United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2005] UKVAT V19275

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Spitrose Ltd v Her Majesty's Revenue and Customs [2005] UKVAT V19275 (06 October 2005)

19275

Value added tax – security – requirement for – whether notice requiring security reasonable

LONDON TRIBUNAL CENTRE

SPIREROSE LTD Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS Respondent

Tribunal: Dr David Williams (chairman)

John N Brown, CBE FCA CTA (member)

Sitting in public in London on 08 September 2005

Mr R May, director, for the Appellant

Mrs P Crinnion, officer of Revenue and Customs, for the Respondent

© CROWN COPYRIGHT 2005


 


DECISION

1. The Appellant (S Ltd) was served on 21 October 2004 with a notice of requirement to give security under Schedule 11 paragraph 4(2) of the Value Added Tax Act 1994 (VAT Act) ("the Notice"). It appealed on the ground that the Appellant was awaiting a significant sum of compensation from London Transport under a compulsory purchase order ("CPO"), a situation complicated because the transport police had seized all the company's records. S Ltd was therefore both unable to pay and unable to produce full records. The Respondent reconsidered the decision to issue the notice immediately on receipt of the appeal, but confirmed it on 27 October 2004. S Ltd appealed to the tribunal.
2. At the hearing of the appeal Roger James May, sole director of S Ltd, appeared and gave evidence on oath. Mrs Vanessa Evans, the senior officer of Revenue and Customs who issued the Notice, gave evidence on oath for the Respondent. The tribunal was given a full bundle of documents by the Respondent. Only limited documentation was received from the Appellant. Mr May explained that in part this arose from the police seizure of all the original documents forming S Ltd's records and private papers linked with the company, and in part because he was expecting accountants to represent the company at the hearing but that they had not attended.

The nature of the appeal

3. An appeal to a tribunal against a notice of requirement is limited to a review by the tribunal of the facts and consideration whether the Respondent had acted reasonably in issuing the notice: VAT Act, section 83(l). This is because the powers to issue a notice and to decide its terms are discretionary powers. The tribunal can consider if the discretion was exercised properly, but cannot make its own decision about the issue or terms. This was explained to, and accepted by, Mr May. No point was taken by him about the form of the Notice, and the tribunal is satisfied that it was issued in proper form.
4. The tribunal raised one formal point at the beginning of the hearing. It was clear from the papers, and Mr May accepted, that the Respondent had served a copy of Notice 700/52 on the Appellant with the Notice. Notice 700/52 is entitled Notice of requirement to give security to Customs and Excise. It was last issued in June 2005. It sets out the terms in which the Respondent exercises its discretionary powers about the issue and terms of notices. A tribunal should therefore consider if the Respondent followed the terms of the published notice. Failure to follow those terms might of itself be reason to consider that the Respondent acted unreasonably. The tribunal therefore consider that in all such cases the terms of Notice 700/52 or its equivalent should form part of the case papers. On this occasion the tribunal had provided itself with copies from the Respondent's website (www.hmrc.gov.uk). It records that it was satisfied at the hearing that Mrs Evans had issued the Notice consistently with the published policy.

