20481
SECURITY- Company Director involved with two previous companies - companies  liquidated owing Customs and Excise approximately £226,000 – appellant continued previous company- at time of the hearing  owed approximately £28,000 in VAT arrears- commissioners required security of £25,500 for three month account or £17,000 for one month account- security  reasonable at time of notice - case dismissed 

MANCHESTER TRIBUNAL CENTRE

 
 	
					AIMBEC AIR CONDITIONING LIMITED	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: David S Porter (Chairman)
						 Howard J Middleton	
					
Sitting in public in Manchester on 24 September 2007

Peter Sharpe a director for the Appellant 
 
Richard Mansell from the solicitors’ office instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2007

DECISION

1.	In this appeal Peter Sharpe, director of the Appellant, challenges the Respondent’s notice of requirement to give security under paragraph 4(2)(a) of schedule 11 to the Value Added Tax Act 1994 dated 6 March 2007 in the sum of £54,700 for quarterly returns and £36,500 for monthly returns.  Those figures were subsequently reduced to £25,500 for quarterly returns and £17,000 for monthly returns. Mr Sharpe says that he was not a director involved with the earlier businesses and companies and he believed the new business to be viable.  Mr Mansell says that Aimbec Ltd owed £77,000 and the new company (the Appellant) owes £28,000 by way of VAT and that John William Penny, the other director was involved with the previous businesses.
2.	Mr Peter Sharpe represented the Appellant and Mr Richard Mansell represented the Respondents.  Mr Mansell provided the tribunal with a bundle of documents. 

The facts
3.	Desmond John Penny traded as Activ-Air Conditioning and was registered for VAT from 17.2.1992 to 1.7.98 when he transferred the company as a going concern to Activ-Air Conditioning Limited owing the Respondents £1258.61.  Desmond John Penny and his mother Lorraine Penny registered Activ-Air Conditioning Limited for Vat on 1.7.1998 and went into creditors liquidation on 20.3.02 owing VAT amounting to £149,105.12.  Desmond John Penny and Lorraine Penny were disqualified as directors in 2004 and have had no managerial involvement in the Companies thereafter. 
4.	Aimbec Limited was registered for VAT on 5.3.2002 John Willam Penny, husband to Lorraine Penny and father to Desmond John Penny and Keith Grenville Penny were all directors of Aimbec Limited.  Lorraine Penny resigned as the secretary of that company.  On 19.5.2004 and Desmond John Penny resigned as a director of that company on the same day, presumably because of their disqualification as directors referred to earlier.  The Company went into a Creditors Voluntary Liquidation on 31.8.2006 owing VAT amounting to £77,299.64.
5.	Some twelve months before the liquidation on 15 May 2004 Mr Sharpe, who had worked his way up the company, was asked if he would become a director of Aimbec Limited. Keith Malone, who had been a senior person in the company and who was responsible for the ventilation side of the business, had left peremptorily.  It transpired that the ventilation side of the business had been losing money and Mr Malone had not advised his colleagues of the position.  Mr John Penny had put his house up as security for the business; he also sold a property which he had owned and put that money into the business as well.  Unfortunately there was insufficient money to take the company out of its difficulties and the company had gone into liquidation.  Mr John Penny had lost his house and all his money.
6.	 In spite of the problems Mr Sharpe believed that the air-conditioning side of the business was viable.  He set up the Appellant and registered for VAT on 1.8.2006.  He and Mr John Penny are the directors but Mr Sharpe is effectively running the business as Mr John Penny is ill in hospital.  Mr Sharpe had had no involvement in the management of the original businesses and had been appointed as a director of Aimbec Limited on Mr Malone’s departure.  He had retained the name Aimbec as the companies had a reputation for quality.  In spite of the fact that he now employed Alex Bell, an accountant, to supervise his books, he conceded that the Appellant had not paid its VAT liability for February 2007 amounting to £21695.34; that a reclaim of VAT amounting to £38,141. 96 was in fact a liability of £4269.67; there was an assessment for £2174.63 outstanding for August making an overall liability currently owed by that company of £28,139.64.  Mr Sharpe said that he was expecting a payment of £100,000 this week and he would pay £17,000 of the Vat due.  He accepted, however, that he could not pay off the arrears other than by instalments..
Summing Up
7.	Mr Mansell submitted that in March 2007 when Mr Price, the officer involved, served the notice he was aware that the previous businesses and companies run by the Penny family had gone into liquidation owing the Respondents substantial sums of money.  Mr Price had not been aware of Mr Sharpe’s limited involvement in the companies until the hearing today but, the fact of the matter is, that the new company currently owes substantial sums by way of VAT.  The tribunal needs to decide whether Mr Price had acted reasonably in relying on the evidence before him in March 2007 when he served the notice.  Mr Mansell submitted that Mr Price was correct in requiring the security and that the appeal should be dismissed.
8.	 Mr Sharpe submitted that he wanted an opportunity to turn the business round.  He could pay £17,000 now and he was confident that he could pay the balance fairly quickly at £2,500 to £3,000 per month.
The decision
9.	Having considered the evidence, and seen the certificates certifying the various amounts of VAT which have not been paid, we dismiss the appeal.  Mr Price acted reasonably when he originally assessing the level of the security.  He reduced the level substantially when he saw the figures for the new company for the first quarter.  Even given Mr Sharpe’s honest account of his involvement in the Appellant and his lack of his involvement in the earlier businesses and companies it is clear that the Respondents are still seriously at risk for the outstanding VAT.  We make no award as to costs as the Respondents did not ask for any.
10.	It appears from Mr Sharpe’s evidence that he has not explored all possibilities to raise funds to resolve the VAT position.  He tells us that his house has an equitable value of some £285,000.  Further he does not have an overdraft nor has he attempted to obtain one.  It seems to us that he might well be able to raise sufficient monies from either of those two sources to make a reasonable proposal for settling the amounts outstanding.  In view of the fact that the notice of requirement for security was dated in March of this year we would like to think that the Respondents might give Mr Sharpe a reasonable time to explore the raising of appropriate funds.  We are not seeking to require the Respondents to do so but it might give Mr Sharpe the opportunity of making the business successful to everybody’s advantage.

DAVID S PORTER
CHAIRMAN
Release Date: 13 November 2007
MAN/07/542