20925
VALUE ADDED TAX – appeal against notice of requirement for security for VAT – garage – whether Customs acted reasonably in requiring security – para. 4(2) of Schedule 11 VATA 1994 – appeal dismissed

	
MANCHESTER TRIBUNAL CENTRE 			   

 
 	
	ECONOMY CAR GROUP LTD	Appellant
	
	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal:	IAN VELLINS (Chairman)
		PETER WHITEHEAD (Member)	
			
Sitting in public in Manchester on 11 December 2008

Christopher Dunstan, director, appeared for the Appellant

Bernard Haley of the Solicitor’s Office of HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2008

DECISION
The appeal

1.	In this appeal, the Appellant is Economy Car Group Ltd, a limited company carrying on the business of the sales of motor vehicles from premises at Wath Road, Mexborough, South Yorkshire, and registered for value added tax with effect from 14 May 2007 under registration number 907934207.  The Appellant appeals against a notice of requirement to give security under Schedule 11 paragraph 4(2)(a) of the Value Added Tax Act 1994 (VATA 1994), issued by the Respondents by letter dated 3 April 2008 and by an amended letter 21 April 2008.  The Respondents in the amended letter required the Appellant to give security in the sum of £19,675 if quarterly returns were submitted, or £13,100 if monthly returns were submitted.  The Appellant appealed by notice of appeal dated 19 May 2008.

2.	At the hearing of this appeal at Manchester on 11 December 2008, the Appellant was represented by its director Mr. Christopher Dunstan, and the Respondents were represented by Mr. Bernard Haley, a higher officer.

3.	Oral evidence was heard from Mr. Christopher Dunstan on behalf of the Appellant, and from an officer of the Respondents, Mr. Ian Pumfrey.

4.	At the hearing of the appeal the facts were not in dispute, nor was the amount of the assessment.  The short issue in this appeal was whether the Respondents had rightly and reasonably exercised the power to require security.

The legal framework

5.	Schedule 11 paragraph 4(2) of VATA 1994 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, 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”.

6.	The cases of Mr. Wishmore Ltd v Commissioners of Customs and Excise 1988 STC723 and John Dee Ltd v Commissioners of Customs and Excise 1995 STC941 have confirmed that the jurisdiction of the tribunal in an appeal is appellate not supervisory, and that the tribunal must examine whether the Commissioners had rightly exercised their power to require security.  The tribunal must consider whether the Commissioners have acted in a way in which a reasonable panel of Commissioners could have acted, whether they have taken into account some irrelevant matter or have disregarded something to which they should have given weight.  It is not for the tribunal to exercise a fresh discretion, as the protection of the revenue is not the responsibility of any court or tribunal.  In Commissioners of Customs and Excise v Peachtree Enterprises Ltd 1994 STC747 Dyson J. held that the tribunal should not have regard to facts and matters arising after the date of the decision of the Commissioners to require security.

Facts and conclusions

7.	We make the following findings of fact and reach the following conclusions in this appeal.

8.	A previous limited company, Economy Cars Ltd had previously traded in the same business of sales of motor vehicles from the same premises at Mexborough from 1999 until it went into liquidation on 28 June 2007.  The directors of that company had been Mark Ian Dunstan and Paul James Dunstan, two brothers of Christopher Dunstan, and Paul Bratby.  At the date that Economy Cars Ltd went into liquidation it owed the Commissioners £446,980.36 in unpaid VAT.  The Appellant company, Economy Car Group Ltd was incorporated in 2007, and its original directors were the same directors as the directors of Economy Cars Ltd, namely Mark Ian Dunstan, Paul James Dunstan and Paul Bratby.  They resigned as directors of the new Appellant company on 17 August 2007, and on that date Mr. Christopher Dunstan was appointed as a secretary and director, and Linsay Taylor was appointed as an additional director and secretary.  She had given her address as the same address as Mark Dunstan.

