United Kingdom VAT & Duties Tribunals Decisions

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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Written Image Ltd v Revenue & Customs [2006] UKVAT V19808 (12 October 2006)
URL: http://www.bailii.org/uk/cases/UKVAT/2006/V19808.html
Cite as: [2006] UKVAT V19808

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Written Image Ltd v Revenue & Customs [2006] UKVAT V19808 (12 October 2006)

19808

SECURITY – publisher – business with poor compliance record – was request for security reasonable – appeal dismissed

LONDON TRIBUNAL CENTRE

WRITTEN IMAGE LIMITED Appellant

and –

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Nicholas Aleksander (Chairman)

Mrs R S Johnson

Sitting in public in London on 22 September 2006

Mr G Manchester, company secretary of the Appellant, for the Appellant

Mr J Holl of the office of the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006


 


DECISION

The Appeal

1. The Appellant, Written Image Limited ("the Company") gave Notice of Appeal dated 22 March 2006 against a Notice of Requirement to give Security under Paragraph 4(2)(a), Schedule 11 of the VAT Act 1994, issued on 22 February 2006.

The Issue

2. The issue for the Tribunal was whether the Commissioners of HM Revenue and Customs ("Customs") had acted in a way in which no reasonable panel of Commissioners of Revenue and Customs could have acted, or whether they had taken into account some irrelevant matter, or disregarded something to which they should have given weight when imposing the security requirement on 22 February 2006.

The Legislation

3. Paragraph 4(2), Schedule 11, of the VAT Act 1994 provides that

"If they think it is 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, or

b) any person by whom or to whom relevant goods or services are supplied."

The Evidence

4. The Tribunal heard evidence from Mr Graham Manchester, company secretary of the Appellant and from Mrs Susan Ogburn, a higher officer of Customs with the security team. A bundle of documents was presented to the Tribunal by Customs, and copies of various letters and invoices were presented by the Appellant.

The Facts Found

5. The Company carries on business as publishers with premises in Piltdown, East Sussex and latterly also at High Hurstwood, East Sussex. The Company was registered for VAT with effect from 1 June 1997, the registration remains extant, and the Company still trades.
6. Mrs Sheila Manchester is the sole director of the company, and Mr Graham Manchester (her husband) is the company secretary. Although Mr Manchester has been the company secretary of the Company at all material times, until early 2006 he has had no material involvement in the running of the business.
7. Mr Manchester is a director of Moto Village Limited and was a director of Firstdata Focus Limited, Taxi Transfer Limited, Private Transfer Limited and Blue Hippo Services Limited. Mrs Manchester is (or was) company secretary of these companies. Mr Manchester also traded on his own account as a sole proprietor of a transport consultancy business (which traded as Stanford Management Services). Mrs Manchester had no material involvement in the running of these businesses.
8. The Company has a poor record of compliance with its VAT obligations. Since it was first registered for VAT, it has been in default (within the meaning of the default surcharge provisions in section 59 VAT Act 1994) on 14 occasions, and 10 times in the current "cycle". As at the date of issue of the Notice of Requirement, five VAT returns were outstanding, and there was outstanding VAT due of £37,137.19.
9. In February 2006, in view of the poor compliance record of the Company, Mrs Ogburn concluded that security was required from the Company to protect the revenue because:

•    the Company had been late in filing its VAT returns, and at the time five returns were outstanding

•    the Company had been late in paying its VAT and as at the date of the Notice of Requirement, £37,137.19 of VAT was outstanding. In addition the Company owed interest and default surcharges

•    the Company was within the default surcharge regime, and was subject to the surcharge at the 15% rate

