United Kingdom VAT & Duties Tribunals Decisions

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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Cafe Guru (Leeds) Ltd v Revenue & Customs [2007] UKVAT V20261 (20 July 2007)
URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20261.html
Cite as: [2007] UKVAT V20261

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Cafe Guru (Leeds) Ltd v Revenue & Customs [2007] UKVAT V20261 (20 July 2007)

20261

SECURITY — common director — appeal dismissed — Value Added Tax Act 1994 schedule 11 paragraph 4(2)

MANCHESTER TRIBUNAL CENTRE

CAFÉ GURU (LEEDS) LIMITED Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Jean Warburton (Chairman)

Peter Whitehead

Sitting in public in Manchester on 28 June 2007

Mohammed Tanwir, former director of the Appellant, for the Appellant

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

© CROWN COPYRIGHT 2007

DECISION

1. This is an appeal by Café Guru (Leeds) Limited against a requirement to give security under paragraph 4(2) of Schedule 11 to the Value Added Tax Act 1994. The appeal is in respect of a Notice of Requirement contained in a letter dated 6 November 2006 to give security in the sum of £27,700 or £18,500 if monthly returns are made.
2. The Appellant was represented by Mohammed Tanwir, a former director. The Commissioners were represented by Bernard Haley of the Solicitor's office of HM Revenue and Customs who put in a bundle of copy documents.
3. We heard evidence on oath from Mohammed Tanwir and from Helen Stanley, a higher officer of HM Revenue and Customs at Dean Clough, Halifax. From the written and oral evidence, we find the facts to be as follows.
4. Mohammed Tanwir has been involved in a number of companies as a director. The companies are Fordella Limited, Chadbrook Limited trading as Empire Bar, Bar Yahoo Limited trading as Bar Matrix, Digital Surveillance Limited, Charter Row Limited trading as The Empire Bar, CitywildLimited and the Appellant.
5. Fordella Limited owed £43,270.92 in VAT. The amount of VAT due is being disputed by the company's accountants. Chadbrook Limited went into compulsory liquidation but no VAT is owing. Digital Surveillance Limited has no VAT debts and CitywildLimited owes no VAT as it is submitting repayment returns.
6. Charter Row Limited owed VAT of £15,130.72. Bar Yahoo Limited went into compulsory administration in December 2005 owing VAT of £45,715.18. The company was declared insolvent in January 2006. The liquidation of the company was caused by the brewery, who had a charge on the lease, going into possession. Mohammed Tanwir lost £300,000 he invested in Bar Yahoo Limited on its insolvency.
7. The Appellant was registered for VAT in 2006 with a declared turnover on the VAT1 form of £500,000. The first VAT return was a repayment return. The second return, due at the end of November was received by HM Revenue and Customs on 24 January 2007. The next two VAT returns were received and paid on time in January and April 2007. The original directors of the Appellant were Mohammed Tanwir and Ansar Mahmood. Mohammed Tanwir resigned as director at the end of November 2006 after receipt of the Notice of Requirement to give security. Bushra Tanwir became a director of the Appellant when her husband Mohammed Tanwir resigned. The day to day running of the business was undertaken by Ansar Mohammed.
8. On 1 June 2007 an agreement was signed between the Appellant and New Gateway Limited for the latter to carry on the restaurant business at the Appellant's premises. Under that agreement the Appellant ceases to operate the restaurant business and its income will be reduced to that it receives from New Gateway Ltd for the right to operate the restaurant. It is estimated that this arrangement will reduce the VAT liability of the Appellant to about £1,400 a quarter from the present about £10,000 a quarter.
9. Helen Stanley was the officer of HM Revenue and Customs who issued the Notice of Requirement for security. Before issuing the Notice, she considered the previous companies Mohammed Tanwir had been concerned in as a director, the liquidation of some of those companies and the amounts of VAT owing. She also noted that the Appellant was operating a similar type of business, licensed premises. Although the Appellant had not made any late returns at that stage, she considered that there was a risk to the revenue and issued a Notice of Requirement. The amount of security of £27,700, or £18,500 if monthly returns were made, was based on the turnover of £500,000 declared on the Appellant's VAT1 application form.
10. The Notice of Requirement was reviewed in January 2007 but was upheld in the light of late submission of the October 2006 return by the Appellant and links with other businesses not complying with VAT requirements. The Notice of Requirement was further reviewed and upheld in February 2007.
11. Mohammed Tanwir for the Appellant submitted that imposition of the requirement for a security would cause considerable hardship as it would probably cause the business to go bankrupt. He and Answar Mahmood had put about £120,000 into the business as the bank would not lend funds to the new business. He stood to lose that money and VAT would also be lost if the business failed because it could not raise £27,000. The business now seemed to be successful. Answar Mahmood was now in control of the business. He had another Café firm in Sheffield which was fully up to date with VAT. The new arrangement of the business, not directly running the restaurant, would reduce the amount of VAT payable. If he was considered the risk, he was no longer a director, drew no salary from the Appellant and merely provided some design services occasionally.
12. Bernard Haley for the Commissioners submitted that in the light of the history of the companies with which Mohammed Tanwir was associated, the decision to seek security in November 2006 was a reasonable one. Following Commissioners of Customs and Excise v Peachtree Enterprises [1994] STC 747, the only relevant matters were those in existence in November 2006.
13. The Court of Appeal in John Dee Limited v Commissioners of Customs and Excise [1995] STC 941 set out the jurisdiction of the tribunal in security cases. Accordingly, we must ask ourselves whether the Commissioners had acted in a way which no reasonable panel of Commissioners could have acted, whether they had taken into account some irrelevant matter, whether they had disregarded something to which they should have given weight and whether they had erred in a point of law.
14. We have considered the decision taken by Helen Stanley on behalf of the Commissioners in November 2006 and concluded that she did none of these things. The decision to seek security and the amount of security were reasonable at the time. The Peachtree case makes it clear that events occurring after the decision to seek security cannot make a decision which was reasonable and lawful at the time, unreasonable.
15. Accordingly the appeal is dismissed.
16. We would add, however, that this may be an appropriate case for the Commissioners to review both the requirement for, and amount of, security, in the light of the Appellant's present compliance record and restructuring of the business.
17. Bernard Haley made no application for costs and there is thus, no direction as to costs.

JEAN WARBURTON

CHAIRMAN
Release Date: 20 July 2007

MAN/07/0175