[2010] UKFTT 328 (TC)

TC00613

Appeal number TC/2010/01808

VALUE ADDED TAX — security — whether demand reasonably made — appellant with poor compliance history — other companies with common directors failing with large VAT liabilities — decision reached reasonably —appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                              AUTOCARRIERS LIMITED                              Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

                                              REVENUE AND CUSTOMS                    Respondents

                            Tribunal:          Judge Colin Bishopp

         Sitting in public in Manchester on 24 June 2010

Nigel Gibbon of Omnis VAT Consultancy for the Appellant

Kim Tilling of their solicitor’s office for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.           The decision in issue in this appeal is set out in a letter to the appellant, Autocarriers Limited, dated 19 January 2010. It was a notice of the Commissioners’ requirement that the appellant give security for the future payment of its VAT liabilities. The authority for the notice is para 4(2) of Sch 11 to the Value Added Tax Act 1994, which provides that

“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 ….”

2.           The security required, by cash deposit or acceptable third party guarantee, amounted to £107,153 if the appellant continued to make quarterly returns, or £71,435 if it made monthly returns. The amounts are not disputed; the appellant’s case is that the requirement was unwarranted and, because it was made without any prior warning, the Commissioners failed to take into account information which it could have provided if given the opportunity.

3.           I heard the oral evidence of Christopher Tait, the appellant’s finance director and company secretary, and of Linda Andrews, the officer who made the disputed decision and who wrote the letter containing the requirement. The appellant was represented by Nigel Gibbon, VAT consultant, and the Commissioners by Kim Tilling of their solicitor’s office.

4.           The background facts were not in dispute. The appellant’s business is the transport of new cars and vans, usually from the factory or port of entry into the United Kingdom to dealers, though it occasionally transports second-hand or hire cars. It has been registered for VAT since 1978, and has traded continuously since then. Its current directors are Mr Tait, Geoffrey Fielding (who, or whose family, owns all the shares in the appellant’s ultimate holding company, of which it is a wholly owned subsidiary), David McWilliams and David Jones. Mr Fielding and Mr McWilliams were directors of MCD Realisations Limited and of Leyfield Commercial Services Limited, both of which became insolvent in September 2006, owing the Commissioners £475,240 and £24,441 respectively. Mr Tait, Mr Fielding and Mr McWilliams were also directors of Mainland Car Deliveries Limited, which entered into administration in October 2009, owing the Commissioners £910,063. MCD Realisations and Mainland Car Deliveries were in the same business as the appellant, while Leyfield Commercial Services was in the business of maintaining vehicles. There is one other relevant group company, S F Leasing Limited, which is in the business of renting and leasing trucks. That company is still trading.

5.           The first of Mrs Andrews’ reasons for requiring security was the fact that the appellant’s directors, or some of them, had been directors of companies carrying on the same business which had failed, after periods of poor compliance, owing VAT to the Commissioners. She recognised that they (and the appellant too) had suffered in the recession, but she could not disregard the history of poor compliance, the very large amounts owed in two cases and the fact that, since there was no claim by the administrator or liquidator for bad debt relief, the VAT which was unpaid had been received by the companies and used for other purposes.

6.           Her second reason was the appellant’s own poor compliance history. Until the summer of 2008 it had been good—the record shown to me, going back to 2005, revealed no failings—but it then encountered cash flow difficulties, which prompted it to agree with the Commissioners on payment of its liabilities by instalments. As Mr Tait agreed, although proposals had been made by the appellant, and accepted by the Commissioners, the appellant had failed to honour them, and it had in consequence suffered several default surcharges (some of which are the subject of outstanding appeals to this tribunal). Mrs Andrews accepted that, when the requirement letter was served on the appellant, there were no arrears (apart from one disputed default surcharge) but she was, she said, concerned that there would be a further default when the next return, due at the end of February 2010, was rendered. She considered that the risk to the revenue was high, and that it was appropriate to make the requirement without first warning the appellant. Her letter had invited it to provided her with any additional information the appellant thought she should consider, and had offered a review, but neither course had been adopted; the appellant instead made an appeal to the tribunal.

7.           Mrs Andrews was also concerned, she said, that the appellant was paying its previous owners for the assets by instalments, a further factor which indicated that its financial position was precarious. I merely comment that while I understand her concern, deferred payments of this kind are not uncommon and I do not myself regard this as a matter of great importance.

