Space Solutions Ltd v  Revenue & Customs [2006] UKVAT V19569 (05 May 2006)
19569
SECURITY — Involvement of a Director in other companies which had had substantial VAT liabilities — requirement of Customs reasonable — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

SPACE SOLUTIONS LIMITED	Appellant

- and -

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal:	Ian Vellins (Chairman)
Peter Whitehead

Sitting in public in Manchester on 15 November 2005 and 22 March 2006	

Mr Hafiz Noorullah	for the Appellant 

Mr J Shields, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2006

DECISION

1.	In this appeal the appellant is Space Solutions Retail Ltd.  The appellant appeals against a notice of requirement to give security under Schedule 11 para.4(2)(a) of the Value Added Tax Act 1994 issued by Customs by letter on 13 May 2004.  The security required from the appellant was £18,700 if quarterly vat returns were to be made or £12,500 if monthly vat returns were made.  The decision to require security had been made by an officer of Customs, Mrs Stanley.  These figures were confirmed on a reconsideration by Mr Price, another office of Customs.  He confirmed that the decision was based on the links between the appellant and other companies which had de-registered and had owed large sums of debts to Customs.
2.	This appeal had previously been dismissed by a Tribunal in the absence of any attendance on behalf of the appellant, but the appellant had successfully applied for his appeal to be re-instated, and we have approached the hearing of the appeal de novo.
3.	This appeal was heard by us at Manchester over 2 days on 15 November 2005 and 22 March 2006.  The appellant was represented by its director, Mr Hafiz Noorullah (Mr Ullah), and the respondents were represented by Mr J Shields of Counsel.
4.	The Statement of Case of the respondents sets out that the appellant carries on the business of manufacturing retail wooden stalls for retail merchandising units from an address in Huddersfield and is registered for VAT with effect from 1 December 2003.  The respondents required security because Mr Ullah, a director of the appellant, had been previously involved in other companies which had been registered for VAT and which had subsequently been de-registered owing large sums of money.  Victoria Trading and Distribution Ltd was a company of which Mr Ullah was company secretary and its VAT liability had been £80,637.55.  Another company, Ayslesmead Business Services Limited, had a VAT liability of £44,343.50.  I t had traded from the same premises as the appellant.  It had been de-registered from VAT with effect from 26 January 2004.  It had appeared to Customs that for the protection of the Revenue it was necessary to require the appellant as a condition of its supplying goods or services to give security in the amount previously stated.
5.	The appellant submitted a notice of appeal dated 18 June 2004 to the Tribunal signed by Mr Ullah.  In his grounds of appeal Mr Ullah stated that he was merely the company secretary of Victoria Trading and Distribution International Ltd, and he claimed that  that company had been hijacked and used to make supplies of goods incurring a vat liability that did not lie with Mr Ullah or Victoria.  He further claimed that the company Ayslesmead  Business Services Ltd had been sold by him to a Mr Robert Wilmott (also known as Wilmouth) on 4 October 2003 by way of a legal transaction with the control of that company being transferred to Mr Wilmott in its entirety.
6.	In his grounds of appeal Mr Ullah claimed that he had notified Customs of the hijacking of Victoria and of his sale of Ayslesmead to Mr Wilmott.  Mr Ullah claimed that Customs had created a spurious link between himself and conduct of the 2 companies, over which he had had no legal control.  He stated that the appellant had been registered for VAT for a number of months and had complied with all regulations and did not have any outstanding debts.  He claimed that the request for the security deposit was unreasonable and the paying of the security would put the appellant out of business because he was not in a position to pay the security and would have to liquidate the appellant company.  At the hearings of this appeal Mr Ullah attended to give evidence as did his cousin Mr Mohd Zafar, on behalf of the appellant.  Four officers of Customs attended to give evidence on behalf of Customs, namely Mr Paul Staniforth, Mrs Sylvia Jones, Mrs Helen Stanley and Mr Martin Mummery.  
