DECISION
1. The
Appellant (“PTS”), appeals against the decision of the Respondents (“HMRC”) to
issue a notice of requirement to provide security for the payment of any VAT
which was due or might become due from PTS.
The law
2. Paragraph
4(2) of Schedule 11 to the Value Added Tax Act 1994 (“VATA 1994”) provides:
“(2) 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.”
3. The
right of appeal is given by s 83 VATA 1994:
83 Appeals
(1) Subject to sections 83G and 84, an appeal shall
lie to the tribunal with respect to any of the following matters—
. . .
(l) the requirement of any security under
section 48(7) or paragraph 4(1A) or (2) of Schedule 11”.
The facts
4. The
evidence consisted of two bundles of documents, together with additional
documents provided by both parties at the hearing. The second bundle contained
very detailed information provided on behalf of PTS concerning the various
companies and other entities referred to in the “chain chart” prepared by HMRC
as part of their decision-making process. Witness statements were given by Darren Michael Ridge, a director of PTS, and by Janice Alyson Uzzell, for HMRC. Mrs Uzzell
also gave oral evidence. From the evidence we find the following background
facts; we consider disputed matters later in this decision.
5. PTS
was incorporated on 4 January 2010 under the name Parkacre Management Ltd. It
was registered for VAT with effect from 6 January 2010. Its main business
activity, as stated on its application for registration, was stated to be
telecommunications specialists. Its estimate of taxable supplies for the next
12 months was stated in the application to be £2,000,000.
6. Its
name was changed by a special resolution dated 3 June 2010. The current directors
of PTS are Darren Michael Ridge and James Robert Sanders.
7. On
4 June 2010 Mrs Uzzell, a higher officer of HMRC working in their Insolvency
and Securities Team, considered and signed a recommendation sent to her from
HMRC’s Leeds office for security action in respect of PTS. The papers provided
to her included the chain chart, which provided information relating to a
number of companies with which either Mr Ridge or Mr Sanders, or both of them,
or companies with which they were involved, appeared to have some connection. On
16 June 2010 this notice was served by HMRC on PTS under its previous name; the
HMRC officer who served it was unable to see a director, so left it in a sealed
envelope at the contact address shown in the VAT registration form. The
security required was £56,750. If PTS submitted monthly returns, the security
required was £37,830. The Companies House records as at the time of HMRC’s
decision to issue the requirement showed Mr Ridge and Mr Sanders as directors.
8. On
receipt of this notice, the accountants for PTS telephoned HMRC to enquire
about the basis for serving the notice; no record of that conversation was
included in the evidence.
9. On
25 June 2010 the accountants wrote to HMRC, stating that as a result of the
telephone call they understood the basis for serving the notice was HMRC’s
review of a number of VAT aspects of related entities. They commented that a
substantial amount of the data on which the decision to require security had
been based was either incorrect or out of date. They referred in detail to the
circumstances of ten other companies. They referred to the transfer of the
controlling interest in PTS to the Premier Telecom Communications Group. They
requested an independent review of HMRC’s decision.
10. On 23 July 2010
Mrs Parsons, a higher officer in HMRC’s Insolvency and Securities Compliance
Team, wrote to PTS’s accountants setting out the result of her review. She
stated that her review had to centre on whether the decision that had been made
by Mrs Uzzell on 4 June 2010 was reasonable, based on the facts available at
that time. She considered that at the time when the decision was made, it would
appear that all of the information had been correctly considered. She noted the
accountants’ comments relating to the Premier Telecommunications Group, but had
not been able to confirm from HMRC’s records exactly what had been said with
regard to its VAT obligations and could not therefore consider it as evidence
with which to support a removal of, or reduction in, the requirement to provide
security. She stated:
“I therefore consider that your client Parkacre
Management – now Premier Telecom Solutions Limited was, at the time of
registration for VAT, a serious risk to the Revenue, and it continues to be a
serious risk, and security action is wholly appropriate.”
(We refer later to Mrs Parsons’ specific comments
relating to certain companies.)
11. Subsequently the
accountants telephoned Mrs Parsons to discuss her letter; no record of that
conversation was included in the evidence. On 9 August 2010 the accountants wrote
to Mrs Parsons. They wished to establish that the information held upon which
decisions were made was correct. They acknowledged that HMRC could not discuss
with them certain businesses for which they had not lodged forms 64-8. In
relation to one company, Mobile Sourcing Ltd, it had been intimated to them
that there was a substantial VAT liability; they disagreed, and requested a
full breakdown of how HMRC had arrived at that company’s liability.
12. On 17 August
2010 Mrs Parsons sent the accountants a ledger breakdown for Mobile Sourcing
Ltd, but explained that any further discussion should take place with the
relevant officer in HMRC’s Leeds office. The correspondence between the
accountants and HMRC continued until November 2010, with the accountants disputing
the decision to request security on the basis that it had been made on the
basis of erroneous information.
13. On behalf of
PTS, the accountants lodged its Notice of Appeal to the Tribunal on 25 August
2010. The appeal was expressed to be against HMRC’s decision dated 23 July
2010. The Notice stated that the latest time by which the appeal ought to have
been made or notified was 22 August 2010. The reasons given for the delay were
explained as follows:
“Following letter from HMRC on 23/7/10 this office telephoned
and wrote to HMRC checking the facts upon which the decision was made. This
process is still ongoing and a breakdown of an associates [sic]
company’s VAT liabilities was not received in this office until 24 August.”
