20199

VAT - SECURITY– Protection of Revenue –– the Appellant  poor record of VAT compliance – the Appellant director of two other companies which had incurred substantial VAT debts –– Whether Respondents’ actions in requiring a security reasonable –Yes –– Appeal dismissed ––  VAT ACT 1994 Schedule 11 p 4(1).

MANCHESTER TRIBUNAL CENTRE

	JOHN REED  	Appellant

	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	 (Chairman)
				      WARREN SNOWDON JP         (Member)	  

Sitting in public in North Shields on 23 April  2007

The Appellant appeared in person

Kim Tilling, 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 £25,285.12 issued on 26 July 2006.
2.	The grounds of Appeal were that:
“We are in the process of repaying the VAT owed. To pay both the VAT owed and the security requirement would cause severe financial hardship”.
3.	We heard evidence from David Price, the Officer who issued the Notice of Requirement, and the Appellant. The Respondents supplied a bundle of documents.
The Issue to be Decided
4.	The Appellant carried on a business as a public house from the Blyth and Tyne, 38 Regent Street, Blyth. The Respondents maintained that the Appellant represented a risk to the revenue in view of his poor VAT compliance record, and his previous involvement with companies which had gone insolvent owing debts of VAT. The Appellant argued that he was doing his best but was caught between the Respondents’ debt management and security units, with each unit saying it had priority over the other. The Appellant also pointed out that the Respondents had the wrong information on his company, Reed Leisure, which was not insolvent. 
5.	The issue for the Tribunal was whether Mr Price had acted reasonably in imposing the security for the protection of the revenue. Thus we have to decide whether Mr Price acted in a way in which no reasonable panel of Commissioners for HM Revenue and Customs could have acted, or whether he had taken into account some irrelevant matter, or disregarded something to which he 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
6.	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 Evidence
7.	The Appellant had a poor record of compliance with his VAT responsibilities since being registered for VAT from 1 June 2004. His record of compliance and statement of account as at 26 July 2006 revealed that no payments had been made since July 2005, and the total VAT outstanding as at 26 July 2006 was £20,467.11.
8.	The Appellant had been the subject of previous security action. The first Notice of Requirement in the sum of £9,600 or £6,400 was issued on 16 March 2005 and subsequently withdrawn in April 2005. The Appellant was then monitored closely by the Respondents. In October 2005 the debt on file was in excess of £11,500. On 2 November 2005 the Respondents issued a second Notice of Requirement in the amount of £5,800. In June 2006 the security was offset against an outstanding debt of £23,454. 86.
9.	The Appellant had been a director of Target Travel Group Limited which had been declared insolvent, owing VAT in the sum of £133,093.86 as at 26 July 2006. The Appellant was also a director of Reed Leisure Limited which according to the Respondents had also become insolvent owing VAT in the sum of £108,895.35.
10.	On 26 July 2006 the Respondents issued another Notice of Requirement in the sum of £25,812.12.  The amount of security was based on the Appellant’s last nine returns, producing a figure of £6,700 to which the outstanding debt of £18,585.12 was added.
11.	  Mr Reed explained that the cause of his financial difficulties was trying to support Target Travel which had got into problems when its parcel delivery business collapsed. Mr Reed pointed out that Reed Leisure Limited was not insolvent. The company had made a creditors’ voluntary arrangement with the Respondents, which required the company to pay monthly payments towards its VAT debt. The company was up to date with its payments.
12.	Mr Reed was doing his best to keep the Blyth and Tyne afloat. He  paid £9,000 towards his VAT debt. However, Mr Reed was unable to pay both the Respondents’ debt management and security units with each of the units claiming priority over the VAT debt.
Reasons for Our Decision
13.	Our starting point is to consider whether Mr Price acted in a way in which no reasonable panel of Commissioners for HM Revenue and Customs could have acted, or whether he took into account some irrelevant matter, or disregarded something to which he should have given weight when imposing the security requirement for the protection of the revenue on the Appellant on the 26 July 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 discretion for that of the Commissioners. Our task is to decide whether the decision of Mr Price was reasonable.
14.	Mr Price’s decision was based upon the Appellant’s poor record of VAT compliance, his substantial VAT debt and his appointments as director of two companies which owed considerable sums of VAT. Mr Price accepted that when he made his decision he regarded Reed Leisure Ltd as insolvent. Mr Price was unaware of the creditors’ voluntary arrangement but he considered that it would not have affected his decision to require a security had he known about it.  Mr Price also referred to the fact that the Appellant’s business was a cash business which should have had the funds to meet its VAT obligations. We consider that Mr Price 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.  We agree with Mr Price’s view that the existence of the creditors’ voluntary arrangement would not have altered his decision. A creditors’ voluntary arrangement comes within the umbrella of insolvency.
15.	We find no evidence that Mr Price took into account some irrelevant matter or disregarded something to which he should have given weight in coming to his decision on the 26 July 2006.
16.	Mr Reed raised no substantive points which would question the reasonableness of Mr Price’s decision to issue the Notice of Requirement. However, we do accept that Mr Reed was in a genuine dilemma about which of the Respondents’ units he should give priority. Mr Price indicated at the hearing that he would be prepared to reduce the amount of security by the amount that Mr Reed has already paid to the debt management unit towards his VAT debt. Also we would ask the Respondents to look into the cross-over between the two units and write to Mr Reed explaining what he needs to do.
 Decision
17.	For the reasons set out above we have decided that the issue of the Notice of Security dated 26 July 2006 on the Appellant was reasonable. We, therefore, dismiss the Appeal. We make no order for costs.

                         

                                
MICHAEL TILDESLEY OBE
CHAIRMAN
Release Date: 13 June 2007

MAN/06/0749