[2013] UKFTT 91 (TC)
TC02509
Appeal number: TC/2012/04067
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VAT – decision to require
security – paragraph 4(2)(a) Schedule 11 Value Added Tax Act 1994 – whether
decision to require security reasonable – held yes – whether amount of
security fair and reasonable – held yes – comments in Goldhaven v HMCE and
John Dee Ltd v HMCE applied – appeal dismissed
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FIRST-TIER TRIBUNAL
TAX CHAMBER
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SHAND SECURITY
LIMITED
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Appellant
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-and-
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THE
COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS
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Respondents
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TRIBUNAL:
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JUDGE KEVIN POOLE
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Sitting in public at 45 Bedford Square, London on 28 August 2012
William Maxwell Shand,
Director, for the Appellant
Lynne Ratnett, Higher Officer
of HM Revenue and Customs, for the Respondents
©
CROWN COPYRIGHT 2013
DECISION
Introduction
1.
This is an appeal against a decision by HMRC to require security for
payment of VAT from the Appellant.
2.
A summary decision was issued following the hearing of the appeal and
this decision, comprising full findings of fact and reasons for the decision,
is issued in response to a request made by the Appellant.
The history and background of the Appellant and Mr Shand
3.
Mr William Maxwell Shand (“Mr Shand”) was, from 4 June 2005, a director
of Uniserve (GB) Limited, a company which provided security services. On 14
October 2005, Mr Shand made an application on behalf of that company for VAT
registration. Almost from the start of its VAT registration, the company's
compliance record was very poor. Numerous returns were not made and by the
time the company went into liquidation in June 2009, through a combination of
Officer's Assessments, default surcharges and civil penalties, it had an unpaid
VAT debt of £272,389.36.
4.
On 15 January 2009, a new company called Uniserve Security Limited was
incorporated. The VAT registration application form for that company was
submitted to HMRC by Mr Shand's then wife, Mrs Katie Shand (who had been
appointed as the company's director on its incorporation). The VAT
registration application form showed the company's business as being
"security services". It gave the same contact telephone number for
the company as had previously been given for Uniserve (GB) Limited. The home
address given by Mrs Shand was the same as the home address given by Mr Shand
on the previous VAT registration form, and Mrs Shand gave the same telephone
number for her home address as she gave for the business. Mr Shand was
appointed as a director of this company on 1 July 2009. From October 2009 the
company's VAT compliance record deteriorated, and through a combination of
unpaid amounts shown as due on VAT returns and default surcharges, the company
accrued a total unpaid VAT liability of £69,510.78 by the time it was put into
liquidation on 10 October 2011
5.
Mr Shand was made bankrupt on 31 March 2011.
6.
The Appellant company was incorporated on 6 May 2011. Its only director
at all times has been Mr Michael Ayrton Richard Shand (“Mr Shand junior”), Mr
Shand's son. An application for VAT registration of this company was made on
its behalf in the name of Mr Shand junior on 22 June 2011. The business
address given for the Appellant was the same as the home address given by Mr
Shand and Mrs Shand on the previous two VAT registration applications. The
business activity of the Appellant was described as "security".
7.
There were lengthy delays before the Appellant was registered for VAT,
and those delays have been the subject of separate correspondence between the
Appellant and HMRC. It was only issued with a VAT number on 17 November 2011,
and this was after extensive chasing from the Appellant’s accountants. It is
clear that the delay in registering the Appellant for VAT caused it severe
financial difficulties, and it is equally clear that at least one individual
officer within HMRC was embarrassed at the way the matter was being dealt with
by his colleagues. We have no reason to doubt the Appellant’s accountants’
statement that the Appellant very nearly became insolvent largely as a result
of the problems caused by HMRC’s delay in issuing its VAT registration.
The requirement for security
8.
After the VAT registration was finally issued, HMRC then considered the
question of security. Officer Andrews dealt with this and we heard oral
evidence and received a short written statement from her. Her consideration
culminated in the issue of a notification dated 13 December 2011, which
required the Appellant to provide security in the sum of £12,000. This
notification was delivered personally to Mr Shand junior on 13 December 2011.
9.
Further copies of the notification were sent to the Appellant on 9
January 2012, addressed to its officers at, respectively, Mr Shand junior’s
home address, the Appellant’s business address and its registered office. In
reply, the Appellant’s accountants responded by letter dated 11 January 2012,
in which they sought to distance the Appellant from Mr Shand, whilst observing
that “without any information as to why the security deposit has been
requested, it is very difficult to construct a full and satisfying appeal
against the decision”. They pointed out that:
(1)
Mr Shand junior, the director of the Appellant, had not been involved
with any other VAT registered business and had therefore not failed to comply
with VAT obligations;
(2)
Mr Shand junior was running the business and he was neither an
undischarged bankrupt nor a disqualified director;
(3)
Mr Shand junior had never been prosecuted or penalised for a VAT
offence; and
(4)
there were no other persons concerned in the current registration of the
business with past failures to pay VAT due.
