First-tier Tribunal (Tax)

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Cite as: [2009] UKFTT 104 (TC)

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ST Enoch's Garage Ltd v Revenue & Customs [2009] UKFTT 104 (TC) (18 May 2009)
VAT - SECURITY- REQUIREMENT FOR
Vat - security- requirement for

[2009] UKFTT 104 (TC)

TC00072

SECURITY – directors involved in previous companies with poor compliance record – reasonableness of the Commissioners' decision – appeal dismissed

FIRST-TIER TRIBUNAL (TAX CHAMBER)

ST ENOCH'S GARAGE LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Judge)

Susan Stott (Member)

Sitting in public in Manchester on 7 April 2009

John Farnsworth, accountant, for the Appellant

Kim Tilling, instructed by the General Counsel and Solicitor to Her Majesty's Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

The Appellant appeals against the decision of the Commissioners, contained in a letter dated 9 July 2008, and being a Notice of Requirement to give Security under Schedule 11, paragraph 4 (2) (a) of the Value Added Tax Act 1994. The sum required was £29,166.66 if quarterly returns were submitted or £19,444.44 on monthly returns.

We heard oral evidence on behalf of the Commissioners from Mr. Peter Atha, the officer who raised the assessment. We were addressed by Mr. Farnsworth and Mr. Mohammed Yaqoob, a director of the Appellant company, on behalf of the Appellant but no oral evidence was given.

The Appellant company applied for registration as a motor dealership with effect from 1 December 2007. The application for registration went through a routine sift and revealed that the named directors had been associated with earlier non-compliant companies. The case was therefore referred to Mr. Atha to consider whether security should be required. The named directors of the Appellant were Mohammed Yaqoob and Sofia Yaqoob. Enquiries revealed that they had both been, and Mr. Mohammed Yaqoob still was, directors of The Car Nation Limited. This company had registered as from 1 September 1997 as a wholesaler and retailer of used motor vehicles. This company's compliance record was poor, with a history from 06/03 onwards of late returns and late payments. Initially returns had been late by approximately one to one and a half months but from 09/03 onwards there were delays of well over a year. As at 9 July 2008, the outstanding debt to the Commissioners was £206,232.96.

A Notice of Requirement to give Security was served upon The Car Nation Limited on 4 March 2008. No appeal had been lodged but as the company had carried on trading, the matter had been referred to the Criminal Investigation Team. It should be noted in respect of this Notice that Mr. Yaqoob denied any knowledge of it but it had in fact been served personally on Mr. Yaqoob by Mr. Atha and he was able to read out the relevant extract from his notebook.

Mr. Yaqoob had also traded as a sole proprietor of the Whetley Motor Company. The compliance record of this company from 04/04 onwards was one of delayed returns, delayed payments, and unpaid cheques. The registration was still extant as at 9 July 2008 when the sum of £946.45 was outstanding to the Commissioners. The Whetley Motor Company had also traded previously under a separate registration number when again the compliance history was poor, with late returns, late payments and a long history of officer assessments.

There was one other matter which was known to Mr. Atha and that was from the Companies House records, that there was a proposal to strike off the Appellant. It was not readily apparent why this should be as the accounts and returns appeared to be up to date. Mr. Atha told us that he had noted the proposal but it was not a driving factor in his decision and not a matter to which he attached much weight.

Against this background, therefore, Mr. Atha took the view that the Revenue was at risk and raised and served the Notice of Requirement currently under appeal. The position of the Appellant company at the time was that its first return had not yet been filed.

We were told by Mr. Farnsworth that Mr. Yaqoob had begun trading as the Whetley Motor Company; had registered with the Commissioners but because of difficulties in trading this had lead to a delay in submitting and paying his returns. He ceased trading but the registration remained open because Mr. Yaqoob had purchased a number of properties on which he had opted to tax. At one stage the properties had been rented out but the last six VAT returns were all nil returns. Having ceased trading as The Whetley motor Company, Mr. Yaqoob set up Car Nation Limited in 1998. Initially trading was profitable and indeed successful until 2002 when a reversal in trading lead to substantial losses. Mr. Yaqoob personally injected vast sums of his own money including obtaining a personal loan from the Royal Bank of Scotland for £2.5 million which was injected into the company. Initially this stabilised it but losses had, of late, been increasing. Although the registration was still open, the last five returns had all been refund returns. One point emerged in respect of this company, namely that Mr. Farnsworth told us that Mr. Yaqoob had repaid the entire liability to the Commissioners and as of the date of the hearing therefore nothing was owed. However this was disputed by the Commissioners who told us that £37,000 was still owed in respect of the return for 06/08.

Mr. Farnsworth went on to tell us that St. Enoch's had been set up as a separate legal entity because Hyundai, which held the franchise was concerned at the losses being incurred by The Car Nation. In addition to setting up a separate legal entity, namely St. Enoch's, Mr. Yaqoob also paid Hyundai a security deposit of £200,000. We were told that St. Enoch's is a different trading type operating on a much lower margin than normal. The return for 08/08 had been a refund return of £30,000; for 11/08 a refund of £2,000 and for 02/09 a payment return of £3,000. It should be noted however again that in respect of the return for 08/08, Mr. Atha told us that the Commissioners had not accepted this return and it had been amended to a nil return, their reasons being errors in records and failure to respond to correspondence.

Mr. Farnsworth told us that it was now going to be very difficult for Mr. Yaqoob to get any further backing from his bank. In the past Mr. Yaqoob had taken no wages or loans or dividends from the companies and had concentrated all his efforts on supporting the staff to whom he was very loyal. This was confirmed by Mr. Yaqoob who told us that since his father died in 2003, Mr. Yaqoob himself had had substantial heart problems and his main aim was to try to save his company.

The jurisdiction of the tribunal is limited to considering the reasonableness of the Commissioners' decision. We have to consider whether the Commissioners had acted in a way in which no reasonable panel of Commissioners could have acted or whether they had taken into account some irrelevant matter or had disregarded something to which they should have given weight. We also consider whether or not they have made an error of law. We are also confined to considering the position as at the date the Notice of Requirement was raised and looking at the matters which were in existence at the time. It is against that background that we look at the factors which Mr. Atha took into account and consider the reasonableness of his decision. He had before him abundant evidence of Mr. Yaqoob's involvement in three earlier registrations, two of which still remained current. All had raised compliance issues of delay in rendering returns, delay in payment of tax, delay in replying to correspondence and the need to raise officer's assessments. One of the companies owed a substantial amount to the Commissioners and another company a rather lesser sum but still a debt. The only issue for our determination is whether Mr. Atha had acted reasonably. We are not able to take into account the impact which the payment of security would have on the company.

It is our view that the decision to raise the requirement was totally reasonable. The factors taken into account by Mr. Atha were all relevant and we were told of no matters to which he should have had regard but did not. As far as the quantum is concerned, the only information available to Mr. Atha was the estimated turnover on the application for registration. To this he applied a trade representative figure for input tax and arrived at the amount demanded. We cannot fault this approach and we dismiss the appeal in its entirety, upholding both the requirement and the amount. We would add however that from what we heard from Mr. Farnsworth and Mr. Yaqoob it may well be that in the light of subsequent trading, the amount is on the high side and if that is right we would very strongly urge the Appellant to seek a review of the amount with the Commissioners. This does not affect our decision.

In summary therefore the appeal is dismissed in its entirety. The Commissioners made no application for costs and we make no order.

MAN/2008/1128

LADY MITTING

JUDGE
Release Date: 18 May 2009