United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20136

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Access Recruitment (UK) Ltd v Revenue & Customs [2007] UKVAT V20136 (26 April 2007)

20136

SECURITY — poor compliance record of previous companies linked by director — Commissioners incorrect in one factor taken into account — notwithstanding was the requirement reasonable — yes — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

ACCESS RECRUITMENT (UK) LIMITED Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting

Miss Carole A Roberts

Sitting in public in Manchester on 28 March 2007

Lee Anderson and Anthony Randle, directors, for the Appellant

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

© CROWN COPYRIGHT 2007

DECISION

The decision under appeal is that of the Respondents contained in a letter dated 13 July 2006 to require the Appellant company to give security under paragraph 4(2)(a) Schedule 11 Value Added Tax Act 1994. The amount of security required was £42,400 if quarterly payments were to be submitted or £28,200 on monthly returns.

On behalf of the Appellant company, we heard evidence from its two directors, Mr Lee Anderson and Mr Anthony Randle. On behalf of the Respondents we heard oral evidence from Mr David Price, the officer responsible for raising the requirement.

This case was referred to the Security Unit by the Registration Unit, the Registration Unit having spotted links between this company and former insolvent companies. The Appellant registered with effect from 23 January 2006, the description of its services being "labour recruitment and provision of personnel". Information from Companies House revealed that its two directors were Lee Anderson and Anthony Randle and a Mr Nicholas Randle was company secretary.

Mr Price was aware of three previous registrations which he believed to be linked with the current registration.

(i) Joanne Randle, trading as Brewtemp was registered as a sole proprietorship from 18 March 1991 to 1 May 1998. The compliance record of this registration was poor with many unpaid cheques and default surcharges. The business went into insolvency on 21 July 1998 owing the Respondents £43,689.69.

(ii) Brewtemp (UK) Limited was registered from 1 May 1998 to 1 May 2006. Anthony Randle was a director and the company secretary was a Joanne Hopkins, whom the Respondents, as it turned out mistakenly, believed to be one and the same as Joanne Randle. This company became insolvent on 27 January 2006, owing the Commissioners £173,593.95. Again, the compliance record was poor with nine default surcharges against it.

(iii) Access Recruitment Limited was registered from 1 May 2000 to 10 July 2006. Again, Anthony Randle was a director and Joanne Hopkins was company secretary. This company also became insolvent on 27 January 2006 owing the Commissioners £35,525.99. Again, the compliance record was poor with 14 default surcharges.

All three of the previous businesses had described their type of business as "labour recruitment and provision of personnel". The two limited companies had both traded from 24A Woodhouse Lane, Beighton, Sheffield, as did the Appellant company.

Mr Price considered that such was the linked history of the companies that the registration of the new company would give rise to a significant risk to the Revenue and he took the view that security should be required. He calculated the amount by reference to the estimated turnover declared on the VAT 1 application and taking into account notional input tax. At the time the requirement was raised, the Appellant had submitted one return which was on time and fully paid.

The Respondents had made an error in the assumption that Joanne Hopkins was one and the same as Joanne Randle. The error, in our view, quite understandably, had arisen as a result of a not very clear letter being received from Mrs Hopkins. In fact, Joanne Randle had been Mr Anthony Randle's former wife, from whom Mr Randle divorced in 1998. Mrs Joanne Randle closed her business and moved to London. Joanne Hopkins was Mr Randle's secretary and had no connection with Mrs Joanne Randle. This would mean that there was then in fact no link in proprietorship between Brewtemp and Brewtemp (UK) Limited. Mr Price, however, said that even had he known this, his decision to seek security would not have been altered, such was the risk which he considered there was to the Revenue.

