20356

REQUIREMENT FOR SECURITY – decision to require security made in February 2006 – Appellant had poor compliance record and two businesses with which a director of the Appellant had been connected also had poor compliance records – whether decision to require security a reasonable decision when it was made – yes – recommendation that the Commissioners re-consider the amount of security required in the light of the Appellant’s current level of annual taxable supplies and the amount of tax currently outstanding – appeal dismissed – VATA 1994 Sch 11 para 4(2) 

LONDON TRIBUNAL CENTRE

MICROVISION SOLUTIONS LIMITED
Appellant

 - and -   	

THE COMMISSIONERS FOR HER MAJESTY’S 
REVENUE AND CUSTOMS 
Respondents

Tribunal : DR A N BRICE (Chairman)
MR J N BROWN CBE FCA ATII

Sitting in London on 12 September 2007

There was no appearance by or on behalf of the Appellant

Jonathan Holl, Advocate in the Office of the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The appeal
1.	Microvision Solutions Limited (the Appellant) appeals against a decision of The Commissioners for Her Majesty’s Revenue and Customs (Customs) dated 3 February 2006. The decision was that, as a condition of the Appellant making taxable supplies, it was required to give security of £24,363 (or of £20,713 if monthly returns were submitted). The decision was made under the powers contained in paragraph 4(2) of schedule 11 of the Value Added Tax Act 1994 (the 1994 Act). 

The legislation
2.	Paragraph 4(2) of schedule 11 of the 1994 Act provides:

“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 … of such amount and in such manner as they may determine, for the payment of any VAT which is or may become due from;
(a)	the taxable person; or
(b)	any person by or to whom relevant goods or services are supplied.”

The evidence
3.	The Appellant wrote to the Tribunal on 10 September 2007. A bundle of documents was produced by Customs and this contained copies of some letters from the Appellant to Customs. Oral evidence was given on behalf of Customs by Ms Tish Birch, the Officer who gave the disputed decision.

The facts
4.	From the evidence before us we find the following facts.

Mr Boulton’s previous businesses
5.	Mr Roger Boulton, a director of the Appellant, was one of three partners in the firm Marlin Engineering Design (Marlin). Marlin was registered for value added tax from 14 June 1983 to 9 October 2002. During that time Marlin’s compliance record was poor. It applied to Customs on a number of occasions for time to pay agreements. Because of late payment of value added tax, it was in and out of the civil recovery regime and received visits from bailiffs. At the end of trading there was an outstanding value added tax debt of £499.78.
  . 
6.	Between 1 March 2002 and 1 November 2002 Mr Boulton traded as a sole proprietor under the name of Marlin Engineering Consultants. He was registered for value added tax. The payment of value added tax was late in one of the accounting periods and Mr Boulton applied for a time to pay agreement. At the end of trading there was an outstanding value added tax credit of £66.73.

The Appellant and its compliance record
7.	The Appellant was incorporated on 16 December 2002 and its business is to act as consultants to the contact lens industry. The directors of the Appellant are Mr Roger Boulton and his wife Mrs Vivienne Ann Boulton. The Appellant was registered for value added tax with effect from 1 April 2003 and, in its application for registration, the Appellant estimated the annual value of its taxable supplies as £100,000.  

8.	Between the date of registration and February 2006 eleven value added tax returns were due. Only three returns, with the tax due, were rendered in time. All the other returns, with the tax due, were late. The length of the delays varied. Two of the returns were more than 100 days late and the tax was paid more than 100 days late on no less than five occasions, the delay in respect of those five occasions being 117, 338, 246, 264 and 309 days respectively as evidenced by the table below.   

9.	The amounts of tax due, and the delays, were:

Accounting		Amount		Days’ delay in		Day’s delay in
	period ending		of tax due	return			paying tax

	06/03			£10,140.16	0			0
	09/03			£  8,528.30	5			5
	12/03			£  1,809.38	0			0
	03/04			£  2,037.16	0			0
	06/04			£  7,586.39	34			117
	09/04			£  7,660.56	2			338
	12/04			£  7,201.04	32			246
	03/05			£     552.67	11			11
	06/05			£  5,608.86	221			264
	09/05			£  9,049.66	129			309
	12/05			£  1,291.36	37			37

10.	On 28 November 2005 the Appellant wrote to Customs saying that he owed £14,658.52 and proposed to pay this by ten monthly instalments beginning on 31 January 2006 and ending in 31 October 2006. This proposal was refused by Customs on 15 December 2005.

The decision to require security
11.	The Appellant’s compliance record, and the records of both Marlin and Marlin Engineering Consultants, were reviewed by Ms Birch in January 2006 when the amount outstanding from the Appellant was £15,324.75. Of this, £13,463 was tax and the rest was in respect of default surcharge penalties. Ms Birch formed the view that the pattern of non-compliance indicated that security was required to protect the revenue. 

