First-tier Tribunal (Tax)

[2010] UKFTT 96 (TC)

TC00407

Appeal number: LON/09/0711

VAT SECURITY – reasonableness – appeal dismissed.

FIRST-TIER TRIBUNAL

TAX

                     BRENCHLEY CIVIL ENGINEERING LIMITED    Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                                                TRIBUNAL: Judge R Barlow

                                                                        Member: A Mc Loughlin

Sitting in public in London on 25 January 2010

Mr Keith Green director for the Appellant

Ms Gloria Orimoloye of the office of the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.     This appeal is against a decision by the Commissioners dated 5 January 2009 by which they notified the appellant that they required it to give security for the payment by it of VAT as a condition of its supplying goods or services under a taxable supply, such security being required in the sum of £105,428.25.  The Commissioners’ powers to require security are contained in paragraph 4(2) of Schedule 11 of the VAT Act 1994 as amended.

2.      Following a request made by the appellant’s accountants the Commissioners reviewed that decision but, in a letter dated 17 February 2009, they upheld it.  On 20 March 2009 the appellant appealed to the VAT Tribunal and the First Tier Tribunal heard the appeal on 21 January 2010 as successor to the VAT Tribunal.

3.     Mrs Orimoloye reminded us that the Tribunal’s jurisdiction is limited to considering whether the Commissioners’ decision was one that could not have been reached by a reasonable exercise of their discretion or after ignoring relevant facts or taking into account irrelevant facts and in particular that those questions must be judged according to the facts as they were at the time of the decision.  We agree that that accurately summarises the law and Mrs Orimoloye reminded us that those principles were authoritatively established by the case of Customs and Excise Commissioners –v- Peachtree Enterprises Ltd [1994] STC 747.

4.     The facts are not in dispute and they are taken from the undisputed documents produced by the respondents and Mr Green’s statement given orally at the hearing.

5.     The facts relied upon by the Commissioners were that the appellant registered for VAT on 19 February 2007 and on 25 June 2007 the Commissioners had required security from it because the appellant’s director at the time of registration, Mr Jeffrey Mould had been the director of a company called Next Civil Engineering Ltd which had become insolvent on 21 February 2007 owing £435,285.98 VAT, £30,053.99 by way of default surcharges and £37,532.12 interest.

6.     The other director of Next Civil Engineering Limited was Mr Paul Marples who also became a director of the appellant, though he resigned shortly before the appellant registered for VAT.  Ms Hayley Townsend was the company secretary of next Civil Engineering Limited and became and remains the company secretary of the appellant at material times.

7.     Mr Green told us that Ms Townsend works in the appellant’s office doing part time clerical work and that she and Mr Mould had been life partners.

8.     Mr Mould and Mr Marples are the shareholders of the appellant and Mr Green agreed that, if it is profitable in the in the long term, it will be for their benefit.  During the last two years Mr Marples has been paid back £100,000 he lent to the appellant even though the loan was not given on any specific terms.  Not all of that repayment was before the requirement for security but a substantial part of it was and so to that extent it was a fact at the time the decision under appeal was made. 

9.     Mr Marples and Ms Townsend had also been director and company secretary respectively of another company, Next Construction Limited, that owed an insignificant amount of money to HMRC and Mr Mould and Ms Townsend had been directors of GRM Surfacing Limited which had become insolvent though HMRC were not able to say if they were owed any money by that company.  Ms Townsend was the company secretary of GRM Surfacing limited as well as a director.

10.  Although Mr Mould had been the director of the appellant at the time of its registration he resigned immediately after it was registered for VAT and was replaced by Mr Keith Green.  Mr Green is a chartered accountant in practice as such and was brought in to the appellant to take control of its financial situation and to regularise its affairs.  We would like to make it clear that we accept Mr Green cannot be criticised for any of the facts relied upon by the respondents to justify the security requirement and indeed it is clear that he has been able to achieve an improvement in the affairs of the appellant since his appointment.

11.  The respondents had required security on 27 June 2007 and on the basis that the appellant made monthly returns that security was demanded in the sum of £29,300 which was provided by a bank guarantee which expired in October 2008.  The Commissioners did not re-issue the security at that time apparently because there was by then a time to pay agreement in place between them and the appellant in respect of the appellant’s failure to pay VAT due.

12.  The appellant failed to comply with the time to pay agreement on 10 December 2008 and so the respondents issued the security requirement now under appeal.

13.   We hold that the Commissioners had every reason to consider that the revenue was at risk when they issued the security requirement and that they were entitled to require the security.  The previous insolvency of the company in which effectively the same directing minds were active is justification enough.  Both Mr Mould and Mr Marples still work for the company and although they are no longer directors it is clear that as shareholders and creditors they still exercise, at least potentially, enough influence in the company for that to be a relevant consideration for the Commissioners.  In addition, the appellant had failed to meet the terms of the time to pay agreement and had repaid part of Mr Marples’ loan at a time when it was not fully meeting its VAT obligations, even though it was not under any legal obligation to repay Mr Marples at that time.

14.  The amount of the security takes account of the time it would take for the Commissioners to take action should the appellant again default in its payments and we hold that the quantum of the security is not unreasonable.  We would add for the avoidance of doubt that even if the facts as they are now were those on which this appeal had to be decided we would still have held that the security would be reasonably required.

RICHARD BARLOW

TRIBUNAL JUDGE

RELEASE DATE: 1 March 2010