The background

5. S Ltd was acquired as an off the shelf company in 1999. Mr May was appointed as its sole director. His wife, Ann Elizabeth May, was appointed company secretary. The tribunal was given no documentary evidence of the share ownership of S Ltd. It was told that there were 100 shares. 75 belonged to an associate of a contact of Mr May, whom he named but referred to as "the investor". 25 belonged to a Jersey trust company which he assumed, but did not know, was also associated with the investor.
6. Mr May told the tribunal, and it accepts, that neither he nor his wife had any shares in S Ltd. S Ltd had been acquired as a vehicle through which to purchase the business of a printing finishing business previously run by a partnership of two partners. The history was a little complicated. The partnership had been running a successful business, but one of the partners wished to retire. So the business was sold. At that stage the business assets included the business premises in which the business was carried on. The purchaser was a company. Mr May told the tribunal that the company had stripped the business of its assets and had then gone into liquidation. Both the business and the property were transferred to receivers. However, the partners had then repurchased the business, but not the property, back from the receivers. The partnership separately rented the premises from the receivers.
7. According to Mr May, the investor wished to purchase the business. He had for his own reasons asked Mr May, whom he had known for some time through business contacts, to act as director rather than performing the role himself. S Ltd purchased the business, the investor providing the funds. Separately, S Ltd purchased the property from the receivers, the investor again arranging the finance. Mr May produced no details of either transaction, and did not appear to have full knowledge of the details. There had been a dispute, to which he was a third party, between the investor and one of the partners of the partnership. During the period of the dispute, the partners had taken back control over the business finance, apparently to ensure full payment of the purchase price. Mr May thought that the agreement had provided for this. The dispute had been settled towards the end of 2002, and since then S Ltd had fully run the business.
8. Separately from this dispute, S Ltd had been involved in two other linked disputes. The business premises had been the subject of a CPO in 1990 or thereabouts. It is on the route of the East London line now being developed by London Transport. London Transport activated the CPO in 2003. S Ltd had had to vacate the premises and relocate its business. S Ltd had known of the CPO when the premises were purchased, but had not taken seriously the risk that it would be activated. The business acted as an "end of the line" service to other printers and publishers and had had many useful trade connections in its location. The business had suffered from relocation as it was now based elsewhere in the London area.
9. S Ltd, as owner, was entitled to compensation for both the property and the relocation. The valuers and other advisers appointed by S Ltd to advise on the compensation payable for the premises had been unable to agree a figure with London Transport. The tribunal was shown a listing notice indicating that the question was listed for hearing by the Lands Tribunal within a month of the tribunal's own hearing. Mr May hoped that as a result the compensation would soon be agreed. Once it was agreed, it was his intention to pay in full the sums owed to the Respondent both as unpaid value added tax and also as corporation tax.
10. Mr May also told the tribunal that both the negotiations about the compensation and the negotiations with the Respondent had been badly affected by a development of which he had no foresight. On 3 October 2003 a circuit judge issued a special procedure production order under the Police and Criminal Evidence Act 1984, Schedule 1, paragraph 4, to the British Transport Police. This authorised the seizure of all records relating to S Ltd from the company and its accountants. The records were taken from the business premises, from Mr May's home, and from the accountants' offices. Mr May gave a voluntary interview to the police at the time. He was told at that interview that he was not personally involved in the police investigation, nor was his wife. Nonetheless, the company's records were not returned. The company had to employ solicitors to secure arrangements under which, a year after seizure, Mr May had been able to obtain photocopies of relevant documents. Until those documents were available, neither S Ltd nor its accountants were able to prepare accounts or provide other details. Both Companies House and the Inland Revenue were demanding that it provide documentation. Mr May had handed all the copies to the accountants, and had retained none. He was therefore unable to produce anything to the tribunal at the hearing. He had assumed that the accoutants would do that.

The VAT history

11. Mr May applied to register S Ltd for VAT in early 1999. He signed the application and all VAT returns. The first return was a repayment claim for £27,383 for the period ending 05/99. With one exception, the next 13 returns were nil returns. The return for the period to 05/02 was a repayment claim for £3,562. Mr May signed the return but could not recall in evidence why that claim was made. He explained that the nil returns were because of the dispute between the investor and the partnership. During the period to 10/02 the partnership had reclaimed and run the business and, he understood, had dealt with the VAT. The Respondent offered no evidence about this.
12. The returns for the period to 11/02 and the following periods were all made. Each showed sums due to the Respondent. All returns were detailed and were made by, or shortly after, the due date. But few payments were made. As a result, default surcharges were added. There were no appeals against those surcharges. Mr May accepted that the sums shown as due, and the default surcharges, were properly made and would be paid. At the time the security was calculated for the Notice, the debt was £69,503.93. A default surcharge of £2,013.11 had also been incurred when the statement of case was prepared. Some payments of VAT had been made between then and the hearing by the tribunal. But the total debt due from the Appellant to the Respondent has increased significantly to £117,221.41.
13. Mr May stated that this debt would be paid in full from the CPO compensation, as would the outstanding corporation tax. He had expected settlement of the CPO claim by now, and had not anticipated that S Ltd would still be in the position of a debtor when the appeal was heard.
14. For the Respondent, Mrs Crinnion emphasised that no undertakings or other security had been offered and no other acceptable arrangements for settling the debt had been made. The few payments that had been made by S Ltd had been attributed to arrears and not to current liabilities. Neither the company nor those representing it had produced the documentary evidence that the Respondent sought of its current financial position.