10.
They went on in their letter to speculate that the possible cause was Mr
Shand’s involvement in the business. They stated that he was an employee with
no control or responsibilities regarding its finances, which remained Mr Shand
junior’s sole responsibility. Mr Shand, they said, had no access to the
business bank account. They requested a formal independent review of Officer
Andrews’ decision to require security.
Review of the decision on security
11.
Officer Ian Pumfrey carried out that independent review, and he provided
a short written statement and gave oral evidence before me.
12.
As the Appellant’s appeal is against Officer Pumfrey’s confirmation of
Officer Andrews’ decision to require security, it appears to me that it is
Officer Pumfrey’s decision (rather than Officer Andrews’) that I must examine
most closely.
13.
The information available to Officer Pumfrey was the same as the
information available to Officer Andrews when she took her decision, plus the
content of the Appellant’s accountants’ letter dated 11 January 2012 and the
content of the Appellant’s first VAT return for the period up to 30 November
2011.
14.
Officer Andrews’ evidence was not wholly satisfactory. In her witness
statement, she said that “the amount of security required is based on the
taxable turnover declared on the VAT 1 application for registration declaration
submitted by the business with a [sic] allowance given for input tax
based upon the tax performance of other businesses”. This was clearly
incorrect. In her oral evidence, she said that she had worked from an
estimated VAT-exclusive annual turnover figure of £269,000 which had been
supplied to her by colleagues who had actually registered the business for VAT,
whereas the original VAT1 form had given an estimated annual turnover of £85,000.
I am satisfied that her oral evidence was true, but the incorrect statement
included in her witness statement was highly unfortunate and demonstrated a
degree of lack of care in preparation of the witness statement that could have
been fatal to HMRC’s case in other circumstances.
15.
By her calculations, she said, four months of turnover at £269,000 per
year would equate to £89,666.67, which at a VAT rate of 20% would generate
output VAT of £17,933.33. For the Appellant’s type of business, national statistics
suggested that output VAT would outweigh input VAT by a ratio of approximately
3.04 to 1 (she actually said 2.04 to 1, but her calculations show she must have
been working off the higher figure) and expected input VAT would therefore be
£5,899.12. Net output VAT would therefore be just over £12,000, which she
rounded down to £12,000.
16.
Officer Pumfrey, when he reviewed the decision, approached it
differently. By that time, a VAT return had been submitted by the Appellant
and in his oral evidence, Officer Pumfrey said he had worked from that VAT
return. He calculated the average daily net VAT liability from that return as
£73.22, resulting in an expected net VAT liability for a four month period of
some £8,860.15. He also noted that the actual VAT liability shown on the VAT
return (£13,400.07) was unpaid and overdue (the due date was 31 December 2011 –
7 January 2012 for electronic payment – and he was considering the matter in
late January 2012) and therefore he considered HMRC’s total exposure to be some
£22,250.07. On that basis, he felt that the £12,000 figure fixed by Officer
Andrews should not be reduced. It is worth mentioning however that in his
written witness statement he had stated that “I reviewed the amount of security
required, which had been calculated on the basis of the estimated taxable
turnover shown on the company’s VAT 1 application for registration…” – which
was clearly incorrect.
17.
The reason why HMRC had required the security in the first place was
because of the links that they considered existed between the Appellant and the
two previous failed companies. These were as follows:
(1)
Mr Shand, who had been a director of both the previous companies when
they had been significantly non-compliant for VAT purposes, resulting in a
final unpaid debt to HMRC of some £340,000, was the operations manager of the
Appellant and the father of its sole director;
(2)
The Appellant appeared to be continuing in the same line of business in
succession to the two previous companies;
(3)
The telephone number given on the Appellant’s invoices was the same as
that given to HMRC in respect of both of the earlier two companies, implying
continuity;
(4)
The business address given on the VAT registration application form for
the Appellant was the same as the home address given for Mr Shand on the VAT
registration application form for Uniserve (GB) Limited and for Mr Shand’s
former wife on the VAT registration application form for Uniserve Security
Limited.
18.
Mr Shand (rather than his son) appeared before the Tribunal on behalf of
the Appellant. He gave evidence about a number of matters relating to his
ex-wife, their various changes of address and the financial affairs of the
Appellant and the earlier companies. Whilst some of this evidence cast a
clearer light on matters, none of it was information that was available to HMRC
at the time when Officers Andrews and Pumfrey made their respective decisions.
