19628

LONDON TRIBUNAL CENTRE

	1ST STOP HIRE SERVICES LIMITED	Appellant

-	and –

	THE COMMISSIONERS FOR
	HER MAJESTY'S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Nicholas Aleksander   (Chairman)
						Roberta Johnson

Sitting in public in London on 16 May 2006

Mr M Balcikonis, Director of the Appellant, for the Appellant 

Mr S J L Chambers, Advocate, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

The Appeal

1	The Appellant, 1st Stop Hire Services Limited ("the Company") gave Notice of Appeal dated 29 November 2005 against a Notice of Requirement to give Security under Paragraph 4 (2), Schedule 11 of the VAT Act 1994, issued on 18 August 2005.

The Issue

2.	The issue for the Tribunal was whether the Commissioners of HM Revenue and Customs ("the Revenue") had acted in a way in which no reasonable panel of Commissioners of Revenue and Customs could have acted, or whether they had taken into account some irrelevant matter, or disregarded something to which they should have given weight when imposing the security requirement on 18 August 2005. 

The Legislation

3.	Paragraph 4(2), Schedule 11, of the VAT Act 1994 provides that

“If they think it is necessary for the protection of the revenue, the Commissioners may require a taxable person, as a condition of his supplying or being supplied with goods or services under a taxable supply , to give security , or further security , for the payment of any VAT that is  or may become due from –

a)	the taxable person, or
b)	any person by whom or to whom relevant goods or services are supplied.” .

The Evidence

4.	The Tribunal heard evidence from Mr M Balcikonis, a director of the Appellant and from Mrs S Ogburn, an Officer of the Revenue. A bundle of documents was presented to the Tribunal. 

The Facts Found

5.	Mr Balcikonis has been engaged in business as a sole trader since 1990 without any VAT problems.  He formed the Company approximately five years and it is engaged in the rental and sales of sound equipment. The sales side of the business grew and was soon considerably larger than the rental business.  The customers of the Company largely pay for their purchases by cash, cheque or credit card at the time they make their purchases – the Company does not generally extend credit to its customers and does not have bad debts.

6.	Since 2004, the Company experienced a series of difficulties. The Company had agreements with companies in the Netherlands and Germany for the supply of equipment, these agreements were changed and the Company suffered increased costs.  This led to financial problems for the Company as it traded on thinner margins.  In addition, Mr Lord, the company secretary (who was primarily responsible for dealing with financial and VAT matters) was taken seriously ill and was unable to work for a period of six months.

7.	The Company fell into arrears with its VAT payments and failed to submit returns on time.  The Revenue's Civil Recovery Unit in Liverpool became involved, and tenaciously pursued the Company for recovery of the outstanding VAT debt.  At one stage the Revenue petitioned for the winding-up of the Company (although the petition was withdrawn on the Company making a payment).  It is apparent from Mr Balcikonis's evidence, that the relationship between the Company and the Civil Recovery Unit was strained.  During this period, the Company made offers to settle its arrears by instalments, but none of these were acceptable to the Civil Recovery Unit.

8.	By April 2005, the Company owed £25,179.87 in VAT.  It had defaulted in the timely payment of VAT on nine occasions.  From May 2004 the Company was consistently behind in its VAT payments and since April 2005 was liable to default surcharges at the 15% rate. The VAT due on the January 2005 and April 2005 returns had only been paid in part. 

9.	In June 2005, DSH Hire Limited (of which Mr Balcikonis was also a director) applied to be registered for VAT.  As part of the Revenue's registration procedures, the VAT compliance record of entities associated with DSH Hire Limited (including the Company) were reviewed.  One of the consequences was that the Company came to the attention of the Revenue's Security Unit, where Mrs Ogburn reviewed the case. She concluded that security was required from the Company to protect the revenue because: 

•	the Company had a VAT liability owing of £25,179.87
•	the Company had been late in filing its VAT returns on nine occasions since the 08/01 period
•	the Company had not been outside the default surcharge regime since 05/04, and by April 2005 was subject to the surcharge at the 15% rate
•	the VAT due for the periods 01/05 and 04/05 had not been paid in full
•	the Company had been late in paying the VAT due on the preceding returns

10.	Mrs Ogburn also took into account the fact that the Company did not extend credit to its customers, and therefore was not in the position where it had to account for VAT on sales before it received payment.  

11.	On 18 August 2005, the Revenue issued the Company with a “Notice of Requirement to Give Security under Schedule 11 Paragraph 4 (2) of the VAT Act 1994”. The security was in the amount of £25,150 which represented the estimated VAT payable for six months based on the turnover declared in the Company's VAT returns.   The Notice of Requirement stated that security of £16,750 would be acceptable if the Company moved to monthly returns.  In subsequent correspondence, Mrs Ogburn offered to reduce the amount of security required in the light of anticipated reduction in the turnover of the Company, providing the outstanding VAT liability was paid.  However she was not prepared to reduce the amount of the security so long as the arrears were outstanding. This was because the security had to protect the revenue not only as regards VAT arising on future sales, but also the VAT liabilities which had already fallen due for payment. Mrs Ogburn had noted that the Company had made offers to settle the outstanding VAT liability in instalments.  The decision whether to accept or reject such an offer was for the Civil Recovery Unit (and not the Security Unit) to make.  However Mrs Ogburn was aware that the instalment period offered by the Company was longer than that normally accepted by the Civil Recovery Unit, and the Civil Recovery Unit would need to be satisfied that the offer was reasonable and achievable. In her view, the fact that the Company had made an offer did not alter the need for the security, as the Company was still liable to pay its VAT as it fell due.

12.	Since August 2005 the Company has continued to be late with its monthly VAT returns and payments, and the outstanding VAT liability has increased to approximately £33,000.

Reasons for Our Decision

13.	Mr Balcikonis submitted that as a result of circumstances beyond its control, the Company was trading on very tight margins.  He considered that the manner in which the Revenue had pursued the outstanding liabilities of the Company was inappropriate, particularly as the Company had made offers to settle its VAT liabilities in instalments, and had made payments in respect of some of the VAT periods in question.  He believed that the business had "turned the corner", and given sufficient time, it would be able to meet satisfy all of its creditors in full.

14.	Mr Chambers referred us to the case of Goldhaven Ltd v The Commissioners of Customs and Excise (Tribunal Decision No 14675) at paragraphs 14 and 15 for the principles to be applied by the Tribunal. He argued that the disputed decision was reasonable and the amount of security required was also reasonable. 

15.	We adopt the principles identified by the Tribunal in Goldhaven which are that we should restrict ourselves to deciding whether the Company has established that the decision arrived at by the Revenue was unreasonable or whether the decision was arrived at by taking into account matters which were not relevant or by ignoring matters which were relevant. We must restrict ourselves to considering facts and matters which were known when the disputed decision was made. The Tribunal cannot exercise a fresh discretion; the protection of the revenue is not the responsibility of the Tribunal.  

16.	Looking at the position when the Notice of Requirement was made, Mrs Ogburn had in front of her a business with a poor compliance record which had a significant outstanding VAT liability.  Against this background we consider that the decision of the Revenue was reasonable.  

Decision  
 
17.	Our decision on the issue for determination in the appeal is that the decision by the Revenue, requiring the Company to give security, was a reasonable decision.  That means that the appeal is dismissed.

18.	Mr Chambers made no application for costs and we make no order.

NICHOLAS ALEKSANDER
CHAIRMAN

RELEASED: 20 June 2006

LON/2005/1224

££1st Stop Hire Services Ltd  v Revenue & Customs [2006] UKVAT V19628 (20 June 2006)