Arguments for PTS
14. The grounds for
appeal stated in the Notice of Appeal are:
“It is not agreed that HMRC have made a correct
decision on this case. It is further asserted that the information used in
making the decision is not correct and therefore the decision itself cannot be
reliable.”
15. Ms Brown
referred to paragraph 4 of Schedule 11 VATA 1994. The right of appeal against a
decision to require security was given by s 83(1)(l) VATA 1994. The
jurisdiction of a tribunal in such appeals was supervisory, and it could not
exercise a fresh discretion. She cited Mr Wishmore Ltd v C & E Comrs
[1988] STC 723, and C & E Comrs v Peachtree Enterprises Ltd [1994] STC
747, which had been followed in Goldhaven Ltd v C & E Comrs (1997)
LON/06/1348. This involved asking whether HMRC had:
(1)
acted unreasonably; or
(2)
taken account of irrelevant matters; or
(3)
disregarded any matter which should have been given weight.
(Ms Brown emphasised that it was only necessary for PTS
to establish that any one of these conditions had been fulfilled, even though
she submitted that this was the case for all three conditions.)
16. Asking this question
involved a consideration of whether HMRC, in reaching the decision to issue a
notice of requirement for security, had acted in a way which no reasonable
panel of HMRC could have acted. Ms Brown referred to John Dee Limited v C
& E Comrs [1995] STC 941, CA.
17. The Tribunal
must limit itself to considering facts and matters which existed at the time of
the challenge to the decision of HMRC was taken (Peachtree, followed in Goldhaven).
This included information available to HMRC as at the date of the original
decision and the review, ie 16 June 2010 and 23 July 2010.
18. The following
propositions were derived from the case law:
(1)
The burden of proof to show that HMRC’s decision to request a security
was unreasonable lay with PTS, but HMRC, through their evidence, must
demonstrate that they did not act unreasonably (Colette Ltd v C & E
Comrs, (1992) VAT Decision 6975).
(2)
In determining whether there was sufficient evidence from HMRC that the
decision reached was a reasonable one, the non-attendance of the reviewing
officer and the lack of any evidence from that officer pointed strongly in
favour of PTS (Sanleo Ltd & Zonin Restaurants Ltd v HMRC (2010)
TC00560).
(3)
Whilst HMRC were entitled to take account the history of a director in
relation to a business with which he had previously been concerned, it was too
simplistic an approach for HMRC to infer a risk to the revenue from the fact
that a particular person had previously been a director of, or otherwise
involved in, a company which had been insolvent without first seeking an
explanation of that person’s role and responsibility in relation to a loss
arising from the company’s failure and the reasons for the company’s failure (Greyhound
Transport (UK) Ltd v C & E Comrs (1995) VAT Decision 13216).
(4)
Further, HMRC should give PTS an opportunity to explain its position,
and take account of representations made by PTS. It was only the most extreme
of circumstances that could justify the taking of the decision without giving
the taxpayer the opportunity to explain its side of the picture (Restorex
Ltd v C & E Comrs (1997) VAT Decision 15014).
(5)
PTS’s own record, and the scale of its business as compared to the
previous business, should also be taken into account (Computer Cave Ltd v C
& E Comrs (1997) VAT Decision 15212).
19. The issue for
determination in the present appeal was whether the decision by HMRC, requiring
PTS to give security, was a reasonable decision, or whether in reaching the
decision, HMRC took into account irrelevant matters or ignored relevant
matters.
20. Ms Brown
submitted, on the following grounds, that HMRC’s decision to require security
had been unreasonable:
(1)
The decision had been based on factually inaccurate information and was
a decision that no reasonable panel of HMRC could have made.
(2)
In order to discharge its burden of proof, PTS must be provided with
sufficient evidence which could be tested in relation to the reasonableness of
the disputed decision (Colette Ltd).
(3)
HMRC had not provided sufficient evidence relating to the
decision-making process to enable PTS to do this or for the Tribunal to be
satisfied that the decision was reasonable;
(a)
Mrs Uzzell, the original decision-maker, referred in her witness
statement to the documents which she had considered when making the decision as
being “contained in the departmental systems for the trader and the records
relating to the VAT returns and payments made”. No further explanation of the
decision-making process had been provided, nor were copies of the documents
considered exhibited to her statement;
(b)
The reviewing officer, Mrs Parsons, was not providing oral or written
evidence and so PTS and the Tribunal could not know what matters were or were
not taken into account, and the weight attached to them, in the decision-making
process (Sanleo at paragraphs 20-21);
(c)
The “chain chart” had not been provided to PTS and its advisers until it
was served on them on 29 October 2010 as an attachment to HMRC’s Statement of
Case, months after the decision had been taken by HMRC. This chart was an
incomplete list of alleged “associated companies” without any details of what
weight HMRC placed on the alleged VAT risks in making their decision;
(d)
HMRC’s Statement of Case merely referred to Mr Ridge and Mr Sanders previously
having been involved in a number of VAT registered entities which had a history
of poor compliance, mentioning specifically two companies. (We consider these and
other companies later in this decision);
(e)
HMRC’s skeleton argument shed no further light on the alleged risk that
PTS posed.
