First-tier Tribunal (Tax)

[2009] UKFTT 165 (TC)

Penta Office Furniture Ltd v Her Majesty's Revenue & Customs [2009] UKFTT 165 (TC) (14 July 2009)
VAT - SECURITY- REQUIREMENT FOR
Vat - security- requirement for

TC00127

SECURITY – director's involvement in previous companies which were indebted to the Commissioners – reasonableness of the decision – appeal dismissed

FIRST-TIER TRIBUNAL (TAX CHAMBER)

PENTA OFFICE FURNITURE LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Judge)

Marjorie Kostick (Member)

Sitting in public in Birmingham on 29 June 2009

Mr. Christopher Bracken 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

1. The Appellant company appeals against the decision of the Commissioners contained in a letter dated 2 December 2008 to require the Appellant to give security pursuant to Schedule 11, paragraph 4 (2)(a) Value Added Tax Act 1994. The amount of the original requirement was £23,000 in the event that quarterly returns were submitted or £15,300 for monthly returns. The quantum of the security has since been reduced on review in circumstances described below.
2. We heard oral evidence on behalf of the Appellant from Mr. Christopher Bracken and his son Mark Bracken and on behalf of the Commissioners from Mr. Nigel Ridsdel. With the agreement of both parties the order of proceedings was reversed.
3. This case first came to the attention of the Security Team following a referral from the Risk Team. The Appellant company registered with effect from 1 July 2008 as manufacturers of office and shop furniture. The sole director was named as Mrs. Kay Bracken. On investigation, it was found that Mrs. Bracken had been an officer of three previous companies, all involved in a similar business of manufacture and supply of office and shop furniture. The first company was Contraplan International Ltd, which was registered with effect from 1 April 1973 to 24 September 2003. Mr. Christopher Bracken and Mrs. Kay Bracken were named directors. This company went into liquidation owing the Commissioners £119,329.83. The next company was MCB International (Office Furniture) Ltd, which was registered with effect from 1 September 2003 to 3 January 2007. Mrs. Kay Bracken was named as company secretary and Mark Bracken, her son, as a director. This company also went into liquidation leaving a debt to the Commissioners. At the time of raising the Requirement, Mr. Ridsdel believed the debt to be in the region of £14,884 but he did not take the quantum of the debt into account as he did not have a final true figure. By the time the Requirement came up for review, the reviewing officer was aware of the final indebtedness to the Commissioners and it stood at £38,952.21. The third company was MCB Design Ltd, which was registered with effect from 10 December 2006 to 25 July 2008. Again Mark Bracken was the named director and Kay Bracken the company secretary. This company also went into liquidation on 25 July 2008 leaving a debt to the Commissioners of £68,035.06. Mr. Ridsdel also studied the compliance record of this company. He found that not a single return has been received on time although the first four returns were in fact only a matter of days late. The amount due on the fourth return was never paid and centrally-issued assessments were issued in respect of the remaining periods. Penta Office Furniture Ltd was registered on 1 July 2008. When Mr. Ridsdel came to consider the need for security, the first return for 09/08 was due (due end October) but as at 13 November when he considered the case this return had not then been received.
4. Given the poor compliance record of the three earlier companies and the very large amount of indebtedness to the Commissioners, that indebtedness having arisen in respect of each and every one of the companies, and given the fact that the first return was late for the current Appellant, Mr. Ridsdel believed that a Requirement for Security was fully justified. He assessed the quantum by reference to the application for registration which predicted a turnover of £750,000 per annum. To this he applied a notional input tax allowance in line with the trade class markup. He assessed the usual six month liability to reach a figure for quarterly returns and the usual four month liability to reach a figure for monthly returns. The decision letter was dated 2 December 2008 and the quantum had been based on a VAT rate of 17.5%. In fact as the rate had changed with effect from 1 December, Mr. Ridsdel should have made his calculation using a 15% rate. He had overlooked this as he also overlooked it on reconsideration, but when the case came before Mr. Max Houghton for review on 3 February 2009, Mr. Houghton factored this change in. By then the Appellant had also opted to make monthly returns and Mr. Houghton was therefore able to reduce the amount of the Requirement to £13,100.
5. Mr. Christopher Bracken told us that he had been chairman of Contraplan for some 42 years. The company had traded successfully for all but its last two years when it lost three very large accounts within 18 months of each other. These accounts accounted for a turnover of £3.5million out of an annual turnover of £4.5million. The company had no alternative but to go into administration. Mr. Bracken's son Mark then decided that he wished to continue with the business and Mr. and Mrs. Bracken Senior did all they could to assist in this, by taking out a £300,000 mortgage on their own home to start Mark up. They also gave him a substantial loan to place as a guarantee with a Polish company from which MCB International intended to import. This company folded and the guarantee was lost. MCB International then began trading with a further company in Poland but after 8 months this company also went into liquidation and a further £65,000 was lost. It was then decided that rather than import the panels from Poland for the furniture which the company was producing, the company would manufacture its own and Mr. and Mrs. Bracken Senior made a further substantial loan to Mark to fund the purchase of the machinery needed for this. It was also decided to put MCB International into administration and MCB Design was formed. The tribunal asked why the one company was put into administration and the second company formed and was told by Mark that "the debts were just too big". It was explained by Mr. Christopher Bracken that times had been very hard. His company had had a long trading history and the four companies in question had all retained a very loyal staff base. When there were insufficient funds to cover indebtedness to the Commissioners and staff wages, priority had been given to payment of the staff. Mr. Bracken Senior confirmed that his grounds of appeal were really based on an inability to pay rather than a challenge to the reasonableness of the decision. He explained that he was 73 and his wife 65 and as the security would have to be funded by them, they could ill afford it. Mr. Bracken agreed that putting this to one side, Mr. Ridsdel's thought process had been reasonable. It was confirmed by Mr. Bracken that his son, Mark had been involved in one capacity or another in all four businesses and Mrs. Kay Bracken had also been involved in each of the companies but in a nominal supervisory capacity rather than in an active role.
6. The role of the tribunal is limited to one of considering the reasonableness of the Commissioners' decision. We have to consider whether Mr. Ridsdel took into account all relevant factors or whether there is anything which he should have considered but failed to and whether or not he took into account something which he should not. We also have to bear in mind whether or not he made any error of law.
7. Mr. Ridsdel had before him substantial evidence of three failed companies. All had gone into administration owing substantial sums to the Commissioners, although he did not know the full amount of MCB International. All companies had been family run and Mrs. Kay Bracken was a named officer of each of them. In addition when considering the Appellant company, he had the evidence of the non-submission of the first return. Given these factors, all of which are entirely relevant, we consider that Mr. Ridsdel's decision to raise Security was entirely reasonable and we uphold the Requirement in principle. There was much discussion during the hearing as to the level of quantum. The Commissioners accepted that they had sufficient evidence through the submission of recent returns to justify a reduction in quantum and it was left that the amount of the requirement would be renegotiated by Mr. Ridsdel in conjunction with Mr. Bracken. We were therefore asked to uphold the requirement in principle and leave the matter of quantum to be resolved between the parties. This we do and the appeal is therefore dismissed. We consider the requirement for security to be reasonable and leave the parties to agree the amount. In the absence of any agreement being reached for a revised amount, the original amount of £13,100 will stand. No application for costs was made and we make no order.

MAN/2009/0041

LADY MITTING

JUDGE
Release Date: 14 July 2009