SECURITY – requirement for – whether decision of the Commissioners that security was requisite for the protection of the revenue unreasonable – appeal dismissed – VATA 1994, Schedule  11, paragraph 4(2)

LONDON TRIBUNAL CENTRE

	IVY CONSTRUCTION LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	MR JOHN WALTERS, QC   (Chairman)
						MR M M HOSSAIN FCA, FCIB

Sitting in public in London on 28 March 2003

Mr Oswald Annan, Accountant, for the Appellant

Mr Jonathan Holl, Advocate, of HM Customs and Excise Solicitor’s Office, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

Introduction

1.	Ivy Construction Limited (“the Appellant”) appeals against a Notice of Requirement to Give Security issued under the provisions of paragraph 4(2) of Schedule 11 to the Value Added Tax Act 1994 (“VATA”) dated 17th September 2002.  The Notice required security of £44,900 if the Appellant was to continue to file quarterly returns, or £34,700 if the Appellant was to file monthly returns.  These amounts were varied by a letter dated 15th October 2002 to £20,000 (with quarterly returns) or £13,000 (with monthly returns).
2.	Paragraph 4(2) of Schedule 11, VATA provides power to the Commissioners “where it appears to [them] requisite to do so for the protection of the revenue [to] require a taxable person, as a condition of his supplying 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 him”.
3.	The appeal lies to this Tribunal by virtue of section 83(l) VATA, as an appeal with respect to the requirement of any security under paragraph 4(2) of Schedule 11.
4.	It is established by authority (Customs and Excise Commissioners v Peachtree Enterprises Ltd [1994] STC 747, and John Dee Limited v Customs and Excise Commissioners [1995] STC 941 (CA)) – referred to in the Tribunal decision cited to us, Goldhaven Ltd v Commissioners of Customs and Excise (Chairman: Dr. A.N. Brice; Release date: 20th January 1997) – that this Tribunal’s jurisdiction is confined to a consideration of whether Customs and Excise have acted unreasonably.  To enable this Tribunal to interfere with the Commissioners’ decision it would have to be shown that they took into account some irrelevant matter or had disregarded something to which they should have given weight.  In this connection the Tribunal can only consider facts and matters in existence when the decision was made. The power to require security is given for the protection of the revenue, which is, of course, the responsibility of the Commissioners, not of the Tribunal or anyone else.
The facts

5.	The Tribunal heard evidence from Mr. Bogdan Kuriata, an officer of Customs and Excise, working with the Security Team in the London region.  From his evidence and the documents submitted to us, we find the following facts.

6.	The Appellant company, trading as “Brickwork Solutions” carries on business as builders from premises at 175, Belmont Road, Erith, Kent. DA8 1LE.  It was registered for VAT with effect from 1st July 2001 under VAT registration number 780 7110 40.
7.	Debbie Ellis is recorded as being a director of the Appellant company, and James Justin Ellis as being Company Secretary.
8.	When the Notice was issued (17th September 2002) the Appellant Company had VAT owing but unpaid of £14,385.70, according to the “Record of Compliance and Statement of Account at 17th September 2002” submitted to the Tribunal (and Mr. Kuriata’s evidence).  However we observe that the Statement of Case states that VAT unpaid as at 17th September 2002 amounted to £18,968.70.
9.	James Justin Ellis was also a director and Company Secretary of another company, J & R Brickwork Contractors Ltd., which traded from 7 Colliers Lane, Northumberland Heath, Kent. DA8 3NG, and was registered for VAT but deregistered in mid-2001 upon its liquidation.  That company went into liquidation owing £93,833.15 of unpaid VAT.
10.	Mr. Kuriata signed the Notice appealed against because in his opinion the protection of the revenue required it, having regard to the poor VAT compliance of the Appellant company, coupled with the connection with J & R Brickwork Contractors Ltd. demonstrated by the involvement of Mr. James Justin Ellis in both companies at a senior level.
11.	The response to the Notice was a letter (dated 10th October 2002) from Maurice G. Wood, Chartered Accountants and registered Auditors acting for the Appellant company, appealing the Notice and advising that the outstanding VAT return (for the period ended July 2002) had been filed and that all the VAT liability to date had been paid.  The letter also made the point that the Appellant company suffered cash flow difficulties due to slow payment and retentions by its customers, and that “if the security requirements are imposed” the company would find it difficult to continue in business.
12.	The filing of the VAT return and the payment of all arrears of VAT was confirmed by Mr. Kuriata in his letter in reply to Maurice G. Wood, dated 15th October 2002. In that letter Mr. Kuriata went on to explain that the reasons for the Notice requesting security were as we have stated in paragraph 10 above, but that, “as [the Appellant company has] now brought [its] VAT matters up to date” he was willing to accept a lesser amount of security – viz: the lower amounts stated at paragraph 1 above.
13.	This letter was replied to by Maurice G. Wood on 24th October 2002.  In this letter the point was made that the circumstances which led to the (creditors’ voluntary) liquidation of J & R Brickwork Contractors Ltd. were “peculiar and could not be repeated with Ivy Construction Limited”.  It also stated that these circumstances “were beyond the control of Mr. James Ellis”.  It repeated the point that the Appellant company suffers cash flow problems because its income is subject to a retention of 18% tax at source.  It stated that the VAT liability for the October 2002 quarter was due to be paid on 30th November 2002 and informed Customs and Excise that the Appellant company would make monthly VAT returns “if required to do so, as a measure to waive the security requirement”.
14.	Mr. Kuriata replied on 28th October 2002 making the point that Maurice G. Wood had not stated what the peculiar circumstances leading to the liquidation of J & R Brickwork Contractors Ltd. had been.
15.	It appears that this gave rise to a fax to Customs and Excise on 29th October 2002 of a copy of the Chairman’s report for the first statutory meeting of creditors under section 98 of the Insolvency Act 1986 in the liquidation of J & R Brickwork Contractors Limited.  However, in evidence, Mr. Kuriata said that he had not seen that document before it was produced at the Tribunal.  The document has a fax reference dated 29th October 2002 and so we conclude that it was faxed to Customs and Excise but for some reason did not reach Mr. Kuriata.  The trading history of the company provided by Mr. R.G. Hards (Director) indicates that the insolvency was caused by one large contract which went bad, giving rise to arrears of tax, of which the Inland Revenue decided to enforce collection.
Decision
16.	The appeal is against the original requirement of security (i.e. before its reduction in Mr. Kuriata’s letter of 15th October 2002).
17.	The Tribunal must decide whether, in the light of the facts and matters in existence when Mr. Kuriata made the decision (17th September 2002), the decision was unreasonable.
18.	In the Tribunal’s judgment the Appellant company’s arguments do not discharge the burden of showing that Mr. Kuriata’s decision to require security of the amount originally required was unreasonable, in the light of the duty of the Commissioners to act to protect the revenue, and having regard to the poor VAT compliance record of the Appellant company at that date, and the connection (through Mr. James Justin Ellis) with the insolvent liquidation of J & R Brickwork Contractors Limited.  At most, the Appellant company’s arguments demonstrate extenuating circumstances, related to the Commissioners after the decision appealed against had been made, which might persuade the Commissioners as an administrative matter to revisit the question of their requirement for security.
19.	We therefore dismiss the appeal.
20.	We expect, however, that the Commissioners will keep their requirements for security under review, and will not (without good reason) renege on the reductions agreed by Mr. Kuriata’s letter of 15th October 2002. 
21.	We make no order for costs.

JOHN WALTERS, QC
CHAIRMAN

RELEASED:

LON/02/978