United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2006] UKVAT V19665

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R S Couriers (UK) Ltd v Revenue & Customs [2006] UKVAT V19665 (19 July 2006)

19665

VAT – Requirement to give security – Para.4(2)(a), Sch. 11, VATA 1994 –whether requirement reasonable – whether quantum of security required reasonable – Held on the evidence that the requirement for security and quantum reasonable – Appeal dismissed

LONDON TRIBUNAL CENTRE

R S COURIERS (UK) LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: JOHN WALTERS QC (Chairman)

MRS. R. S. JOHNSON

Sitting in public in London on 19 May 2006

Mr. Russell Skinner, for the Appellant

Mr. Jonathan Holl, Advocate, of the Office of the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

This is an appeal against the decision of the Commissioners to require R.S. Couriers (UK) Limited ("the Appellant") to give security of £30,850, on the basis that quarterly VAT returns are rendered, or £20,550, on the basis that monthly VAT returns are rendered, as a condition of continuing to make taxable supplies. The decision is made pursuant to the Commissioners' powers contained in paragraph 4(2)(a) of Schedule 11 to the VAT Act 1994 ("VATA") and was communicated to the Appellant by a letter dated 24 May 2005 sent by an Officer of the Commissioners, Mrs. L. Andrews, who gave oral evidence to the Tribunal.

Mrs. Andrews told the Tribunal that the Commissioners decided that the requirement for security was necessary for the protection of the revenue, having regard to the Appellant's poor record of VAT compliance (it has been in default within the meaning of section 59, VATA in respect of VAT periods 06/02, 09/02, 06/03, 03/04, 12/04 and 03/05) and its large outstanding debt for VAT and accrued default surcharges.

According to a "Record of Compliance and Statement of Account" as at 26 October 2005, by that date the outstanding debt for VAT was £47,224.79 and the outstanding debt for accrued default surcharges was £5,851.85, giving a total of £53,076.64.

The alternative amounts of security required were calculated according to the formula generally adopted by the Commissioners as a matter of policy, namely 6 months' liability in respect of VAT if quarterly returns continue to be made, and 4 months' liability in respect of VAT if monthly returns are to be made. The 6 months' and 4 months' liability in respect of VAT were in this case calculated by taking the net VAT declared by the Appellant in its VAT returns for the four quarterly VAT periods ended 31 December 2004 (03/04 to 12/04 inclusive), taking the appropriate fractions and rounding down. Mr. Skinner, the director of the Appellant who represented the Appellant at the hearing before the Tribunal, did not dispute the reasonableness of the formula used to arrive at the amounts of security required, nor did he dispute the accuracy of the calculations.

Mr. Skinner (who gave evidence for the Appellant as well as representing it) advanced the argument, in resisting the requirement for security, that the circumstances which had led to the defaults had been or were in the course of being remedied. Specifically, he said that the Appellant's cash flow had suffered because, under the arrangement which the Appellant had with a debt-factoring company, the debt-factoring company had recouped itself from good debts for the loss which it had suffered from factoring debts which turned out to be bad – and there had been several of these. Also, the Appellant had had to give priority to paying staff and other business expenses over its liability to the Commissioners for VAT. Also, it had suffered the expense of increased overheads after it had moved to a new unit to start a storage business (in addition to its courier business). Now, however, he was devoting more time to managing the Appellant's debtors, and the storage business at the unit was successful, to an extent assisting the profitability of the courier business, rather than vice versa. His submission was that the Appellant would pay off its liability to the Commissioners if the requirement for security were withdrawn. He had not at the time of the hearing arranged for the minimum security amount (£20,550) to be available to the Appellant and had not explored what the cost of an acceptable bank guarantee would be (nor indeed whether one could be obtained).

The thrust of Mrs. Andrews's evidence, on which Mr. Holl for the Commissioners relied, to demonstrate the reasonableness of the decision to require security, was as follows.

First, the Appellant had accounted for VAT historically on a "cash accounting" basis, so that it would never have had to account for VAT in respect of debts which turned out to be bad. Thus cash flow problems arising from bad debts would only impede timely accounting for VAT if (as must have been the case) the Appellant had not made prudent provision for its liability to VAT in respect of good debts which had been paid. A history of lack of provision of this kind showed a risk to the revenue.

Secondly, there had been a verbal statement from Mr. Skinner, evidenced in the record of a telephone conversation with the Commissioners' Debt Management Unit ("DMU") on 17 May 2005 (after he had received the "warning letter" preceding the notice requiring security), that he intended to pay the then current liability off at the rate of £10,000 per month, but that such payments had not been forthcoming.

Thirdly, there had been another verbal statement from Mr. Skinner, evidenced in the record of a subsequent telephone conversation with the DMU on the same day, that he had decided to remortgage his house to clear the then current liability. Again, this had not given rise to any payments. (Mr. Skinner explained that he had attempted to remortgage the house but that in the event he had been unable to raise enough money in this way.)

The task of this Tribunal on an appeal against a requirement to give security is to consider the reasonableness of the requirement. It is submitted on behalf of the Commissioners that the requirement is reasonable, both as to the decision to require security for the protection of the revenue, and as to the amount of security required.

Having regard to the Appellant's poor compliance history and the amount of debt in respect of VAT and default surcharges which has accumulated, in the judgment of this Tribunal, the Commissioners' decision to require the Appellant to give security is reasonable. This is the position notwithstanding the Appellant's assurances that it will discharge the liabilities which have accumulated. The amount of security is worked out according to the formula adopted as the Commissioners' policy in these cases which has regard to the amount of time taken to recover VAT from a defaulting trader. The Tribunal regards the formula as reasonable and the amount of security required as proportionate and generally reasonable.

Accordingly the appeal must be dismissed.

JOHN WALTERS QC

CHAIRMAN

RELEASE DATE: 19 July 2006

LON/2005/1070