Mr Randle told us that he had been employed by his wife in her sole proprietorship as an HGV driver. He had nothing to do with the finances or the running of the business. Following the closure of Brewtemp and his wife leaving for London, Mr Randle decided to start his own business (Brewtemp (UK) Limited) using old contacts and keeping a similar name because of the nature of the business which was to supply temporary staff to the brewery industry. This was a specialised field and the staff supplied had to be trained to brewery standards. Alongside Brewtemp (UK) Limited, Mr Randle decided to diversify and he created Access Recruitment Limited which was not specialised and worked in the commercial and industrial field. The two companies ran side by side but independently, with the finances being separately run. Because of problems with staff and the decline of the brewery trade, both companies got into financial difficulties. Mr Randle had not had the experience and expertise to overcome the problems and he could no longer meet his statutory liabilities. After taking professional advice, Mr Randle put both companies into a C.V.A. but found that the companies could not trade themselves out of trouble and on further professional advice, he closed both companies and created a phoenix company, namely the Appellant. Mr Randle explained that when he ran his two previous companies, he had been somewhat of a novice in running a business and made a number of mistakes from which he had learned. He and Mr Anderson had taken on a large amount of personal indebtedness to enable the Appellant to pay the outstanding wages, holiday pay and redundancy monies of the previous employees as their services were needed to continue trading. Mr Randle and Mr Anderson were able to identify why the previous companies had not worked. The Appellant company took on two specialist recruitment consultants and has secured contracts with blue chip companies. The Appellant is now trading successfully and currently employs approximately 100 staff, compared with some 45 in August 2006. At the time of the hearing, the Appellants had submitted three VAT returns. All had been submitted on time, all had been fully paid and they showed turnover and tax due considerably in excess of the predicted figure in the VAT 1.

Neither Mr Anderson nor Mr Randle sought to criticise the Respondents' decision to require security. Their case was in effect that they had put all their available savings, into the Appellant company and there was no chance at all that they could raise the amount required to pay the security. They were personally indebted to the bank and the bank would not give a guarantee to the Respondents for the security. They were willing to make a compromise payment of £9,000 which was all they could afford. If a compromise could not be reached, then the Appellant would go out of business and the staff would be made redundant. Indeed, as Mr Anderson pointed out, the cost of the redundancies would far exceed the amount required to pay the security.

Our jurisdiction is supervisory and we are limited to considering the reasonableness of the Respondents' decision, such consideration to be limited to those matters prevailing at the time the decision was made. This necessarily means that we are not able to take into account the fact that the company has been trading, apparently very successfully, for some eight months since the requirement was raised. We can take into account that one return had been submitted and paid but not all three.

The position which Mr Price saw before him, putting to one side Mrs Joanne Randle's business, was that Mr Anthony Randle had been a director of two companies, trading from the same address, providing a similar service and both of which had failed owing the Respondents over £200,000. The compliance record of both companies had been very poor. This was not the case of a one off bad debt but a continuing failure to comply.

These factors alone, are to us easily sufficient justification for Mr Price's decision. There was, to him, a clear risk to the Revenue. He had also wrongly assumed that Mrs Randle was company secretary of Brewtemp (UK) Limited and Access Recruitment Limited. The Respondents accept that this was an error but even without Mrs Randle's supposed involvement in the two later companies, we believe that Mr Price's decision would inevitably have been the same and we do not think that the error fatally undermines the Respondents' case. The history of the two limited companies alone would have been sufficient to trigger a request for security and it was Mr Randle's involvement in those two companies plus the current company which was the determining factor to Mr Price.

In line with our jurisdiction, we therefore consider the decision to require security was entirely reasonable. The company did not seek to challenge the calculation of the amount required and indeed it is rather less than it would have been had it been recalculated on the basis of the three returns submitted. We understand Mr Randle's fears for the continuation of the company and for his staff but this is not a factor which the Respondents are allowed to take into account. Their remit is strictly defined by statute as the consideration of whether or not there is a risk to the Revenue and they must at all times act with that purpose in mind. We found Mr Anderson and Mr Randle to be entirely credible witnesses and we were impressed with the way in which they are turning the business round and indeed apparently improving upon it quarter by quarter. Although we have to dismiss the appeal, we very much hope that some way will be found of meeting the requirement for the payment of the security which will not drive the Appellant out of business.

In summary, therefore, we find the decision to request security to be entirely reasonable and the appeal is dismissed. The Respondents made no application for costs and we make no order.

LADY MITTING

CHAIRMAN
Release Date: 26 April 2007

MAN/06/0598