19030
	VAT  — Notice of requirement to provide security — risk to the revenue — on independent review the amount of guarantee increased by the Reviewing Officer — phoenix company — reasonableness of decision considered — Human Rights Act raised by director and considered — appeal dismissed 

MANCHESTER TRIBUNAL CENTRE

 
 	
	ATM ALL TRADES MAINTENANCE LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Elsie Gilliland (Chairman)
						 Carole A Roberts	

Sitting in public in Manchester on 31 January 2005

Andrew Roger Burton Crosbee, managing director, for the Appellant 

Richard Mansell of the Solicitor’s office of HM Customs and Excise for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	The appeal before the tribunal is that of ATM All Trades Maintenance Ltd. (the Appellant) against a Notice of Requirement to give security as a condition of the Appellant supplying goods or services under a taxable supply issued by the  Commissioners.  The first notice was given on 28 September 2004 requiring security immediately by way of third party guarantee or cash deposit in the sum of £13900 where Vat was payable quarterly or £9300 should returns be submitted monthly.  The Appellant appealed at once in a letter from Andrew Crosbee the managing director who presented the Appellant’s case before us and gave evidence.  A formal review was requested and this was undertaken by an independent officer Anthony Moyers, Manager of the Security Team for the North Area, and he appeared as the Commissioners’ witness at the tribunal.  The response of Mr Moyers to the Appellant set out in a letter dated 12 October 2004 was that he did not consider the risk to the revenue had been adequately covered in the original decision and accordingly he had recalculated and increased the amount of security required to £24300 for quarterly returns or £16200 for monthly returns.  Reasons were given and payment was to be immediate.  The Appellant was told that it had 30 days from the date of the letter to appeal to the Vat tribunal against the revised request for security.

2.	Mr Moyers followed this up with a further letter addressed to the Appellant for the attention of Mr Crosbee on 15 October 2004.  As the review had resulted in an increased security requirement Mr Moyers said that he considered that the clearest way forward was to issue a fresh notice of requirement which he enclosed and again he stated that there were 30 days from the date of that letter for an appeal to the tribunal.  He pointed out that had the Appellant already appealed against the original notice it would need to contact the tribunal centre again.  The formal accompanying letter of 15 October 2004 set out the monthly returns security figure of £16200; indicated that the security was required immediately; and further that if the Appellant wished the Commissioners to reconsider any further information should be produced as soon as possible though this would not affect the right to appeal within 30 days from the date of that letter.

3.	A final letter was sent to the Appellant addressed for the personal attention of the Directors on 25 October 2004.  This came from Ms. J. Ambler and as in the case of the previous correspondence was headed “Notice of Requirement to provide security under paragraph 4 (2) of Schedule 11 of the Value Added Tax Act 1994” (the Act).  It related back to the letter of 28 September 2004 requiring security of £13900 or £9300.  As it was understood that the Appellant had appealed the decision notification was given as to the procedures to stay other proceedings pending the matter being taken to and determined by the Vat tribunal.

4.	A Notice of Appeal was submitted by the Appellant on 26 October 2004 and was in respect of a disputed sum  £16200 in the decision of 15 October 2004.  The grounds were: “The payment of this sum would severely damage the cash flow of a new business putting the employment of nineteen people at risk.  We are currently up to date with all returns and payments and consider this action both unnecessary and unfair”.  Mr Crosbee confirmed to us that the appeal was against both the requirement to give security and the quantum and both parties have treated the appeal as relating to all the letters to which we have referred above.

5.	As we have indicated the power of the Commissioners to require security is set out in paragraph 4(2)(a) of Schedule 11 of the Act which 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…”.  

6.	Mr Moyers in his evidence confirmed that it was his opinion when he conducted his independent review that the original notice did not adequately cover the risk to the revenue and for that reason he had done a recalculation and increased the figures.  The main reason for the Notice was the earlier involvement of Mr Crosbee in two insolvent companies namely Dyson Maintenance Limited and All Trades Maintenance Limited, which had left unpaid Vat owing to the Commissioners in the sums of £33732.23 and £43394.95 respectively.  The officer had looked at trading patterns and Vat returns and used the projected turnover of the Appellant as declared in its application for registration namely £500,000.  He had taken the last four rendered returns of All Trades Maintenance Limited to produce a tax performance ratio (TPR) figure of 1.265 that is the calculation of net tax divided by input tax and recalculated using this figure plus one as without that addition not enough credit would have been given.  He felt justified in using the previous registration’s tax performance as the Appellant he considered was merely a continuation of All Trades Maintenance Limited.  Mr Crosbee had acknowledged it was a phoenix company and it was therefore reasonable to use the tax profile of the earlier company when looking at the later one.

