19592

SECURITY NOTICE – Reasonableness – Long record of late payments of tax – Whether reasonable to decide that protection of the revenue demanded security – Yes – Appeal dismissed  

LONDON TRIBUNAL CENTRE

	LEWIS BALL & COMPANY LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	STEPHEN OLIVER QC (Chairman)
						TONY RING CTA (Fellow)

Sitting in public in London on 16 May 2006

Lewis Ball, director, for the Appellant 

Jonathan Holl for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	Lewis Ball & Co Ltd appeal against a decision of the Commissioners of Customs and Excise (“the Customs”) contained in a letter dated 11 August 2005.  This is a Notice of Requirement to give Security under Schedule 11 paragraph 4(2) of the Value Added Tax Act 1994.

2.	The Notice of Requirement requires Lewis Ball & Co Ltd to give security in the sum of £15,500 if quarterly returns are to be rendered or the sum of £10,350 if monthly returns are to be rendered.  

Summary of the grounds for the decision to issue the Notice

3.	Lewis Ball & Co Ltd carries on business as a firm of chartered accountants from premises in Christchurch in Dorset.  Mr Lewis Ball is the director of the business and, for the purposes of this Decision, we refer to the both the business and the director as “Lewis Ball”.  

4.	It is not in dispute that the VAT compliance record of Lewis Ball has been deficient for a considerable period of time and that Lewis Ball has been in the debt management regime for some years. The Customs regarded Lewis Ball as constituting a continuous risk to the revenue.  Since the period ending 31 December 1987, Lewis Ball (initially a sole trader and subsequently the Appellant, i.e. Lewis Ball & Co Ltd) incurred default surcharges for 30 periods.  Between 1994 and 2003 Lewis Ball paid VAT via the annual accounting scheme and consequently incurred only one default per year.  At the time of the decision to issue the Notice of Requirement, Lewis Ball had an outstanding tax balance due to the Customs of £7,904.  

Lewis Ball’s Notice of Appeal

5.	Lewis Ball’s grounds of appeal are that the requirement for security is unnecessary and that all returns and liabilities have been paid.  Further, by having to provide security, Lewis Ball would suffer financial hardship as its bankers had refused to extend its overdraft or provide a guarantee.  

These proceedings

6.	As we understand the position Lewis Ball is not challenging the primary facts upon which the decision to issue the Notice of Requirement were based.  Lewis Ball is saying that the Notice was unnecessary and unreasonable in all the circumstances.  

7.	When the appeal was called on for hearing on 16 May 2006 there was no one present at the Tribunal to represent Lewis Ball. Mr Lewis Ball, the director, had notified the Tribunal the previous day that he had understood that the hearing was to be postponed following an application by the Customs of 13 March 2006. The Tribunal’s response to the Customs’ application had been that a postponement would be granted if alternative agreed dates could be provided.  No alternative dates having been provided, the hearing was left in the list.

8.	We decided to go ahead.  Mr Ball told us that he was willing to proceed with a hearing over the telephone; this seemed to us to be an acceptable course having regard to the points that there were to be no challenges to the primary facts and that our decision would depend upon inferences to be drawn from those facts.  The entire hearing was therefore conducted over the telephone to Mr Ball by the following stages: 

(i)	Mr Jonathan Holl for Customs and Excise, who was present at the 	hearing, gave a brief introduction setting out the Customs’ grounds for 	seeking security.  

(ii)	Mr Lewis Ball opened his case with an explanation of his position.  	This was based on his own observations and did not introduce any new 	evidence.

(iii)	The case for the Customs was then presented through the oral evidence 	of Mrs L Andrews, a manager with HMRC whose responsibility has 	included reviewing the circumstances of the present Notice; she was 	present at the hearing.  

(iv)	Mr Ball cross-examined Mrs Andrews.  

(v)	Mr Holl made some submissions summarizing the case for the 	Customs.

(vi)	Mr Ball made submissions in reply.

The hearing then terminated and the Tribunal withdrew to consider the decision which we now release in writing.

The facts

9.	Following registration from 1 October 1977 Lewis Ball’s business (as a sole proprietor) had been transferred as a going concern to Lewis Ball & Co Ltd.  Lewis Ball is, as already noted, the director.  

10.	A record of compliance and statement of account was produced in evidence.  This shows that since the period ending 31 December 1987 Lewis Ball had incurred thirty periods of default surcharge ranging from two to 234 days late.  We note that between 1994 and 2003 Lewis Ball paid its VAT liability via the annual accounting scheme and therefore incurred only one default per year.