9.	Mr. Ian Pumfrey gave evidence at the hearing of the appeal that he is a higher officer of the Respondents in the securities team based at Chesterfield.  He gave evidence that another officer of the Respondents had issued a notice of requirement to the Appellant to give security, dated 13 September 2007 due to the involvement of directors in the previous business, Economy Cars Ltd, which had a poor record of compliance, had owed the Respondents the large debt, and had gone into liquidation with effect from 28 June 2007.  Following the issue of that notice, Mr. Christopher Dunstan wrote to the Respondents asking the Respondents to reconsider that notice.  Mr. Pumfrey then went out to see Mr. Christopher Dunstan at the trading premises in Mexborough in November 2007.  At that meeting Mr. Pumfrey and Mr. Christopher Dunstan discussed the differences between the previous company and the new company and the financial arrangements and record keeping arrangements set up by the new company.  As a result of what was told to Mr. Pumfrey by Mr. Christopher Dunstan, Mr. Pumfrey agreed to withdraw the first notice, but Mr. Pumfrey warned Mr. Christopher Dunstan that if the new company’s compliance was not satisfactory, the Respondents would serve a further notice on the Appellant.

10.	Mr. Pumfrey monitored the VAT return of the Appellant.  The first VAT return period was in October 2007, and the Appellant submitted that return with a repayment claim of £4,319.24, the return being submitted in time.

11.	The next VAT period of the Appellant was for the period 01/08 and fell due on 29 February 2008.  Mr. Pumfrey noted that that return was not rendered by the Appellant, and no Vat was paid by the Appellant, and accordingly on 14  March 2008 the Respondents raised an assessment in advance of that return of £25,759 which was automatically notified to the Appellant.  On 30 March 2008 the Respondents issued a demand notice to the Appellant for immediate payment of that sum.  Neither the assessment or the demand notice resulted in the Appellant submitting the outstanding VAT return or any payment of VAT.

12.	Mr. Pumfrey then reviewed the situation, and decided that it was appropriate to request security from the Appellant.

13.	Mr. Pumfrey gave evidence that he was concerned that the new company was not on a sufficiently strong financial footing.  Mr. Pumfrey had been told by Christopher Dunstan at the meeting in November 2007 that the new company had no borrowing facility at any bank, and that Christopher Dunstan had had to extend his own mortgage to buy the fixtures and fittings of the previous company to start the new company.  Christopher Dunstan had told Mr. Pumfrey that the vehicles had been purchased using a stocking loan whereby entitlement to the vehicles remained with the finance company until the vehicles were sold.  Mr. Pumfrey had been told by Christopher Dunstan that Christopher Dunstan intended to keep the bank balance of the new company in credit between £15,000 and £20,000, and that Mr. Dunstan had employed an in-house bookkeeper to ensure that the records would be kept up to date.

14.	Mr. Pumfrey noted that the first VAT return of the Appellant had been rendered on time, and Mr. Pumfrey did not see any reason why the second VAT return of the Appellant should have been late.  Mr. Pumfrey stated that he took into account that Christopher Dunstan at the meeting had mentioned that one of his brothers was in the new business as a salesman only, namely Paul, and that the other brother, Mark was on extended sick leave, and that neither Paul nor Mark had any financial control over the new company.  The original vehicles of the previous company had been returned to a finance company and some had been sold by the liquidator of the original company and the premises had been sold with Christopher Dunstan renting the premises from the owner.  On that basis Mr. Pumfrey accepted that there was a clear differentiation between the business of the previous company, and the new company, but concluded that the there was a risk to the revenue, that the VAT return for the period 01/08 had not been rendered, and he considered that it was appropriate to request security from the Appellant.  On that basis he authorised the notification by the Respondents to the Appellant on 3 April 2008 of the requirement to give security as a condition of the Appellant supplying goods or services, by means of a guarantee or cash deposit.  That requirement was to give such security in the sum of £79,109 if quarterly returns were submitted, or £61,309 if monthly returns were submitted.  Mr. Pumfrey gave evidence that those amounts were calculated by reference to an estimated figure based on the estimated turnover of the Appellant from its VAT 1 form, submitted by the Appellant when it applied to register for VAT and had given an estimated turnover, and the calculation also took into account the VAT balance at the date of the notice.

15.	Mr. Pumfrey stated that the amounts were recalculated by the Appellant, and on 21 April 2008 the Respondents issued an amended notice of requirement for security, amending the figures to £19,675 if quarterly returns were submitted, or £13,100 if monthly returns were submitted.

16.	The reduction in the amounts followed a further conversation between Christopher Dunstan and Mr. Pumfrey.

17.	The Appellant in its notice of appeal stated as the grounds of appeal, “this is a relatively new company and a deposit of such a large amount would possibly lead to sales difficulties, leading to possible staff redundancies as this would take stock off the forecourt”.

