19760

VAT – security – whether requisite for the protection of the revenue – VATA 1994 Sch 11 para 4(2) – appeal dismissed

LONDON TRIBUNAL CENTRE

	RESTAURANT 41 LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	JOHN CLARK (Chairman)
					DIANA WILSON

Sitting in public in London on 5 September 2006

The Appellant did not appear and was not represented

Mr SJL Chambers, Advocate, instructed by the Acting Solicitor for Her Majesty’s Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	The disputed decision in this case is a Notice of Requirement to provide security for VAT, dated 4 April 2006.
2.	The hearing was listed to begin at 10.30 am. As there had been no appearance by or on behalf of the Appellant by 10.45 am, we accepted Mr Chambers’ request to hear the appeal in the absence of the Appellant, under Rule 26(2) of the Value Added Tax Tribunals Rules 1986. Under this rule, the Tribunal may hear the appeal in the absence of one of the parties. Rule 26(3) provides that within 14 days of the date of release of the Tribunal’s decision, the absent party may serve notice of application to set that decision aside. However, a party making such an application must attend the hearing of that application, as Rule 26(4) makes it clear that a party who fails to attend is not entitled to have the decision set aside.
3.	In the absence of the Appellant, Mr Chambers put to us the arguments that had been raised in support of the Appellant’s case. The first was that the Appellant was a new company. The second was that the Appellant had no objection to paying its VAT monthly.
4.	On behalf of the Respondents (referred to in this decision as “Customs”), Mr Chambers argued that on the information available to Customs, the requirement to give security, under Schedule 11 paragraph 4(2) of the Value Added Tax Act 1994, was reasonable and appropriate.
5.	Sarah Saunders, a Higher Officer of Customs’ Security Team in London, explained in her evidence the reason for requiring security. A company which had previously traded from the same address (41 Dean Street, London W1), Icewood Ltd, had failed to make any VAT returns and had gone into liquidation on 8 February 2006 owing VAT totalling £18,093.09. The Appellant was trading from the same premises. It appeared to her that the Appellant’s business was probably a continuation of the business previously carried on by Icewood Ltd, and that probably the same people were involved. It was clear from the Appellant’s VAT 1 registration form that the Appellant acknowledged that there had been a transfer of a going concern.
6.	In addition, although the name of one of the directors of Icewood Ltd (Aldo Morietti) was slightly different from that of a director of the Appellant (Giulio Mariotti), these persons had the same residential address and date of birth as shown in the respective forms 288a submitted to Companies House by Icewood Ltd and the Appellant. (A copy of a schedule showing linked companies and outstanding VAT liabilities for the two companies was contained in the bundle of documents provided at the hearing.)
7.	Sarah Saunders explained the quantum of the security required. This was based on the expected turnover of £200,000 shown as the answer to question 23 of the Appellant’s form VAT 1. For quarterly VAT payments, six months’ tax would be required, ie £100,000 multiplied by 17.5 per cent. From this, input tax was deducted at an assumed rate of 40.81 per cent. This was based on information in a database of businesses with the same trade classification in the same area. This produced a VAT liability of £10,535.25, which was rounded down to £10,300. The required total for monthly payments was based on four months’ tax; the similar calculation produced a rounded total of £6,900.
8.	One point which she had not noticed at the time of preparing the Notice of Requirement was that the National Insurance number given in each of the forms VAT 1 was the same.
9.	Mr Chambers produced print-outs from the internet showing that at 22 June 2006 the name of the business carried on at the Appellant’s premises was the same (“Signor Zilli”) as it had been in November 2004, August 2005, December 2005, and April 2006. He pointed out that although in Icewood Ltd’s form VAT 1 the trading name of the business had been shown, the Appellant had not done so in its form VAT 1.
10.	Mr Chambers drew attention to the similarity of the “consent signatures” in the respective forms 288a, although he conceded that expert evidence on this was not available.
11.	In relation to the Appellant’s VAT record, he pointed out that as at July 2006 the Appellant had not submitted its first VAT return. It had decided to pay a central assessment. He explained that the outstanding liability of Icewood Ltd was based on central assessments, as it had not submitted any returns in 20 months of trading.
12.	He summarised the relevant points:
(1)	the Appellant had taken over the previous business as a transfer of a going concern; the previous company had made no returns in 20 months and had had a VAT debt estimated at approximately £18,000, although the true amount of the debt was not known;
(2)	the businesses carried on by both companies were restaurants, using the same name;
(3)	the companies had a director with the same residence and date of birth (and, as had subsequently been noticed, the same National Insurance number);
(4)	the Appellant had not submitted its first VAT return.
13.	Mr Chambers felt that the Appellant had deliberately misled Customs, as well as Companies House. For all the reasons given, the Appellant was a severe risk to the revenue and the appeal should be dismissed.
Discussion and conclusions
14.	We accepted that there was no need for Mr Chambers to go through the case law concerning the jurisdiction of the Tribunal in cases involving security. The jurisdiction in such cases is limited. The question is whether Customs have acted in a way in which no reasonable body of persons could have acted or whether Customs have taken into account some irrelevant matter or had disregarded something to which they should have given weight. The Tribunal cannot substitute its own decision, as the principle underlying Customs' power to require security, namely the protection of the revenue, is not the responsibility of the Tribunal. (See Mr Wishmore Ltd v Customs and Excise Commissioners [1988] STC 723, Customs and Excise Commissioners v Peachtree Enterprises Ltd [1994] STC 747, and John Dee Ltd v Customs and Excise Commissioners [1995] STC 265, [1995] STC 941, CA; for a subsequent example of the approach of the tribunal, see Goldhaven Ltd v Customs and Excise Commissioners (1996) VAT Decision 14675.)
15.	The relevant factors in this case are the continuation by the Appellant of the business previously carried on by Icewood Ltd (albeit under a different VAT number), the use of the same trading name throughout, and the involvement of at least one person who appears to have been a director of Icewood Ltd. The latter company’s VAT record was entirely unsatisfactory; it made no VAT returns, and paid VAT based on central assessments. The expected annual turnover as declared in its form VAT 1 was £780,000; against this, the debt of over £18,000 appears to suggest that if returns had been made and the true liability established, the VAT due would have been significantly greater than that actually taken into account.
16.	If note is also taken of the apparent irregularities as disclosed by the documentation, namely the two forms 288a showing individuals with different (although not entirely dissimilar) names resident at the same address, and sharing the same date of birth, we regard Customs’ decision to require security as entirely reasonable in the circumstances. Although the use of the same National Insurance number in each of the forms VAT 1 was not taken into account in the decision to require security, this further discrepancy reinforces our conclusion that Customs acted reasonably, having taken relevant matters into account and disregarded irrelevant matters.
17.	Certain of the irregularities discovered in the course of this appeal are outside the jurisdiction of this tribunal. However, the relevant authorities may wish to take any appropriate steps open to them to deal with these irregularities. On the matter within our jurisdiction, the requirement to give security, our conclusion is that this appeal must be dismissed.

JOHN CLARK

CHAIRMAN
RELEASE DATE: 11 September 2006

LON/06/464