First-tier Tribunal (Tax)

[2010] UKFTT 200

TC00502

Appeal reference: TC/2009/15344

VAT – security – Appellant providing services to racehorse owners – Appellant’s director director of two other companies which failed owing large sums to revenue – Appellant’s own returns in arrears and owing substantial amount of tax – whether decision to require security reasonable - yes – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                            BELLFLOWER RACING LIMITED                           Appellant

- and -

THE COMMISSIONERS FOR

                                      HER MAJESTY’S REVENUE AND CUSTOMS         Respondents

Tribunal:        David Demack (Judge)

                        Philip Jolly (Member)

Sitting in public in Manchester on 9 April 2010      

The Appellant was not represented

Mr Barnard Haley of the solicitor’s office of Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.           This is an appeal by Bellflower Racing Ltd (“Bellflower”) against a decision of the Commissioners given originally by letter of 20 August 2009 requiring it to give security for future taxable supplies in the sum of £186,972 for three monthly returns, or £165,565 for monthly returns.  The requirement was made under paragraph 4 (2) (a) of Schedule 11 to the Value Added Tax Act 1994.  Subsequently, to take account for the temporary reduction in the rate of tax from 17.5% to 15% which applied throughout 2009, the Commissioners by letter of 1 December 2009 reduced the amounts required to £179,209 and £160,389 respectively.

2.           Bellflower gave notice of appeal on 27 October 2009 claiming that the Commissioners’ “decision is incorrect as the figures considered by HMRC are merely an assessment and evidence has been presented to prove this.  HMRC’s consideration / review should be based on factual information”.

3.           At the hearing Mr. Bernard Haley of the Solicitor’s office of HM Revenue and Customs appeared for the Commissioners, but Bellflower was not represented.  We are in no doubt that due notice of the hearing was given to it for someone representing the company telephoned the Manchester Tribunal Centre about two days before the hearing to say that no one would be attending to represent it.  No reason was given for that decision, and, in its absence, we, being satisfied that it was in the interests of justice to proceed with the hearing, determined to proceed with the hearing.

4.           As is usual in these cases, Mr. Haley produced the Commissioners’ bundle of copy documents.  He also called the case officer, Mr. Andrew Horacio Reeves, to give evidence.

5.           Mr. Reeves calculated the amount of security originally required by following the Commissioners’ standard practice.  First he estimated the likely amount of VAT which would become payable by Bellflower during the following six months, which he did by adding together the tax due on the company’s returns for periods 07/08 and 10/08, the returns being the latest made by the company which the Commissioners accepted as being correct, plus an amount equal to Bellflower’s VAT debt at 20 August 2009.  The tax included in those two returns was £20,088.42 and £45,779.70 respectively, and the outstanding debt £122,750.87.  If Bellflower were to make monthly returns, it would reduce the period which the Commissioners would be at risk from six months to four.  The amounts of security were calculated on a basis which the VAT and Duties Tribunal regularly accepted as fair and reasonable, so that we too accept them.

6.           From the evidence adduced we make the following findings of fact.  Bellflower provides racehorse owners’ service from premises in Whitegate, Cheshire, and was registered for VAT on 24 October 2005.  Its registration remains extant.

7.           One of Bellflower’s directors, Mr. John Donald, is registered for VAT as a sole proprietor.  On 20 August 2009 he owed VAT of £565,000 (which he reduced to £282,439.56 by 21 December 2009, the date of the statement of case).  Mr. Donald is also a director of Bellflower Alpraham Ltd, which in August 2009 had a VAT debt of £6,994.  He was also a director of Golden Eagle Properties Ltd and Bellflower Homes Ltd.  The former became insolvent on 8 December 2005 with a VAT debt of £1,159,432, all of which remains outstanding; the latter became insolvent on 4 January 2008 with a VAT debt of £1,105.527, all of which remains outstanding.  Further, Mr. Donald is connected in one way or another to 42 companies and partnerships most of which have VAT debts, albeit of relatively minor proportions.  At 21 December 2009 their cumulative debt was £171,000.

8.           A VAT security warning letter was sent by the Commissioners to Bellflower on 20 May 2009 as it had a VAT debt of £177,515.23 and its return for period 01/09 was outstanding.  Round about the same time similar action was taken in relation to 13 other businesses with which Mr. Donald was connected, all having demonstrated similar levels of non-compliance.  Bellflower’s returns for both 01/09 and 04/09 were submitted as repayment returns, and were submitted for verification by the Commissioners.  The former was in the sum of £7,624.53 and the latter £35,147.19.  Bellflower was at the time appealing penalties of £9,100.

9.           The statutory provisions we are required to consider are, as we indicated at the outset, to be found in paragraph 4 of Schedule 11 to the 1994 Act.  The relevant parts of that paragraph provide as follows:

“4 (2) (a) 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, …

(4) Security under sub-paragraph (2) above shall be of such amount, and shall be given in such manner as the Commissioners may determine.”

10.        We are quite satisfied that Mr. Reeves took account of all the background information he had about Bellflower and Mr. Donald, and of the latter’s connection with the other companies to which we have referred, in concluding that Bellflower should be required to give security for future taxable supplies.

11.        We agree with the Commissioners’ contentions at paragraph 10 of the statement of case, namely:

a)     That the notice of requirement was fully justified when made due to Mr. Donald’s involvement in two companies which became insolvent owing the Treasury in excess of £2.2 million;

b)     That Bellflower itself had a VAT liability at that time of £122,750;

c)     That Mr. Donald’s liability to VAT as a sole proprietor was in excess of £282,000 at the relevant time;

d)     That Mr. Donald was involved in other businesses at that time which had VAT debts in excess of £171,000;

e)     That due to Bellflower’s poor compliance record and the tax debt it has accrued, the Commissioners considered there was an even greater risk to future revenue.

12.        The jurisdiction of the tribunal in appeal such as the instant one is a review jurisdiction.  That means that we may only accept or reject the Commissioners’ decision; we cannot substitute our own decision for that of the Commissioners.  Having considered all the evidence, we conclude that the decision was reasonable, and we confirm it.  It follows that we dismiss the appeal.

13.        By rule 38 of The Tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules 2009, the tribunal may set aside a decision disposing of proceedings if it considers it in the interests of justice to do so and, inter alia, that a party was not present at a hearing relating to the proceedings.  Any such application must be made in writing to the tribunal “so that it is received no later than 28 days after the date on which the tribunal sent notice of the decision to the party”.

The Appellant has a right to apply for permission to appeal against this decision in accordance with rule 39 of the Rules.  The parties are referred to “Guidance to accompany a decision from the First-Tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

DAVID DEMACK

TRIBUNAL JUDGE

Release Date:  5 May 2010