21. Ms Brown also
submitted that HMRC had not given PTS an opportunity to put forward
representations prior to the disputed decision being made (Restorex).
The accountants had made representations in their letter dated 25 June 2010,
following receipt of the disputed decision, although it was unclear from HMRC’s
evidence whether this was properly taken into account as it should have been.
22. She contended
that HMRC had taken into account matters which were not relevant, and referred
to various factual issues which we consider below. Taking into account the
factual information available to HMRC at the date of their decision, it had
been based on factually incorrect information, which amounted to irrelevant
matters.
23. In addition to
taking into account irrelevant matters, HMRC had failed to take into account
relevant matters (considered below). Had these matters, on which information
had been available to HMRC at the date of arriving at the disputed decision,
been properly considered by HMRC, it would have been clear that PTS posed no
risk.
24. It was clear
from the final sentence of the decision in Colette Ltd that it was for
HMRC to give evidence to show that they had not acted unreasonably. Sanleo,
in the second half of paragraph 20 and in paragraph 21, illustrated the effect
of the absence of the reviewing officer from the tribunal hearing. Ms Brown
submitted that as Mrs Parsons was not present, it would be difficult for HMRC
to discharge the burden of proof falling on them.
25. The Notice of
Requirement did not set out any grounds for requiring security. The chain chart
had not been provided to PTS and its advisers until 29 October 2010. PTS’s
accountants had telephoned Mrs Uzzell on 25 June, and Mrs Parsons had referred
in her letter dated 23 July 2010 to “all of the information that you have
provided”. However, it was not possible to tell from Mrs Parsons’ letter what
factors she had or had not taken into account, or what weight she had given
them. Ms Brown submitted that the appeal covered the full decision-making
process, so that information provided to HMRC before the date of the review
should be taken into account in considering the reasonableness or otherwise of
the review decision.
26. It was clear on
the facts that HMRC had relied on erroneous information upon which they had
based the disputed decision, taking into account irrelevant matters and failing
to take into account relevant matters; this had led to an unreasonable
decision. On this basis, Ms Brown submitted that as well as the decision being
unreasonable, it necessarily followed that the amount sought as security was
also unreasonable. She requested that the appeal be allowed and that the
Tribunal should find that HMRC’s decision to require security was unreasonable.
Arguments for HMRC
27. Mr Robinson
explained the position relating to Mrs Parsons’ non-attendance; she was not
available. He had considered the balance between the timing of the hearing and
the effect of postponement. Having considered her evidence and the review
letter, he had decided that it was in the interests of justice to go ahead
without her evidence. He commented that it would have been open to PTS to
summon Mrs Parsons as a witness. Her letter did deal with a number of the
companies. He explained that Mrs Parsons had given a witness statement, but he
had taken the decision to exclude it.
28. He referred to
paragraph 4(2) of Schedule 11 to VATA 1994, and to Goldhaven Ltd,
particularly at paragraphs 13 and 15. He submitted that having regard to the
legislation and the poor VAT compliance records of various entities with which
Mr Ridge and Mr Sanders had been connected, at the time of its issue the notice
of requirement was warranted. HMRC also submitted that they had acted
reasonably in calculating the amount of security based on the estimated
turnover figure provided by PTS. HMRC contended that they had not acted in a
way in which no reasonable body of Commissioners could have acted, nor had HMRC
taken into account irrelevant matters or disregarded matters to which they
ought to have given weight.
29. HMRC were
focusing on the position at 16 June 2010, the date of the issue of the notice
of requirement. The explanation for the absence of reference in HMRC’s skeleton
argument to some of the companies was the date of the chain chart as compared
with that of the skeleton argument. The letter was based on the evidence as it
stood at the date of the decision.
30. Mr Robinson
submitted that the decision to require security had been based on the
information available to HMRC prior to the decision being issued concerning VAT
registered entities with which the directors Mr Ridge and Mr Sanders had been
connected. The evidence showed that at the time of the decision being issued, a
number of entities named in the chain chart had had records of poor compliance
in relation to VAT. HMRC had considered that at the time of its issue the
notice of requirement had been warranted on the basis that this was necessary
for the protection of the revenue. This view was supported by the decision in Goldhaven,
which also considered, by reference to other VAT cases, other principles
relating to the tribunal’s powers in relation to notices of requirement to give
security.
31. HMRC also
submitted that they had acted reasonably in calculating the amount of security
based on the estimated turnover figure provided by PTS. It was open to PTS to
submit monthly returns and so pay the lower amount of security.
32. HMRC contended
that they had not acted in a way in which no reasonable panel of Commissioners
could have acted, nor had they taken into account irrelevant matters or
disregarded matters to which they ought to have given weight.
33. The onus of
proof was on HMRC to demonstrate that requiring security from PTS was necessary
for the protection of future revenue. The standard of proof was the ordinary
civil standard of the balance of probabilities.
34. The findings
sought by HMRC were that their decision to require security had been reasonable
at the time when the notice of requirement had been served on PTS, and that the
quantum of security required was not excessive but fair and reasonable. HMRC
requested that PTS’s appeal against HMRC’s decision to require security and the
appeal against the amount of security required should be dismissed.