7.	Reference was also make during the hearings of this appeal to two other limited companies of which Mr Ullah had been an officer, namely IT Project Contract Ltd and Aylesmead Business Services Ltd.  
8.	At the time when Mrs Stanley made her decision to require security from the appellant Mrs Stanley had information from other officers of Customs, three of whom also attended to give evidence at the hearings.
9.	Mrs Sylvia Jones had corresponded with Mr Ullah and had seen him in connection with the company Victoria Trading and Distribution International Ltd (Victoria).  Mr Ullah had told Mrs Jones that Mr Ullah had been a pharmacist but had been struck off in 1997.  Mrs Jones noted that Victoria had claimed input tax against documents purporting to be invoices from two companies that had been de-registered from VAT prior to the dates of transactions.  Mr Ullah was unable to satisfy her that the purchase details were genuine.  Mr Ullah told Mrs Jones that Mr Ullah was responsible for the day to day running of the business.  Mr Ullah failed to provide Mrs Jones with satisfactory documentation.  She concluded that there was insufficient evidence to support the alleged taxable supplies having been received from the companies claimed or necessarily having been made by Victoria to the alleged customers.  A number of the alleged transactions consisted of the purchase of goods from UK suppliers that were not currently registered for VAT and the onward despatch of goods to customers in the EU.  Victoria had sought to claim input tax on the purchase and to zero-rate the sale.  Another transaction related to prawns.  Mrs Jones later contacted Mr Ullah with regard to the VAT return for another period ended 30 December 2002.  This was another repayment claim.  He told Mrs Jones that he had bought an expensive BMW car.  Mrs Jones explained that no-one can reclaim the VAT on the purchase of a motor car unless it was wholly for business use.  He told her that the car was being leased to another company but could not produce any lease or insurance documents.  He failed to provide her with written confirmation of the terms of the agreement from the alleged lessor.  Mrs Jones had disallowed his claims to input tax in respect of Victoria.
10.	An officer of Customs Mr Paul David Staniforth  (Mr Staniforth) became responsible for checking the VAT returns of Victoria, a business involved in the wholesale of mobile phones trading from premises in Huddersfield.  Mr Staniforth visited the premises on 8 July 2003 to obtain records and to establish whether the business was still trading as mail was being returned from the address.  There was no-one present at that address and no evidence to suggest trading was taking place.  Mr Staniforth requested on 8 July 2003 that Victoria be removed from the Register with effect from 30 June 2003 in order to protect the revenue.  Mr Ullah then contacted Mr Staniforth by phone after Mr Ullah had tried to conduct a few more deals and found that the company was de-registered.  Mr Staniforth explained to Mr Ullah why the company had been de-registered.  Mr Ullah was not happy and claimed that he believed someone was using his VAT number and wished to have it reinstated.  Mr Staniforth requested Mr Ullah to attend at his office to produce records, but on two dates when meetings were arranged Mr Ullah failed to attend.  Victoria remained de-registered.  Later on 24 October 2003 Mr Ullah produced the business records of Victoria to Mr Staniforth and Mr Staniforth concluded that Mr Ullah had not conducted any wholesale mobile phone transactions through Victoria and that the VAT identity of Victoria had been hijacked in respect of mobile phone transactions.  
11.	The assessments made by Mrs Jones against Victoria had however not been in relation to any mobile phone business, and Mrs Jones assessments against Victoria for VAT had been in respect of periods prior to the VAT identity of Victoria having been hijacked.  The VAT liability of Victoria to Customs during its period of registration from 7 September 2001 to 1 July 2003 was £80,637.55.  Mr Ullah had been the company secretary of Victoria.
