20913

VAT- Para 4 Schedule 11 VATA – requirement for security – Reasonable in principle and amount? Yes – Appeal dismissed

LONDON TRIBUNAL CENTRE						

	KENT CABLING CONTRACTORS LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	Adrian Shipwright (Chairman)
					John N. Brown CBE FCA CTA

Sitting in public in London on 20 February 2008

The Appellant did not appear

 Pauline Crinnion, Advocate, HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	This is an appeal against a Notice of Requirement to give Security contained in a letter dated 7 December 2006.  This required the Appellant to pay £10,000 on monthly returns or £15,000 on quarterly returns.  This was amended to a requirement to provide security of £10,000 in a letter of 2 January 2007.
2.	The Appellant did not appear when the case was called on.  It was decided to proceed under rule 26 of the Tribunal Rules.
3.	The Appellant carries on business as an electrical contractor from premises in Gravesend.
4.	 An earlier company, Kent Cabling Limited, had a very poor compliance record.  This company had gone into liquidation with three VAT returns outstanding and owing VAT of some £23,000.  In two earlier instances debts were settled by payment “on the steps of the court”.  There was a history of poor compliance and the need for debt management.
5.	The director of Kent Cabling Contractors Limited was David Gillham and the company secretary was Teresa Ann Gillham. They were recorded as residing at the place stated to be the company’s principal place of business.
6.	Kent Cabling Limited carried on an electrical contracting business seemingly from the same address which was the registered office of both companies. David Gillham was the director.  He was originally also the company secretary but Teresa Ann Gillham became the company secretary soon after.  A winding up order was made in October 2006.
7.	Because of the previous experience and the involvement of the same personnel, the Respondents considered there was a risk to the revenue and issued the Notice requiring security.
8.	The calculation of the amount of the security was not done on a TPR (Tax Performance Rate) basis but on the basis of the actual returns of Kent Cabling Limited adjusted to take account of the expected level of turnover given on the Appellant’s VAT Registration Form.  In every case the Appellant was given the benefit of the doubt and sums rounded down.  We consider this to be a rational, reasonable and fair basis of calculating the amount of security.  This produced a figure of net tax for four months on monthly returns of £ 10, 256.  This was rounded down to £10,000.
9.	We understand that the Appellant’s case is essentially as follows:
(1)	The amounts of the security is excessive;
(2)	if this sum were paid the company would not be financially viable;
(3)	The company’s accountant had put himself on the payroll without the Appellant’s knowledge.  He was on the payroll at a salary of £31,000 for six years.  He also forged Mr Gillham’s signature on the account;
(4)	He was not a qualified accountant;
(5)	He refused to release the records for Kent Cabling Limited;
(6)	The director of Kent Cabling Ltd was unaware of the outstanding VAT returns or the debts of some £23, 000;
(7)	The Appellant was willing to go onto monthly return…….
10.	In essence, the Respondent argued that the requirement to provide security was reasonable both in principle and amount.  The matters raised by the Appellant were not relevant to the issue before the Tribunal. The director and company secretary have a long and poor compliance record for VAT.  They are considered to be a risk for the payment of VAT and so for the protection of the revenue it was necessary to require the Appellant to give security as a condition of the supply of goods or services liable to VAT.  Accordingly, the appeal should be dismissed.
11.	We find that:
(1)	The Respondent’s concerns as to the future payment of VAT by the Appellant were well founded;
(2)	This was because the director, the company secretary and the business of the Appellants were the same as those of Kent Cabling Ltd which had a bad compliance record and had gone into liquidation with three VAT returns outstanding and owing the Respondent some £23,000;
(3)	The requirement of security was accordingly justified in principle;
(4)	The calculation of the amount of the security and the methodology for doing so were rational, reasonable and fair and the amount was not excessive.
12.	Accordingly, the appeal is dismissed.  We make no order as to costs.

ADRIAN SHIPWRIGHT

CHAIRMAN
RELEASE DATE: 9 January 2009

LON/2007/391