellant might lead to value added tax being unpaid and returns not being filed given previous poor compliance record. It did not matter that Mr Paine has now resigned as a director and agreed to sell his shareholding in the Appellant. The calculation of the amount of security was done in accordance with HMRC’s usual practice and the relevant legislation. Some factors which are considered include the tax declared on VAT returns from the current business, tax declared on VAT return from a previous business, tax declared on VAT returns from businesses of a similar size with similar customers and in the same trade or taxable turnover declared on the VAT 1 form.  If quarterly returns are made the amount of security based on VAT for six months is used.

7.	In the circumstances, we see no reason to call into question the Notice of Requirement to give security. HMRC acted in a reasonable manner and took into account all relevant factors in making their decision.  They did not consider any mattes which were irrelevant or disregard matters which should have been given weight in making their decision (see Neill LJ in Jack Dee Ltd v Customs and Excise Commissioners [1995] STC 941 at 952).  The decision was both reasonable and correct.

8.	The Appellant was made aware of the fact that the security, which can be a bank guarantee, would not be held for longer than the Company is considered a risk to the collection of VAT.  A copy of HMRC’s Notice 700/52 (June 2005) entitled Notice of Requirement to give Security to Customs and Excise, was made available to the Appellant.

9.	Accordingly, we must dismiss this appeal.

DR KAMEEL KHAN
CHAIRMAN

RELEASED: 9 March 2006

LON/05/775