Security; requirement for; previous involvement as director in companies carrying on substantially the same business; companies having poor VAT compliance record; appellant disqualified from acting as a director; failure to lodge returns; assessments not appealed; whether circumstances justified Security notice; Value Added Tax Act 1994 Schedule 11 paragraph 4(2).

EDINBURGH TRIBUNAL CENTRE

	JAVED TARIQ	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	       Respondents

			Tribunal:	 (Chairman)   J Gordon Reid, QC., F.C.I.Arb.,
					 (Member)      Riaz Ahmad, BA., LL.B.,

Sitting in Edinburgh on Monday 1 September 2003

for the Appellants		Mr M Yousaf

for the Respondents	Mr B Haley

© CROWN COPYRIGHT 2003.

DECISION

Introduction
This is a security appeal which was heard on 1 September 2003.  The Appellant, who gave evidence, was represented by Muzaffar H Yousaf of Yousaf & Co. Ltd, Chartered Certified accountants, Maxwell Road, Glasgow.  The Respondents (“Customs”) were represented by Mr Bernard Haley, of their solicitors’ office, Manchester.  He led the evidence of David Thomas and Philip McCormack, both Customs Officers.  Both parties produced documents, the authenticity of which was not challenged.  By agreement, Customs opened the appeal.

Facts
In the early nineties, the Appellant was a director, along with a Mr Sarwar, of a substantial number of companies, all of which carried on business as hirers of videos and computerised games to the general public.  They had many video shops throughout Scotland.  Each shop was operated by one of the limited companies and traded as Azad Video.  There was no holding company although the companies appeared to operate as a group with the main office at premises in Glasgow where the Appellant and Mr Sarwar shared an office; one company bought all the videos and distributed them to the various shops.  The VAT compliance record of these companies was poor.  Returns were submitted late and VAT debts accrued. 

Mr Thomas investigated these companies in about 1994.  C/4 is a list of about 69 companies which traded as described above.  He served security notices on fifty five of them.  Each company appealed and negotiations took place between the parties.  Mr Thomas attended meetings with the Appellant and Mr Sarwar at the Glasgow office of Sarwar and the Appellant, and at the offices of accountants, Moores Rowland who were acting for the various companies.  At these meetings, the Appellant and Mr Sarwar acted as if they ran all the various companies.  The appeals were all settled on the day of the Tribunal Hearing set down to consider about six appeals, being a representative sample.  Customs agreed to accept security of £5,000 from each of fifty of the companies.  The sum of £250,000 was paid and was used to reduce the VAT liabilities of the various companies.  Mr Thomas, in the course of his evidence at the present Hearing, identified the Appellant, who was sitting in the Tribunal Room, recognising him from his dealings with him in 1994.  None of these companies appears to be currently trading.

The Appellant was also a director of a company named Smile Leasing Ltd.  It carried on the same type of business.  In 1997, the company was dissolved and he was disqualified from acting as a director from 10/4/97 to 9/4/04.  In about 1998 the Appellant began trading from premises at Maryhill, Glasgow, under the name Smile Leasing.  The nature of the business was much the same, namely video and games rental.  In January 2000, he applied to be registered for the purposes of VAT.  His application recorded that he had made his first supply on 1/9/98, and declared his estimated annual supplies to be £60,000.  He was registered with effect from 1/9/98.  He submitted one VAT return in 2000 covering the period between 1/9/98 and 29/2/00 (which sought a repayment) and no VAT returns in 2001 or 2002.  

Assessments were raised by Customs.  These were not appealed but remained unpaid.  Unpaid VAT of at least £18,924 had accrued based on Customs’ assessments.  These are summarised in C/9.  The matter was brought to Mr McCormack’s attention by Customs’ Debt Management Unit.  Mr McCormack was and is a member of the VAT Security Team.  He made enquiries and considered that there was a risk that future VAT due would be unpaid.  His reasons are set out below.  By letter dated 8 January 2003, Customs, through Mr McCormack, issued a standard Notice under Schedule 11 paragraph 4(2) of the 1994 Act requiring the Appellant, as a condition of supplying goods or services under a taxable supply within section 4 of the Act, to give security in the sum of £9,152.00 for payment of any Value Added Tax due or which might become due from him.  In the alternative, the notice indicated that the sum of £6,095 would be accepted if monthly returns were submitted.

