20683
Value Added Tax – Notice of Requirement to give security – Whether reasonable – Yes – Appeal dismissed

LONDON TRIBUNAL CENTRE

	LEE JONES (INTERIOR FURNISHINGS LTD)	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	DR KAMEEL KHAN (Chairman)
						MR S K DAS LLM, ACIS

Sitting in public in London on 7 May 2008

The Appellant was not present

Mr S Chambers, advocate, HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	The matter was heard pursuant to Value Added Tax Tribunal Rules 1986/590  Rule 26(2).  The disputed decision of the Commissioners for Her Majesty’s Revenue and Customs (“hereinafter called the Commissioners”) is the Notice of Requirement to give security dated 7 August 2006.

2.	The Notice of Requirement to give security was made under paragraph 4(2)(a) Schedule 11 to the Value Added Tax Act 1994 (VATA).

Background

3.	The Notice of Requirement requires Interior Furnishings Ltd (“the Appellant”) to give security in the sum of £9,000 or £6,000 should the Appellant wished to render monthly returns.

4.	The Appellant trades from Units 3 and 4 Roebuck Mews, 11-13 Roebuck Road, Hainault Business Park, Ilford, IG8 3HR.

5.	The Appellant was incorporated on 1 March 2006 and registered for value added tax with effect from 20 March 2006.  Their business activity consists of manufacturing furniture.

6.	The quantum of security of £9,000 or £6,000 should the Appellant wish to render monthly returns, was calculated using information rendered by the Appellant on their VAT 1 Application Form and information provided on the last quarterly return submitted by the associated business, Birchtree Services Ltd.

7.	A Notice of Requirement to give security was served by the Commissioners on the Appellant on 7 August  2006.

8.	Lee Jones and Alan Jones are directors in the Appellant business.  They were also directors or partners in the following businesses.

(a)	Birchtree Services Ltd t/a ALS Chairframes.  This company was 	registered for VAT with effect from 5 June 2000.  The company 	ceased to be registered for VAT with effect from 4 March 2005.  Both 	Lee Jones and Alan Jones were directors of the business (evidenced by 	Companies House records).  Lee Jones is also company secretary.  The 	company was a manufacturer and trader from the same Business Park 	as the Appellant.  The VAT debt is £58,119.63 of which £24,523.54 	had been written-off due to a Voluntary Arrangement.  Two VAT 	returns remain outstanding.  There are sixteen default surcharges on 	record.  The company was in the default surcharge regime at the 15% 	level since VAT period 04/03.

(b)	ALS (Chairframes) was a partnership registered for VAT with effect 	from 4 March 1991.  The partnership ceased to be registered for VAT 	with effect from 1 June 2003.  Lee Jones and Alan Jones were both 	partners in the business.  The business had a written-off VAT debt of 	£12,739.81.  

The Appellant’s contention 

9.	On 9 August 2006 the Appellant wrote to the Commissioners requesting reconsideration.  The Appellant made a number of points including:

(i) 	The collapse of the previous business was due to fire and subsequent 	dispute with insurers 

(ii) 	The first VAT return of the current business was fully paid as would be 	the subsequent VAT returns.  

(iii) 	A security deposit could not be afforded 

(iv) 	Prior to the previous business collapsing in 15 years of trading many 	thousands of pounds had been paid to the Commissioners 

(v)	If the business ceased trading there would be a loss of revenue to the 	Commissioners, and to the local council as well as the loss of 	employment for seven people presently employed in the business.  

The Commissioners’ case

10.	In a letter dated 8 August Higher Officer D G C Hammersley, Colchester Security Team, who also gave oral evidence at the hearing, made the following points on behalf of the Commissioners.

1.	£25,500 of VAT was written-off when the previous business entered into a Voluntary Arrangement.

2.	£33,500 of VAT had accumulated after the Voluntary Arrangement and this remains unpaid.

3.	Another business associated with the Appellant (ALS Chairframes) has ceased to trade with a VAT debt of over £12,000 

4.	Given the Appellant’s history with the associated businesses, they were considered a risk to the revenue and the requirement to give security should be upheld.

11.	The legal provision to serve the notice under appeal is provided by VATA Schedule 11 paragraph 4(2). This allows the Commissioners to require a VAT registered business to provide a security or further security for the payment of VAT that is or may become due from the taxpayer.  This applies if it is believed that there is a risk to future revenue.

12.	The Commissioners believe that there is the risk of future loss of revenue given the history and the links between the associated businesses, ALS (Chairframes and Birchtree Services Ltd) which have poor compliance records.  Lee Jones and Alan Jones have been directors or partners in these businesses and the two businesses operated from the same Business Park as the Appellant.  The type of business involved was the same or similar, which is the manufacture of furniture. The combined VAT debt of the two businesses is £70,859.44.  Further, Birchtree Services Ltd t/a ALS Chairframes failed to submit two VAT returns and had 16 default surcharges on file.  The company operated at the highest level of default surcharge.

13.	The Tribunal believes that the Commissioners acted reasonably and considered all relevant matters in making their decision.  Further the calculation of  the amount of security required was correctly and reasonably made. 

14.	The Appellant says that the unexpected fire at the premises caused their financial difficulties.  However as of February 2004 the Appellant had over £9,000 unpaid VAT, several late payments and in some cases delays of over 100 days in making payment or final returns.  The compliance record was very poor.  This together with the failed associated businesses and the loss to the revenue of VAT in excess of £70,000 makes the Notice of Requirement to provide security reasonable in principle and amount and this appeal should therefore be dismissed.

15.	The Commissioners considered all facts and circumstances should have been considered at the time the decision was made and acted reasonably. 

16.	No issues of costs were raised at the hearing.  Appeal dismissed.  Liberty to apply.

DR KAMEEL KHAN
CHAIRMAN

RELEASED: 15 May 2008
LON 2006/1006