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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Yalegate Ltd v Revenue & Customs [2006] UKVAT V19852 (31 October 2006) URL: http://www.bailii.org/uk/cases/UKVAT/2006/V19852.html Cite as: [2006] UKVAT V19852

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19852

VAT – SECURITY – Protection of Revenue –– The Appellant company taking on the director and business of an insolvent company with VAT debts of in excess of £350,000 – the size of security, although bearing no relationship to the Appellant's existing VAT liability, was primarily based on the tax liability of the insolvent company – whether Respondents' actions in requiring a security reasonable – Yes – was the size of the security proportionate to the risk – Yes – Appeal dismissed – VAT ACT 1994 Schedule 11 p 4(1).

MANCHESTER TRIBUNAL CENTRE

YALEGATE LIMITED Appellant

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

BOB GRICE (Member)

Sitting in public in Birmingham on 10 October 2006

The Appellant did not appear

Bernard Hayley instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2006


 


DECISION

The Appeal

1. The Appellant was appealing against a Notice of Requirement to give Security in the sum of £61,400 issued on 5 May 2006.
2. The ground of Appeal was that the amount of security bore no relationship to the amount of VAT paid each quarter by the Appellant company.

The Hearing

3. The Tribunal notified the Appellant in writing of the date, time and venue of the Appeal hearing. The Appellant failed to attend at the appointed time. The Tribunal contacted the Appellant by phone to find out why it did not attend. The Appellant offered no explanation for its failure to attend.
4. The Respondents applied for the Appeal to be heard in the absence of the Appellant pursuant to rule 26 of the Tribunal Rules 1986. Since we had no explanation for the Appellant's failure to attend, and the potential risk to the protection of the revenue from delaying the hearing, we granted the application.

The Issue to be Decided

5. The Appellant company traded in miscellaneous wholesale goods, and had been registered for VAT since 11 November 2002. On 1 February 2006 the Appellant appointed Simon Wright as a director so as to expand its business interests. Mr Wright intended to trade in mobile phones, the business of Mr Wright's former company, Starcell UK Limited, which had gone into liquidation on 7 January 2005 owing the Respondents in excess of £350,000 in VAT. The Respondents formed the view that Mr Wright's involvement in the Appellant company posed a significant risk to the protection of the revenue. The Respondents calculated the amount of security in the sum of £61,400 from the VAT returns for the Appellant company, and the last nine months VAT liability for Starcell UK Limited.
6. The issue for the Tribunal was whether the Respondents had acted reasonably in imposing the security for the protection of the revenue. Thus we have to decide whether the Respondents acted in a way in which no reasonable panel of Commissioners for HM Revenue and Customs could have acted, or whether they had taken into account some irrelevant matter, or disregarded something to which they should have given weight when imposing the security requirements. In exercising our jurisdiction we must limit ourselves to considering facts and matters, which existed at the time the challenged decision to require a security was taken.

The Legislation

7. Paragraph 4(2), Schedule 11, of the Value Added Tax Act 1994 provides that

"If they think it is 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, or

b) any person by whom or to whom relevant goods or services are supplied."

The Evidence

8. We heard evidence from:

(1) Ruth Morris, the senior officer who issued the Notice of Security.

(2) David Lee, the officer responsible for overseeing the VAT returns of Starcell UK Limited.

9. The Respondents supplied a bundle of documents which we took into account in reaching our decision.
10. Mr Wright was the sole director of Starcell UK Limited which traded in mobile phones from 1A Gretton Road, Mapperley, Nottingham. Mr Lee of the Respondents was appointed to monitor the VAT returns of Starcell UK Limited. He was unable to reconcile the amounts declared on the returns for 07/02 to 09/04 with the invoice amounts, and asked for an explanation for the discrepancy from Starcell UK Limited. Before Mr Lee received its explanation, he discovered in December 2004 that Starcell UK Limited had gone into liquidation. Mr Lee assessed Starcell UK Limited for unpaid VAT which left the company with a debt of VAT in the sum of £353, 110.59. Mr Lee believed that Starcell UK Limited issued invoices after it ceased trading. Starcell UK Limited was declared insolvent on 7 January 2005 and de-registered from VAT on 5 May 2005.
11. The Appellant company was registered for VAT in 1 November 2002. The Appellant traded in general household goods from Unit 4, Far Baulker Farm, Old Rufford Road, Oxton, Nottingham. Prior to the appointment of Mr Wright as director, there were two directors of the Appellant company, Kathryn Scothern and Kenneth Groutage. On 1 February 2006 the Appellant appointed Mr Wright as a director.
12. In March 2006 Mrs Morris became aware of Mr Wright's appointment as director of the Appellant company. Mr Groutage informed her that Mr Wright was taken on to recommence trading in mobile phones from the premises used by Starcell Limited with the purpose of expanding the Appellant's business.
13. Mrs Morris considered that the Appellant posed a significant risk to the protection of the revenue because :

