20968

VALUE ADDED TAX – Requirement for security under para. 4(2)(a), Sch. 11, VATA – Poor VAT compliance record of the Appellant combined with loss of VAT from businesses with which a director of the Appellant was associated – Held, the requirement had not been shown to be unreasonable – Appeal dismissed

MANCHESTER TRIBUNAL CENTRE

STEPHENS JOINERY LIMITEDAppellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMSRespondents

Tribunal:JOHN WALTERS QC (Chairman)

MR. W. SNOWDON

Sitting in public in North Shields on 12 February 2009

Mr. N. W. Stephens, Director, for the Appellant

Ms. Kim Tilling, Advocate, for the Respondents

© CROWN COPYRIGHT 2009

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DECISION

  1. This was an appeal against a requirement by the Respondents that the Appellant give security pursuant to paragraph 4(2)(a), Schedule 11, VAT Act 1994 for the payment of VAT that is or may become due from the Appellant. The security required to be given was £20,545.31, based on the Appellant making monthly returns.
  2. Notice of the requirement was served on the Appellant “for the personal attention of the Director(s)” by a letter dated 24 July 2008 sent by the Commissioners.
  3. Mr. Stephens, for the Appellant, and Mr. Peter Atha, for the Commissioners gave oral evidence. Mr. Atha is a Higher Officer in the Commissioners’ department dealing with insolvency and security. He was the officer who had made the requirement for security. His evidence was accepted by Mr. Stephens without cross-examination.
  4. From the oral evidence and the documents before the Tribunal, we find the following facts.
  5. Mr. Stephens had been registered for VAT for about 30 years between 1974 and 2004 as a sole trader carrying on construction work. In 2004 he was made bankrupt and in the bankruptcy the Commissioners had a claim in relation to VAT of £119,446.39 of which £33,373.32 was recovered.
  6. Mr. Stephens was (and remains) a director of Stephens Contractors Limited, which has been registered for VAT since 2004. In December 2007 that company entered into a Creditors’ Voluntary Arrangement. At that time that company’s VAT debt was £64,270.38 and there was a default surcharge debt of £5,434.37.
  7. The Appellant company, Stephens Joinery Limited was registered for VAT on 14 May 2007. A notice of requirement to provide security was given to the Appellant on 4 September 2007. The Appellant requested a review of the requirement on 6 September 2007. A review was conducted and the decision was upheld. The Appellant made a second request for reconsideration on 10 October 2007. This was carried out and, again, the requirement was upheld. The Appellant requested reconsideration a third time, providing further information, on 20 November 2007. On this occasion the Commissioners (through Officer Mrs. Helen Stanley) withdrew the requirement and directed that the Appellant submit monthly returns. The Appellant was informed that its compliance would be closely monitored for a year, and “should the situation change, this decision will be reviewed, and a deposit may then be required”.
  8. In the event, although the returns for the monthly periods from 12/07 to 06/08 inclusive had been received in one case on the due date and in the other cases quite soon after the respective due dates, none of the tax shown as due by those returns had been paid by the date of the notice of requirement to give security (24 July 2008). There has been no payment of VAT received except a payment of £4,692.60 for the period 10/07, and that was received 223 days after the due date. .
  9. The amount outstanding at 24 July 2008 was tax of £13,074.29 plus a default surcharge of £295.16.
  10. Mr. Atha decided to make the requirement for security against which this appeal is brought primarily because of the poor compliance record of the Appellant. He also took into account the poor compliance record of Stephens Contractors Limited and the insolvency of Mr. Stephens.
  11. The quantum of the security required was based on the returns made by the Appellant for the periods 12/07to 05/08 inclusive. He calculated 4 months’ average liability and added the outstanding debt to arrive at the figure of £20,545.31 security required.
  12. Mr. Stephens made the point that the Appellant’s ability to make prompt payments of VAT had been hampered by his own absence for hospital treatment and the inability to trade following the requirement for security being made. He explained that his personal bankruptcy and the compliance difficulties of Stephens Contractors Limited had been caused by large bad debts, although the Tribunal noted that these bad debts were not so large that they accounted for the scale of the insolvencies.
  13. Mr. Stephens submitted that the Appellant should be given the opportunity to operate a time-to-pay agreement with the Commissioners for the discharge of its VAT debts.
  14. There was a disagreement between the parties as to whether or not Stephens Contractors Limited had been VAT compliant since the date of the Creditors’ Voluntary Arrangement, Mr. Stephens asserting that it had been, while the Commissioners’ figures showed a tax debt of £1,216 and default surcharge of £182.40 as at 24 July 2008.
  15. The Tribunal accepted Mr. Atha’s statement that even if he had been satisfied that Stephens Contractors Limited had been VAT compliant since the date of the creditors’ Voluntary Arrangement, he would still require the Appellant to provide the security notified because his primary consideration was the poor compliance record of the Appellant itself since the earlier requirement for security had been withdrawn.
  16. The Tribunal noted that in this appeal it had a supervisory, rather than a full appellate, jurisdiction, and its function was to determine whether Mr. Atha had acted reasonably in making the requirement for security, having regard to the Respondents’ power to require security if they consider it to be necessary for the protection of the revenue.
  17. The Tribunal concluded on the basis of the evidence that Mr. Stephens had been unable to show that Mr. Atha’s decision to require security from the Appellant had been unreasonable.
  18. The Tribunal therefore dismissed the appeal. The Chairman announced the Tribunal’s decision at the conclusion of the hearing.
JOHN WALTERS QC
CHAIRMAN
RELEASE DATE: 27 February 2009

MAN/2008/1265

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