20658

Requirement to give security - Schedule 11 paragraph 4 (2) (a) VATA 1994 - first return of company - payment not made on due date - directors and company secretary associated with previous VAT failures leaving substantial VAT outstanding - decision to require security reasonable and proportionate - appeal dismissed 

MANCHESTER TRIBUNAL CENTRE

DRIVE RITE SUPPORT SERVICES LIMITED	       Appellant

    -and-

THE COMMISSIONERS FOR 
HER MAJESTY’S REVENUE AND CUSTOMS	  Respondents

Tribunal : Elsie Gilliland (Chairman)
       Mohammed Farooq (Member)

Sitting in public in Birmingham on 13 March 2008

Miss Candlin of counsel for the Appellant

Kim Tilling, Advocate, of the Solicitors Office of Her Majesty’s Revenue and Customs for the Respondents

DECISION

1.The appeal heard by the tribunal was that of Drive Rite Support Services Limited  (the Appellant) against a decision of the Respondents set out in a letter from them dated  27 February 2007 to require security from the Appellant under Schedule 11 paragraph 4 (2) (a) of the Value Added Tax Act 1994 (the Act) for the protection of the revenue in the sum of £56700. This amount was later reduced to £36000 when the outstanding VAT due on the first return was paid.

2. There was some correspondence between the parties. Subsequently on 18 April 2007 the Appellant served Notice of Appeal. This was signed by the Company Secretary and the grounds of appeal were given as:

“ (1) Company has not committed any breach of obligations or unduly delayed settlement of liabilities without prior consultation  (2) is not managed by disqualified directors nor undischarged bankrupts (3) has committed all available resources to the business”.

3. A schedule was included in the bundle of documents produced to the tribunal by the Respondents. This gave details (at page 4)  of the Appellant and two other businesses namely a company NPR (UK) Ltd. (NPR (UK) ) and  a firm with a sole proprietor Narinder Singh Grewal t/a National Personnel Recruitment (NPR). 

4. The information given in the schedule with regard to the Appellant was that it was registered for VAT purposes on 7 September 2006; that the directors were Jaswinder Kaur Grewal (J K Grewal), Narinder Singh Grewal ( N S Grewal) who was also the company secretary  and Palbinder Singh Sunner (P S Sunner) who resigned on 29 December 2006; and that the company had purchased from the administrators 75% of  NPR (UK)’s staff and assets. The VAT liability of the Appellant on the schedule was shown as nil. We were told however that at the date of service of the Notice of Requirement (27 February 2007) the tax due on the first return of the Appellant had not been paid in full £20000 being outstanding.

5.As regards NPR(UK) the date of registration given in the schedule was 15 September 2003; the director was given as J K Grewal and the company secretary as N S Grewal. It was shown in the bundle that PS Sunner had resigned as a director on 3 July 2006.  The narrative showed that  the company was in administration and that it had been non-compliant  since 12/04; that several returns had been sent in unpaid; and the default surcharge level had been at 15% since 06/04. Its liability for VAT was £426,926.53.

6.NPR was shown as registered on 12 September 2002. It had ceased trading . A de-registration date was shown of 1 November 2003. In addition it was noted that the trader was reported as missing in 04. The VAT liability was £35467.84    

7.In the opinion of the Respondents J K Grewal, director, N S Grewal, director and company secretary and P S Sunner , director from 22 September 2005 to 29 December 2006, had been involved previously in other companies or businesses which had been registered for VAT and which had subsequently become insolvent and de-registered from VAT owing substantial sums of money.

8.The calculation of the security had been on the basis of the first return submitted by the Appellant that for 12/06 in the sum of a rounded down figure of £56700 reduced to £36000 when the balance of the VAT due on that return was paid off. Also in the bundle was a copy of the application form for VAT registration submitted by the Appellant. This was dated 29 August 2006, was signed by P S Sunner and (inter alia) indicated that the business activities would be home maintenance and repair and that none of the directors had been involved in running any other businesses either as a sole proprietor, partner or director in the past two years. 

9. In his evidence to the tribunal given under oath Mr. N S Grewal confirmed that while it was doing recruitment business the Appellant was hoping to move into construction work but that takes time. In response to questioning from Miss Tilling for the Respondents he denied any knowledge of an earlier application for registration made in October 2005 in the name of Drive Rite Support Services Limited signed by Mr. Sunner in which the activities were given as drive support. He confirmed that NPR (UK) was a recruitment company and NPR was also in the trade class of recruitment The compliance difficulties of NPR(UK) he attributed to problems with a sub-contractor with similar difficulties affecting NPR. So far as the Appellant’s record was concerned he had been adversely affected by the resignation he said in January or February 2007 of Mr. Sunner and to make the first part payment of VAT he had had to seek family money and for the balance of £20000 had used personal money on his debit card that payment being 47 days late. 

10. Counsel for the Appellant submitted that the Notice of Requirement  was issued  prematurely in February 2007; that it was excessive in amount; and that it was unreasonable for the Respondents to act so quickly on a first return when part of the VAT due had been paid only two days late and the balance was subsequently paid. Mr. Grewal had taken steps to obtain funding . The problems with the other businesses referred to in the schedule had arisen not through any intention to avoid or delay payment  but because of problems with sub-contractors.

11. We had also oral evidence from Wendy Balmforth a Customs team officer. The recruitment trade class and its activities were seen as a risk sector.  The amount of £56700 she said had been calculated on the basis of a four month period  and the Notice of Requirement  took into account the current debt  and the amount to secure payment. The procedure was set out in detail in the relevant Public Notice.

12. The role of the tribunal is to consider the reasonableness of the decision of the Respondents to require security from the Appellant. We are to look at the facts and circumstances at the time of the Notice of Requirement and while we did have in the bundle a compliance record to the return of 03/07 and heard observations from the representatives of both parties on this, we are using it for information only. 

13. The amount due and payable on 31 January 2007 under the first VAT return of the Appellant is clearly shown as £36726.36. None was paid on that date.  A part payment of some 45% was made two days late. As at the date of the Notice of Requirement ( 27 February 2007) the balance of £20000 was still unpaid. No arrangements for late payment were in place.  

14. Whilst there were no disqualified directors or undischarged bankrupts involved, we are satisfied and find that J KGrewal and N S Grewal two persons concerned in the registration of the Appellant’s business were connected with past failures to pay VAT through their involvement in two previous failed businesses and the total VAT  unpaid was substantial totalling £462384.37. P S Sunner was not a director at the time of the Notice of Requirement but had similarly been involved in business failure.

15.We consider that the decision of the Respondents to require security at the time of the Notice of Requirement in the amount stated subsequently reduced  to £36000 to be reasonable and proportionate in view of the past history given with regard to J K Grewal and N S Grewal  and of the large amounts of VAT outstanding from other businesses. In addition the Appellant made a poor start in terms of compliance.
  
16.We are satisfied that in accordance with Wednesbury principles the Respondents took into account all matters which ought to be considered and did not give weight to those not relevant and they took proper account of the law.

15. The appeal is dismissed.

16. We make no direction on costs.

MAN/07/0450

Elsie Gilliland
CHAIRMAN

Release date: 24 April 2008

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