10. Mrs Ogburn also took into account the fact that the officers of the Company had been involved in other businesses which had compliance failures – in particular Moto Village Limited, Firstdata Focus Limited and Private Transfer Limited.
11. Private Transfer Limited is in liquidation with an outstanding VAT liability of £11,657.99. It had four outstanding VAT returns, and four unpaid, and one partly paid assessments. Moto Village Limited was wound up with an outstanding VAT liability of £24,584.65. Firstdata Focus Limited was wound up with VAT outstanding of £7,779.84, having had four periods within the default surcharge regime.
12. Mrs Ogburn therefore proceeded on 1 February 2006 to write to the Company warning that Customs were contemplating requiring security under Schedule 11, paragraph 4(2)(a) VAT Act 1994. Having received no response to her letter, on 22 February 2006 she issued a Notice of Requirement for security under Schedule 11, paragraph 4(2)(a) of the Value Added Tax Act 1994. The amount required, £48,987.19 (reduced to £45,037.19 if the Company moved to monthly VAT returns) was based upon the most recent returns filed by the Company covering a period of 10 months of its trading, plus the outstanding VAT due. We would note that no copy of the warning letter was in the bundle of documents, and Mr Manchester stated that he never received the warning letter. However it is clear that the Notice of Requirement was issued and received by the Company; any failure by Customs to issue (or for the Company to receive) the warning letter, whilst regrettable, has no effect on the validity of the Notice of Requirement.
13. Mr Manchester stressed that he had been involved in VAT registered businesses since the 1970s – some of them being very substantial. Until relatively recently, his relationship with Customs had been untroubled. For most of that time, Mr Manchester had been engaged in freight transport businesses. In the mid 1990s, Mr Manchester saw opportunities to use new technologies to improve transport operations, and established a number of companies (including Moto Village Limited, Firstdata Focus Limited, Private Transfer Limited, Taxi Transfer Limited and Blue Hippo Limited) to exploit systems based on these technologies, initially relating to freight transport. In 2002 Mr Manchester came to the conclusion that he could not achieve the necessary critical mass for his businesses to succeed with freight transport, and since then his businesses have focussed on passenger transport. However the regulatory environment hindered the development of passenger transport related businesses, and Mr Manchester took the decision last year that they could not become economically viable, and decided that the relevant companies would have to cease trading. It was in the period since 2002 that the VAT affairs of these companies became troubled. For the reasons set out below, we do not consider that the background to the defaults of these companies is relevant to our decision.
14. At the beginning of 2006 Mr Manchester became involved with Written Image Limited, and found that there were a number of compliance and accounting issues that needed to be addressed – not only was the Company behind with its VAT returns, but it was also late in filing its accounts with Companies House. Since becoming involved, Mr Manchester has brought the Company's affairs up-to-date and has addressed the reasons for the defaults. The Company has now filed its accounts for the period 04/05 and has already prepared its accounts for 05/06 – well in advance of the due filing date. As regards VAT returns, all outstanding returns have now been prepared, and are ready to be filed with Customs, together with the outstanding tax owed. Mr Manchester has overhauled the bookkeeping arrangements, so that the Company's books are now maintained by a new firm of accountants who are linked electronically to the Company's offices.

Reasons for Our Decision

15. The jurisdiction of the Tribunal in relation to security is strictly circumscribed. Our role is to consider the reasonableness of the decision made by Customs on the exercise of their discretion. We are required to restrict ourselves to deciding whether the Company has established that the decision arrived at by Customs was unreasonable or whether the decision was arrived at by taking into account matters which were not relevant or by ignoring matters which were relevant. We must restrict ourselves to considering facts and matters which were known when the disputed decision was made. The Tribunal cannot exercise a fresh discretion; the protection of the revenue is not the responsibility of the Tribunal.
16. Looking at the position when the Notice of Requirement was made, Mrs Ogburn had in front of her a business with a poor compliance record. Against this background we consider that the decision of Customs was reasonable.
17. Mrs Ogburn also took some account of the fact that the officers of the Company were also officers of other companies with poor compliance records. However, from the evidence, it would appear that Mrs Manchester had no material involvement in the business affairs of those other companies – and Mr Manchester had no material involvement in the business affairs of the Company until around the time that the Notice of Requirement was issued. Given this limited cross-involvement, there must be some doubt as to whether the defaults of Private Transfer Limited, Moto Village Limited and Firstdata Focus Limited are properly relevant to the decision to issue the Notice of Requirement. However, the defaults of these companies were only a subsidiary factor considered by Mrs Ogburn – and in our view the defaults of the Company itself were sufficient on their own to justify the issue of the Notice of Requirement.
18. The fact that the tax and accounting functions of the Appellant may have improved since February 2006 is not something that we can take into account, as the improvement happened subsequent to the making of the Notice under appeal. We would note that Customs stated to us that they would be prepared to consider reviewing the amount of the deposit (or, indeed whether a deposit was required) in the light of the filing by the Company of its outstanding VAT returns and the payment of outstanding VAT. However, Customs did note that it was likely that there would be significant default surcharges and interest due in addition to the outstanding VAT, and these amounts (and their payment) would need to be addressed separately.

Decision

19. Our decision on the issue for determination in the appeal is that the decision by the Customs, requiring the Company to give security, was a reasonable decision. This means that the appeal is dismissed.
20. Mr Holl made no application for costs and we make no order.

NICHOLAS ALEKSANDER

CHAIRMAN

RELEASED: 12 October 2006

Cases mentioned in argument but not referred to in the decision:

Goldhaven Ltd - LON/96/1348

LON/06/0385