12.	Mr Staniforth had also interviewed Mr Ullah with regard to another company Ayslesmead Business Services Ltd (Ayslesmead).  Mr Ullah was a director of Ayslesmead.  When Mr Staniforth discussed Ayslesmead with Mr Ullah on 24 October 2003 Mr Ullah told Mr Staniforth that Ayslesmead was to move into mobile phone accessories and Mr Ullah stated that two more companies had been established by him to sell the accessories.  Over the next 2 months Mr Staniforth received information that Ayslesmead was making supplies but payments were being made to third parties and Ayslesmead was not collecting enough from its customers to meet VAT liabilities.  VAT returns were not submitted by Ayslesmead.  An assessment was issued on 16 January 2004 against Ayslesmead  for £442,058 based on information extracted from the records of other traders.  Ayslesmead was de-registered by Customs on 26 January 2004 in order to protect the revenue.  
13.	During Mr Staniforth’s visit on 24 October Mr Ullah claimed he was still a director of Ayslesmead.  However on a further visit by Mr Staniforth on 17 February 2004 Mr Ullah claimed to Mr Staniforth that Mr Ullah had sold the business of Ayslesmead on 28-29 September 2003 to a Mr Wilmoutt almost a month prior to Mr Staniforth’s interview when Mr Ullah claimed still to be a director of that company.  Mr Ullah claimed to Mr Staniforth that he had been paid by Mr Wilmoutt £55,000 in cash.  Mr Staniforth asked for evidence of the sale but nothing was produced by Mr Ullah.  Mr Ullah also told Mr Staniforth that Mr Ullah was still conducting the day to day business as Mr Wilmoutt was rarely at the address, and he claimed that Ayslesmead ceased to trade at its address from 1 January 2004 and Mr Ullah did not know where the records were.  
14.	The VAT liability of  Ayslesmead was £444,343.50.
15.	Mr Ullah had also been the company secretary of IT Project Contract Ltd which had an address in Huddersfield.  Mr Martin David Mummery (Mr Mummery), an officer of Customs, attended the address of that company (IT) to establish if the business was operating.  No-one was there.  He left a letter dated 30 April 2003 asking that IT contact him within 7 days, otherwise he would remove IT from the VAT register.  When no contact was made by IT Mr Mummery notified the de-registration section of Customs to take action to cancel the registration of IT with effect from 30 April 2003.  On 27 May 2003, as a result of a conversation between Mr Mummery and Mr Ullah on the telephone, Mr Ullah told Mr Mummery that Mr Ullah would register IT again.  
16.	On 9 January 2004 Mr Mummery went to an address in Huddersfield with Mrs Stanley to see Mr Ullah about Ayslesmead.  At those premises was Zafar Mohammed, a cousin of Mr Ullah.  Zafar Mohammed told Mr Mummery that the business that was there was Clickon Mobile Retail Ltd and that he was helping out whilst Mr Ullah was in hospital.  He said the business sold retail mobile phone accessories from carts or kiosks in shopping centres.  He also said that Mr Ullah had asked him to send a couple of faxes to do with buying and selling mobile phones.  Whilst Mr Mummery was at the premises a fax was received at the premises on the fax machine from T Mobile Ltd to Ayslesmead for 2,000 Nokia mobile phones.  
17.	Records later obtained by Customs from Companies House revealed that Mr Ullah was appointed as company secretary of Victoria on 13 March 2001.  He was appointed as secretary of IT on 13 March 2001.  He was appointed as a director of Ayslesmead on 21 February 2003 and resigned on 27 October 2003 as a director when Mr Wilmoutt was appointed director.  He was appointed as a director of the appellant on 1 October 2003.
18.	Mrs Starkey gave evidence at the hearings that she had given notice to the appellant of the requirement to give security for VAT because she considered that there was a risk to the Revenue because of  Mr Ullah’s involvement with previous companies that became insolvent owing large debts to Customs, namely Victoria and Ayslesmead.  She had also understood that Mr Ullah had had an involvement with Aylesmead Ltd and IT.  The debts owing by Victoria to Customs had been over £80,000 and by Ayslesmead over £444,000.  She had taken into account Mr Ullah’s claims that he was only the company secretary of Victoria, but she considered that as company secretary he had responsibilities in respect of Victoria as the person responsible for company matters.  
