Space Solutions v Customs & Excise [2005] UKVAT V19138 (28 June 2005)
19138
SECURITY – involvement of a director in other companies – two of which had de-registered with substantial Vat liabilities – mistake of fact – requirement of Customs reasonable – appeal dismissed
MANCHESTER TRIBUNAL CENTRE
SPACE SOLUTIONS LIMITED Appellant
- and -
HER MAJESTYS REVENUE AND CUSTOMS Respondents
Tribunal: Elsie Gilliland (Chairman)
Gilian Pratt
Sitting in public in Manchester on 10 May 2005
No attendance on behalf of the Appellant
Mr. J. Shields of counsel instructed by the Acting solicitor of HM Revenue and Customs for the Respondents.
© CROWN COPYRIGHT 2005
DECISION
- The appeal before the tribunal is that of Space Solutions Retail Limited (the Appellant) against a Notice of Requirement to give security under Schedule 11 paragraph 4 (2)(a) of the Value Added Tax Act 1994 issued by Customs by letter on 13 May 2004. There was no attendance on behalf of the Appellant and on the application of Counsel for Customs we determined to proceed under Rule 26 (2) of the Value Added Tax Tribunals Rules 1986. Three officers of Customs attended to give evidence. Objections had been raised to three witness statements (two of those witnesses gave evidence) and two further statements to which no objection had been made were also put to the tribunal. This was the fourth occasion that the matter had come before a tribunal but we approached the matter de novo.
- The security required from the Appellant was £18700 if quarterly Vat returns were to be made or £12500 on a monthly return basis. The decision was made by Helen Teresa Stanley (Mrs. Stanley) who gave evidence. These figures were confirmed on a reconsideration in a letter from David Price of the Security Unit despite further information which it had been said had been put to Customs by the Appellant. In that letter it was stated that the figures were based on the links between the Appellant and Victoria Trading and Distribution International Limited (Victoria Trading) and Aylesmead (sic) Business Services Limited both of which companies had de-registered with significant debts to Customs.
- On 15 June 2004 the Appellant submitted a Notice of Appeal to the tribunal signed by H. Ullah Director and set out its grounds as follows:
"Although the basis of the decision was not obvious in the original notification (dated 13/05/04), the letter dated 16/06/04 explicitly stated it- it was based on links between this company, Victoria Trading and Ayslesmead (sic) Business Services Ltd. and the fact that the latter two left significant debts to Customs and Excise. These links amount [to] the fact that I had associations with all three. However, I was merely the company secretary of Victoria Trading and officers of HMCE interviewed me about the activities of Victoria Trading. They concluded that this company was "highjacked" and used to make supplies of goods thereby incurring a Vat liability, a liability that does not lie with myself and for that matter Victoria Trading. Even if it did lie with the company, that again does not automatically make me in any way responsible. The aggravating factor here is that Victoria Trading did nothing wrong but I am still being tarnished.
With regard to Asylesmead Business Services Limited, this company was sold to Mr Robert Wilmott (sic) on 4 October 2003, details I have supplied to HMCE on numerous occasions. This was a legal transaction and the control of the company was transferred to Mr Wilmoutt in its entirety.
To create a spurious link between myself and the conduct of two companies I had no control over or obligation as to the nature of their conduct is wholly unfair and in my opinion an attempt to bolt the door after the horse has bolted. With all the controls put in place by the Government, why was Victoria Trading allowed to be highjacked? The omission of action by other parties is the reason why HMCE are now demanding I pay a security deposit to lawfully trade my company, Space Solutions Retail Ltd. This is, indeed, in my opinion not the purpose for which HMCE can demand that I pay this deposit.
I would also point out that this company (Space Solutions Retail Ltd.) has been registered for five months (since January 2004). I do not think anyone would disagree that it has complied with all regulations and obligations it has as a company to HMCE and certainly does not have outstanding debts.
Accordingly, with the utmost respect and humbly, I would suggest to the Chairman that the request for the deposit is unreasonable and unlawful and to demand it and for me to have to pay it is effectively placing my company out of business because I am simply not in a position to pay in any event. It is unjust that I have to liquidate my company (as Mr. David Price, HMCE, Security Unit Halifax suggested) for reasons that do not even exist, namely artificial links made between various companies.
