Fine Dining Co Ltd v Revenue & Customs [2006] UKVAT V19726 (23 August 2006)

 19726

SECURITY – The Appellant had previously been required to give a security – Long-running VAT debt – Associated business had VAT debt outstanding – History of non-compliance – Appeal dismissed

LONDON TRIBUNAL CENTRE

FINE DINING CO LTD	           Appellant

-	and –

THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

Tribunal:	MISS J C GORT  (Chairman)
DR M JAMES

Sitting in public in Bristol on 26 July 2006

No appearance by or on behalf for the Appellant 

Mrs P Crinnion of the Solicitors office, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This is an appeal against a decision contained in a letter dated 21 July 2005 by the Commissioners to issue a notice of requirement to give security under Schedule 11 paragraph 4(2)(a) of the Value Added Tax Act 1994 (“VATA”) in the sum of £66,075.54. That amount included an existing VAT debt of £46,475.54.  Subsequently, following the reduction of the VAT debt to £17,339.96, the amount required to be paid as security was £35,789.96 if the Appellant rendered monthly returns.

2.	The grounds of appeal state:

“The total VAT debt is £32,740.42 including surcharge.  We now submit monthly VAT returns which will be on normal trading £1,000 per month.”

The notice of appeal is dated 15 August 2005.  Up to an including the period 04/05 the Appellant had been rendering quarterly returns, but from 1 May 2005 he had been rendering them monthly.  

3.	As there was no appearance by or on behalf of the Appellant, the appeal had proceeded under the provisions of rule 26(2) of the Value Added Tax Tribunals Rules 1986.

4.	The Appellant’s business is described as “Restaurant/public houses” and is run from premises at Suite 1, Farmer Stores, Church Road, Lydney, Glos. The addresses of the restaurant/public houses are not known. The Appellant is a limited company which was registered for value added tax with effect from 12 July 1999.  At the date of the Notice to Requirement, the director was a Mr Dean Mark James.  There was no other director.  Mr James was associated with three other businesses which were registered for VAT as follows:

(a)	He traded as a sole proprietor and was registered for VAT with effect from 18 March 1992 and deregistered for VAT with effect from 1 August 2004.   That business has a debt recorded of £10,857.94 relating to VAT periods between 07/02 and 10/03.  That business was registered as “Alterations of Civil Engineering Constructions” and traded from the same address as the Appellant.

(b)	He, together with a Mr Peter Gordon Smith, is a director of a company called Silverbourne Developments Ltd, which was incorporated on 17 April 1997 and registered for VAT with effect from 1 April 1999.  Its main business activity is recorded as “Property Rental and Development”.  Its trading address is again the same as that of the Appellant.  The taxable turnover is £373,000, but it is recorded as a repayment trader and there is no debt on the Commissioners’ file.

(c)	Together with a Mr Orianno Pedini, Mr James operated a partnership which was registered for VAT from 8 February 2001 and deregistered with effect from 4 December 2001.  Its main business activity was “Licensed Restaurant”.  It too operated from the same address as the Appellant. Its taxable turnover was £52,000.  The Commissioners were unable to confirm any debt on file at the time the business cease trading because the computer records had been deleted after twelve months; the Commissioners have notes that the partnership was subject to bailiff action and at 21 January 2003 the partnership debt was passed for write-off.

4.	The Appellant has a history of non-compliance with its obligation to make returns and payments for the purposes of VAT.  The Commissioners had first issued a Notice of Requirement to Give Security in respect of this Appellant on 2 November 2004. That requirement was in the sum of £17,200 if three monthly returns were submitted, and £11,450 if monthly returns were submitted.  In the event the Appellant paid the amount of £17,200, but this was off-set against an outstanding VAT debt that it had.  On 1 February 2005 a Further Notice of Requirement was issued in the same sums, and on this occasion the Appellant paid £11,450, and, as recorded above, from 1 May 2005, submitted monthly returns.  Again the sum of money paid by the Appellant was off-set against its outstanding debt to the Commissioners.

5.	The current Notice was issued because there was considered to be a risk to the Revenue. The Commissioners took into account that the business appeared to be mainly a cash business. The Appellant had submitted its returns late, and had frequently failed to pay on those returns.  In July 2005 there was still a large debt on file, despite Mr James’ promises to pay.  In January 2005 he had sent a letter stating that he would pay within three months. This letter was not seen by the Tribunal, but was recorded in the file of Mrs S Ogburn, of the Southern region security team.  On 7 April 2005 a winding up order was granted, but on 11 April 2005 the hearing was dismissed and the case closed as the Appellant had paid in full.  The Appellant had made a lump payment of £56,622.73, which was the petitioned debt from the legal proceedings taken by the Commissioners’ Civil Recovery Unit. On 16 May 2005 the security deposit of £11,450 was paid by the Appellant, and again the moneys received were off-set against the current debt on file.  As at 24 August 2005 the outstanding debt stood at £41,553.04.  This allowed the Commissioners to reduce the security deposit requested from £66,075.54 to £61,153.04.  The subsequent further reduction in the security requirement was based on the fact that a payment of £14,000 was received on 30 November. There had previously been a repayment return for the period 07/05 based on the fact that the business had acquired a new public house.  The Commissioners were concerned that the Appellant had been able to take on a new venture by purchasing a lease and assets whilst there remained a considerable debt to the Crown. The Appellant has a substantial debt on PAYE and NI in the region of £29,713.51 from the last tax year. At the time of the hearing before the Tribunal the Appellant’s outstanding indebtedness to the Commissioners is £54,411. This is based on the returns for the last ten months and the existing tax debt. The Commissioners informed the Tribunal they would not be seeking an increased security on the basis of this increase in the debt.

6.	 Apart from the Notice of Appeal, we have only seen two documents from the Appellant which are relevant to the appeal, namely a letter dated 15 August 2005 and a further one dated 28 September 2005.  The former letter accompanied the Notice of Appeal and refers to estimated monthly returns in the sum of approximately £1,000.  The September letter refers to a monthly liability between £3,000 and £4,000.  It also refers to the company operating three businesses which appeared to be public houses, and being involved in project management. Copy invoices for a contract in Scotland were enclosed, and it was described as a “one-off” operation of which the VAT element was £70,080. Mr James requests that that sum should not be used as part of an average calculation as it was a one-off contract. Having considered this letter, and following a direction from the Tribunal to amend the Statement of Case, the Commissioners had reduced the security requirement to the present level. 

7.	The Tribunal has considered all the evidence before it, and in particular the requirements of Schedule 11 paragraph 4(2)-(5) of the VATA which state as follows:

“4(2)	If they think it 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 or to whom relevant goods or services are supplied.

(4)	Security under sub-paragraph (2) above shall be of such amount, and shall be in such manner, as the Commissioners may determine.

We think it quite clear in this case that the Revenue needs protection, particularly having regard to the fact that the Appellant has been required to pay a security deposit on two other occasions, and on both those occasions such deposit had to be off-set against an outstanding liability.  For the above reasons this appeal was dismissed and the decision was announced at the conclusion of the hearing of the appeal.

MISS J C GORT
CHAIRMAN

RELEASED: 23 August 2006

LON/ 05/862