19.	Mr Staniforth’s report had been that an assessment had been issued on 16 January 2004 against Ayslesmead for £442,050.50.  Since that assessment was issued further information was received by Customs for the dates 15 October 2003 to 29 November 2003 which showed Ayslesmead’s suppliers and the amount of VAT undeclared was over £4,000,000.   The evidence to the Tribunal of Mr Staniforth was that Mr Ullah had told Mr Staniforth that the sale of Ayslesmead to Mr Wilmoutt had been on 28-29 September, but elsewhere, including in the grounds of appeal., Mr Ullah had referred to the date of sale as 4 October.  No documentation regarding that alleged sale had ever been submitted to Customs.  
20.	Mrs Starkey, when she made her decision to require security from the appellant had believed that Mr Ullah had been a continuing director during the assessment period.  However, in her evidence she confirmed that had she known that Mr Ullah had ceased to be a director of Ayslesmead at an earlier date, this would not have made her vary her decision.  The evidence of Mr Staniforth was that during the period of Mr Ullah’s claimed directorship, if accepted for the lesser period of time, the VAT liability of Ayslesmead would still have been approximately £1,500,000 instead of over £4,000,000.   She gave clear evidence at the hearing of the appeal that had she been aware of the claims by Mr Ullah to have been a director of Ayslesmead for the lesser period of time, her decision would have been the same, and she further gave evidence that had she had been aware of all of Mr Ullah’s claims in this appeal, her decision would still have been the same. 
21.	At the hearing of the appeal Mr Ullah gave detailed evidence about a number of matters.   He said that he had sold Ayslesmead to Mr Wilmoutt on 4 October 2003 but was not paid by Mr Wilmoutt until January 2004.  Mr Ullah said that he was very ill in hospital for a period of some 8 weeks from about 12 December 2003.  He had had  various meetings with officers of Customs concerning the various companies.  He confirmed that he did not have any documentation relating to his sale of Ayslesmead to Mr Wilmoutt.  He said that the transaction was in cash.  He submitted that if Mrs Starkey had made herself aware of all his contentions which he had made to officers of Customs, such as Mr Staniforth, Mrs Starkey’s decision may not have been inevitably the same.  
22.	With regard to Victoria,  Mr Ullah claimed that he was only the company secretary of Victoria and that towards the end of the business conducted by Victoria a Mrs Hafiza Antoniades became a director of the company and it was she who arranged some of the deals of the company including the purchase of the car, although Mr Ullah remained the signatory for cheques of Victoria.  Mr Ullah was questioned in detail about the transactions undertaken through Victoria.  We found his answers to be vague and evasive and we did not believe his evidence that transactions involving Victoria were later instructed by Mrs Antoniades.  We concluded that throughout the business of Victoria, the business was run by Mr Ullah.
23.	Mr Ullah gave detailed evidence concerning his involvement with the various companies.  We were satisfied that he had been the company secretary of Victoria, a company which had a VAT liability debt to Customs of £80,637.55.  We were further satisfied that Mr Ullah had been a director of Ayslesmead Business Services Ltd until he resigned which had a VAT liability to Customs of £444,343.50.  We are satisfied that there had been large outstanding assessments for VAT against Ayslesmead, even for the period before Mr Ullah had claimed that he had sold the business to Mr Wilmoutt.
24.	Evidence was given at the hearing of the appeal by the appellant’s cousin, Mr Mohd Zafar, who had worked for Mr Ullah.  Mr Zafar had not known initially which company was employing Mr Zafar but he later was told by Mr Ullah that it was Ayslesmead.  He helped Mr Ullah set up the kiosks in shopping centres in Scotland and elsewhere, which were to sell mobile phone accessories.  The only mobile phones that Mr Zafar had purchased for his employers were a small number from Carphone Warehouse.  He had been present at the premises in Huddersfield when officers of Customs had been present and there had been a fax on the fax machine from Nokia for mobile phones.  Mr Ullah had been in hospital on that occasion.  The witness had been working for Mr Ullah through Clickon when Customs had called.  
25.	We have considered all the evidence in this appeal and the Law involved.  
26.	Schedule 11 para.4(2) of the VAT Act 1994 provides that where it appears to Customs 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.  
