20857

Requirement to give security – Whether reasonable – Yes – Previous history – Transfer of business as a going concern – Debt due – Appeal dismissed

LONDON TRIBUNAL CENTRE

	MACKQUAIL COMPANY LTD T/A THE GREEN MAN	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	DR K KHAN (Chairman)
						MRS S SADEQUE

Sitting in public in London on 17 October 2008

The Appellant did not appear

Gloria Orimoloye, advocate, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	The disputed decision of the Respondents is contained in a letter dated 2 April 2007 and is a Notice of Requirement to Give Security under Schedule 11 paragraph 4(2)(a) of the Value Added Tax Act 1994.

2.	The Notice of Requirement to Give Security requires the Appellant to give security in the sum of £21,000 if the Appellant continues to render quarterly returns or £14,000 if the Appellant opts to render monthly returns.

Background

3.	The Appellant is a company incorporated under the Companies Act  (company number 05805326) on 4 May 2006.  Its registered office is 59 High Street, Grantchester, Cambridgeshire, CB3 9NF.  Their business is carried out as a public house from the same address.  The Appellant is registered for VAT under registration number 896951844 since 7 November 2006.

4.	Barry MacKenzie and Hannah Gusterson are both directors of the company with the latter being the company secretary.

5.	On 1 March 2007 the Respondents notified the Appellant of the grounds on which security may be required of a trader and how the level of security is calculated.  On 2 April 2007 the Respondents served a Notice of Requirement to give security together with Public Notice 700/52, Notice of Require to give security to Customs and Excise.  On 17 April 2007 the Respondents sent a follow up reminder letter to the Appellant and, on the same day, received a letter from the Respondents asking them to consider allowing the Appellant to render monthly VAT returns in lieu of the monetary security requested.  On 4 may 2007 the Respondents wrote to the Appellant upholding their earlier decision to require security.  The letter explained the reasons the security was requested, how it was calculated and offered a recalculation of the quantum if the Appellant felt it was excessive.  On 21 May 2007 the Appellant wrote to the Respondents lodging their appeal.  On 24 March 2007 the Appellant sent a Notice of Appeal to the Tribunal.

6.	For completeness, reference is made to an associated legal entity which is relevant to our consideration.  Quails on Toast Ltd (No 0468071) was registered for VAT under registration number 807016556 from 15 August 2003.  The company carried on a similar type of business to that of the Appellant and traded from the same address.  Barry MacKenzie and Hannah Gusterson were both directors of that company.  On 7 November 2006, the business was transferred as a going concern to the Appellant.  The company itself went into administration on 19 December 2006 with a debt of £45,708.45 owed to the Respondents.  That company had nine default surcharges for 14 traded periods with substantial VAT remaining unpaid and assessments issued for the last three periods.

7.	The Appellant grounds of appeal were stated as follows:

•	We understand that in HM Revenue and Customs eyes it could look like the behaviour of the previous company was due to a complete disregard for paying its VAT liability however, this is not the case.  We have full audited accounts from Quails on Toast Limited that show we did everything possible to make the company work and pay all due.  We constantly took and followed advice from our accountants, bank and finally a company called Begbies Traynor and did everything physically possible to make the company succeed.

•	In Mr Hammersley’s letter he refers to the fact that both companies were and are cash businesses and therefore it is not acceptable to have trouble paying our VAT liability.  In theory yes that is correct however in our first 7 months of trading as Quails on Toast Limited the business lost £45,777.00.  Myself and Barry are not wealthy people so therefore did not have the money to put back into the business to make up for this gigantic loss.  We had to find the money some other way and stupidly we did this by putting off paying bills.  Please understand though that we always thought that we would be able to pull the company through its early struggling stages.

•	We have always taken VAT very seriously and it has always caused us a great deal of emotional strain.  We would like you to note that on 7th May 2004 we wrote to the VAT office to ask to move on to a monthly stagger.  Our reasoning behind this was that we could forward our VAT liability every month before it got a chance of being eaten up to pay something else and then us being left with a quarterly bill to pay and panic of how we would come up with the money.  Unfortunately this request was refused.

8.	The Respondents contend as follows:

1.	That the Appellant represents a risk to future VAT due because:

(a)	The directors and company secretary were involved with the 	associated company, Quails on Toast Limited, which had a 	poor compliance history subsequently becoming insolvent 	leaving a VAT debt of  £45,708.45.
(b)	The associated company was a cash business and the VAT 	owed by it had been received by the company, having been 	charged at the point of sale, and as such it was unacceptable 	that the VAT had not been paid by the Respondents.
(c)	The Appellant took over the associated business as a transfer of 	a business as a going concern and are essentially carrying on a 	similar business activity from the same premises so posing a 	risk to the Respondents future revenue.

9.	The Respondents also say that the amount of security required is to safeguard six months of net VAT should the Appellant remain on quarterly returns or four months net VAT if it elects to go onto monthly returns.  The Appellant have not provided any information to show that these amounts are excessive.  Therefore for the protection of the revenue it is necessary to require the Appellant, as a condition of its supplying goods and services under a taxable supply, to give security by a guarantee or cash deposit.

10. 	The Tribunal heard evidence from David Hammersley, an HMRC Officer (at that time) at the Colchester security team.  He explained how the calculations and level of security required were established.  The calculations used the last four returns (06/05, 09/05, 12/05, and 03/06) rendered by the previous business, Quails on Toast Ltd.  The net tax declared on the four returns were established and these were respectively:

06/05 = £13,457.96
09/05 = £10,658.95
12/05 = £  8,687.40
03/06 = £  8,558.63

11.	The twelve months total net tax due = £41,362.94.  The following calculation is then done:

£41,362.94 ÷ £426,000.00 (turnover figure declared by Quails on Toast Limited on VAT 1) x £450,000.00 (turnover figure declared on Appellant’s VAT 1) = £43,693.25.

12.	The security required if quarterly returns are rendered would be:

£43,693.25 ÷ 12 x 6 = £21,846 (6 monthly figure) rounded down to £21,000.00

13.	Security required if monthly returns are rendered

£43,693.25 ÷ 12 x 4 = £14,564.42 (4 monthly figure) rounded down to £14,000.00

14.	The Tribunal heard evidence from the HMRC Officer and asked him to review the present trading figures to see if the security requested could be adjusted downwards.  He was also asked to look at the present compliance record of the Appellant to see if there were any defaults and default surcharges and to establish whether the Appellant qualified for monthly payment.

15.	The Tribunal believe that the Commissioners acted reasonably and considered all relevant matters in making their decision.  Further the calculation and the amount of security required was properly made at the time it was made.  

16.	The Tribunal did not have the benefit of oral representations by the Appellant and so relied entirely on their written representations since they were not present at the hearing.

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

DR K KHAN
CHAIRMAN

RELEASED: 7 November 2008

LON 2007/0977