[2009] UKFTT 324 (TC)

                                                                       TC00267

Appeal number TC/2009/11953

VALUE ADDED TAX — security — trader with association with other traders with poor compliance record — trader’s own compliance poor — arrears of tax when notice issued — whether notice justified — yes — appeal dismissed

First-tier tribunal

tax

GALLERIA ITALIA LIMITED

Appellant

– and –

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS

Respondents

                   Tribunal :  Judge Colin Bishopp

Sitting in public in Manchester on 19 November 2009

Nigel Westman, chartered accountant, for the Appellant

Kim Tilling of their solicitor’s office for the Respondents

© CROWN COPYRIGHT 2009

Decision

1.           The appellant, Galleria Italia Limited, was registered for VAT on 1 August 2008, and began trading immediately. I was told that its main business is the retail sale of beds, mattresses and divans, some of which it manufactures itself, the remainder being bought from other manufacturers, but that it is now expanding into the sale of kitchen furniture. It trades from premises in Bradford, and has one director, Mrs Razwana Kauser.

2.           On 4 June 2009 the Commissioners served on the appellant a notice of requirement to give security, made in accordance with para 4(2)(a) of Schedule 11 to the Value Added Tax Act 1994. That provision enables the Commissioners to make and serve such a notice if they “think it necessary for the protection of the revenue”. Sub-para (4) provides that the security “shall be of such amount, and shall be given in such manner, as the Commissioners may determine”. The amount required was £41,055, save that if the appellant agreed in future to make monthly returns the Commissioners indicated they would accept £35,259. The security could be given, as the notice pointed out, either by cash deposit or by acceptable third party guarantee. The notice advised the appellant of its right to ask for a review (see s 83A of the 1994 Act, as inserted by the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009, Sch 1 para 220) and of its right to appeal to this tribunal. A review was not requested, and the appellant made a timely appeal to the tribunal.

3.           No reasons were given for the making of the notice when it was served on the appellant, but they are set out in the Commissioners’ statement of case. The first reason given is one of association: it is argued that Mrs Kauser is a director of Aslams Opportunities Ltd, a property company, whose other director is Asar Aslam, that Asar Aslam was the director of Aslams Interiors Ltd which had failed leaving a large VAT debt, that the appellant and Aslams Interiors Ltd appear to be engaged in the same trade, from the same premises, using the same telephone number and very similar websites, and that Mrs Kauser and Mr Aslam appear to be closely associated. In fact they are married. The second is that the appellant itself has a poor compliance record.

4.           Nigel Westman, the chartered accountant who represented the appellant, gave me an explanation of the circumstances in which the appellant began to trade. In essence, it took over part of the business previously conducted by Aslams Interiors which he agreed had entered administration, and may now be in liquidation, owing VAT and penalties amounting to more than £300,000. He told me that the appellant is, however, trading from different premises, and is not conducting an identical business, and that Mr Aslam plays no part in its management. That assertion was somewhat undermined by evidence Kim Tilling, representing the Commissioners, produced, showing that Mr Aslam is in fact holding himself out as being an owner of and closely involved in the management of the appellant.

5.           The appellant’s first VAT return was required to cover the five months from 1 August to 31 December 2008. It was submitted three days late, but the tax shown to be due, £9,207.21 was not paid then and, as Mr Westman agreed, has  still not been paid. The second return covered the three months to 31 March 2009. It was submitted one day early, but was again not accompanied by payment, and the tax shown due, £14,460.18, was not paid and it too has still not been paid. When the notice was made, the tax outstanding amounted to £23,667.39, a figure which has since been reduced slightly because a modest repayment was due in respect of a subsequent return. Mr Westman told me that the appellant had had financial difficulties which had led to its failure to pay the tax, but it was, he assured me, on the road to recovery.

6.           Mr Westman also argued that the amount of the security demanded was excessive. The total consists of the arrears of tax, plus six months’ estimated future tax (or four months’ tax if monthly returns are rendered). The estimation is based upon the two returns which had been submitted. There is an arithmetical mistake in the calculation, since it assumes that the appellant’s first return covered four, rather than the correct five, months, but correction of the error makes a difference of only about £1,000. Mr Westman did not challenge the Commissioners’ approach or, save for that error, the method of calculation, but said that enquiry of the appellant would have led the Commissioners to demand a lesser sum. He relied on the fact that later returns showed a lower turnover, and told me that in its first two returns the appellant had not claimed credit for all the input tax it had incurred. Against that, Mrs Tilling pointed out that if the Commissioners had relied on the turnover figure projected by the appellant’s application for registration, a course they often adopt, the figure demanded would have been higher.

7.           This tribunal’s jurisdiction is prescribed by s 83(1)(l) of the 1994 Act: an appeal lies against “the requirement of any security under … paragraph 4(2) of Schedule 11”. The provision conferring on the Commissioners the power to require security is written in terms which make it clear that the exercise of the power is a matter for the Commissioners’ discretion, the collection and management of the tax being in their hands: see para 1 of the same Schedule. It follows that the tribunal may review the exercise of the discretion, but may not substitute its own view for that of the Commissioners. In short, if I am persuaded that the Commissioners have reached a conclusion which no reasonable body of Commissioners could have reached, if they directed themselves properly on the law and took into account all that is relevant while leaving out of account all that is irrelevant, I may allow the appeal; otherwise I must dismiss it. It is not open to me to adjust the amount of security demanded.

8.           I do not consider it necessary to come to any firm conclusion about the association on which the Commissioners rely, though it is in my view a matter about which they were quite properly concerned. Much more important in my judgment is the fact that when the notice was given, the appellant had accumulated arrears of tax of over £23,000, having made no payment at all on account of its liabilities. That fact alone was ample justification for the security requirement; there was an obvious risk to the revenue.

9.           I could nevertheless allow the appeal if I were to conclude that even though some security was appropriate, the amount demanded was wholly unreasonable. As I have indicated, the calculation contains an arithmetical error, but the increase in the sum demanded to which that error led is much too small to warrant the allowing of the appeal. Further enquiry might have led the Commissioners to conclude that a smaller sum was sufficient, but in my view it is not unreasonable to rely on the known history in preference to the uncertain future, and I can see no basis on which I could properly conclude that the amount demanded is unreasonable.

10.        The appeal is, therefore, dismissed.

Colin Bishopp

Tribunal Judge

Date of release: 24 November 2009

Note: These are full reasons for the decision. Any party dissatisfied by this decision may apply for permission to appeal to the Upper Tribunal. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.