35. Although the
review officer was not present at the hearing, her conclusions could be seen
from her letter dated 23 July 2010. Her decision-making had been correct. HMRC
submitted that her letter was evidence that the matters raised in the
accountants’ letter dated 25 June 2010 had been considered.
36. Mr Robinson
acknowledged that Mrs Uzzell had excluded various companies, leaving six to be
taken into account in relation to the notice of requirement.
37. Reference had
been made to the group which PTS had joined. This had been on 23 June 2010, as
shown by Mr Ridge’s witness statement. Mr Robinson submitted that all arguments
regarding the group, as to finances and other matters, should not be taken into
consideration, as PTS had not been part of the group at the time when the
decision had been made.
Discussion and conclusions
38. As there was no objection
from HMRC to the late appeal, we treated PTS’s application for admission of its
late appeal as impliedly granted, and continued with the hearing without
expressly referring to the application. As a formal matter, we confirm that
PTS’s application was granted.
39. The appeal was
against the decision of HMRC to require security from PTS, and specifically
against the upholding of that decision by the Review Officer, Mrs Parsons. The
result sought by PTS was: “There should be no requirement for security in this
case”. Thus PTS was not expressly raising the question of the amount of the
security; the implication was that the amount should be nil.
40. We accept the
parties’ submissions that the principles which we should apply are as set out
by the Tribunal in Goldhaven at paragraphs 14 and 15. In the latter paragraph
the Tribunal referred to John Dee v C & E Comrs [1995] STC 941:
“. . . where the Court of Appeal held that the
tribunal had to consider whether Customs and Excise had acted in a way in which
no reasonable panel of Commissioners of Customs and Excise could have acted, or
whether they had taken into account some irrelevant matter, or had disregarded
something to which they should have given weight. The tribunal could not exercise
a fresh discretion; the protection of the revenue was not a function of the
tribunal or the court. However, if it was shown that the decision of Customs
and Excise was erroneous, because they failed to take some relevant material
into account, the tribunal could, nevertheless, dismiss the appeal if the
decision would inevitably have been the same had account been taken of
the additional material.”
We respectfully agree with the Tribunal’s summary of the
relevant passages in the judgment of Neill LJ in John Dee, which was the
unanimous view of the Court of Appeal in relation to appeals under the
predecessor to s 83(1)(l) VATA 1994.
41. The reference,
both in Goldhaven and John Dee to “no reasonable panel of
commissioners” makes it clear, in our view, that the tests to be applied in
accordance with those cases to the making of decisions by HMRC relate to the
actions of the particular officer or panel responsible for making the decision,
rather than to HMRC as a whole.
42. If, on the
facts, we consider that relevant material has not been taken into account, it
is clear from John Dee that it remains open to us to dismiss the appeal
if we find that the decision would inevitably have been the same had the
relevant officer taken such additional material into account.
43. Although the
Court of Appeal expressed the principle in the context of omitted material, it
is clear that it is not confined to cases where the decision-maker has not
taken additional material into account. At p 952 of John Dee, Neill LJ
referred to the words used by Lord Lane in C & E Comrs v JH Corbitt
(Numismatists) Ltd [1980] STC231 at the end of p 239:
“Assume for the moment that the tribunal has the
power to review the commissioners' discretion. It could only properly do so if
it were shown the commissioners had acted in a way which no reasonable panel of
commissioners could have acted; if they had taken into account some irrelevant
matter or had disregarded something to which they should have given weight.”
44. In relation to
notices of requirement for security, it is clear that the tribunal has that
power. It follows that the powers of the tribunal are wider than implied by the
specific circumstances in John Dee, concerning only the failure to take
additional material into account.
45. As in Sanleo
at paragraph 20, we are required to consider the entire decision-making
process. This involves examining HMRC’s consideration both of the decision on
review and at the earlier stage leading up to the issue of the notice of requirement
to give security, ie the decisions made by Mrs Uzzell and later by Mrs Parsons.
We examine these parts of the process in their chronological order.
Issue of the requirement to give security
46. Except where
otherwise indicated in the following paragraphs, we accept the evidence of Mrs
Uzzell as set out below relating to the various companies referred to on the
chain chart and find, in the light of that evidence, that the results of her
consideration of the companies named was as she described it. In arriving at
our findings we have also taken into account relevant evidence from Mr Ridge’s
witness statement.
47. Mrs Uzzell
explained that the case had been prepared for her in HMRC’s Leeds office and
passed to her to review the documents available. These included the chain
chart, which had been completed on 14 May 2010, and which she said would have
been the primary document which she had considered. She also had access to the
compliance records of the businesses concerned; this was her other primary
source of information on which she had based her decision. The companies in the
chart were not necessarily connected; the object of the chart was to give her a
broad picture of the involvement of the directors in other businesses. Where
neither Mr Ridge nor Mr Sanders appeared in the list of “persons involved”
relating to a particular company, she knew that she could disregard it. Where
there was an apparent connection between PTS (either under that or its previous
name) and another company, she would take such information into account.
