19526
SECURITY – requirement for – whether requisite for the protection of the revenue – VATA 1994 Sch 11 para 4(2) –  appeal dismissed 

LONDON TRIBUNAL CENTRE

	JOHN MAX ATKINSON
	(T/A Betchworth international heavy transport)
		Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S 
	REVENUE AND CUSTOMS	
			Respondents

				Tribunal:	Malcolm Gammie C.B.E. Q.C. (Chairman)
						Mrs Catherine Farquharson

Sitting in public in London on 3rd March 2006

The Appellant appeared in person

Jacky Mortlock of the Solicitor’s Office of Her Majesty’s Revenue and Customs, for the Commissioners

© CROWN COPYRIGHT 2006

DECISION

1.	Mr John Max Atkinson (the “Appellant”) is a sole proprietor carrying on the business of freight transport by road under the name of Betchworth International Heavy Transport. He appeals against a decision of the Commissioners of Revenue and Customs contained in a letter dated 8th August 2005 requiring the Appellant to give security of £45,467.52 for the payment of any tax due from the Appellant.

2.	The decision to require security was given under the provisions of paragraph 4(2) of Schedule 11 of the Value Added Tax Act 1994 (the 1994 Act) which provides:

“ where it appears to the Commissioners requisite to do so for the protection of the revenue they may require a taxable person, as a condition of his supplying goods or services under a taxable supply, to give security, or further security, of such amount and in such manner as they may determine, for the payment of any VAT which is or may become due from him.”

3.	The Appellant appealed against that decision on the basis that the amount owed to the Commissioners stemmed mainly from the defalcations of a joint venture partner and his inability to recover judgment against him for £30,000.  In his grounds of appeal (dated 30th August 2005) the Appellant said that he intended to clear the debt within the next two or three weeks by refinancing one of his trailers. Finally, the Appellant stated that he had secured a two year contract that would mean that around 50 per cent of his sales would be zero-rated, with the result that the amount of security demanded was unreasonable.

4.	The Appellant did not clear the debt as he had intended and by a letter dated 15th December 2005, the Commissioners notified him that while they were still of the opinion that security was required, the amount of security considered necessary would be reduced to £34,985.33.  The Appellant was told that he should either put in a fresh notice of appeal or indicate to the Tribunal that he wished to amend his present appeal to appeal against the maintenance of the security.  The Appellant has taken neither course.

5.	At the hearing the Appellant gave oral evidence.  Oral evidence was given on behalf of the Commissioners by Mrs Linda Andrews, an Officer of Her Majesty’s Revenue and Customs based at the Southern Region Security Team. Mrs Andrews had signed the notice of 8th August 2005 and authorised the issue of the revised notice of 15th December 2005.  A bundle of documents was produced on behalf of the Commissioners.

6.	Mrs Andrews took us through the Appellant’s compliance record since 1991, drawing our attention to those aspects of it that she had particularly taken into account in reaching her decision to require security.  For a number of periods since 1991 the Appellant has been late in delivering his VAT returns and in paying tax.  While this was not always the case, the summary produced by Mrs Andrews (which the Appellant did not contest) showed that the number of periods for which returns and payment had been late was significant, with payments in some cases being more than a year late.  

7.	The Appellant had been required to render monthly returns since 1997.  He had defaulted on one time-to-pay agreement in 2003. He had had two further time-to-pay agreements refused due to missing returns and one refused due to the proposed time span of the agreement being excessive.  At the time of Mrs Andrew’s decision to require security some £35,328.68 tax, default surcharge and interest remained outstanding.

8.	In a letter of 17th July 2005, the Appellant explained his financial difficulties to the Commissioners and in evidence he elaborated on this.  One reason for his difficulties stems from an on-going property transaction with one of his brothers for which he has had to borrow heavily, more recently at unfavourable rates of interest.  A second reason arises from a business association that he entered into with a third party that resulted in defalcations by the third party of some £76,000.  The Appellant suggested that the third party had made unauthorised use of his VAT number in entering into transactions in respect of which he had not accounted to the Appellant for the sums involved.  The Appellant had pursued the third party for a share of the profits arising from the third party’s transactions and had obtained judgment for £30,000 but he had as yet been unable to recover this sum.

