19583                                                             
	SECURITY — poor compliance record — Appellant involved in previous insolvent company — was the requirement reasonable — yes — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	RICHARD WADE CLARKSON
	trading as HUMBERSIDE MARQUEES	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Lady Mitting (Chairman)
						Elizabeth M Pollard

Sitting in public in York on 24 April 2006

The Appellant appeared in person

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

	© CROWN COPYRIGHT 2006

DECISION

1.	The decision under appeal is that of the Respondents contained in a letter dated 21 October 2005 to require the Appellant to give security under paragraph 4(2)(a) Schedule 11 Value Added Tax Act 1994.  An earlier Notice of Requirement was served on 1 September 2005 requiring security in the sum of £36,117.91 or £32,717.91 on monthly returns.  The amount was varied by the letter of 21 October, the amended amounts of security required being £10,200 on quarterly returns or £6,800 on monthly returns.
2.	The Appellant attended and gave oral evidence and on behalf of the Respondents we heard oral evidence from Mr David Price, the officer whose decision it was to raise the requirement.  
3.	The Appellant carries on the business of hiring marquees with associated catering and other facilities.  He registered for VAT with effect from 1 June 2001.  The business came to the attention of Mr Price in July 2005.  At that time, the last three VAT returns had not been submitted and five default surcharges had been issued for the previous five periods at 15 per cent.  The combination of tax and default surcharges owed to the Commissioners at that time was £25,915.  Analysis of Mr Clarkson’s VAT record showed a very poor record for the first 12 months of trading; an improvement thereafter but a marked deterioration from 02/04 onwards.
4.	Prior to the commencement of this business, Mr Clarkson had been director of a company called Humberside Marquees Limited.  This company had traded from July 1991 until insolvency in June 2001.  The company became insolvent owing the Commissioners £967.69.  Mr Price believed that the current business was merely a continuation of that run by the limited company.  The compliance record of the limited company was not good in that there was an extensive history of late returns and late payments, although on cessation, the debt left to the Commissioners was not significant.  To Mr Price, the significant factor was the compliance record of the current business of Mr Clarkson.  He believed that there was a substantial risk to the Revenue and that security was required.  Although the history of the limited company was a factor in his thinking, it was not, to Mr Price, nearly so significant as the compliance record of the current business.  The last four returns which the Commissioners had received were for 11/03, 02/04, 08/04 and 11/04.  The amount required was therefore based upon these four returns.  The original amount which Mr Price required included the current debt to the Commissioners but he separated this out in raising the amended requirement.
5.	Mr Clarkson agreed with all the above factors and accepted that he understood why security was required.  He outlined for us, however, serious financial problems which he had experienced over the last few years.  The limited company had got into financial difficulty during the Foot & Mouth crisis and finally been forced into liquidation.  Since then, he had had a couple of extraordinary financial burdens which he would not normally have had.  He had repaid £21,000 to the liquidators of the limited company and because of a domestic dispute, had had to repay a £53,000 mortgage on his matrimonial home.  The funds for both these payments had to come out of the takings of the business.  Additionally, in an effort to save money, during the last year, he had not employed a bookkeeper.  This had contributed to a failure to submit the returns.  
6.	Currently, Mr Clarkson was negotiating with the Commissioners to agree a repayment schedule.  His last two returns were both submitted with full payment on time and he was hopeful that without the additional burden of the security, he would be able to continue both to reduce his debt and to maintain his current liabilities.
7.	To assist Mr Clarkson, Mr Price told us that it was not the intention of the Commissioners at present to merely hold the security but on payment they would immediately put it towards repayment of the outstanding indebtedness and provided that returns continued to be submitted and paid on time and a repayment schedule could be agreed and adhered to for the balance of the outstanding debt, it would not be the intention of the Commissioners to require any further security.  The effect of this for Mr Clarkson would be that the payment of security would not increase his indebtedness to the Commissioners as he had feared but would in effect constitute an enforced repayment of approximately one half of the debt.  Mr Clarkson understood and seemed satisfied with this.
8.	As we explained to Mr Clarkson, our jurisdiction is supervisory and we are limited to considering the reasonableness of the Commissioners’ decision, such consideration to be limited to those matters prevailing at the time the decision was made.  The position at that time was that Mr Clarkson had a poor and increasingly worrying compliance record and, although of lesser concern to Mr Price, Mr Clarkson had been involved with Humberside Marquees Limited, with its own compliance problems.  We believe that both these factors are quite clearly relevant and critical.  We know of no other factors which Mr Price should have considered but failed to and the decision to require security based on the information which Mr Price had was, in our view, totally reasonable.  The appeal is therefore dismissed.
9.	Mr Haley made no application for costs and no order is made.
LADY MITTING
CHAIRMAN
Release Date: 19 May 2006
MAN/05/0802

££Clarkson (t/a Humberside Marqueres) v Revenue & Customs [2006] UKVAT V19583 (19 May 2006)