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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Shaw v Revenue and Customs [2005] UKVAT V19184 (25 July 2005) URL: http://www.bailii.org/uk/cases/UKVAT/2005/V19184.html Cite as: [2005] UKVAT V19184

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19184

VALUE ADDED TAX – requirement for security - whether decision to require security a reasonable decision – yes – appeal dismissed – VATA 1994 Sch 11 para 4(2)

LONDON TRIBUNAL CENTRE

SIDNEY MARK SHAW

Appellant

- and -

HM REVENUE AND CUSTOMS

Respondents

Tribunal: DR NUALA BRICE (Chairman)

MR R L JENNINGS FCA FTII

Sitting in London on 15 June 2005

The Appellant in person

Jonathan Holl, Advocate in the Office of the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

The appeal

1. Mr Sidney Mark Shaw (the Appellant) appeals against a decision of the Respondents dated 15 October 2004 requiring the Appellant to give security of £10,400 (or £6,900 if monthly returns were made) for the payment of any tax due from the Appellant.

The legislation

2. The decision was given under the provisions of paragraph 4(2) of Schedule 11 of the Value Added Tax Act 1994 (the 1994 Act) which now provides:

"(2) If they think it necessary for the protection of the revenue, the Commissioners may require a taxable person, as a condition of his supplying or being supplied with goods or services under a taxable supply, to give security, or further security, for the payment of any VAT that is or may become due from-

(a) the taxable person … ."

The issue

3. Thus the issue for determination in the appeal was whether the decision by the Respondents, requiring the Appellant to give security, was a reasonable decision.

The evidence

4. At the hearing oral evidence was given by the Appellant on his own behalf. Oral evidence was given on behalf of the Respondents by Ms Sarah Louise Saunders, an Officer of HM Revenue and Customs. A small clip of documents was produced by the Appellant and a larger bundle by the Respondents.

The facts

5. From the evidence before us we find the following facts.

The Appellant and his current business

6. The Appellant is currently the sole proprietor of a retail jewellery shop at 143, High Street, Hornchurch, Essex. He was registered for value added tax as a sole proprietor on 1 February 2004. His first value added tax return, for the accounting period ending on 31 March 2004, was received by the Respondents on the due date and the amount of tax due, namely £137.78, was paid on time. The Appellant's second value added tax return, for the accounting period ending on 30 June 2004, was also received by the due date; it showed a repayment claim of £141.01 which was paid to the Appellant by the Respondents. The March return showed a turnover of £17,896 (with purchases of £48,607) and the return for the accounting period ending on 30 June 2004 showed a turnover of £72,322 (with purchases of £126,877). The Appellant estimated that his turnover at the date of the hearing was about £180,000 per annum. At the date of the disputed decision no value added tax was outstanding.
7. When applying for registration the Appellant declared his involvement with three other businesses. After the Appellant had been registered the Respondents looked into the Appellant's previous value added tax history. They found that he was also connected with a fourth company.

The Appellant's previous businesses

8. The first company with which the Appellant had been concerned was Romford Jewellery Workshop Limited. The Appellant was the sole director and Susan Shaw was the company secretary. They both had the address of 23, Wycombe Road, Essex. The company operated from 143, High Street, Hornchurch, Essex. The business of the company was the repair of watches, clocks and jewellery. The company was registered for value added tax on 1 April 1999 and its registration was cancelled on 1 January 2000. It became insolvent and was dissolved on 6 March 2001. We were not informed that it had left any value added tax debt.
9. The second company with which the Appellant had been connected was R J Workshop Limited. This company was registered for value added tax on 1 April 2000 and the Appellant was its sole director; Susan Shaw was the company secretary. The business of the company was the sale and repair of jewellery and the company operated from Unit C1, Seedbed Centre, Davidson Way, Romford, Essex. On 11 December 2002 the company was the subject of a creditors' voluntary winding up and it left a value added tax debt owing of £79,184.86. This was made up of unpaid value added tax for accounting periods from May 2001 to December 2002. During that time no tax at all was paid. Two returns, for the accounting periods ending in September and December 2002 were not made.
10. The third company with which the Appellant was concerned was Alton Jewellers Limited which operated from 34, High Street, Alton, Hampshire. It was registered for value added tax on 2 September 2002 and its stated business activity was retail jewellery, clocks and watches. The Appellant was the sole director and Susan Shaw was the company secretary. This company ceased to trade in early 2004 and its accountant wrote on 6 February 2004 to say that the company was being wound up. The Appellant resigned as a director on 4 March 2004. By the date of the disputed decision (15 October 2004) the company owed value added tax of £19,203.83 in respect of unpaid tax for accounting periods from September 2003 to March 2004. The return for the accounting period ending in March 2004 was not made.
11. The fourth company with which the Appellant had been connected was Hornchurch Jewellers Limited. The Appellant was the sole director and Susan Shaw was the company secretary. This company was also registered for value added tax on 2 September 2002 in the name of Gem Jewellers Limited. The company operated from 143, High Street, Hornchurch, Essex (which was the same address as the Appellant's current trade premises) and its stated business activity was jewellery, clocks and watches. The name of the company was changed on 15 October 2003 but the Respondents were not informed of the change. In January 2004 the company was put into the hands of the Insolvency Service. The Appellant resigned as a director on 4 March 2004. In the same month the company ceased to trade when there was a value added tax debt of £20,103.16 in respect of unpaid tax for accounting periods from June 2003 to December 2003. As at the date of the hearing the outstanding debt had risen to £48,341.91.