18.	Mr. Christopher Dunstan gave evidence at the hearing of the appeal that he had been running the Appellant company since the middle of 2007, and he stated that he had tried his best to render the VAT returns and payments on time, but he accepted that he had failed to render the return for January 2008 on time, and he agreed that he had not paid the VAT on time on such return.  He stated that he was unable to borrow any money at the moment, although he had tried to borrow money from the bankers of the Appellant, namely TSB, and various other banks.  He stated that he would like to have more stock on the forecourt, but that if security was required this would lead the Appellant company into more trouble, especially at the moment.

19.	He agreed that he had been an employee of the previous company, having been involved in the buying of vehicles for the previous company for about five years, up to the date of liquidation.  He stated that he had no financial interest in that previous company.  He said that when the previous company was going into liquidation, he felt that he could make a go of the business.   He went to see his bank, who agreed to give him a mortgage loan on the security of his house.  He discussed with a finance company the granting of a stocking loan, to enable vehicles to be acquired as stock on the forecourt, and he discussed with the company who had bought the premises from which the business had traded, the possibility of Christopher Dunstan leasing the premises from the owner.  The owner agreed to this.

20.	The Appellant company had been formed in April 2007 by the previous directors of the previous company, in an attempt to purchase the business from the liquidator, but the previous directors were not able to obtain the finance to do so.  Christopher Dunstan said that he arranged with his brothers that he would take over that new company, that they would resign as directors, and Christopher Dunstan and the girlfriend of Mark would become the new directors and secretaries of the new company, although she would have no involvement in the running of the business, but would merely be a nominee.

21.	Accordingly Christopher Dunstan stated that he began operating the new company from the trading premises, with his brother Paul Dunstan being involved as before in the sales of vehicles, although Paul Dunstan was to have no financial interest in the new company.  Both Mark Dunstan and Paul Bratby were not employed in the new company, Christopher Dunstan said that he had another ten employees including a part—time bookkeeper.

22.	Christopher Dunstan agreed with the information given by Mr. Pumfrey in his evidence as to the nature of the discussions between himself and Mr. Pumfrey at the meeting in November 2007.  He agreed that the first VAT return for the period 10/07 was submitted in time with a request for repayment from the Respondents of VAT as set out in that return.  He agreed that he had not submitted the return for January 2008 on time.  He said that it was a question of time and money.  He said that he was trying to get the money to pay the VAT that would have been due on that account, to the best of his ability.  He agreed that the return was submitted 42 days late, after the notice of requirement for security had been made, and he agreed that payment of the VAT on that return was made 73 days late.  He stated that he had been trying to keep cars on the forecourt, and to pay his staff wages, and he said that he was “having to juggle”, in attempting to keep the stock and staff going, and to try to prepare and pay the VAT return.

23.	Christopher Dunstan agreed that his brother Paul continued to sell vehicles, as he had done in the previous company, and that Christopher Dunstan’s role was mainly to buy vehicles, as he had done with the previous company, and also to look after the finances of the new company.  He agreed that cheques for the new company were signed by himself and Paul Dunstan.  He said that the reason why Paul Dunstan was a signatory to the cheques of the new company was because Paul Dunstan stayed on the trading premises while Christopher Dunstan went out buying vehicles.

24.	Christopher Dunstan gave evidence that it was difficult to obtain credit.  He agreed that he had been warned by Mr. Pumfrey that, while the Respondents had been prepared to withdraw the notice of requirement of 13 September 2007, if future compliance was poor a further notice of requirement would be issued by the Respondents.  He agreed that he had not submitted his January 2008 in time despite that warning, but he said that he was desperate to sell cars and keep the money coming in to the Appellant company.  He said that he was newly in business and did not know how much leeway the Appellant was allowed.  He felt that if the Appellant was required to pay security, this would be costly to the Appellant and would affect its ability to purchase vehicles for sale.

25.	He accepted that Mr. Pumfrey had been concerned that the Appellant was a new business with no borrowing facility, operating from rented premises and with vehicles that were purchased on a stocking loan whereby the finance company actually owned the vehicles, so that the Appellant had little by way of tangible assets.  Christopher Dunstan accepted that the VAT return for January 2008 had not been rendered on time, that the VAT had not been paid on time, and that he had not budgeted correctly for payment of the VAT.