I thank you for your time and patience in understanding my grounds for appeal."
- The reasons which had been given by Customs for requiring security related thus to the previous involvement of H. Ullah (also known as Hafiz Ullah and Hafiz Noorullah and whom we shall refer to as Mr.Ullah) in certain companies which had defaulted leaving substantial Vat liabilities. When the Appellant was established with Hafiz Noorullah as a named director the view of Customs was that for the protection of the Revenue a deposit should be required from the new company as a condition of it supplying goods or services under a taxable supply. Mr. Ullah had protested that his links with the companies referred to were tenuous; so far as Victoria Trading was concerned he was merely company secretary not a director and in any event even Customs had acknowledged that it had been fraudulently taken over; and as to Asylesmead Business Services Ltd. (Ayslesmead) that also had passed out of his control as a director as it had been legitimately sold on 4 October 2003. He had resigned as a director prior to the assessment and was therefore free from the associations attributed to him.
- Customs produced to the tribunal a grid being a schedule of five companies including the Appellant setting out (inter alia) the company names, the periods of registration and types of business, details of directors and amount of Vat (if any) outstanding against each. The other four companies were Victoria Trading with a Vat liability shown of £75718 plus interest to a total of £80637.50; IT Project Contract Ltd; Asylesmead with a tax liability of £444343.50; and Aylesmead Business Services Ltd. (Aylesmead) which was registered and de-registered on the same day that is 1 December 2003. The types of business recorded varied but it was clear from the evidence of Customs officers to the tribunal that there had been some dealing in the mobile phone or accessories market and that Customs were sensitive to the threat in that market of carousel fraud. Mrs.Stanley gave evidence. She had based her decision on information she then had available to her first as to Victoria Trading which she understood owed £80000 Vat; Asylesmead which owed £400000 Vat; and she took into account some additional information she had that IT Contact Project Ltd. had been compulsorily deregistered without Mr. Ullah seeking to restore the registration; and also that the company Aylesmead had been de-registered on the day of its registration. We would mention that we have noted throughout some confusion in the paperwork of Customs as to the correct reference to the company which figured in the decision to require security. We record that we are satisfied that the company shown on the grid as Asylesmead with the period of registration of 23/5/3 to 26/1/4 and not Aylesmead registered and de-registered on 1 December 2003 was the one to which Mrs.Stanley was referring and to which David Price sought to refer in correspondence. With regard to Victoria Trading she took Mr. Ullah as company secretary Hafiz Ullah as the person responsible for company matters. She knew that there was a Vat assessment as she had discussed it with Sylvia Anne Jones( Mrs. Jones) who had issued it and who also gave evidence. The evidence of Mrs. Jones in connection with Victoria Trading was that she had disallowed a series of inputs to a tax figure of some £79000 and was unhappy as to a lack of documentation with respect to that company's transactions particularly with Europe. As to IT Contact Project Ltd. Mrs. Stanley knew that de-registration had been put into effect by the Flexible Response Team of Customs the reason being a lack of response by that company to correspondence though she could not say when she became aware of the lack of response. Mrs. Stanley had concluded that Mr. Ullah had been a director of Ayslesmead during the period of its assessment. The subsequent information supplied by Mr. Ullah was that Ayslesmead had been sold. The evidence to the tribunal of Customs officer Paul David Staniforth was that Mr. Ullah had told him that the sale had been at the end of September (28-29 September). Elsewhere (including the grounds of appeal) the reference was to 4 October. On these dates the claim of Mr. Ullah was that his responsibility had ceased. Mr. Staniforth told the tribunal that there had been no evidence produced as to the sale and without evidence of payment he would say that the sale never took place. On the question of the alleged "highjacking" of Victoria Trading Mr. Staniforth acknowledged that without evidence he had to deal with the facts which pointed to a highjacking but he stated that the assessment of some £80000 was not re the highjack period but prior to his involvement.