27.	The cases of Mr Wishmore Ltd v Commissioners of Customs and Excise [1988] STC 273 and John Dee Ltd v Commissioners of Customs and Excise [1995] STC 941 have confirmed that the jurisdiction of the Tribunal in an appeal is appellate and not supervisory and that the Tribunal must examine whether Customs had rightly exercised their power  to require security.  The Tribunal must consider whether Customs have acted in a way in which no reasonable panel of Commissioners could have acted, whether they have taken into account some irrelevant matter or have disregarded something to which they should have given weight.  It is not for the Tribunal to exercise a fresh discretion as the protection of the Revenue is not the responsibility of any Court or Tribunal.  In Commissioners of Customs and Excise v Peachtree Enterprises Ltd [1994] STC 747 Dyson J held that the Tribunal should not have regard to facts and matters arising after the date of the decision of Customs to require security.  
28.	In deciding this appeal we have applied the tests set out in the judgment in the case of John Dee Ltd, namely had Customs acted in a way in which no reasonable panel of Commissioners could have acted, had they taken into account some irrelevant matter, and had they disregarded something to which they should have given weight.
29.	We find that the officer of Customs, Mrs Starkey, had made full and proper enquiries before reaching her decision.  She had the information from the other officers of Customs, namely Mr Staniforth, Mrs Jones, and Mr Mummery.  She was aware that Mr Ullah, a director of the appellant, had had involvement with various companies.  She was aware that he had been the company secretary of Victoria, which had had owed a Vat liability of over £80,000.  She was also aware that he had been a director of Ayslesmead, which had had a VAT liability of over £444,000.  
30.	We find that Mrs Starkey had based her decision on Mr Ullah being a continuing director throughout its period of assessment.  Mr Ullah, however, claimed that he had ceased to be a director when the company was sold on 4 October.  Mrs Starkey, however, confirmed that had she known that Mr Ullah had ceased to be a director at such earlier date, this would not have made her vary her decision.  Mr Staniforth had calculated that even if Mr Ullah had been a director for the lesser period claimed by him, the VAT liability of Ayslesmead would still have been substantial.  We are satisfied that even if Mrs Starkey had taken into account that Mr Ullah had claimed to have sold the business of Ayslesmead on 4 October, her decision to require security in respect of the appellant would have been the same.  We find that her decision inevitably would have been the same.
31.	We find that Customs were entitled to take the view that there was a considerable risk to the Revenue that the appellant company would not pay its VAT.
32.	We find that Customs acted reasonably and took into account all relevant material.  We find that they did not act in a way in which no reasonable panel of Commissioners could have acted, and we find that they did not take into account irrelevant matters or disregard something to which they should have given weight.  We find that they made no error of Law.
33.	We find that the decision of Customs was inevitable, bearing in mind the background.  
34.	No argument was advanced on the quantum of security and it does not appear to us that the way in which Customs established the quantum of the requirement or the amount of it should be interfered with by us.
35.	At the hearing Mr Shields, on behalf of Customs, indicated that he wished to reserve the right of Customs to apply for an order for costs if Customs succeeded in this appeal.  Accordingly we reserve the question as to whether costs should be awarded in favour of Customs against the appellant.
36.	We dismiss the appeal.
37.	In conclusion, we confirm that we are satisfied that the decision taken by Customs was reasonable.  Customs have established that there was a clear connection between the director of the appellant, namely Mr Ullah, and his roles in other companies, two of which owed substantial amounts to the Revenue.  
38.	The appeal is dismissed.  As to costs, Customs shall be at liberty to bring the issue of costs before a Chairman sitting alone.

IAN VELLINS
CHAIRMAN
Release Date: 5 May 2006
MAN/04/340