48. Following this
process, she had disregarded Voice Connections Ltd on the basis that there were
no linked directors. That company had not been deleted from the chart, as it
recorded that the possibility of a connection had been considered. She had
taken ETC Communications Ltd into account, as PTS (under its previous name) had
expressed interest in some of its assets following its insolvency; it had had a
poor VAT compliance record and owed VAT and surcharges. She was aware that
although Mr Ridge and Mr Sanders had been directors, they had not held that
office at the time when the debts to HMRC had arisen; however, there might well
have been a link.
49. Mr Ridge had
been a director of European Systems Exchange Ltd at the time of the issue of
the Notice of Requirement. At that time this company had owed VAT of £25,029.98
in respect of the VAT period ending 31 March 2010, and for part of the
liability for period 07/09. Mrs Uzzell accepted that this debt had subsequently
been discharged on 28 June 2010 and that this had been confirmed by Mrs Parsons
in the review letter dated 23 July 2010. However, at the time when Mrs Uzzell
had signed the Notice of Requirement, there had been a debt; she had been
looking at the position as at that time. She was also aware that the 01/09
return had been paid late. HMRC’s compliance record as subsequently prepared on
15 September 2010 showed that for period 01/09, the amount due had been
£12,028.34, and that following an electronic payment on 28 February 2009, the
amount outstanding had been £7,659.62; this had subsequently been almost
completely paid on 4 June 2009. The liability for period 07/09 was £8,510.98,
subsequently reduced by credits from periods 10/09 and 01/10 to £5,987.41. For
period 03/10, the liability was £19,042.57, paid 47 days late together with the
earlier balance for 07/09.
50. Mr Ridge had
also been a director of Phonesdirect.com Ltd, which owed VAT of £2,325 at the
time of the notice. This central assessment had been withdrawn on 27 July 2010
when its 01/10 return had been rendered.
51. Mr Sanders had
been a director of Brinc Ltd, which as at the date the chain chart had been
prepared, was shown as owing VAT of £5,872.85 in respect of its part paid
return for period 02/10. We accept Mr Ridge’s evidence that, according to Mr
Sanders, a “time to pay” arrangement had been in force at the time in respect
of these VAT arrears and that the liability had since been discharged in full. We
find that the debt was outstanding at 16 June 2010, the date on which the notice
was served; as shown on the record of compliance and statement of account
subsequently completed by HMRC on 16 September 2010, the balance of the full
sum of £17,619.69 due in respect of period 02/10 had actually been shown as
“cleared” on 3 September 2010.
52. Mr Ridge was a
director of Mobile Sourcing Ltd. The chain chart showed £182,301.75 to be due in
respect of outstanding liabilities to VAT. Mrs Uzzell had been aware when
considering matters at 4 June 2010 that the liabilities were under appeal. Subject
to one issue, we are satisfied by reference to her evidence that she had deemed
the liability of this company to be irrelevant, and by reference to the
calculation set out below, that she did not base her judgment of the need to
require security on this liability, as she was concerned in respect of other
debts relating to other companies, and that this company’s liabilities were not
the reason for her decision to sign the notice. Our one reservation is the
terms in which Mrs Uzzell expressed her oral evidence. She stated that she had
been aware that the liabilities were under appeal, and that as she had been
aware, she did not solely [our emphasis] base her judgment on this,
given her concerns relating to other debts. She also referred to Mobile
Sourcing Ltd’s debts not being the prime reason for the notice. She then went
on to make the statement that this (ie the liabilities of Mobile Sourcing Ltd)
had not been why she had signed the notice of requirement; she had deemed the
liabilities to be irrelevant. We comment further on this issue in our general
conclusions on her evidence as set out below.
53. In respect of
Telco Ltd, a VAT liability of £44,687.15 and a liability to penalty of £28 were
shown on the chain chart as having arisen while Mr Ridge had been a director;
the company had become insolvent and was eventually dissolved. (HMRC’s
compliance summary as at 16 June 2010 prepared on 20 September 2010 showed the
liabilities as £51,534.45 VAT, interest of £658.55, and penalties of £28.) Mr
Ridge stated in his witness statement that he had been a non-executive
director, and that the liquidators had confirmed that no actions had been taken
against the directors in relation to the matter. Our understanding is that the
Companies Acts make no distinction between executive and non-executive
directors, and we therefore find that this liability was appropriately taken
into account by Mrs Uzzell.
54. We accept Mrs
Uzzell’s evidence that, although she considered Link Telecom Services Ltd,
Contact Management Services Ltd and VVB Ltd, she did not take these companies
into account in arriving at her decision to sign the notice.
55. In respect of
Mobile Essentials Ltd, Mr Ridge was a director, and at the time of the notice
being signed the chain chart showed that there was an outstanding liability of
£1,034.66, consisting of VAT of £858.00 and default surcharge of £176.66. It
was accepted by the accountants in their letter dated 25 June 2010 that this
sum was late, having been paid on 23 June 2010. However, the return was late,
and the chain chart had been prepared on 14 May 2010, so we find that in the
light of the information before her on 4 June 2010, it was appropriate for Mrs
Uzzell to take the apparent liability into account.
56. There was a
difference between the figures shown for Mobile Essentials Ltd in the chain
chart and those shown in the compliance record prepared by Mr Ianelli of HMRC
on 29 September 2010. The latter showed the total outstanding as at 16 June
2010 to have been £7,010.08, consisting of £6,054.63 VAT owing, and default
surcharge of £956.15. This difference is referred to below.
