United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2005] UKVAT V19349

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Floorspan UK Ltd v Revenue and Customs [2005] UKVAT V19349 (22 November 2005)

19349

REQUIREMENT TO GIVE SECURITY — transfer of going concern from administration — monitored — poor compliance — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

FLOORSPAN UK LIMITED Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Elsie Gilliland (Chairman)

Elizabeth M Pollard

Sitting in public in York on 3 November 2005

Ian Dunning for the Appellant

Bernard Haley of the Solicitor's office for HM Revenue and Customs for the Respondents

DECISION

The appeal before the tribunal was that of Floorspan UK Ltd (the Appellant) against a Notice of Requirement to give security under Schedule 11 paragraph 4 (2)(a) of the Value Added Tax Act 1994 in the sum of £7600 in respect of monthly returns. The Appellant's case was presented by Ian Dunning who confirmed to us that he was neither a director nor an employee but for some 18 months past had been a part-time consultant with the company. Mr Dunning also gave evidence but many of his responses had to be prefaced to the effect that the information had been supplied to him. Accordingly there was little that was directly from his own knowledge. The grounds of appeal set out in the Notice of Appeal of 30 June 2005 were that the Appellant had commenced business in September 2004 manufacturing and marketing materials for the modular flooring market. It continued:

"The reason that this deposit security is demanded has nothing to do with [the Appellant's] ability to pay but is based on the administration of R&R Precision Engineering Ltd. which was an engineering company who incurred 2 debts of around £1000000 and a director of R&R (for 9 months) is a director of [the Appellant]. In fact R&R Eng. would not have owed Vat to Customs & Excise due to these bad debts."

The Appellant had been registered for VAT in October 2004. Mr Dunning told us that like all small companies starting up it had cash flow problems but had agreed an overdraft facility with its bankers of £40,000 with a £20,000 facility for the obtaining of materials from overseas. These facilities did not however include any provision for security, as that demand had not been received until June 2005. The Appellant had taken over as a transfer of a going concern another company R&R Precision Engineers Ltd. ("R&R"), which went into administration on 10 September 2004. It employed some of the former company's floor management staff and paid a small sum for certain assets and goodwill. It carried on the business of floor coverings. The Appellant was itself a trading success with a full order book. The business that it had acquired had operated satisfactorily for a number of years brought down in the end by some substantial bad debts.

The Commissioners called as their witness David Price who was the officer who issued the security notice. The matter had been referred to him in February 2005. He had had a meeting in March 2005 with Mr Dunning (which Mr Dunning had mentioned also) and Mr Alan Haysom, a director who had been a director of R&R. Mr Price required the Appellant to submit monthly VAT returns so that he could monitor its position regularly. He did not require security at that stage though he made it clear that he would reconsider the matter if compliance became unsatisfactory. The first return was a February 2005 return but at that time no payment was due. Mr Price looked at the situation again in mid- May and found that both the February and March returns were overdue. They were still overdue at 31 May 2005 and he thought it likely that the April return was overdue too. Security action then seemed to him to be appropriate and accordingly on 8 June 2005 he saw Mr Dunning and served notice in respect of the Appellant (and of another company not the subject of this appeal).

He considered that there were a number of relevant factors namely the apparent insolvency of the previous company and as understood a considerable debt due to the Commissioners. There was also the connection with Mr Haysom and the fact that the same nature of business was trading from the same premises as before. However Mr Price did acknowledge that he would not have taken the point where there was only one likely insolvency had the returns been on time. Mr Dunning accepted that the officer had given a chance to the Appellant but he did point out so far as Mr Haysom's involvement was concerned, that Mr Haysom had become a director of R&R when the large debt had already been incurred, and that Mr Haysom had thought that he could turn the company round. He and two other directors had given personal guarantees of £50,000 each. So far as outstanding VAT was concerned, he understood that there was a claw-back in view of the bad debt relief.

The role of the tribunal is to look at the reasonableness of the decision of the officer (See Mr Wishmore Ltd v Customs and Excise Commissioners [1988] STC 723). The Commissioners may require a taxable person to give security where it appears necessary for them to do so for the protection of the Revenue. The likelihood of loss to the Revenue should security not be sought is not a matter for the tribunal. We must consider the facts and circumstances of the decision and whether at that time it was reasonable and lawful. Nor are possible redundancies or the closure of the business matters which we can take into account on the issue of reasonableness.

We are satisfied that the officer was entitled to pay regard to the history of the director Mr Haysom in the previous company (R&R). He was a director at the time of that company's demise with the usual responsibilities associated with that role. It was clear that it was not known to the parties at the hearing whether input tax had been recovered on a bad debt relief claim but nevertheless there had been a failure of the business enterprise. Mr Price did discuss the Appellant's position with its representatives and gave them an opportunity to respond and made compliance an issue. The Appellant's own VAT record has to be taken into account and the evidence before us established at the time of the officer's decision poor compliance with a failure to submit returns and outstanding tax due of £755 as at 8 June 2005. The amount of the security is to be fixed looking at the business operation. The calculation was based on the Appellant's own declaration of turnover and that figure has not been challenged. The decision of the officer was reasonable.

The appeal is dismissed.

The Commissioners have not sought costs and we make no direction as to costs.

ELSIE GILLILAND

CHAIRMAN
Release Date: 22 November 2005

MAN/05/0473