20182

REQUIREMENT FOR SECURITY – Reasonableness – Security calculated by reference to future VAT and past debt – Tribunal informed that security would be applied to discharge past debt – Proportionality considered – VAT Act 1994 Sch 11, para 4(2)(a) – Appeal dismissed

JURISDICTION – Entertaining appeal – Returns and tax outstanding – Coleman [1999] V&DR 133 applied – VAT Act 1994 s 84(2) disapplied as incompatible with Community rights – Appeal entertained

LONDON TRIBUNAL CENTRE

	MAZEGATE LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	THEODORE WALLACE (Chairman)
						SUNIL DAS, LLM, ACIS

Sitting in public in London on 18 May 2007

John Bailey, director, for the Appellant 

Mrs Pauline Crinnion, advocate, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	This is an appeal against a requirement for security dated 24 October 2006 under Schedule 11, paragraph 4(2)(a) of the VAT Act 1994.  The notice required the Appellant to give security by guarantee or cash deposit of £51,534.66 as a condition of making taxable supplies, with an alternative of £47,734.66 if monthly returns are submitted.

2.	The last return submitted by the Appellant was that for period 12/05 which was received on 12 April 2006 showing £5,648.98 which was not paid.

3.	Section 84(2) provides that an appeal shall not be entertained unless the appellant has made all returns due and paid the tax shown as due on those returns.

4.	This provision was held to be overridden by enforceable Community rights in Coleman and Others v Customs and Excise Commissioners [1999] V&DR 133 after a two day hearing before the President, Stephen Oliver QC, at which the Tribunal was assisted by an Advocate to the Tribunal, Kenneth Parker QC, and Customs were also represented by leading counsel.  Customs did not appeal.  It is surprising that section 84(2) which has in effect been found to be incompatible with Community law remains in the Act without amendment.  Customs did not make any application for the appeal to be dismissed under Rule 6, however it does go to the Tribunal’s jurisdiction.  In accordance with the decision in Coleman, we disapplied section 84(2) and considered the appeal on its merits. 

5.	Mrs Birch who made the requirement in this case calculated it by adding up the VAT shown as due on the last four returns received and halving that to give six months VAT, which was £11,420.90; this figure was rounded down to £11,400 and the outstanding debt at the time which was £40,134.66 was added to give £51,534.66.  Six months was based on the quarterly return being for 3 months to which was added the one month to make the return and a further two months.  The debt was included because the security is to cover “the payment of any VAT that is or may become due”.

6.	The Appellant’s compliance record has been very poor.  Every return since 03/00 has been late. Three previous security requirements have been made and the Appellant incurred default surcharges for every period from 06/00 to 06/06.

7.	Mrs Birch told the Tribunal that the previous three requirements had not included the outstanding debt however she had included it on this occasion because of the continued non-compliance.  She said that if the Appellant had paid even part of the debt the requirement would have been reduced. Equally if the Appellant provided the security it would be applied to discharge all or part of the debt so that it was not a cumulative liability; in such circumstances if a further requirement was made it would be based on the returns alone.  She said that when she made the requirement she did not know that another department of Customs was about to issue a final demand for the outstanding debt.

8.	She told the Tribunal that she had considered proportionality when making the requirement.  If the requirement had only been £11,400 it would have been immediately offset against the debt thus giving no protection to Customs against any other liability.  She said that she had not seen any accounts before this hearing at which Mr Bailey had produced accounts.

9.	Mr Bailey did not dispute the reasonableness of making a requirement.  His only dispute was as to the amount.  He said that a winding-up petition based on a debt of £53,946.64 is due to be heard in the High Court on 4 July 2007.  He said that it was unreasonable for the Appellant to be expected to pay both that amount and the security.

10.	It is well established that in order to succeed the Appellant has to show that the requirement was unreasonable. We find nothing unreasonable either in the requirement or the amount.  Mr Bailey did not contest any of the facts on which the decision was based nor did he show that any relevant matters had been ignored.  Accordingly we do not go further into the facts.  We accept the evidence of Mrs Birch that she did consider proportionality.  Once it is appreciated that if the Appellant provides a cash security it will be set against the debt it is clear that there is no double liability.  If the Appellant provides the security only a small amount more will be needed to extinguish the debt on which the winding-up petition is based.  Mrs Birch told the Tribunal that if the appeal is dismissed, the Appellant would be given 50 days to provide the security before any prosecution under section 72(11).

11.	The Act refers to the provision of security without specifying its terms in any way.  The requirement was for a guarantee or cash deposit.  It enclosed a form of guarantee, which was not produced to us, but did not specify the terms of any cash deposit. We express the hope that the Commissioners will consider adopting a standard form of security, enshrined in a public notice if not a statutory instrument, stating clearly the terms on which the guarantee or cash deposit are provided and the circumstances in which Customs can have recourse.  Mr Bailey was clearly unaware of how a security would be treated.

12.	Having heard the evidence of Mrs Birch and her explanation of the treatment of any security, we consider that the stance of Customs in this case has been wholly reasonable.  The appeal is dismissed.

THEODORE WALLACE
CHAIRMAN

RELEASED: 31 May 2007

LON/2006/1246