7.	When questioned as to his background as a company director MrCrosbee told the tribunal that the difficulty had been in connection with Dyson Maintenance Limited.  He had put money into that company and to safeguard it had become a director.  This had been for a short period only from December 1995 until the company went into liquidation in April 1997.  He had not been aware of the company’s Vat problems prior to putting money in.  He had been involved in financial matters only when the company failed                                    

8.	In respect of All Trades Maintenance Ltd. that company had suffered sudden financial difficulties as a result of which (Mr Crosbee said acting honourably) it had entered into a creditors voluntary arrangement. Subsequently a serious loss of business made the CVA repayments onerous but as the Inland Revenue and Customs would not agree a plan the company put forward the only choice was to wind up.

9.	Mr Crosbee was optimistic about the prospects of the Appellant which was concentrating on refurbishment rather than maintenance work as that had a better pattern of payment.  He produced budgeted figures for 2004-5 including actual turnover to December 2004 but with projections from January to June 2005.  He stated however that the cash flow predictions showed that a bond as required by the Commissioners would negate any benefit.  He could see that the Appellant had the means to meet its Vat obligations but it had no means to finance the required guarantee whatever that figure might be.  He submitted also that in the eight years in which he was personally involved with the various companies by and large the Vat position was one of compliance.

10.	There has been some uncertainty expressed as to whether the jurisdiction of the tribunal is merely supervisory i.e. limited to considering facts and matters which existed at the time of the challenged decision as per dicta of Dyson J. in Customs and Excise Commissioners v Peachtree Enterprises Ltd QB 1994 STC 747 or appellate as stated in Customs and Excise Commissioners v John Dee Ltd. CA 1995 STC 941 disapproving these dicta.  In the judgement in John Dee Neill LJ observed that the tribunal should consider “whether Customs had acted in a way in which no reasonable panel of Commissioners could have acted or whether they had taken into account some irrelevant matter or disregarded something to which they should have given weight.”

11.	It is clear to us that the tribunal cannot exercise a fresh discretion, as the protection of the revenue is not a responsibility placed on the tribunal; our role is to consider the reasonableness of the decision made on the exercise of their discretion by the Commissioners.  We cannot merely substitute a decision of our own for one of the Commissioners reached on an incorrect basis (except where if additional material had been taken into account the decision would inevitably have been the same).  Further it is not open to us to take into account the risk of closure of the business with the subsequent redundancies. It is for us to look at the reasonableness of the approach of the Commissioners and the matters brought into consideration. (Rosebronze LON/84/154 (VTD 1668). 

12.	In connection with his business record Mr Crosbee has submitted that although he was a director he was not a lead director in Dyson and its financial problems had been caused by others; and that in the case of ATM the sudden loss of major business and the uncooperative approach of the revenue authorities that had made winding-up the only feasible course to take.  We are however satisfied that the officer did give sufficient weight to these issues.  The Appellant was a phoenix company and we accept that it was appropriate for the officer to take ATM’s Vat records into account when considering the security issue and the changes in the business pattern indicated by Mr Crosbee do not seem to us to be so substantial that the officer can be said to have been less than rigorous in his review of the material before him.  Although the management accounts submitted indicate a profitable business, nevertheless the accounts for the months of October, November, and December 2004 show a declining profitability.

13.	Mr Crosbee has contended also that his human rights have been infringed as his past history as a company director will be constantly used against him in future business dealings with the Commissioners.  His directorships in insolvent companies are not  “spent” but remain in the records at the Companies Registry. However, as Mr Moyers stated, this information should as time passes become of less relevance.  Nor do we accept that in requiring security the Commissioners are seeking to take on the role of the Department of Trade and Industry by judging whether a person or in this case Mr Crosbee is acceptable as a director. The legislation gives the Commissioners a specific authority to protect the revenue.  The decision of the Commissioners is not directed towards the director as such but the ability of the corporate taxpayer to meet its Vat obligations on time.  

14.	We have considered the reviewing officer’s decision which was in fact to increase the security placing strong emphasis on the performance of the previous company. We are satisfied that he had the power to vary upwards or downwards the original decision within the review procedure and his recalculation was a proper use of the information before him. We find that the decision was one which he could reasonably arrive at. 

15.	The appeal is dismissed.

16.	The Commissioners have not sought costs and we make no direction as to costs.

ELSIE GILLILAND

MAN/04/0631

CHAIRMAN
Release Date: 5 April 2005