[2010] UKFTT 10 (TC)

TC00329

VALUE ADDED TAX – appeal against notice of requirement for security for VAT – business of recruitment and supply of temporary staff – whether HMRC acted reasonably in requiring security – para 4 (2) of Schedule 11 VATA 1994 – appeal dismissed

FIRST-TIER TRIBUNAL (TAX CHAMBER)

                                       SHAUN ANTHONY CLARK T/A MAXIM                      Appellant

- and -

THE COMMISSIONERS FOR

                                      HER MAJESTY’S REVENUE AND CUSTOMS         Respondents

Tribunal:        Ian Vellins (Judge)

                        Mary Ainsworth (Member)

Sitting in public in Manchester on 18 November 2009

The Appellant appeared in person

Mrs. Kim Tilling, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

The appeal

1.           In this appeal the Appellant is Mr. Shaun Anthony Clark, trading as Maxim and carrying on a business of recruitment and supply of temporary staff from premises in Wakefield.  The Appellant is registered for Value Added Tax (VAT) under registration number 944885962 with effect from 1 November 2008.  The Appellant appeals against a decision of HMRC contained in a letter dated 10 March 2009, being a notice of requirement to give security for VAT under Schedule 11, paragraph 4 (2) (a) of the Value Added Tax Act 1994 in the sum of £18,279.57 in respect of monthly VAT returns.  The Appellant appealed by notice of appeal dated 19 May 2009.

2.           At the hearing of this appeal at Manchester on 18 November 2009 the Appellant represented himself, and HMRC were represented by Mrs. Kim Tilling.

3.           Oral evidence was heard from the Appellant himself and from an officer of HMRC, Mr. Peter Atha.

4.           At the hearing of the appeal the short issue was whether HMRC had rightly and reasonably exercised the power to require security.

The legal framework

5.           Schedule 11, paragraph 4 (2) of VATA 1994 provides:

“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, or

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

6.           The cases of Mr. Wishmore Ltd v Commissioners of Customs and Excise 1988 STC723 and John Dee Ltd v Commissioners of Customs and Excise 1995 STC941 have confirmed that the jurisdiction of this tribunal or court in an appeal is appellate, not supervisory, and that we must examine whether HMRC had rightly exercised their power to require security.  We must consider whether HMRC have acted in a way in which a reasonable panel of Commissioners could have acted, whether they have taken into account some irrelevant matter or have disregarded something to which they should have given weight.  It is not for us to exercise a fresh discretion, as the protection of the Revenue is not the responsibility of any court of tribunal.  In Commissioners of Customs and Exercise v Peachtree Enterprises Ltd 1994 STC 747 Dyson J. held that we should not have regard to facts and matters arising after the date of the decision of HMRC to require security.

Facts and conclusions

7.           We make the following findings of fact and reach the following conclusions in this appeal.

8.           Shaun Anthony Clark, trading as Maxim, applied for VAT registration and was granted VAT registration from 1 November 2008 in connection with a business which he had described as a sole proprietorship to supply temporary staff to the NHS and local businesses.  Mr. Clark had previously been a director of and operated previous insolvent companies.

9.           Mr. Clark was a director and secretary of Nexus Resourcing Ltd, which had been registered for VAT from 3 March 2003 to 25 October 2004 as a business for the recruitment and employment of temporary staff to the industrial sector.  That company went into insolvency on 30 September 2004 with a debt to HMRC of £33,387.84.

10.        Mr. Clark was the director of Nexus (Yorkshire) Ltd, which had been registered for VAT from 6 April 2005 to 27 September 2006, the company acting as an employment agency supplying temporary staff to local companies.  That company went into insolvency on 2 August 2006 with a debt to HMRC of £62,967.18.

11.        Mr. Clark was a director of The Exchange UK Ltd, which was registered for VAT from 1 September 2006 to 26 April 2008, and carried on the business of providing a payroll service.  Although a default surcharge was issued against that company together with further actions, there was no debt owing to HMRC at the end of the Vat registration of that company.

12.        Mr. Clark was the director of Maxim (Yorkshire) Ltd, which was a business to supply temporary staff to companies in the Wakefield area.  That company went into liquidation on 16 February 2009 with a debt owing to HMRC of £20,355.82.

13.        The Appellant submitted a form VAT1 to apply to register for VAT in respect of a business - Shaun Anthony Clark trading as Maxim – with effect from 1 November 2008.  The Appellant continues to trade under that name.  He declared on the application form that the nature of the business was to supply temporary staff to the NHS and local businesses from the same address in Wakefield that had been the premises of Maxim (Yorkshire) Ltd.  HMRC considered that that current business is a continuation of the previous business, Maxim (Yorkshire) Ltd as both were the same type of business and had the same principal location.  Mr. Clark declared on his VAT1 form that the turnover of the Appellant business was estimated at £550,000 per annum.

