20169

VAT — SECURITY — Protection of Revenue — Company Directors involved in other companies which had gone into liquidation owing significant sums in VAT — The companies had poor records of VAT compliance – Whether Respondents’ actions in requiring a security reasonable — Yes — satisfied that the director’ track records constituted serious risk to the protection of revenue — Appeal dismissed — VAT ACT 1994 Schedule 11 p 4(1) — Appellant order to pay costs of £100.

MANCHESTER TRIBUNAL CENTRE

	MOVE ONE LTD	Appellant 

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE and CUSTOMS	 Respondents

			Tribunal:	MICHAEL TILDESLEY OBE (Chairman)
					MARJORIE KOSTICK BA FCA CTA (Member)

Sitting in public in Birmingham on 17 May 2007

Appellant did not appear

Bernard Hayley, Advocate HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION
The Appeal

1.	The Appellant was appealing against a Notice of Requirement to give Security in the sum of £10,800 (quarterly returns) or £7,200 (monthly returns) issued on 31 October 2006.
2.	The grounds of Appeal were that
“Move One Limited is a newly incorporated company and payment of a security deposit in the sum of £10,800 would jeopardise the cash flow of the company in meeting its day to day activities as well as possibly delaying future VAT payments due to HM Revenue and Customs. This could ultimately lead to the company’s liquidation.
The first VAT return for the period to 30 September 2006 has been submitted and paid on time in the sum of £7,540.45. The company agrees to submit monthly returns for a period of six months to reduce the VAT liability exposure to HM Revenue and Customs and for the latter to reconsider the situation after such period has lapsed. This will hopefully give the HM Revenue and Customs sufficient re-assurance that the company submits and pays its VAT liabilities promptly and can, therefore, resume its VAT return submission on a quarterly basis”.
3.	The Appellant did not appear despite a notice of hearing being sent to the Appellant company at its last known address. We granted the Respondents’ application to hear the Appeal in the Appellant’s absence pursuant to rule 26 Tribunal Rules 1986.
4.	We heard evidence from Ruth Morris, the officer who issued the Notice of Requirement for Security. The Respondents supplied a bundle of documents. 
The Issue to be Decided
5.	The directors of the Appellant company had been involved with three other companies which had gone into liquidation owing significant sums of VAT. Further the records of VAT compliance for three companies were poor. 
6.	The issue for the Tribunal was whether Mrs Morris had acted reasonably in imposing the security for the protection of the revenue. Thus we have to decide whether Mrs Morris acted in a way in which no reasonable panel of Commissioners for HM Revenue and Customs could have acted, or whether she had taken into account some irrelevant matter, or disregarded something to which she should have given weight when imposing the security requirements. In exercising this jurisdiction  we must limit ourselves to considering facts and matters which existed at the time the challenged decision to require a security was taken.
The Legislation
7.	Paragraph 4(2), Schedule 11, of the Value Added Tax 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 Facts Relied upon by the Respondents for the Notice of Security
8.	The two directors of the Appellant company, Mr Peter Andrew Whieldon and Mr Anthony William James, had been involved with three other companies with poor records of VAT compliance and which had gone into liquidation owing significant sums of VAT. The companies were:
(1)	Prohibition PC Ltd which went into liquidation on 25 January 2006 owing VAT in the sum of £122,000. Its VAT record revealed that it effectively made no VAT returns from 04/05 and was subject to the default surcharge regime.
(2)	Venue Master One Ltd which went into liquidation on 12 January 2006 with a VAT debt in excess of £15,500. No VAT returns made since 04/05 and subject to the VAT default surcharge regime.
(3)	Pub Scene Ltd which went into liquidation on 23 September 2003 with a VAT debt in excess of £84,600. Its VAT record showed that the majority of VAT returns were delivered late and the company was within the default surcharge regime.   
9.	The Appellant company was engaged in the same business, public house/licensed trade, as the three other companies which had gone into liquidation. Further the three companies were all cash businesses where supplies were paid for when they were made. Thus the failed companies should have had the funds with which to discharge their VAT liabilities.
10.	  The amount of the security requested was based on the annual turnover declared by the Appellant in its VAT 1 Application to Register from which was derived the projected output tax for 12 months. A figure for notional input tax was then deducted from the projected output tax leaving a sum which was divided by two for quarterly returns or by three for monthly returns to arrive at the amount of the security requested. 
The Appellant’s Representations
11.	The accountants for the Appellant company requested postponement of the security bond for six months to enable the Respondents to assess the Appellant’s compliance with its VAT obligations. The Appellant made no substantive representations on the Respondents’ grounds for requesting the security, 
Reasons for Our Decision
12.	Our starting point is to consider whether Mrs Morris acted in a way in which no reasonable panel of Commissioners for HM Revenue and Customs could have acted, or whether she took into account some irrelevant matter, or disregarded something to which she should have given weight when imposing the security requirement for the protection of the revenue on the Appellant company on the 31 October 2006. In exercising our jurisdiction we must limit ourselves to considering facts and matters which existed at the time the challenged decision to require a security was taken. We are unable to substitute our own decision for that of the Commissioners. Our task is to decide whether the decision of Mrs Morris was reasonable.
13.	Mrs Morris’ decision was based upon the involvement of the directors of the Appellant company in three other companies trading in the same line of business as the Appellant company which had poor records of VAT compliance with each company going into liquidation owing significant sums of VAT. In view of the directors’ track record, Mrs Morris considered that there was a high risk that the Appellant company would go the same way as the three other companies, namely, failing to send VAT returns on time and owing significant sums in VAT.  We consider that Mrs Morris was correct in giving weight to these facts when imposing the security. In our view they were relevant in assessing the Appellant’s risk to the protection of the revenue. 
14.	We find no evidence that Mrs Morris took into account some irrelevant matter or disregarded something to which she should have given weight in coming to her decision on the 31 October 2006.
15.	 The amount of security requested was derived from the figures supplied by the Appellant in its VAT 1 Application for Registration. We consider that the amount of security demanded was proportionate and necessary to the risk posed by the Appellant company.
16.	The Appellant’s request to postpone the imposition of the security was not relevant to our decision about the reasonableness of Mrs Morris’ action in requesting the security. In our view the Appellant’s concern about the security affecting its cash flow confirmed Mrs Morris’ assessment of the risk to the protection of the revenue posed by the Appellant.
17.	For the reasons set out above we have decided that the issue of the Notice of Security dated 31 October 2006 on the Appellant was reasonable. We, therefore, dismiss the Appeal. 
18.	The Appellant has given no reason for its failure to attend the Tribunal and prosecute its Appeal. We are satisfied that the Appellant has misused Tribunal procedure and order the Appellant company to pay the Respondents £100 towards its costs in defending the Appeal.
19.	The Appellant can apply to the Tribunal for the decision to be set aside within 14 days after the date of release in accordance with rule 26 of the Tribunal Rules 1986. 

MICHAEL TILDESLEY
CHAIRMAN
RELEASE DATE: 22 May 2007

MAN/06/0878