57. In respect of
Capital Developments (Property) Ltd, of which Mr Ridge was a director, the
chain chart had been completed on 14 May 2010 and the assessment in the sum of
£6,600 had been withdrawn following its return submitted on 20 May 2010. Mrs
Uzzell had not been aware of this at the time when she signed the notice of
requirement. She accepted in evidence that the debt had not been outstanding at
that time, but on the face of the chain chart, this sum had been outstanding.
The evidence included a statement of account prepared by Mr Ianelli of HMRC on
22 September 2010, which shows the actual position to have been that in the
light of that return, submitted 20 days late, a sum of £1,054.63 was repaid to
that company. We are unable to conclude, in the absence of evidence as to the
state of HMRC’s compliance records for this company, whether Mrs Uzzell would
have had reason to be aware that the information on the chain chart was out of
date in this respect. In the light of her evidence as considered below as to
the companies which she had taken into account in deciding to sign the notice,
it appears that she may have omitted this company from the list of companies on
which she based her decision.
58. Mr Ridge was
also a director of Business Phones Direct Ltd. He accepted in his statement
that HMRC were correct in indicating that there was an outstanding liability to
HMRC of £69,267.95 as at the time of the notice; this liability consisted of
VAT of £59,352.12 and default surcharge of £9,915.83, relating to periods 9/09
(part paid and unpaid surcharge), 12/09 (unpaid surcharge) and 03/10 (central
assessment plus unpaid surcharge). A “time to pay” arrangement had been agreed
with HMRC.
59. In respect of
Bowland (NW) LLP, at the time of issuing the notice of requirement this entity
had owed VAT in respect of a central assessment amounting to £860, and the
application for deregistration, of which Mrs Uzzell had not been aware, had
been dated 24 June 2010. Thus this was after the date of service of the notice
of requirement. Parkacre Management Ltd (ie PTS under its previous name) had
been included in the chain chart because of the connection to Mr Ridge and the
type of trade in which it was involved, although HMRC’s records showed that no first
return had been issued.
60. We accept Mrs
Uzzell’s evidence that if a company did not appear on the chain chart, she
would not look at it and that if she had felt something more needed to be
added, she would have requested this to be done. We also accept her evidence
that it was not normal to have so many companies listed on a chart, and that
matters would reach the point where no more companies needed to be listed on
the chart.
61. We find that in
arriving at her decision, Mrs Uzzell excluded irrelevant information, including
cases where the directors had been appointed after VAT liabilities had been
incurred, information concerning ETC Communications Ltd, and the liabilities of
Mobile Sourcing Ltd. In relation to the latter, we find that her use of the
word “solely” in oral evidence did not affect the general tenor of her evidence
that she had excluded this company from consideration; we would have found it
easier to consider this question if she had not used that word. As a result of
her examination of the companies listed on the chain chart, she concluded that
the total unpaid debt of the companies taken into consideration was
approximately £156,000:
European Systems Exchange Ltd £25,029
paid late
Phonesdirect.com Ltd £
2,325
Telco Ltd £52,041
Mobile Essentials Ltd £
7,010
Business Phones Direct Ltd £69,267
Bowland (NW) LLP £
860
£156,532
62. We find that
this calculation does not exactly match the information shown on the chain
chart. Although Mrs Uzzell referred in her oral evidence to a figure of £29,500
for European Systems Exchange Ltd, the actual amount recorded on the chart as
being owed by that company was £25,029.98; we find that to have been the amount
which she took into account. (That amount is also confirmed by the compliance
record as at 16 June 2010 prepared by S Courtney of HMRC on 15 September 2010.)
The amount shown on the chart as having been owed by Mobile Essentials Ltd was
£1,034.66, not £7,010; the latter figure was taken from the compliance record
produced by Mr Ianelli on 21 September 2010, which stated this to have been the
amount outstanding at 16 June 2010. Further, this calculation does not include
the £6,600 which Mrs Uzzell thought at the time of signing the notice to be
owed by Capital Developments (Property) Ltd. (It also omits Brinc Ltd’s debt,
as set out in the chain chart, of £5,872.85.)
63. In re-examination
by Mr Robinson, Mrs Uzzell gave additional evidence relating to payments of
some of these liabilities. She stated that European Systems Exchange Ltd’s liability
was paid late, on 28 June 2010. The central assessment of £2,325 shown as owing
by Phonesdirect.com Ltd was withdrawn on 27 July 2010. Telco’s liability
remained outstanding, due to its insolvency. Mobile Essentials Ltd’s
outstanding liability was discharged on 23 June 2010. Business Phones Direct
Ltd had a time to pay agreement and its liabilities were paid later. Bowland
(NW) LLP applied later for deregistration, on 2 July 2010, as foreshadowed in
the accountants’ letter dated 25 June 2010.
64. We find that in
the light of the information available to Mrs Uzzell at the time when she
arrived at her decision to issue the notice of requirement for security, her
decision was reasonable. However approximate the amounts were that she took
into account, it was clear that a substantial amount of tax owed by companies
with which Mr Ridge or Mr Sanders were involved appeared to her to be
potentially at risk. We do not consider that she took into account any irrelevant
matters; we accept that she excluded a large number of the companies in respect
of which particulars had been included in the chain chart (including others not
referred to above).