8.           Mr Tait joined Mainland Car Deliveries only in November 2006, but he told me he knew of the history of the group. MCD Realisations had been trading profitably for many years but had become very dependent on its main customers, Rover and LDV, both of which were in serious financial difficulty by about 2005. When they collapsed the company lost the income it had derived from them, and was not paid for some work it had already undertaken. The motor industry was already suffering some downturn, with the consequence that the company’s turnover was already reduced, yet it had limited scope for reducing its fixed costs because its vehicles were financed by long-term arrangements. It also lost its contracts with two smaller customers. At the same time the Pensions Regulator issued a ruling requiring it to inject substantial sums into its final salary pension scheme, not because of any past failings but because of actuarial revaluation. All these events combined to make the demise of the company unavoidable.

9.            Mainland Car Deliveries took over some of MCD Realisations’ assets by purchase from the liquidator; it was, as Mr Tait agreed, a “phoenix” company. Unfortunately the downturn in the motor industry continued: demand for cars and vans remained in decline, and customers (who were themselves under pressure) drove down the prices it could charge, while the company was unable to reduce its fixed costs to match. The eventual result was that that it, too, failed, in 2009.

10.        In the meantime Mr Fielding and his family acquired the appellant, previously a competitor, from its then owners who ceased thereafter to have any interest in the business. Mr Tait, Mr Fielding, Mr McWilliams and Mr Jones were appointed as directors in their place, in April 2007. Mr Tait’s evidence was that the directors had been able to manage the appellant rather better than they had Mainland Car Deliveries, by reducing the scale of its operations and its fixed costs, and it was now gaining customers and making profits. It had, nevertheless, suffered some cash flow difficulties, and in consequence default surcharges for its accounting periods 10/08, 04/09, 10/09 and 01/10 had been imposed. Though it had not wholly honoured the arrangements it had made with the Commissioners for payment by instalments, it had made the offers in good faith, believing it would be able to honour its commitments, but events turned out to be worse than expected. Nevertheless, by December 2009 it had brought all its payments up to date, and owed the Commissioners only one disputed default surcharge.

11.        This tribunal’s jurisdiction is entirely supervisory: that is, I may allow the appeal only if I am satisfied that the Commissioners (in the person of Mrs Andrews) have acted in a way in which no reasonable panel of commissioners could have acted, by taking into account some irrelevant matter, by disregarding something of which they should have taken account, or by making an error of law. I may not replace the Commissioners’ decision with my own: see John Dee Ltd v Customs and Excise Commissioners [1995] STC 941. It is also necessary to bear in mind that the test is not whether the appellant is blameworthy in some way, but whether, as the statute puts it, the requirement of security is “necessary for the protection of the revenue”.

12.        I need to examine at this point Mr Gibbon’s argument that the notice was issued hastily, without warning and without giving the appellant the opportunity to comment and put its side of the case. Mrs Andrews made her decision, and wrote the letter containing the notice of requirement, on 22 December 2009. it was not served on the appellant (the Commissioners’ practice is to serve such notices by hand delivery) until 19 January 2010 because, Mrs Andrews said, of the prolonged bad weather. Even in adverse weather conditions that interval seems to me to be remarkably long, but more important is the fact that on 23 December the Commissioners received the last of the payments which cleared off the appellant’s outstanding debt. Thus when the letter was served, there was no liability. Mrs Andrews said that the absence of a debt did not affect her conclusion since she remained concerned about the history, and was apprehensive that there would be further defaults. There is in my view also some substance in her point that while she had not invited representations before she made her decision, the appellant had taken up neither of the invitations in her letter, that is to provide additional information or request a review. She also said that she would not change her decision in the light of the evidence given at the hearing.

13.        As I have indicated, the appellant can succeed in this appeal only if it is able to persuade me that Mrs Andrews’ decision was unreasonable. Mr Gibbon made great efforts, but in my view his task was impossible. This is not a case of an isolated default, or of a series of defaults well in the past, but of repeated defaults in the recent past. It is to the appellant’s credit that it had brought its account up to date by December 2009, but its doing so is not enough to wipe the slate clean. I am left in no doubt that Mrs Andrews’ decision was well within the bounds of a reasonable exercise of discretion: she could not be confident, in December 2009 or January 2010, that the appellant had put its difficulties behind it and no longer presented a risk.

14.        The appeal is, therefore, dismissed.

15.        This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. 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.

COLIN BISHOPP

Tribunal Judge

Release Date: 12 July 2010