26.	Having considered all the evidence in this appeal we find that the Respondents acting reasonably in requiring the security of £19,675 if quarterly returns were submitted, or £13,100 if monthly returns were submitted.  We find that the amount of the security is fair and reasonable.

27.	We find that the Respondents reasonably and properly took into account all relevant matters.  Mr. Christopher Dunstan, who is a director and secretary of the Appellant company, and who is responsible for running that company, was previously an employee of Economy Cars Ltd, which traded from the same premises at Mexborough, and which had gone into liquidation with effect from 28 June 2007 owing VAT of £446,980.36.  Christopher Dunstan had been employed in that previous company as a buyer of vehicles, and the previous company had been run and controlled by his two brothers, Mark and Paul as principal directors, with Paul Bratby.  They had formed the Appellant company with a view to continuing to trade from the premises, but had failed to obtain the relevant finances and had resigned as directors, and Christopher Dunstan had taken over the Appellant company, being appointed as director and secretary with Mark’s girlfriend.  Christopher Dunstan had been unable to obtain bank facilities for an overdraft for the Appellant, and had raised money by mortgaging his house, had rented the premises from the freehold owner, and had arranged to purchase stock through a stock finance arrangement with a finance company whereby that finance company owned the vehicles purchased as stock on the forecourt.  The Respondents had been concerned that the new company was a risk to the revenue and required security.  Mr. Pumfrey visited the Appellant’s premises in November 2007 and following his meeting with Christopher Dunstan, had been assured by Christopher Dunstan that the directors of the new company were not the same as the directors of the previous company, and was assured by Christopher Dunstan that the financial arrangements that had been put in place for the new company would enable the new company to render its VAT returns on time and pay its VAT on time.  On that basis Mr. Pumfrey withdrew the original notice, but warned Christopher Dunstan that if the Appellant failed to render any VAT return on time, a notice of security would be issued against the Appellant.  The Appellant did render the first VAT for the period October 2007 on time.  This was a repayment return.  However the return due for January 2008 was not rendered on time, nor was any VAT paid on time.  Mr. Pumfrey reviewed the situation and considered that there was a risk to the revenue, and that security should be required by the Respondents, and issued the notice of requirement to give security, which was later reduced in amount following discussions between Mr. Pumfrey and Christopher Dunstan.  That return was rendered 42 days late with payment of the VAT 73 days late.

28.	We find that the officer of the Respondents, Mr. Pumfrey had made full and proper enquiries before reaching his decision.  We find that the Respondents were entitled to take the view that there was a considerable risk to the revenue that the Appellant company would not pay its VAT.

29.	We find that the Respondents acted reasonably and took into account all relevant material.  We find that the Respondents did not act in a way in which no reasonable panel of Commissioners could have acted, and we find that the Respondents did not take into account irrelevant matters or disregard something to which the Respondents should have given weight.  We find that the Respondents have made no error of law.

30.	We find that the Appellant had disregarded the warning given by Mr. Pumfrey, when withdrawing the original notice of requirement to give security, namely that if the Appellant did not submit a VAT return on time and pay the VAT thereon on time, a further notice of requirement to give security would be served on the Appellant.  Mr. Pumfrey was rightly and reasonably concerned that the Appellant was operating a business with no overdraft or borrowing facility from its bank, that the premises were rented, that the vehicles being sold were owned by a finance company on a stocking loan, and that the Appellant had few assets.  He took into account the explanations given by Christopher Dunstan, and he also correctly took into account that Christopher Dunstan had not been a director of the previous company that had gone into liquidation.  We find that the decision of the Respondents was inevitable bearing in mind the background.  No argument was advanced on the quantum of security, and it does not appear to us that the way in which the Respondents established the quantum of the requirement, or the amount of it, should be interfered with by us.  At the hearing Mr. Haley on behalf of the Respondents indicated that if the Respondents succeeded in this appeal, the Respondents would not seek an order for costs.

31.	We dismiss the Appellant’s appeal.  We make no order as to costs.

32.	Appeal dismissed.

MAN/2008/0790

Ian Vellins
CHAIRMAN
Release Date: 16 January 2009