65. Further, we do
not consider that she disregarded anything to which she should have given
weight; various items of information were not provided until after she had
signed the notice of requirement. That information came from PTS’ accountants,
first in a telephone call and subsequently in their letter written on the
following day, 25 June 2010, in which they requested an independent review. In
the notice of requirement dated 16 June 2010, Mrs Uzzell had said:
“If you have any further information that you want
me to consider, please forward it to me immediately.”
The paragraph immediately following that sentence referred
to the actions available to PTS if it did not agree with Mrs Uzzell’s decision,
namely to ask for an independent review, or to appeal to an independent
tribunal.
66. From Mrs
Uzzell’s oral evidence, we understand that the wording of the notice of
requirement followed a standard form. On that basis, we do not feel that this
standard wording makes sufficiently clear that the recipient has the option,
before taking either of those actions, to provide information which may have
the effect of satisfying HMRC that the decision to require security should be
withdrawn. Mrs Uzzell stated in cross-examination that HMRC were not required
to issue a warning letter before serving a notice of requirement of security,
and that there had been no prior contact with PTS before the notice had been
issued. If those HMRC officers who issue notices of requirement are prepared to
consider further information before the matter goes to independent review or on
appeal to a tribunal, we suggest that this element of the decision-making
process should be made properly clear in the notice itself.
67. The accountants’
letter dated 25 June 2010 argued that the position of companies which had “time
to pay” arrangements in being should be left out of account in considering the
security position. We do not consider this to be correct. A company which has
entered into such an arrangement remains in the position that it has failed to
account for its VAT liabilities at the time or times when they have fallen due.
In addition, such an arrangement does not remove the risk that ultimately the
company in question may fail to account for some or all of that VAT liability.
68. The information
in their letter relating to the transfer of PTS to the Premier Telecom
Communications Group described events which had not yet occurred at the time of
Mrs Uzzell’s decision on 4 June 2010 to require security, or even on the date
of service of the notice. As Mr Ridge explained in his witness statement, a
controlling PTS was acquired by Premier Telecom Communications Group Ltd on 23
June 2010. Accordingly, it was not appropriate for Mrs Uzzell to take that
information into account in arriving at her decision, whether or not it would
have been appropriate to do so in any reconsideration of her decision in
advance of a review.
69. In case any of
our findings at paragraphs 64 and 65 above concerning the process followed by
Mrs Uzzell are considered to be incorrect having regard to our earlier findings
relating to specific companies, we record our general finding that, in the
light of the overall level of liabilities disclosed by the chain chart as owed
by the relevant companies, adjusted where appropriate to take account of
compliance information taken from HMRC’s records by her, her decision to issue
the notice would inevitably have been the same.
70. In arriving at
the latter conclusion, we have considered whether the Companies House
information included in the second bundle concerning PTS under its previous
name and its directors might be relevant, as it shows Mr Ridge’s company
appointments as: “Current: 20 / Resigned: 26 / Dissolved : 6”. However, there
is no evidence as to the date of these details, and we therefore consider that
we must ignore them.
71. Having
determined that the decision taken by Mrs Uzzell was reasonable on the
information available to her as at 4 June 2010, we consider the next stage of
the decision-making process.
The HMRC review
72. As Mrs Parsons
was not available to give evidence, we have to consider whether this inevitably
means that, as in Sanleo, we are unable to be satisfied that her
decision to uphold the decision to issue the notice of requirement was one
which was reasonably taken. Ms Brown argued that the absence of evidence from
Mrs Parsons meant that HMRC had not provided sufficient evidence in relation to
the decision-making process to enable this to be tested by PTS, or for us to be
satisfied that the decision was reasonable. Mr Robinson submitted that Mrs
Parsons’ review letter did deal with a number of the companies, although his
prime focus was on the earlier part of the decision-making process. In our
view, the proper course is to examine the evidence available in documentary
form, and to consider whether we are in a position to arrive at a conclusion
without the benefit of a witness statement and oral evidence from Mrs Parsons.
Even in the absence of Mrs Parsons, if the evidence shows, in accordance with John
Dee, that the decision on review would inevitably have been the same in the
light of additional material which she did not take into account, we are able
to dismiss the appeal.
73. The companies
referred to in Mrs Parsons’ review letter dated 23 July 2010 were:
(1)
Mobile Sourcing Ltd;
(2)
Brinc Ltd;
(3)
Capital Developments (Property) Ltd;
(4)
Phonesdirect.com Ltd;
(5)
Business Phones Direct Ltd;
(6)
Bowland (NW) LLP;
(7)
Mobile Essentials Ltd;
(8)
European Systems Exchange Ltd;
(9)
ETC Communications Ltd;
(10)
Telco Ltd – in Liquidation.
74. In relation to
(2), (5), (6), (7) and (9), Mrs Parsons stated that HMRC did not have authority
to discuss those businesses with the accountants. In the case of (6) and (9), Mrs
Parsons noted the accountants’ comments.
75. Her response in
respect of Mobile Sourcing Ltd was:
“As you have commented, this company has requested
that their case is considered at tribunal in respect of input tax that has been
disallowed. Until the Tribunal takes place, the debt is outstanding and I feel
was correctly considered.”