12.	In calculating the amount of the security Ms Birch determined an annual amount of tax by reference to the tax due as shown on a series of quarterly returns. At that time the returns for the accounting periods ending in June, September and December 2005 had not been rendered. Accordingly, Ms Birch used the figures on the returns for the accounting periods ending on 30 June 2004, 30 September 2004. 31 December 2004 and 31 March 2005. We make the total of the amount of tax due in those four accounting periods to be  £23,000.66 but Ms Birch recorded the total as £21,895.32. (The lower figure favours the Appellant.) Ms Birch then halved the total to find a figure for six month’s liability which gave a figure of £10,947.66 which, rounded down, came to came to £10,900. To that figure Ms Birch added the amount of tax outstanding, namely £13,463 making a total of £24,363. If monthly returns were to be submitted then Ms Birch calculated that four months’ tax liability would be about £7,250 which, with the outstanding tax, amounted to £20,713. Ms Birch thus considered that the amounts of security required were £24,363 or, alternatively, £20,713. . 

13.	Customs wrote to the Appellant on 19 January 2006 about its outstanding returns and mentioned the power to require security. No response was received from the Appellant and so the formal notice was issued on 3 February 2006 and it is against that notice that the Appellant appeals. 

Events after the issue of the notice
14.	After the issue of the notice Mr Boulton wrote to Customs on 23 February saying that he would pay the outstanding tax in monthly instalments until October 2006 and would ensure that all future returns, and the tax, were sent in time. He would also render monthly returns. However, he could not provide the amount of security required and, if he were not able to make taxable supplies, then his business would be unworkable. Customs replied to this letter on 28 February rejecting the proposals to pay by instalments, especially as returns remained outstanding. The Appellant was informed of its right to appeal. 

15.	Mr Boulton wrote further to Customs on 8 March 2006 saying that he intended to appeal against the requirement for security but would prefer to come to an agreed arrangement. He said that he had just sent the returns for the accounting periods ending in June, September and December 2005 and had paid the tax due in December 2005. He had also sent another instalment of the outstanding tax. He said again that he could not provide the amount of security required and, if he were not able to make taxable supplies, then he would be unable to pay the outstanding debt. This letter was acknowledged by Customs on 17 March and it was pointed out that £13,858.54 still remained outstanding. The Appellant’s time to appeal against the notice requiring security was extended by seven days. The Appellant wrote again on 3 April 2006 with a revised payment schedule under which the final instalment would be paid on 31 August 2006.  

16.	After the issue of the notice of requirement of security the next value added tax return was due on 30 April 2006. That return was a repayment return and was rendered nine days early. The return was sent by the Appellant with a letter of 20 April 2006 which contained a revised repayment schedule under which the outstanding liability would be cleared by the end of July 2006. The next two returns (due on 31 July and 30 October 2006) were rendered one and seven days late respectively but the tax due was not paid with them.

17.	In July 2006 Mrs Boulton was diagnosed as suffering from cancer. On 11 October 2006 Customs wrote to the Appellant to say that they intended to visit its premises to examine the business records. The visit took place on 7 November 2006 At that date the amount outstanding was in the region of £6,000 and Mr Boulton said that it would be cleared by the end of November 2006.

The progress of the appeal
18.	Under Rule 4(1) of the Value Added Tax Tribunals Rules 1986 SI 1986 No. 590 (the Rules) the notice of appeal should have been lodged within thirty days of the date of the disputed decision. In fact it was lodged on 7 November 2006, more than nine months late. In its notice of appeal the Appellant asked for an extension of time in which to appeal for a number of reasons including the illness of Mrs Boulton. Customs did not object to the application for an extension of time and served their statement of case on 4 January 2007. 

19.	Also on 4 January the Tribunal asked the parties for their dates to avoid for the hearing of the appeal and the Appellant failed to respond.  The Tribunal notified the parties on 10 May 2007 that the hearing would take place on 14 June 2007. The Appellant applied for that hearing to be postponed until September or October. That request was granted and the hearing fixed for 14 June was vacated. On 11 June 2007 the Appellant notified the Tribunal of suitable dates for the hearing and 12 September was one of those suitable dates. On 13 July the parties were notified that the hearing would take place on 12 September.  

20.	Mr Boulton wrote to the Tribunal on 10 September 2007 to say that he was unable to attend the hearing. He did not give any reason for his non-attendance and stated that he wished the appeal to proceed by way of written evidence. 

Application to dismiss for want of prosecution
21.	When the appeal was called on for hearing the Appellant did not appear  Mr Holl, for Customs, made an application for the appeal to be dismissed for want of prosecution. He argued that, apart from Mr Boulton’s letter of 10 September 2007, the Appellant had made no response to Customs’ statement of case and that the letter of 10 September 2007 gave no good reason why the Appellant did not attend the hearing.

22.	Rule 18(2) provides that a tribunal may dismiss an appeal for want of prosecution where the Appellant has been guilty of inordinate or inexcusable delay. 

