20885

REQUIREMENT FOR SECURITY – Connection with defaulting companies – Limited enquiries into affairs of Appellant before requirement – Appeal dismissed – VATA 1994 Sch 11 para 4(2)

LONDON TRIBUNAL CENTRE

	SWANWICK CIVIL ENGINEERING LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	SIR STEPHEN OLIVER QC (Chairman)
						ELIZABETH MACLEOD CIPM

Sitting in public in London on 12 November 2008

Stephen James of Chiltern, accountants, for the Appellant

Pauline Crinnion for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	Swanwick Civil Engineering Ltd (“SCE”) appeals against the decision to issue a Notice of Requirement to provide Security issued under Schedule 11 paragraph 4(2) of VAT Act 1994.  The notice was issued by letter of 25 January 2007.  It required SCE to give security in the sum of £59,000 if quarterly returns were to be rendered or £39,300 if monthly returns were to be rendered.

2.	The question for us is whether, in the light of the circumstances as they existed on 27 January 2007 when the decision was taken, HMRC have acted in a way in which no reasonable panel of commissioners could have acted, whether they have taken into account some irrelevant matters, whether they have disregarded something to which they should have given weight and whether they have erred on a point of law.  Those tests come from the decision of the Court of Appeal in John Dee Ltd v Customs and Excise Commissioners [1995] STC 941 and from the decision of the High Court in Customs and Excise Commissioners v Peachtree Enterprises Ltd [1994] STC 747.  

The circumstances leading to the issue of the Notice of Requirement 

3.	SCE, under its previous name of CRW (Agricultural Contractors) Ltd, had until about September 2006 carried on business in a small and intermittent way as an agricultural contractor from premises in Botley, Southampton, and latterly from Ivy Cottage, Curdridge.  In September 2006 the name was changed to SCE and the business became that of civil engineering contracting.  HMRC were not notified of the change of business class.  

4.	By 25 January 2007 HMRC had not received any return covering the new business activities.  SCE’s return for the period from September to November 2003 was received by HMRC on 29 January.  

5.	The director of SCE was then recorded with Companies House as Christopher Ian Collins of Ivy Cottage, Curdridge: the secretary was Conrad Collins. All the shares in SCE were controlled indirectly by Christopher Ian Collins.

6.	Two Customs officers had visited a company called Swanwick Construction Co Ltd (“Swanwick Construction”) for the purpose of serving a Notice of Requirement.  The visit took place on 16 January.  During the course of that visit and in the course of their enquiries prior to deciding to issue the Notice of Requirement on SCL HMRC learnt:

(i)	that Swanwick Construction had been wound up and had ceased to 	trade in December 2006;
(ii)	that SCE was carrying on a business of the same nature as Swanwick 	Construction;
(iii)	that Christopher Ian Collins had been director of Swanwick 	Construction and Conrad Collins had been company secretary;
(iv)	that the debts owing to HMRC of companies associated with SCE 	amounted to some £792,000 and
(v)	that SCE’s 11/06 return had not been submitted.

7.	Regarding the £792,00 of indebtedness, HMRC knew that some £400,000 was due from Swanwick Construction and that Swanwick Construction had had a record of non-compliance. Another associated company (of which Christopher Ian Collins and Conrad Collins were recorded as director and company secretary respectively) owed some £122,000 and this company was called Swanwick Communications Ltd. An associated company called J&W Recycling Ltd (of which Christopher Collins was recorded as director) owed HMRC some £122,000. Another associated company called J&W Waste Management (of which Christopher Collins was recorded as director and which had 29 tax defaults) had become insolvent in 2004 with a debt due to HMRC of £146,000. Several other companies of which Christopher Collins was shown as director had records of default.

8.	Within nine days of the visit the decision to require security from SCE had been taken.  The quantum was based on the returns of Swanwick Construction on the grounds that SCE had taken on Swanwick Construction’s trading activities.  

The Notice of Requirement and SCE’s response

9.	The Notice of Requirement was issued by registered post on 25 January 2007.  As noted, it required security of £59,000.  The visiting officer, Ms Clare Bell (who gave evidence at the hearing), included these words in her letter:

“If you wish the Commissioners to reconsider their decision you must bring any information that you wish to be taken into account to the attention of the issuing office as soon as possible.”