11.	We note that, at the date of the Notice of Requirement, the amount owing to Customs was £7,904.  In the course of Lewis Ball’s dealings with Customs, Lewis Ball has been granted time to pay, Lewis Ball has been subject to recovery actions on at least four occasions and three have involved bailiffs’ actions.  

12.	Since at least 1996 Lewis Ball has been on “cash accounting”.  

The case for Lewis Ball

13.	Lewis Ball did not dispute the record of defaults but he emphasized that the Customs had not suffered an overall loss of revenue as regards Lewis Ball’s accountability for VAT.  Lewis Ball went on to state that the company was now up to date with its returns.  For those reasons alone, it was argued, Lewis Ball could not be regarded as a risk to the Revenue. What was more, Lewis Ball as chartered accountants would face exclusion from their professional body if they were to cause loss of tax to the Customs; that should be enough of a sanction. The added disadvantage of having to provide security would do nothing to add to the protection of the Revenue, especially as Lewis Ball’s bank were not prepared to extend credit or provide security. 

14.	Finally we were referred to a passage in a letter from the Customs dated 10 November 2005 which contains the following words:

“It is the responsibility of all businesses to adhere to the current legislation and to act in a responsible way with regard to it.  Businesses such as accountants, solicitors and the like are classed as “professional” by this department and are expected to maintain full adherence to the law.”

There was, Mr Ball observed, no justification whatever for distinguishing between professionals and other traders.  None of Lewis Ball’s clients had ever been asked to provide security.  It was unreasonable that the Customs should require this of Lewis Ball on the strength of its professional qualification.

Conclusions

15.	Power to require security was given to the Customs under the provisions of paragraph 4(2) of Schedule 11.  This 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”.

16.	The principles are well established.  The Tribunal’s function is to consider whether the Customs have acted in a way in which no reasonable panel of “Commissioners” could have acted, or whether they have taken into account some irrelevant matter or disregarded something to which they should have given weight.  See, for example, John Dee Ltd v Customs and Excise Commissioners [1995] STC 941. It follows from that that the function of this Tribunal is confined to the determination of whether the decision of the Customs was “reasonable” in that sense.  It is not open to us to substitute our own decision for that of the Customs.  What is more, in exercising our function we are required to limit ourselves to considering facts and matters which were known when the disputed decision was made by the Customs: see for example Customs and Excise Commissioners v Peachtree Enterprises Ltd [1994] STC 747.  

17.	With those points in mind, we are satisfied that the Customs took all relevant considerations into account in reaching the decision comprised in the issue of the Notice of Requirement.  The Customs did not disregard any relevant consideration.  In particular they were aware of Lewis Ball’s shortage of funds and access to credit.  They were aware that Lewis Ball was a chartered accountant and must be taken to have been aware of the professional implications of Lewis Ball’s failure to meet its obligations.

18.	The Customs did not, we think, take an irrelevant consideration into account by irrationally distinguishing between “professional” defaulters and others and in discriminating against the former.  The passage cited from the letter of 10 November 2005 states in terms that it is the responsibility of all businesses to adhere to the current legislation and to act in a responsible way with regard to it.  The view expressed in that letter that accountants are classed as professional and should be expected to maintain full adherence the law was, we think, expressed by way of emphasis.  It does not connote or even imply that the Customs are irrationally discriminating against professionals when exercising their powers under paragraph 4(2)(a) of Schedule 11.

19.	Finally, and importantly having regard to Mr Lewis Ball’s primary argument, we think that a person who habitually pays late can properly be regarded as a risk to the Revenue from whom the Customs need protection.  Late payment deprives the Customs of the tax due to them, just as non-payment does.  

20.	We should add that because Lewis Ball has been on cash accounting it will actually have received the tax for which it should have accounted to the Customs.  If the amounts received as tax have regularly been spent on other things, this implies that his business is undercapitalised: a matter that will justifiably have given the Customs cause for concern.

21.	We accept that Lewis Ball is now more up to date than during the period leading to the Notice.  But that is not a consideration that can affect our determination which, as noted, has to depend on facts and matters known to the deciding officer, in August 2005, when the decision to issue the Notice was taken.  

22.	For those reasons we dismiss the appeal. 

STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 25 May 2006

LON/05/1129