United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2008] UKVAT V20549

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Smartnet Technologies Ltd v Revenue & Customs [2008] UKVAT V20549 (25 January 2008)

20549

VAT – Requirement to give security – Para 4 Sch 11 VATA 1994 – Held: HMRC's decision to require security was not unreasonable – Appeal dismissed

LONDON TRIBUNAL CENTRE

SMARTNET TECHNOLOGIES LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: CHARLES HELLIER (Chairman)

GEORGE MILES

Sitting in public in Bristol on 22 November 2007

David Popely of David Popely Accountancy, for the Appellant

Pauline Crinnion, advocate, instructed by the solicitor for HMRC, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appellant appeals against the Commissioners' requirement that as a condition of its making any supply it give security for the payment of VAT that is or may become due. That requirement was notified to the Appellant in a letter dated 27 March 2007.

The ability of the Commissioners to make such a requirement is conferred by paragraph 4 Schedule 11 VATA 1994. They are thereby enabled to make it where `they think it necessary for the protection of the revenue". An appeal against such a requirement lies to this Tribunal by virtue of section 83(l) VATA 1994. But in John Dee Ltd v Customs & Excise Commissioners [1995] STC 941, it was held that the tribunal's jurisdiction is limited in such an appeal. The tribunal cannot determine for itself whether security is necessary or the amount of security which may be necessary; instead it is limited to considering whether on the evidence available to the Commissioners at the time their decision was made their decision to require security was one which was made: (a) taking into account all relevant factors; (b) excluding irrelevant considerations; (c) was not in pursuance of an error of law; and (d) was a decision which a reasonable body of Commissioners could have reached.

This Tribunal's jurisdiction is thus limited to a review of the Commissioners' decision notified on 27 March 2007. Since that time circumstances may have changed. Those changes are irrelevant to our decision but if brought to the attention of the Commissioners may be relevant to any consideration by them of whether or not security should still be required. The Commissioners will have a duty to consider any relevant or new information.

We heard oral evidence from the Respondents' officer Paul Johnstone whose decision it had been to issue the notice requiring security. We also had a bundle of copy documents before us. Mr Popely did not dispute the veracity of the documents.

We find that at 27 March 2007 the Commissioners had the following facts (which we find as facts) in their possession and that Mr Johnstone took them into account in making his decision:-

(i) the Appellant had not submitted VAT returns since the return for the period ending 31 March 2006;

(ii) the Appellant had an outstanding VAT liability of £113,775.10. This had arisen in respect of VAT periods dating back to 2004 and encompassed both liabilities shown on the Appellant's VAT returns and assessed liabilities;

(iii) the Appellant had a history of submitting VAT returns late and delaying making VAT payments. It had been assessed to a default surcharge 17 times since February 2003.

(iv) in April 2006 the Appellant had had negotiations with the Commissioners' Debt Management Unit in relation to its proposals that it should be permitted to pay the then outstanding VAT over a 10 month period or a 6 month period. The Commissioners had rejected these proposals.

(v) The Companies House records showed Gerard Shannon as the director of the company and Claire Shannon as its secretary. Their address was shown as 8, Luttrelstown Avenue, Castleknock, Dublin 15, Eire.

(vi) Gerard Shannon was shown on the Companies House records as also being a director and company secretary of Powerteam IT Ltd from 21 June 2003 until 16 February 2007. This company was registered for VAT and had an outstanding debt due to the Commissioners in respect of unpaid VAT for a number of periods of £43,313.34.

(vii) A VAT audit of the Appellant was completed on 22 January 2007. The officer conducting the audit concluded that certain sales had not been declared and issued an assessment for £9,553.00. The officer had written to the Director with questions to which she had not had a reply.

Mr Johnstone told us that he had regard to these matters and the detail surrounding them in making his decision. He calculated the security required in respect of future supplies as being half the last 12 months' VAT liability (returned or where not returned assessed), or one third of that amount if the Appellant agreed to make monthly returns. To this he added the outstanding debt to arrive at the security required.

Mr Popely did not attack the manner of calculation of the security required or suggest that any of the factors considered by Mr Johnstone should not have been considered.

Mr Popely submitted that Smartnet Technologies was unable to provide the security as required, and therefore that the requirement to give security as a condition of making further supplies meant that the Appellant would have to cease trading. That he said would mean that the outstanding liability would never be fully discharged. If, instead of exercising their powers under Schedule 11 paragraph 4 the Commissioners had given the Appellant time to pay the outstanding tax, then changes in its fortunes and trading arrangements should mean that the VAT would be paid.

We asked Mr Johnstone his view on the effect on the public revenue of a security requirement which prevented the trader from trading out of his difficulties and therefore made the collection of outstanding VAT unlikely. He thought that, in a case such as this, there was a balancing act to be performed between the risk of yet further future VAT being uncollected and the risk that the requirement to give security prejudiced the recovery of past VAT, but that in the circumstances of the Appellant his conclusion was that the risk of future default outweighed the risk of failure to recover past debts. We understood him to mean that this was intrinsically part of his decision making process at the relevant time.

Decision

It seems to us that in making his decision:

(i) Mr Johnstone took account of no irrelevant factors;

(ii) he took account of all relevant factors including the risk to the revenue that the Appellant's cessation of trade might have;

(iii) he made no error of law; and

(iv) that his decision was one which could reasonably be made on the information available.

We therefore dismiss this appeal. Our decision was unanimous.

No application was made for costs and we decided to make no award of costs.

CHARLES HELLIER

CHAIRMAN

RELEASED: 25 January 2008

LON 2007/0803