14.        Mr. Clark was disqualified as a director on 21 January 2009 for failing to ensure that Nexus (Yorkshire) Ltd complied with its statutory obligations to make payments of direct taxes to HMRC.

15.        Mr. Clark caused Nexus (Yorkshire) Ltd to be incorporated and trade under the name Maxim, which he was prohibited from using.

16.        It appeared to officers of HMRC that, for the protection of the Revenue, it was necessary to require the Appellant as a condition of his supplying of services, to give security by means of a guarantee or cash deposit, and on 10 March 2009 HMRC notified the Appellant of the requirement to give such security in the sum of £18,279.57 with monthly VAT returns.

17.        The amount of security requested by HMRC was based on the turnover declared on the VAT1 submitted by the Appellant, namely a declared turnover of £550,000.  Officers of HMRC calculated the notional output tax and notional input tax, and projected the VAT liability over 12 months to be £54,838.71.  The officers then divided that sum by three to arrive at the amount of the security required of £18,279.57.

18.        On 26 March 2009 the Appellant requested that HMRC reconsider their need for security.  He argued that he had been disqualified as a director by the Secretary of State and therefore had no option but to liquidate Maxim (Yorkshire) Ltd.  A review was conducted by HMRC and the decision to require security was upheld on 27 April 2009.

19.        The Appellant appealed and in his Notice of Appeal dated 19 May 2009 the Appellant summarised his grounds of appeal as follows:-

“Firstly Maxim (Yorkshire) Ltd was forced into liquidation on a technicality relating to the use of a prohibited name and not because of its insolvency.  It had been trading profitably and paying off its arrears of creditors (including HMRC) up to the point when it ceased trading.

Secondly the current business is also trading profitably and meeting its VAT liabilities as they fall due.  But it is a new business and has not yet generated sufficient cash reserves to meet the security requested.  In seeking this money in advance, HMRC threatens to destroy a fledging business and put my staff out of work in addition to the 60 temporary staff for whom we currently facilitate employment”.

20.        HMRC contend that the notice of requirement was fully merited and reasonable at the time of issue due to the involvement of Mr. Clark in previous businesses which had a poor record of compliance and had become insolvent, owing HMRC large sums of money.  In addition Mr. Clark was disqualified as a director for five years, not only for the re-use of the prohibited name of Maxim but also for failing to comply with company’s statutory obligations to make payment to HMRC.

21.        At the hearing of this appeal evidence was given by Mr. Peter Atha, the officer of HMRC who was responsible for the issuing of the relevant notices.  He gave evidence of the history of the various companies and businesses in which Mr. Clark had been involved, which he had obtained from official records.  He indicated that he had taken into account all the factors relating to the Appellant’s business, and the previous businesses, including the Appellant’s argument set out in correspondence.  He considered that the Appellant constituted a considerable risk to the Revenue.  Three of the Appellant’s companies had been insolvent, two of them having gone into insolvency – namely Nexus (Yorkshire) Ltd and Nexus Resourcing Ltd – and the third, Maxim (Yorkshire) Ltd, having gone into liquidation.  The debts in respect of VAT in respect of those three companies amounted to over £115,000.  The Appellant’s current business, registered in the same year as the liquidation of Maxim (Yorkshire) Ltd, was a similar type of business operating from the same location.  The Appellant had been disqualified as a director of a company in 2009, and had traded under the name Nexus, which he was prohibited from using.  He had not disclosed all of the businesses which he had previously run on the VAT application form for the Appellant business when he made his application for registration for VAT.

22.        At the hearing of this appeal Mr. Clark gave evidence that his current business, Shaun Anthony Clark trading as Maxim, was trading profitably and met its debts as they have fallen due and also built up sufficient funds to continue to meet its debts as they fall due, including personal tax liability.  He argued that the security required by HMRC is no longer necessary.  He argued that he had changed the way in which he ran his business, from that in which he had run Maxim (Yorkshire) Ltd.  He argued that he did not represent a risk now or in the future to HMRC.  He submitted that he had paid his bills over the last year and had put systems in place to ensure that this will continue.  He explained that he used the services of a factoring company and had borrowed moneys, and that the burden of giving security to HMRC of £18,279.57 would be an additional burden to him.