The Notice

15. Mrs Evans gave evidence confirming the grounds on which she had issued the Notice on behalf of the Respondent. At the time the Notice was issued S Ltd had unpaid VAT arrears extending over a year. It had also incurred several default surcharges. S Ltd had received VAT from its customers. The Respondent was not satisfied with the explanations received about the CPO compensation. Nor were they satisfied about the inability of S Ltd to raise or borrow other funds to clear its liability to the Respondent. It had not taken a proactive approach to dealing with the problem.
16. The Respondent also produced evidence that Mr May and his wife were directors of another company in default on its VAT payments at the time of the notice. The tribunal was offered no evidence either orally or otherwise by Mr May to explain his involvement in the other company, or to rebut the Respondent's contentions. The tribunal accepts that Mr May and his wife acted as directors of another company and that that company was also a debtor to the Respondent.

The tribunal's decision

17. The sole question is whether it was reasonable for the Respondent to issue the Notice when and in the terms in which it was issued. The Notice is valid and is consistent with the Respondent's published policy about the issue of such notices. No attempt was made to challenge that policy in this appeal. The tribunal is therefore satisfied that any objection to the Notice is restricted only to its terms and timing.
18. The tribunal has set out Mr May's evidence about the history of S Ltd so far as he knew it. It accepts his evidence as indicating that S Ltd has had a somewhat turbulent and unpredictable history. But the tribunal does not accept that the history justifies the continuing default by S Ltd in paying its debts to the Respondent. It agrees with Mrs Crinnion that the VAT history of the company suggests that it chose to use public funds as a source of finance to help with its own financial problems. It does not accept that it was appropriate to use public funds in this way to meet its costs in disputing the CPO compensation with London Transport. Further, at the time the Notice was issued S Ltd had been boosting its cashflow in that way for an extended period. Nor was the Respondent provided with any full explanation of when and how the Appellant proposed to meets its past and prospective debts. And, so far as relevant, the VAT history of S Ltd since the Notice was issued confirms the concerns of the Respondent about continuing non-payment and defaults.
19. Mr May explained the problems resulting from the seizure of the company's records. But S Ltd had, through Mr May, been given access to the records in 2004. It had given those records to its advisers and kept no second copy. Its advisers had not appeared at the tribunal, nor offered any evidence. The tribunal received only Mr May's oral evidence about several aspects of the company's affairs. The only financial record produced, apart from some letters, was an aged debtors' record. This suggested no unusual features in the S Ltd debtors' ledger, and Mr May pointed to none. No accounts were produced, nor any documentary evidence of the arrangements for financing S Ltd or of its share capital. No attempt had been made to object to the default surcharges on the ground that there was a reasonable excuse for any of the defaults. No direct evidence was offered by the investor or the accountants, and only limited indirect evidence of their positions was received.
20. The tribunal accepts the Respondent's evidence of Mr May's involvement as a director in another defaulting company. It finds from that that Mr May's awareness of the position and responsibilities of a company director is not limited to the somewhat unusual arrangements in S Ltd, nor is his knowledge of the effects of defaulting on VAT returns and payments so limited.
21. Taking all the above into account, the tribunal finds no reason to question the validity or reasonableness of the Notice, or of its timing or terms. On the contrary, the tribunal considers that the action of Mrs Evans on behalf of the Respondent in issuing the notice of requirement to the Appellant was entirely appropriate.

David Williams

CHAIRMAN

RELEASE DATE: 6 October 2005

LON/04/1883