The law
19.
Paragraphs 4(2) to 4(4) of the Value Added Tax Act 1994 (“VATA94”)
provided, at all material times, as follows:
“(2) If they think it 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 or to whom
relevant goods or services are supplied.
(3) In sub-paragraph (2) above
“relevant goods or services” means goods or services supplied by or to the
taxable person.
(4) Security under sub-paragraph
(2) above shall be of such amount, and shall be given in such manner, as the
Commissioners may determine.”
20.
The appeal is made pursuant to section 83(1)(l) VATA94, which lays down
no particular requirements for such an appeal.
21.
Ms Ratnett referred us to Goldhaven Limited v HMCE [1996] VATD
14675, which considered the question of the Tribunal’s powers under paragraph
4(2):
“14. In considering the submissions of the parties we have
first identified the principles which we should apply in considering this
appeal. These were described by Farquharson J in Mr Wishmore Limited v
Commissioners of Customs and Excise [1988] STC 723 at page 728g in the
following way:
“The tribunal…. should restrict
itself, on the hearing of an appeal, to deciding whether the taxpayer company
has established that the decision arrived at by the commissioners was
unreasonable, or… whether the decision had been arrived at by taking into
account matters which are not relevant or by ignoring matters which are
relevant.”
15. The principles were further
developed in Customs and Excise Commissioners v Peachtree Enterprises Ltd [1994]
STC 747 where it was held that the tribunal had to limit itself to considering
facts and matters which were known when the disputed decision was made by
Customs and Excise. The principles were yet further developed in John Dee
Limited v Customs and Excise Commissioners [1995] STC 941 where the Court
of Appeal held that the tribunal had to consider whether Customs and Excise had
acted in a way in which no reasonable panel of Commissioners of Customs and
Excise could have acted, or whether they had taken into account some relevant
matter, or had disregarded something to which they should have given weight.
The tribunal could not exercise a fresh discretion; the protection of the
revenue was not a responsibility of the tribunal or the court. However, if it
was shown that the decision of Customs and Excise was erroneous, because they
had failed to take some relevant material into account, the tribunal could,
nevertheless, dismiss the appeal if the decision would inevitably have
been the same had account been taken of the additional material.”
22.
I respectfully agree and adopt the above analysis.
Discussion and decision
23.
It is clear from the cases mentioned above that the jurisdiction of this
Tribunal in cases such as this is a supervisory rather than a full appellate
jurisdiction – that is to say, I have no power to substitute my own decision
for that made by HMRC, I only have power to decide whether HMRC’s decision
should be confirmed or set aside. It is also quite clear that in exercising
that power, I can only set HMRC’s decision aside if I am satisfied that in
reaching it HMRC have acted in a way in which no reasonable panel of
Commissioners could have acted, or have taken into account some irrelevant
matter or have disregarded something to which they should have given weight.
24.
So the question I must ask myself is this: based on the information
available to him at the time, am I satisfied that Officer Pumfrey, in reaching
his decision to confirm Officer Andrew’s earlier decision, acted in a way in
which no reasonable officer of HMRC could have acted, or took account of some
irrelevant matter, or disregarded something to which he should have given
weight? It is important to remember that in asking this question, I must not
take account of information that came to light after Officer Pumfrey’s decision
was taken.
25.
The decision in question was a decision to require security in the
amount of £12,000, a sum considered to be equal to approximately four months’
net VAT liability. In considering the question set out in the previous
paragraph, I must bear that fact in mind.
26.
The hurdle that the Appellant must clear in order to win its appeal is a
high one: it must demonstrate on the balance of probabilities that no
reasonable body of Commissioners could have reached the decision that was
reached in this case, or that they took into account some irrelevant matter or
failed to take into account some relevant matter.
27.
HMRC cannot be expected to have taken into account matters that they
were unaware of, and I am satisfied that they did take into account all the
information that was provided to them. I do not consider that they took into
account, to any material extent, any matters that were irrelevant. On the
basis of that information, I am satisfied that Officer Pumfrey’s decision to
confirm the requirement for security in the amount of £12,000 cannot be
criticised.
28.
It follows that the appeal must be dismissed.
29.
This document contains full findings of fact and reasons for the
decision. Any party dissatisfied with this decision has a right to apply for
permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. The parties are referred to “Guidance to accompany a Decision from
the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this
decision notice.
KEVIN POOLE
TRIBUNAL JUDGE
RELEASE DATE: 1 February 2013