23.        Mr. Clark contended that Maxim (Yorkshire) Ltd was not forced into liquidation because of insolvency, but as a result of the Secretary of State for Business Enterprise and Regulatory Reform seeking his disqualification as a director, in circumstances where Mr. Clark could find no other director to take over the company.  He argued that only when he was forced to liquidate Maxim (Yorkshire) Ltd did the payments to HMRC cease.  He argued that if he had known that the Secretary of State would seek his disqualification as a director he would not have started Maxim (Yorkshire) Ltd.  He argued that his current business was partly different to the previous business in that he has reduced the part of the business supplying industrial temporary workers, which now represents around 55% of the business, and the remaining part of his business is to supply nursing staff and local general practitioners to NHS providers around the country.

24.        Mr. Clark gave evidence that he accepted that his past record was not good, but appreciated that he was personally responsible for the debts of the business and that any failure could affect his house.  He stated that he was not asking HMRC to withdraw their request for security, but merely to put their action on hold until such a time as HMRC are confident that they can cancel the security request.  He submitted that as time has gone by the risk to HMRC has somewhat abated.  He submitted that his previous limited companies had failed for different reasons, and that he was not a serial phoenix operator.  He submitted that he had learned lessons from the past, undertaken training to fill in gaps in his education and ability, had taken active control of the important functions of accounts, payroll and cashflow, and had applied what he had learned.  He submitted that his business is currently paying its way and has built up sufficient funds to meet his tax obligations, and he has no other significant debts.

25.        With regard to the previous companies, he stated that in connection with Nexus Resourcing Ltd he was a 50% director with Paul Goodchild, who was responsible for the accounts.  He blamed Mr. Goodchild for that company not functioning properly.  With regard to Nexus (Yorkshire) Ltd he acknowledged that he had made a complete mess of things as he was inexperienced and had little knowledge of his obligations and responsibilities to the company in which he let others carry out duties for which they had little or no training.  He acknowledged that as a director of that company he was totally inadequate.  With regards to Maxim (Yorkshire) Ltd he submitted that that company only failed because of his disqualification as a director.  He argued that that company had been making a profit, but that cashflow was poor because of PAYE and NIC debt.  He claimed that if he had been able to obtain leave to remain a director of that company, the company would be showing profits.  He claimed that he had repaid approximately £22,000 of personal guarantees and directors loans.

26.        We find that the officer of HMRC, Mr. Atha, had made full and proper enquiries before reaching his decision.  He had ascertained that Mr. Clark had been involved in four previous businesses, three of which had not fully complied with their VAT obligations in respect of returns and payments on time.  Three of those companies had ceased trading and had been insolvent leaving a total debt of Value Added Tax of over £116,000.  Maxim (Yorkshire) Ltd had to cease trading because Mr. Clark as a director had set up the company illegally and had to give an undertaking leading to his disqualification as a director.  In respect of the business Nexus Resourcing Ltd, Mr. Clark had failed to account for PAYE with due diligence, and there was a similar situation in respect of Maxim (Yorkshire) Ltd.  The Appellant completed an application form VAT1 for the Appellant business in which he did not fully disclose his involvement with all the previous businesses.  The current business of the Appellant is similar to the previous business of Maxim (Yorkshire) Ltd, which went into liquidation, and operates from the same locality.

27.        We find that HMRC were entitled to take the view that there was a considerable risk to the Revenue that the Appellant would not pay his VAT.

28.        We find that HMRC acted reasonably and took into account all relevant material.  We find that they did not act in a way in which no reasonable panel of commissioners could have acted, and we find that they did not take into account irrelevant matters or disregard something to which they should have given weight.  We find that they have made no error of law.

29.        We find that the decision of HMRC was inevitable bearing in mind the background.

30.        The Appellant has argued that he is currently paying his VAT on time and submitting his VAT returns on time.  We however are precluded from taking into account the compliance record of the Appellant since the date of the decision.  We apply the principles of law as stated by Dyson J. in Commissioners of Customs and Excise v Peachtree Enterprises Ltd, namely that we should not have regard to facts and matters arising after the date of the decision of HMRC to require security.

31.        No argument was advanced on the quantum of security and it does not appear to us that the way in which HMRC established the quantum of the requirement or the amount of it should be interfered with by us.

32.        In conclusion, we confirm that we are satisfied that the decision taken by HMRC was reasonable.  HMRC has established that there was a clear connection between Mr. Clark and his roles in the other companies which owed substantial amounts to the Revenue.

33.        We dismiss the appeal.

TC/2009/10442

IAN VELLINS

JUDGE
Release Date: 8 January 2010