- Mr. Ullah had said to Mr. Staniforth that he had sold the business to a Mr. Wilmoutt who had paid by instalments the first sum of £40000 having been paid in October. The company print- out for the company shows Robert Wilmoutt as a director from 27 October 2003 the date of Hafiz Noorullah's resignation. Mr. Staniforth detailed to us the steps he had taken in an attempt to substantiate the information on the sale of Ayslesmead. Although he had made contact with an accountant who it was said had been asked to prepare a Vat return he had never been successful in contacting Mr. Wilmoutt and no Vat return had been submitted.
- The relevance of this is that the claim made by Mr. Ullah was that he had ceased to be a director when the company was sold and that had been a legal transaction on 4 October. However Mrs. Stanley had based her decision on his being a continuing director during the assessment period. Counsel for Customs treated this before the tribunal as a mistake of fact on the part of the officer. When questioned she had confirmed that had she known that Mr. Ullah had ceased to be a director at an earlier date it would not have made her vary her decision. The evidence of Mr. Staniforth was that during the period of Mr. Ullah's directorship if accepted as he claimed of a lesser period the Vat liability of Ayslesmead would still have been some £1.5 million instead of £4 million. There was no information or copy documentation available to us apart from the company print-outs and we are unable to reach any conclusion as to the matter of the sale. We are however satisfied that when she made her decision Mrs. Stanley took into account all information available to her.
- We accept also the basis of the calculation of the security figure. Mrs. Stanley explained her methodology which was based on the turnover figure stated by the Appellant in Vat 1 namely £500000. On this she calculated the output and worked out the notional input using tables of the tax performance ratio of trade classes. A formula was then used to calculate the figure for output less input divided by the input of the average trade company. The tax performance ratio of .75 was turned into a percentage. The notional input was deducted from the notional output and applied to turnover and this gave a figure for tax due and the Notice had worked on the basis of 6 months tax for quarterly returns and 4 months for monthly rounded down to the nearest 100.
- The role of the tribunal in an appeal as to whether a taxpayer should give security under VATA 1994, Sch 11, para 4(2) is to review the decision of Customs, in the instant case that of Mrs. Stanley. We are limited to looking at the facts and matters in existence when the decision was taken to exercise a reviewing function rather than having power to substitute a decision of our own. This approach was confirmed by the Court of Appeal in John Dee Ltd. v CCE [1995] STC 941. We may however consider whether Customs acted "unreasonably" for instance in giving weight to irrelevant matters or in failing to take into account relevant matters and we may consider whether Customs had misdirected themselves on law. The "protection of the Revenue "is however not a responsibility placed on the tribunal.
- It is clear that there has been uncertainty surrounding one of the matters that the officer took into account namely the length of time of the directorship of Mr Ullah in Ayslesmead. He claimed that a sale had taken place and his involvement as director ceased. The latest date he gave for this was 4 October 2003. The print-outs showed a date of 27 October 2003. Counsel has drawn to our attention the decision in "E" and the Secretary of State for the Home Department [2004] EWCA Civ 49 a case on judicial review but which he submitted we can look to as to the role of a tribunal should there be a mistake of fact. It is clear to us that Mr. Ullah did not draw the situation to the attention of Customs until after the decision had been made. The officer had concluded that the involvement of Mr. Ullah in the Appellant would constitute a serious risk to future revenue. We consider that the officer acted reasonably in coming to this conclusion. She did accept that she had incorrect information as to the period of Mr. Ullah's directorship in Ayslesmead as whatever the background of the alleged sale the company records do show that Hafiz Noorullah resigned as a director on 27 October 2003. However she said in evidence that during the period in respect of which he was indisputedly a director £1.5 million tax was due and her decision that security was requisite would not have changed. We are satisfied that the decision of the officer was not confined to a consideration solely of Mr. Ullah's role in Ayslesmead that there were other factors and that in John Dee terms the decision of Customs inevitably would have been the same.
- We are satisfied that the decision taken by Customs was reasonable. They established that there was a clear connection between the director of the Appellant and his roles in other companies two of which owed substantial amounts to the Revenue.
- The appeal is dismissed.
- Customs have sought costs and they are entitled to the same as having been successful in the matter. If these can not be agreed between the parties either party shall be at liberty to bring the issue of costs before a Chairman sitting alone
ELSIE GILLILAND
CHAIRMAN
RELEASE DATE: 1 June 2005
MAN/04/340