76. Although Mrs
Parsons had stated that her review had to centre on whether the decision that
had been made by Mrs Uzzell on 4 June 2010 was reasonable, based on the facts
available at that time, she did not in express terms state that the decision to
issue the notice had been reasonable. She did not refer in any detail to the
information which had been supplied by PTS’s accountants in their telephone
call to Mrs Uzzell or in their letter dated 25 June 2010 to HMRC.
77. Without her
evidence, we find ourselves unable to establish whether she took all the
subsequent information into account, or whether her decision was based
significantly on Mobile Sourcing Ltd’s liabilities. If the latter was the case,
this differed from the approach taken by Mrs Uzzell. We have considerable
doubts whether it is generally appropriate, in deciding whether security is
required, to take account of liabilities that are the subject of dispute and
form the subject-matter of appeals to the Tribunal. In the absence of her
evidence, we are unable to test the position.
78. In the same way,
Mrs Parsons’ refusal on confidentiality grounds to discuss various companies also
presents us with a problem. We find ourselves unable to test the reasonableness
of her decision so far as it related to those companies.
79. We regard the
approach of refusing to discuss the position of companies which may or may not
have been taken into account in reviewing the original decision to require security
as, at best, distinctly unhelpful to PTS, its advisers and this Tribunal. It
inevitably calls into question whether the review was properly carried out.
Given the absence of evidence from Mrs Parsons, we cannot be sure whether this
was the case. We therefore consider whether there were other matters referred
to in her letter which call into question whether her review was reasonable,
whether she took into account irrelevant material, or whether she failed to
take into account any relevant material.
80. Our major
specific concern is with her comments on Mobile Sourcing Ltd (see paragraph 75
above). Although we are not convinced that there should be a complete
prohibition placed on consideration of disputed liabilities when arriving at
the decision that security should be required, we consider that this will only
be appropriate in a relatively limited number of circumstances, and that a very
clear explanation of the justification for doing so must be given by HMRC when
setting out their reasons for requiring security. We find that Mrs Parsons’
letter does not adequately explain her reasons for taking Mobile Sourcing Ltd’s
liabilities into account.
81. A more minor
concern is that we find ourselves unable to understand her comments on Capital
Developments (Property) Ltd:
“I agree that this business would not appear to have
been a risk to the department at the time the requirement was issued, however,
the supporting records do not indicate that it was considered to be a risk.”
Had she given evidence, it would have been possible to
hear her explanation of the intended meaning of this paragraph of her letter.
82. Having regard to
these concerns, and in the absence of evidence from Mrs Parsons to explain her
reasons for her decision, we find that her review was not properly carried out.
83. We have considered
the implications of the decision in Sanleo. In the absence of the
reviewing officer, the Tribunal found itself unable to find that the decision
of the reviewing officer was a reasonable one, and allowed the appeal. It is
not clear from the decision whether the Tribunal considered the further
question whether, had the review been properly carried out, the reviewing
officer’s decision would have been the same. It is possible that the Tribunal
concluded, in the absence of evidence, that it was not able to determine this
question.
84. In the present
case, we consider that there is sufficient evidence for us to apply this
further John Dee test. We therefore go on to consider whether, if Mrs
Parsons had carried out the procedure properly, her decision would inevitably
have been the same.
85. The further
information available to Mrs Parsons as at 23 July 2010, as compared with that
available to Mrs Uzzell at the time of her original decision on 4 June 2010,
was as follows:
(1)
That Capital Developments (Property) Ltd did not owe £6,600, but was due
to receive a repayment of £105.83, the total outstanding as at 16 June 2010
being £0.00;
(2)
That as at 16 June 2010 Phonesdirect.com Ltd did not owe £2,325, but was
due to receive a repayment of £602.24;
(3)
That the VAT liability of £25,029.98 due from European Systems Exchange
Ltd, although outstanding on 16 June 2010, was discharged in full on 28 June
2010;
(4)
That a controlling interest in PTS had been acquired by Premier Telecom
Communications Group Ltd on 23 June 2010.
86. We find that
these additional items of information, although reducing the amount of the
liabilities taken into account by Mrs Uzzell, do not do so to an extent which
we regard as sufficiently reducing the tax considered to be at risk to justify
removing the requirement for security. Further, as stated in Mrs Parsons’
letter, she had not been able to verify from HMRC’s records what PTS’s
accountants had stated relating to the position of the Premier Telecom
Communications Group. (We note that the undated information relating to
Parkacre Management Ltd contained in the second bundle states that: “There is no holding company recorded by Jordans as shareholder of this company.” We also note
that the further undated “Company Register Information” which was one of the
exhibits to Mr Ridge’s witness statement records the date of the change of name
as 28 June 2010.) We find that, had Mrs Parsons properly carried out her review
(including provision of information concerning those companies which she had refused
to discuss with PTS and its advisers), her decision to confirm Mrs Uzzell’s
original decision to require security would inevitably have been the same.
87. In the light of
the latter finding and our earlier findings relating to Mrs Uzzell’s decision,
we dismiss PTS’s appeal.
Right to apply for permission to appeal
88. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
JOHN CLARK
TRIBUNAL JUDGE
RELEASE DATE: 12 January 2012