Mr McCormack’s decision to issue the notice was based upon (i) the Appellant’s personal involvement in substantially the same type of business as the large number of companies mentioned above which had a poor compliance record and left VAT debts; the Appellant was a director of all or at least a substantial number of them and was involved in the administration of the business of those companies; (ii) his disqualification as a director, (iii) his failure to submit returns, and (iv) the VAT debt of about £20,000 in terms of assessments which were not appealed.  He also took the view that the Appellant’s current business had arisen Phoenix like out of the ashes of the various companies in which the Appellant was involved.

The Notice prompted the Appellant to submit further returns.  In about March 2003, he submitted returns covering the period between 1/3/00 to 28/2/02 (quarterly returns) and from 1/6/02 to 30/11/02 (quarterly returns).  Each return (except the first for the period 1/9/98 to 29/2/00 which was unsigned) was signed by the Appellant and each claimed a repayment of several hundred pounds which is unusual for the type of business to which they related.  No return was submitted for the period from 1/3/02 to 31/5/02.  There was no reasonable excuse for the Appellant’s failure to submit these returns timeously.  There is considerable doubt about the accuracy of these returns.  The Appellant has engaged the services of Yousaf & Co Ltd, Chartered Certified Accountants, Maxwell Road, Glasgow.  They are in correspondence with Customs in relation to the Appellant’s business activities.  Customs presently await a response to a long list of queries.

Submissions
Mr Haley submitted that the decision to issue a Security Notice was justified.  The factors relied upon by Mr McCormack were all relevant.  What occurred after the service of the Notice did not matter.  There was no basis for discharging the Notice or reducing the amount of security required.

Mr Yousaf reminded the Tribunal that a company was a separate legal person from an individual.  He argued that any requirement for security should be based upon the first return.  He produced a calculation showing that if this were done and inputs assumed to be 50%, the amount of the security required would be reduced to £2,530.78.

Decision
The factors taken into account by Mr McCormack were all relevant and justified on the material available to him when the Notice was issued.  The decision to issue the Notice cannot be said to have been unreasonable.  Even if it could be said that there was doubt that the present business had arisen from the ashes of previous failed businesses, the other facts and circumstances amply justified the issue of the Security Notice.  The underlying facts were not seriously challenged.  The evidence of the Appellant, by which he sought to distance himself from the Azad group of companies was vague and unreliable, and in places incredible.  He said at various points in his evidence that his involvement as a director in those companies specified in the list of some 69 companies (C/4) extended to about 5%, 10% and later less than half.  We are satisfied that he was actively involved in the operation and administration of a substantial number of these companies.  At one point, he said he attended meetings with Customs about these companies simply because he shared an office with Mr Sarwar.  We reject that evidence; we accept the evidence of Mr Thomas that the Appellant attended meetings at the offices of the company accountants and participated in those meetings as a person directly concerned with the operation and administration of those companies.  Whether the Appellant was a shareholder of the various companies was not established in the evidence and we can make no finding on the matter.

The Appellant did not dispute the basic facts about the demise of the Azad group, Smile (Leasing) Ltd, and his disqualification from holding office as a director.  Although at one point he accepted responsibility for the lateness of the returns, he also gave an explanation which essentially passed the blame to Customs.  On the evidence, this explanation, which we have not thought necessary to narrate, was without substance and we reject it.  It was exposed by his evidence that the service of the Security Notice prompted him to submit returns.  There being no further challenge to the exercise of discretion on the part of Customs, the appeal is without merit and must be refused.

We also record that a few days before the appeal was heard, the Appellant requested an adjournment on the grounds of ill health.  This was refused because of the inadequacy of the very brief medical certificate.  When the appeal called before us, no further request for an adjournment was made.  The Appellant gave evidence without difficulty and was plainly fit to give evidence and instructions to his agent.

The appeal is dismissed.  Customs did not seek expenses.  We therefore find no expenses due to or by either party.

J GORDON REID, QC., F.C.I.Arb.,

CHAIRMAN

RELEASE:  18 SEPTEMBER 2003 

EDN/03/28