HMRC reached correct conclusion by a flawed decision-making process
An appeal against a decision of HMRC to issue a notice of requirement (NoR) to provide security under VATA 1994, Sch 11, para 4(2)(a) was the subject of CNM Estates (Tolworth) Ltd v Commissioners for Revenue and Customs  UKFTT 45 (TC). The amount of security requested was £146,988.33 or £127,888.33 if the appellant chose to submit monthly VAT returns.
The appellant was 100 per cent owned by Mr Samady, and had been registered for VAT since 2007. Its trading activity was noted as being buying and selling real estate.
HMRC considered that the appellant represented a risk to the Exchequer due to a number of factors:
- The company had VAT debts of £103,070.78, which included default surcharges of £13,382.45, and a PAYE debt of £96,760.39.
- The VAT debt related to the periods 08/16, 11/16 and 02/17. There had been 10 default periods and the default surcharge rate had been at the 15 per cent rate since 11/16.
- A related company, 37 Victoria Road Ltd, which was previously known as CNM Estates Ltd, and which is also owned 100 per cent by Mr Samady, had a VAT debt of £411,695.51, of which £629.76 was default surcharges and £45,077.75 was interest.
- Another related company, CNM Estates (Ewell Road) Ltd, had a VAT debt of £14,988.54.
- The company had been served with a NoR in respect of PAYE liabilities in 2016, but this had been withdrawn due to procedural issues during the operation of what was at that time a relatively new security regime.
- Mr Samady was at the time the subject of a COP 9 enquiry.
The appellant was warned in July and August 2017 that continuing to trade without having provided security was an offence.
Mr Samady submitted that it was totally wrong for HMRC to consider the links to non-compliant businesses in that the companies considered by HMRC were only three companies out of a group of 43 companies owned and managed by Mr Samady. The debt owed by CNM Estates (Ewell Road) Ltd was very small, and that owed by 37 Victoria Road had not been pursued by HMRC for many years and it was therefore unlikely that this was a genuine debt. Mr Samady also said that the COP 9 enquiry was now effectively closed and was a minor matter which should not have been considered.
The notice of appeal stated the grounds of appeal as follows:
- The company had insufficient funds to meet the NoR in a single payment and believed the NoR was issued on a flawed basis. The company was focused on paying down the existing VAT liability, and having to pay the NoR would put the financial position of the company in peril.
- The company identified VAT irregularities dating back to 2011 in the sum of £104,000. Rather than notify the voluntary disclosure to HMRC under more favourable terms, the company simply included the historic debt on a subsequent VAT return. This created a large liability, especially when penalties totalling £18,000 and interest of £8,000 were added.
- Despite making the voluntary disclosure and attempting to put matters right as quickly as possible, HMRC saw the opportunity to crystallise ongoing VAT liabilities and to issue the NoR.
- The company was being treated unfairly for trying to put matters right. The proportionate response from HMRC would have been to acknowledge the disclosure and to offer a time to pay arrangement, rather than issue a NoR.
The First-tier Tribunal (FTT) considered that even if HMRC had ignored the existence of the debts due from CNM Estates (Ewell Road) Ltd and 37 Victoria Road Ltd, they would still have come to the same conclusion because of:
- the non-payment of the underlying debt of £89,688.33;
- the serious history of non-payment of VAT by the appellant;
- the history of non-compliance on PAYE issues, which had resulted in the issuance of a NoR for security for a PAYE debt in 2016; and
- the ongoing COP 9 enquiry, which was not in the FTT’s view a trivial matter, as suggested by Mr Samady, but did in fact evidence a willingness on Mr Samady's part not to disclose income on his tax return;
and therefore the appeal was dismissed.
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