The Appellant's disqualification

12. The Insolvency Service wrote to the Appellant on 9 December 2003 to say that the Official Receiver intended to apply to the Court for a disqualification order to be made against him based upon his conduct as a director of R J Workshop Limited. The letter enclosed a summary of the conduct upon which the Official Receiver would rely. That summary was in the following form:

"Sidney Shaw caused Workshop to trade to the detriment of the Crown Departments (Customs and Excise and Inland Revenue) between May 2001 and November 2002. During this period Workshop made payments of £3,427.80 to the HM Customs and Excise and payments of £22,301.72 to the Inland Revenue whilst making payments of £1,293,983.80 … to its trade creditors. Sidney Shaw continued to be remunerated by Workshop to November 2002. The result of this was that between May 2001 and November 2002 the losses to the Crown Departments (Customs and Excise and Inland Revenue) totalled £112,148.23 of Workshop's total known creditors of £129,676."

13. On 25 March 2004 the Appellant was disqualified from acting as a company director for a period of three and a half years.

The disputed decision

14. In reaching the disputed decision the Respondents bore in mind the above history of the Appellant's connection with other companies carrying on a similar trade. In particular, they bore in mind that the Appellant was trading as a sole proprietor from the same address as Hornchurch Jewellers Limited and that the business activity of the Appellant as sole proprietor was the same as that of Hornchurch Jewellers Limited. Also, the level of sales declared by the Appellant as sole proprietor was very similar to the level returned by Hornchurch Jewellers Limited when it began to trade. In the light of all these factors the Respondents formed the view that, for the protection of the revenue, security was required.
15. In calculating the amount of the security the Respondents knew that the Appellant had rendered two returns. However, these two combined showed no tax due. A similar pattern had been shown by the returns for Hornchurch Jewellers Limited where the first two returns had shown small amounts of tax due but where the tax liability had jumped sharply from the third return onwards. Accordingly, the Respondents relied upon the value added tax returns for Hornchurch Jewellers Limited from March 2003 to December 2003 which showed annual tax due of £20,851.15 and calculated the amount of security with reference to that sum.
16. The disputed decision was notified on 15 October 2004.

Events subsequent to the disputed decision

17. On 16 December 2004 the Appellant entered into an Agreement with three of his ex-employees to settle claims for non-payment of redundancy payments. The Appellant agreed to make payments amounting in total to £27,587.58 in six monthly instalments from January 2005 to June 2005.

The arguments

18. The Appellant argued that his previous business failures were due either to the fact that the business was dealing only with trade customers or to failed expansions. Trade customers could influence the prices he charged and his previous businesses were not very profitable. His current business was exclusively retail and he did not anticipate further problems. As he now made sales only direct to the public he was in control and could decide what prices to charge and customers paid these prices. The failed expansion resulted from the fact that from September 2002 he was running two businesses (Alton Jewellers Limited which operated from 34, High Street, Alton, Hampshire and Hornchurch Jewellers Limited which operated from 143, High Street, Hornchurch, Essex). These businesses were eighty miles apart and one was run by a manager and staff. Trade had been difficult and he had tried to expand to keep his employees in work. As he could no longer trade through a limited company he was now a sole proprietor and he realised that his personal assets were exposed to any risk of the indebtedness of the trade. At the date of the hearing he was in financial difficulties because of the monthly payments in settlement of the redundancy claim. He had settled with the other creditors of his previous businesses but not the value added tax which he regarded as different.
19. For the Respondents Mr Holl relied upon Goldhaven Linited v The Commissioners of Customs and Excise Tribunal Decision No 14675 at paragraphs 14 and 15 for the principles to be applied by the Tribunal. He argued that the disputed decision was reasonable and the amount of security required was also reasonable. Although the Appellant argued that his business was now retail the fact was that his previous business (Hornchurch Jewellers Limited) was also stated to be retail on the application for registration. He was also still trading at the same address as Hornchurch Jewellers Limited. The burden of proof was on the Appellant who did not dispute any of the matters relied upon by the Respondents. Even if the nature of the business had changed to retail that did not affect the reasonableness of the decision when it was made.

Reasons for Decision

20. We adopt the principles identified by the Tribunal in Goldhaven which are that we should restrict ourselves to deciding whether the Appellant has established that the decision arrived at by the Respondents was unreasonable or whether the decision was arrived at by taking into account matters which were not relevant or by ignoring matters which were relevant. We must restrict ourselves to considering facts and matters which were known when the disputed decision was made. The Tribunal cannot exercise a fresh discretion; the protection of the revenue is not the responsibility of the Tribunal.
21. Applying those principles to the facts of the present appeal we regard as relevant that three out of four of the Appellant's previous businesses failed with substantial amounts owing to the Respondents. Not all the value added tax returns of those companies were made. The Appellant was the sole director of those companies and, because of his failures in connection with one of them, has been disqualified from acting as a director. The Appellant's sole proprietorship business trades from the same address as two of the failed companies. The trade of the sole proprietorship business is very similar to the trades of the failed companies (jewellery, clocks and watches). Even though there may have been a change from selling to trade customers to selling to members of the public, we do not regard such a change as affecting the reasonableness of the decision. In our view it was reasonable for the Respondents to conclude that, as a condition of his supplying goods or services under a taxable supply, the Appellant should be required to give security for the payment of value added tax due from him. Such a requirement was necessary for the protection of the revenue.

Decision

22. Our decision on the issue for determination in the appeal is that the decision by the Respondents, requiring the Appellant to give security, was a reasonable decision.
23. That means that the appeal is dismissed.

DR NUALA BRICE

CHAIRMAN

RELEASE DATE:

LON/2004/1881

24. .07.05