On 19 February 2007 a Notice of Appeal was lodged.  The Grounds of Appeal were left blank.  Nothing was disclosed to HMRC of the circumstances of SCE until the hearing of the appeal which took place nearly two years after the Notice of Requirement. At the hearing HMRC and the Tribunal heard the evidence of a Mr Russell Collins and a Mr Christopher Moses.  

The evidence at the hearing

10.	Mr Russell Collins, who gave evidence, is now in his early 30s. He is the younger son of Christopher Ian Collins: Conrad Collins is the elder son. Mr Russell Collins had been working in the Swanwick Construction civil engineering business for some years before September 2006. Swanwick Constructions’ business involved providing construction and road work services to local authorities on a job by job basis. After Swanwick Construction ceased business Mr Russell Collins became manager of SCE.  He knew the business and the customers and rapidly built up SCE’s turnover which, in the three months to November 2006, had become £443,000. SCE’s business appears to have prospered. The first six months of trading showed a turnover of £1.15 million and a profit before tax of £63,000; the following twelve months accounts to 31 March 2008 showed a turnover of over £2.5 million and a profit of some £22,000.  

11.	Mr Christopher Moses, a surveyor and estimator with, among other things, responsibility for valuing the contracts and the works also gave evidence. His evidence reinforced the impression of stability and business prosperity of SCE.

12.	SCE has operated without any formal bank overdraft facilities. Even when it needs to overdraw on its bank account he gets in touch with its bank manager, explains its debtors’ position (usually local authorities) and arranges the overdrawing.  

13.	On 29 March 2007 Mr Christopher Ian Collins resigned as director of SCE and Mr Russell Collins was appointed director in his place. Christopher Ian Collins, we were told, had been seriously injured in a car accident in about 2003.  He had not been able to attend at the offices of SCE.  He had provided SCE with funding to cover its day to day expenditure.

Conclusion on the Notice of Requirement

14.	We think that HMRC acted reasonably in deciding to issue the Notice of Requirement in January 2007. They were confronted with a company which appeared to have taken on the business activities of another company, Swanwick Construction, that had just been placed in liquidation owing some £400,000 to HMRC. The company, SCE, had the same director (Mr Christopher Ian Collins) and was under the same shareholding control as Swanwick Construction. SCE shared the “Swanwick” name with Swanwick Construction and it appeared to be operating from the same premises. Moreover, as mentioned above, the companies under Mr Christopher Ian Collins’ directorship and control owed HMRC some £792,000 of outstanding tax.  

15.	With that information the officers of HMRC with responsibility for SCE were justified in acting with urgency. The track record of the companies connected with Mr Christopher Ian Collins had been so disastrous that there was no time to make further enquiries.

16.	Suppose HMRC had decided to make further enquiries, what would they have learnt and would their decision inevitably have been the same as that issued on 25 January 2007?  In this connection we have in mind the observation of Neill LJ in John Dee. In that case the tribunal had decided that if the commissioners had considered additional financial information obtained as the result of their enquiries it would have been “most likely” that their concern for the revenue would probably have been fortified. Neill LJ said that, where it was shown that if the additional material had been taken into account the decision would inevitably have been the same, the appeal could be dismissed.  In the present situation HMRC’s enquiries would have revealed that Russell Collins and Christopher Moses, who had both been involved in the management of the insolvent Swanwick Construction, were now running the SCE business.  They would have found out that Mr Christopher Ian Collins was no longer capable of supervising the civil engineering business, though he still owned indirectly virtually all the SCE shares. They might have heard that he planned to step down as director of SCE and that Mr Russell Collins would take his place.  But there was no guarantee of that. They would still have had no VAT return for the 11/06 period to show the turnover of SCE; that return was 28 days overdue when the decision was taken.  What HMRC might have learned from the assumed enquiries would not, we think, have altered their decision. The VAT position still looked risky. HMRC would still have reasonably concluded that SCE was a risk to the revenue.

17.	For those reasons we dismiss the appeal.  

Postscript

18.	SCE have to a large extent been the authors of their own misfortune. There has been a total failure of communication between SCE and HMRC about the Notice of Requirement, at least until the morning of the hearing. We note that, since the Notice of Requirement was issued, SCE have been late in complying on at least five occasion. Nonetheless they appear to have been trading profitably since January 2007 and they have been under new direction and management. The time has perhaps come to revisit the question of whether they still are a risk to the revenue.

SIR STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 27 November 2008

LON  2007/0393