(1) Mr Wright's appointment as a director, and his previous involvement with Starcell UK Limited which had unpaid VAT debts in excess of £353,000.

(2) The Appellant allowed Mr Wright to carry on his previous business from the former address of Starcell UK Limited so that it could expand its business activities.

(3) The Appellant's incorporation of the former business of Starcell UK Limited carried the risk that it would encounter the same problem of mis-declaration of VAT liabilities resulting in significant losses to the revenue.

14. Mrs Morris calculated the amount of security using the last four VAT returns of the Appellant company and the true amount of tax following Mr Lee's assessment for Starcell UK Limited. The calculation produced an average monthly liability for VAT in the sum of £10,238, and £61,432 for six months liability, which was rounded down to £61,400 for the amount of security required from the Appellant.
15. On 5 May 2006 Mrs Morris issued the Notice of Security in the sum of £61,400 on the Appellant company.
16. On 23 May 2006 Mackenzie Field, Chartered Accountants for the Appellant, complained that the amount of security demanded bore no resemblance to the tax declared in last four quarter VAT returns for the Appellant company (05/05 to 02/06) which totalled £13,523.17 with an average monthly return of £1,126.93.
17. Mrs Morris in response pointed out that with the incorporation of the former business of Starcell UK Limited into the Appellant company, the Appellant's annual turnover increased dramatically from £15,000 to £43 million. In her view the size of the security should be viewed in the context of the dramatic increase in turnover which carried a high risk of significant loss to the revenue.

Reasons for Our Decision

18. Our starting point is to consider whether Mrs Morris acted in a way in which no reasonable panel of Commissioners for HM Revenue and Customs could have acted, or whether she took into account some irrelevant matter, or disregarded something to which she should have given weight when imposing the security requirement for the protection of the revenue on the Appellant company on the 5 May 2006. In exercising our jurisdiction we must limit ourselves to considering facts and matters which existed at the time the challenged decision to require a security was taken. We are unable to substitute our own discretion for that of the Commissioners. Our task is to decide whether the decision of Mrs Morris was reasonable.
19. Mrs Morris' decision was based upon the inherent risks associated with the Appellant taking on the former business of Starcell UK Limited which had gone into liquidation owing the Respondents in excess of £353,000 in unpaid VAT. The Appellant appointed Mr Wright as a director to carry on that business in the same way from the same premises as he did when he was director of Starcell UK Limited. We consider that Mrs Morris was correct in giving weight to those facts when imposing the security. In our view they were relevant in assessing the Appellant's risk to the protection of the revenue.
20. The Appellant's ground of Appeal focussed on the amount of security. On the face of it the size of the security demanded was excessive to the tax liability declared in the Appellant's four returns prior to the issue of the Notice. The amount demanded represented five years of tax based on the Appellant's existing liability for VAT. In fixing the size of the security, Mrs Morris took account of the dramatic increase in the Appellant's turnover following the absorption of Starcell's former business, the size of VAT debt owed by Starcell and that Starcell ex employees offered no explanation for the discrepancies between its VAT returns and invoice amounts. We are satisfied that size of the security demanded was justified when viewed in the context of the factors identified by Mrs Morris. We consider that the amount demanded was proportionate and necessary to the risk posed by the enlargement of the Appellant's business.
21. We find no evidence that Mrs Morris took into account some irrelevant matter or disregarded something to which she should have given weight in coming to her decision on the 5 May 2006.
22. For the reasons set out above we hold that the issue of the Notice of Security dated 5 May 2006 on the Appellant was reasonable. We, therefore, dismiss the Appeal.
23. The Respondents applied for their costs of £100 plus VAT in connection with the Appeal. The Appellant offered no explanation for not attending the hearing. We are satisfied that the Appellant abused tribunal procedure. We, therefore, order the Appellant to pay the Respondents' costs of £100 plus VAT.

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 31 October 2006

MAN/06/375