9.	Mrs Andrews said that she had considered the Appellant’s letter but the reasons for his difficulties were not such to affect her decision based on his compliance record.  The property development was a separate business venture.  While she had taken account of the court case it had been the Appellant’s decision to allow another person into a position of running the business (or some part of it). The conduct of the business nevertheless remained the Appellant’s responsibility.  As it was, even if the defalcations amounted to £76,000, only £11,000 of this would have related to VAT in contrast to the outstanding amount of £35,000.  Mrs Andrews considered that in reality the Appellant was continually finding reasons to address his other financial difficulties without ever giving proper consideration to discharging his debt for tax that had been collected through his business and to meeting his on-going compliance obligations.

10.	Mrs Andrews explained how the amount that was required as security had been calculated in August 2005.  In effect the sum had included the outstanding debt plus 4 months’ tax based on the 12 monthly periods from June 2004 to May 2005.  The outstanding debt had, however, included an amount of default surcharge and in December 2005 the figures were revisited to exclude this.  Mrs Andrews had reviewed the position in December 2005 to consider whether the Commissioners should still require security. She had concluded that they should and that the revised amount being sought (in effect the outstanding VAT debt plus 4 months’ tax based on the 12 monthly periods from November 2004 to October 2005) was fair.  In this respect Mrs Andrews had noted that the Appellant had not fulfilled his intention to clear the debt in full within three weeks of 30th August 2005.

11.	The Appellant explained that at the time he had hoped to discharge the debt by refinancing one of his trailers. This had not materialised but he expected that another opportunity to do so would arise shortly.  In the meantime, as he had informed the Commissioners on 30th August 2005 and mentioned in his grounds of appeal, he had secured a new contract with a German company that would involve mainly zero-rated supplies and would absorb between 50 and 80 per cent of the Appellant’s capacity.  He anticipated that this would significantly reduce the monthly amount of tax for which he would have to account.  This was borne out by the Commissioners’ revised calculation in December 2005 where the amount shown as the monthly net tax due was consistently lower between 07/05 and 10/05 than it had been in the corresponding months of 2004.  To that extent it was reflected in the reduced amount of security required.

12.	Our jurisdiction in this matter is limited to considering whether the decisions to issue the Notices of Requirement to give Security of 8th August 2005 and, subsequently, 15th December 2005 were reasonable and necessary for the protection of the revenue.  In arriving at our decision we must ask ourselves whether the Commissioners have acted in a way which no reasonable body of Commissioners could have acted, whether they have taken something into account some irrelevant matter, whether they have disregarded something to which they should have given weight and whether they have erred on a point of law (John Dee Ltd v Customs and Excise Commissioners [1995] STC 265).  In this respect, we have to consider matters as they stood when the Commissioners made their decision and not review matters in the light of subsequent developments (Customs and Excise Commissioners v Peachtree Enterprises Ltd [1994] STC 747).

13.	Given the Appellant’s compliance record over a number of years it seems to us that the Commissioners’ decision in this case was entirely reasonable.  Whatever sympathy we may have for the Appellant given the defalcations he has suffered at the hands of another and his inability to recover the amount due under a judgment in his favour, the fact remains that the Appellant has persistently failed to account properly for VAT and his stated intention to clear the outstanding sum due has never been fulfilled.  

14.	The Appellant told us that he has been in business since 1968 and over the life of the business he has provided employment for a significant number of people.  He quite candidly accepted that matters had got out of hand in recent years and accepted responsibility for that.  He said however that he could see no purpose in the Commissioners adopting a course that could well put him out of business.  If he were in a position now to discharge the tax debt he would do so.

15.	While we heard the Appellant on these matters, it is not our role to substitute our decision for that of the Commissioners, even if we would be inclined to do so.  The original amount required in August 2005 as security exceeded what is normally sought by including an amount of default surcharge but that was corrected in December 2005.  As we have noted, the Commissioners’ decision to require security appears entirely reasonable and we accordingly dismiss this appeal.  The Commissioners did not seek costs and we therefore make no direction as to costs.

MALCOLM GAMMIE QC
CHAIRMAN
RELEASED: 6 April 2006

LON/05/0917