United Kingdom VAT & Duties Tribunals (Customs) Decisions

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Cite as: [2008] UKVAT(Customs) C00257, [2008] UKVAT(Customs) C257

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Cargo Gateway Ltd v Revenue & Customs [2008] UKVAT(Customs) C00257 (30 May 2008)

C00257

CUSTOMS DUTY/VAT AT IMPORTATION – SIVA application refused – unreasonable? – no –appeal dismissed.

LONDON TRIBUNAL CENTRE

CARGO GATEWAY LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Richard Barlow (Chairman)

Alex McLoughlin

Sitting in public in London on 1 April 2008

Doug Hildred of Messrs Sharman Fielding, chartered accountants, for the Appellant

Andrew O'Connor, counsel, instructed by the Solicitor for HM Revenue and Customs for the Respondents

DECISION

This is an appeal against the respondents' decision, in a letter dated 27 June 2007, by which they reviewed and upheld an earlier decision, dated 13 April 2007, by which they had refused the appellant's application to be approved to use "Simplified Import VAT Accounting" (SIVA). The review was requested on 1 June 2007 so that the review was conducted within the prescribed time under section 15(2) of the Finance Act 1994 (the Act) and the appeal, under section 16(1)(a) of that Act, is therefore against that review decision not a deemed decision.

The appeal is an appeal under section 16(4) of the Act relating to an ancillary matter falling within paragraph 1(m) of Schedule 5 to the Act.

Accordingly the tribunal's power to allow the appeal is limited, by section 16(4) of the Act, to allowing it only if we "are satisfied that the Commissioners or other person making [the] decision could not reasonably have arrived at it".

SIVA only applies to VAT payable at importation. Approval to use it removes the need for security for VAT where payment of the VAT, that would otherwise be payable at importation, is deferred.

The legal basis for SIVA is Regulation 4 of the Customs Duty Deferred Payment Regulations 1976 as amended and also, and in particular, as modified by Regulation 121A of the VAT Regulations 1995 in relation to VAT chargeable on the importation of goods from places outside the member states which reads as follows:

"4(1) A person who wishes to be approved for the purposes of these regulations shall apply to the Commissioners in such form and manner as they shall determine, furnish appropriate security (which may be nil if there is no risk to the payment) for payment on payment day of the amount of customs duty in respect of which he seeks deferment, and make arrangements with the Commissioners for the payment of that duty on payment day".

VAT on importation from outside the member states is subject to the legislation relating to customs duties by section 16 of the VAT Act 1994, hence the absence of any reference to VAT in the modified version of regulation 4 even though it applies to VAT, and regulation 121A of the VAT Regulations makes it clear that the modification only applies to VAT on importation from outside the member states.

In the review decision, the reviewing officer said that SIVA can only be used where traders are able to satisfy HMRC that they present no risk with regard to the payment of the deferred VAT. In doing so she was following the legislation and cannot be criticised for that. The reasons why the Commissioners were said not to be satisfied of the absence of risk were that the appellant had insufficient liquidity and had not satisfied the criterion that it had a 12 month history of international trade operations.

At the hearing, Mr O'Connor did not seek to justify the contention about absence of 12 months history in international trade operations. We should make it clear that he was not saying that that criterion is inappropriate as a criterion. He was accepting that as a matter of fact it was satisfied in this case. Mr O'Connor submitted that that did not mean that the decision was one the Commissioners could not reasonably have arrived at. He contended that the other reason given was sufficient to justify the decision and that the tribunal should not therefore direct a further review based only on the fact that the Commissioners had taken into account something that was, as they now concede, factually incorrect because the decision would inevitably have been the same if that fact had not been taken into account.

The sole ground upon which the Commissioners now seek to justify their decision is that the appellant had insufficient liquidity to be able to prove to their satisfaction that it would always be able to meet its obligations to pay the deferred VAT when payment became due.

That issue is slightly complicated by the fact that in the part of the HMRC website dealing with SIVA the Commissioners say that SIVA approval "… is a partnership of trust between the agent and Customs. As such agents will be expected to honour to the payment of any liabilities lodged against their own deferment account". Agents like the appellant, who act in their principal's name or in the jargon those who act "directly", do not have a personal liability to account for their clients' tax. The statement on the website saying that they will be expected to honour their clients' debts seems, at first sight, to amount to charging tax without legislation. However, the website goes on to say that, although deferment may be withdrawn if the agent does not ensure payment, he will not be made liable for the tax if he does not ensure the payment, it will be collected from his client.

The appellant argued that as an agent with no personal liability there was no risk to the revenue by its being approved for SIVA because the client remains liable. We do not agree that that is correct. The respondents do not have a direct relationship with the agent's client and may have no way of judging, at the point when deferment occurs, whether the client is financially capable of making the payment.

A further risk arises from the fact that the agent may import goods on its own behalf increasing the potential risk to the collection of the tax.

The appellant also argued that, as it will always have money on hand from clients who have put it in funds before the time for payment is due, there is no risk to the revenue in those cases where clients have not put the appellant in funds to make the payment on time. We do not consider that argument is appropriate at all. There is clearly a risk of non-payment where one client's money is used to cover another client's obligations where that other is slow to pay. Late payment by clients would create a risk of cash flow problems for the agent.

The Commissioners' decision is based on the contention that the appellant must have sufficient tangible fixed assets to cover its liabilities and that, as the appellant's un-audited accounts for the year ending 28 February 2006 which were the latest ones available when the application to operate SIVA was received, only showed tangible fixed assets of £12,543 that fell far short of the sums that would be at risk.

The Commissioners cannot be said to have reached a decision that they could not reasonably have reached in deciding that the risk of non-payment was not satisfactorily covered by the appellants' readily available assets. We agree with Mr O'Connor that that reason is in itself sufficient to justify the decision and that accordingly we should not allow the appeal only because the Commissioners had taken account of an incorrect fact when making it. The most that can be said is that the Commissioners have taken a fairly cautious view of the risk but they are entitled to take that view as the matter is within their discretion and they have a duty to protect the revenue.

The appeal is therefore dismissed. Mr O'Connor said that he would not seek costs if the appeal failed and we make no order.

Richard Barlow

CHAIRMAN

Release Date: 30 May 2008

LON/07/7057