23.	We decided not to dismiss the appeal for want of prosecution  Although the facts indicated that there had been some delay both in lodging the appeal and since it was lodged, in our view the delay was neither inordinate nor inexcusable and the Appellant had made it clear as late as 10 September 2007 that it wished to pursue its appeal. 

Appeal heard in the absence of the Appellant
24.	Rule 26(2) provides that if, when an appeal is called on for hearing, a party does not appear in person or by a representative, the tribunal may proceed to consider the appeal in the absence of that party. Rule 26(3) provides that where a decision is given in the absence of a party the tribunal may set aside that decision if the absent party makes an application within fourteen days after the decision is released. 

25.	We decided to hear the appeal in the absence of the Appellant. In reaching this decision we bore in mind that the appeal had already been listed on 14 June 2007 and that that hearing had been postponed at the request of the Appellant. In fixing the present hearing the Tribunal had taken into account the dates stated by the Appellant as suitable dates. The letter from the Appellant dated 10 September 2007 did not give any reason why the Appellant did not attend and stated that the Appellant wished to proceed by way of written evidence. We also bore in mind that Rule 26(3) gives the tribunal power to set aside a decision given in the absence of any party.

The arguments 
26.	The arguments for the Appellant were contained in the letter of 10 September 2007 where the Appellant put forward four main arguments. First, that the amount of security was in excess of its annual tax liability. (The Appellant calculated that its liability for the last seven quarters was £10,183.98 which was £5,819.42 for a year.) Secondly, the illness of Mrs Boulton had reduced her participation in the business resulting in financial difficulties. Thirdly, in February 2007 a main client had gone into receivership owing the Appellant just over £30,000. Mr Boulton had sold his house to pay his creditors and there was no further capital to realise or to offer as security; if the appeal were dismissed the business would have to close down. Finally, the current indebtedness was only £3,596.19 which was the previous quarters’ tax and that was out of proportion to the amount of security required. 

27.	For Customs Mr Holl did not accept the figures given for the Appellant’s annual liability. He stated that the return for the period ending on 31 March 2007 had claimed a repayment but this had been queried and Customs were of the view that, rather than a repayment, an amount of tax was due. Customs were very sympathetic about the illness of Mrs Boulton and had treated the Appellant with help and patience but the fact was that tax was paid late and some was still owed. Payments of tax had been made in August 2007 after a civil recovery petition but another civil recovery petition was outstanding and £7,303.18 was still due. Also, a recent search at Companies House stated that the Appellant would be struck off the register of companies and that was a further indication of poor compliance. 

28.	For a statement of the law Mr Holl relied upon paragraphs 14 and 15 of the Tribunal’s Decision in Goldhaven Limited v The Commissioners of Customs and Excise (1997) Decision No. 14675 and argued that the requirement of security was a reasonable decision when it was made. He accepted that the amount of debt had been reduced since then but compliance still remained poor. Customs did not want to put traders out of business and were willing the review the amount of security required. He suggested that the Tribunal might wish to consider offering guidance to Customs on this point.

Reasons for decision 
29.	In considering the arguments of the parties we first identify the legal principles which we should apply. These were summarised at paragraphs 14 and 15 of the Decision in Goldhaven.  First, we should decide whether the Appellant has established that the decision of Customs is unreasonable or whether it was arrived at by taking into account matters which were not relevant or by ignoring matters which were relevant. Secondly, we have to limit ourselves to considering facts and matters which were known when the disputed decision was made. Thirdly, the test is whether Customs acted in a way in which no reasonable Commissioners could have acted. Finally, the Tribunal cannot exercise a fresh discretion; the protection of the revenue is not the responsibility of the Tribunal.

30.	Applying those principles to the facts of the present appeal we are of the view that the decision of 3 February 2006 to require security in the amounts stated was a reasonable decision when it was made. At that time Customs knew about the poor compliance record of the two previous businesses with which Mr Boulton had been connected. They also knew about the compliance record of the Appellant which was extremely poor; in particular there is a history of very late returns and late payments of tax. The amount of the security required was based on the four most recent returns then in the possession of Customs and on the amount of tax then outstanding and we regard the amount required as reasonable on the date it was required. For that reason we dismiss the appeal.

31.	Turning to the arguments of the Appellant contained in the letter of 10 September, we accept that the amount of security required in 2006 might require to be reduced having regard to the Appellant’s current annual tax liability and the current amount of outstanding tax. However the amounts stated by the Appellant were not agreed by Customs and so we do not accept them We sympathise with the illness of Mrs Boulton and the financial failure of a client of the Appellant but note that these events occurred after the date of the requirement for security and after the date of the poor compliance. 

32.	We are of the view that the protection of the revenue does require the Appellant to provide some security but we recommend that Customs re-consider the amount of security required having regard to the Appellant’s current annual tax liability and the amount of tax currently outstanding.

Decision  
33.	For the above reasons the appeal is dismissed.

34.	This is a unanimous decision .

DR NUALA BRICE

CHAIRMAN

RELEASE DATE: 27 September 2007

LON/2006/1196
26.09.07