20354

Security – requirement for – whether the Commissioners acted reasonably and took account of all relevant material – Appeal dismissed – VATA 1994 Sch 11 para 4(2)

LONDON TRIBUNAL CENTRE

	MR T FRANCIS T/A SIGNS DIRECT EUROPE	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	DR KAMEEL KHAN (Chairman)
						SHEILA WONG CHONG FRICS

Sitting in public in London on 24 July 2007

The Appellant did not appear

Mr Simon Chambers, Advocate, HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

Introduction

1.	The disputed decision of the Commissioners for Her Majesty’s Revenue and Customs (“the Commissioners”) is a Notice of Requirement to give security dated 30 November.  The quantum of security required was reduced by letter on 2 April 2007 to £39,840.30.  There was one witness, who provided evidence on the calculation of the quantum.  The witness was Ms T Birch, Higher Officer, HMRC, Southampton Office.

Background
2.	The Appellant was registered for value added tax as a sole proprietor with effect from 25 September 2001.  The Appellant is in the business of manufacturing signs.

3.	On 13 November 2006, the Commissioners issued a warning letter to the Appellant that they were considering requesting an amount of security for value added tax.

4.	A notice of requirement to give security was served by the Commissioners on the Appellant on 30 November 2006.

5.	The initial quantum of security was reduced from £47,740.30 to £39,890.30 and later to £39,840.30 after reconsideration by the Commissioners.

6.	By letter dated 28 December 2006, the Appellant explained that over £30,000 of bad debt could not be recovered from customers who had gone into liquidation, but that in 2007 it was expected that the Company would become profitable and settle all outstanding payments to the Commissioners.

7.	On 18 January 2007, the Commissioners wrote to the Appellant acknowledging receipt of the VAT return for period 11/06 and associated payment of £7,349.45.  The Commissioners confirmed that the quantum of security would not be reduced.  It was pointed out to the Appellant that he had not submitted the outstanding VAT returns for the periods ending 05/06, 06/06, 07/06, 08/06, 09/06 and 10/06.  The Appellant had also failed to provide information on the Company’s bad debt.

8.	The Appellant was a director of two other companies, Sign Tech (SE) Ltd which was in the default surcharge regime for six periods two of which were at the 15% penalty rate and had failed to submit returns and payments for a total of eight periods.  The company had a debt on file in the sum of £7,766.15 at the time of insolvency.  The second company of which he was a director, Sign Direct Trade Ltd, had a VAT debt on file in the sum of £37,871.80 at the time of its insolvency.

The Appellant’s contends
9.	The Appellant’s grounds of appeal and points for consideration were given as follows:

•	The security amount would cause hardship which would affect the ability to pay current VAT liabilities on time.
•	The Appellant would be unable to pay suppliers when required, compounding cashflow problems.
•	Current cashflow problems were caused by a bad debt of £30,000.00 and difficulties collecting £32,000.00.
•	Requesting the security will make it impossible to continue trading and therefore unable to pay the true liability by mid-March.
•	£4,000.00 is owed to the Appellant in respect of charges made by Lloyds TSB.
•	A £25,000.00 loan will become available at the end of February 2007 when it is anticipated the current liability can be paid in full.
•	The Appellant has tried to raise capital to pay the current liability but has been unsuccessful.

The Commissioners Contend
10.	The legal provision to serve the Notice under appeal is provided by the Value Added Tax Act 1994 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 him.  This applies if it is believed that there is a risk to future revenue.

11.	The amount of the security requested is based on a long-standing and well tested formula approved by independent VAT tribunals.  The formula reflects the minimum time it would take to recover the debt if, in future, VAT was unpaid.  The amount of security requested was calculated using the most accurate information available, that is, the tax declared on VAT returns submitted by the Appellant.  To this calculation the Commissioners have added the outstanding tax.

12.	In the case of the Appellant the risk to future revenue is believed to exist as a result of the following factors:

•	The Appellant has a history of non-compliance.
•	5 VAT returns were outstanding at the time the Notice of Requirement was served.
•	The Appellant has been in the default surcharge regime at 15% since 03/03 period.
•	The debt to the Commissioners at the time the Notice of Requirement to give further security was served on 30 November 2006 totalled £28,403.85 inclusive of default surcharges.
•	The Appellant has previously been required to submit sums of security to the Commissioners.
•	In May 2004 a Notice of Requirement to give Security was issued.
•	A security deposit was received and offset against debt.
•	In November 2004 a further Notice of Requirement to give Security was served and a security deposit was collected and offset against outstanding debt.
•	There are three warrants on file two of which have resulted in levies.
•	The Appellant has been a Director of two other sign manufacturing companies both of which have a poor record of compliance.
•	The total debt to the Commissioners of the associated companies is over £38,000.00.

Conclusion
13.	The Tribunal has an appellate jurisdiction.  It has to consider whether the Commissioners acted reasonably and took account of all relevant material, but has no power to substitute its own decision.  (See Customs and Excise Commissioners v John Dee [1995] STC 941.)  In looking at the decision of the Commissioners, the Tribunal must limit itself to facts and matters which existed at the time the decision was taken by the Commissioners.  The fact that the requirement for security would cause hardship to the Appellant is not a relevant consideration (see Rosebronze v Commissioners of Customs and Excise (1984) VAT Decision No.1668).

14.	We conclude that the decision reached by the Commissioners in their notice of requirement to give security dated 30 November 2006, was reasonable in the circumstances.

DR KAMEEL KHAN
CHAIRMAN

RELEASED: 24 September 2007

LON 2007/0342