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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Roberts & Anor v Revenue & Customs [2011] UKFTT 268 (TC) (26 April 2011) URL: https://www.bailii.org/uk/cases/UKFTT/TC/2011/TC01130.html Cite as: [2011] UKFTT 268 (TC) |
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[2011] UKFTT 268 (TC)
TC01130
Appeal number: TC2010/03599 & TC2010/03600
National Insurance Contributions; failure by limited company to pay contributions; Personal Liability Notice served on director; whether failure to pay attributable to neglect on the part of directors; Social Security Administration Act 1992 s 121C&D; Appeal dismissed.
FIRST-TIER TRIBUNAL
TAX
STEPHEN ROBERTS & ALAN MARTIN Appellants
- and -
TRIBUNAL JUDGE: J GORDON REID, QC., F.C.I.Arb.
Member: Ian M P Condie, CA,
Sitting in public at George House, 129 George Street, Edinburgh on Monday 21 March 2011
Stephen Roberts for the Appellants
Eugene Walsh (HMRC) for the Respondents
© CROWN COPYRIGHT 2011
DECISION
Introduction
2. A
Hearing took place at Edinburgh on 21 March 2011. The Respondents (HMRC) were
represented by Eugene Walsh, an official of HMRC who specialises in advocacy.
He led the evidence of Andrew Pawley, a Personal Liability caseworker with
HMRC. He works for the Specialist Investigation Department with HMRC’s
Insolvency & Securities Team. He has carried out this type of work for
over seven years. Before the Hearing, HMRC lodged and intimated a detailed
Witness Statement by Mr Pawley which was fully cross-referenced to a substantial
lever arch
file of documents which had also been lodged and intimated prior to
the Hearing. Mr Pawley spoke to his statement and the documents in
evidence. The Appellants appeared without professional assistance. Mr Roberts
spoke for both of them and also gave evidence. There was no dispute about the
authenticity, and where appropriate the transmission and receipt of the
documents produced.
Statutory Framework
4. The
approach of HMRC is to serve a PLN only where they consider there to have been
fraud or a serious level of neglect. Accordingly, a thorough and detailed
enquiry will be carried out before a decision is taken by a senior officer, to
authorise
the service of a PLN.
Procedural Background
6. On
or about 4 November 2009, a PLN was issued to each Appellant. The total sum
claimed was £90,959 apportioned equally between each Appellant (£45,479.50).
The total sum was made to best judgment as there were gaps in the records of
Innova. However, there is no challenge to the validity
of the notice, quantum
or the apportionment.
Grounds of Appeal
8. The
Grounds of Appeal embrace the terms of a long letter dated 15 January 2010 to
HMRC from the Appellants’ solicitors. It is difficult to condense, but in
essence the grounds of appeal are (i) the test for neglect involves considering
what a reasonable and prudent man would do in the circumstances, (ii) when
Innova started up there was no financial
risk, (iii) it was reasonable not to
have contacted HMRC as Innova had no proposals to make, (iv) even although
Innova was not in a position to pay its statutory liabilities, a reasonable
person would not necessarily in the circumstances have brought the business to
an end, as it was reasonable to think that the business could be turned around,
(
v)
the payments of salaries and expenses to the directors was not
unreasonable, (
vi)
certain payments were made to ensure the ongoing
viability
of the business although no preference was given to particular creditors (
vii)
as Innova approached liquidation the overall indebtedness to creditors was
reduced because this burden was taken on by the successor company,
Cornerstone Resources Ltd, and (
viii)
professional advisers consulted by the
Appellants at the time did not disagree with the directors’ proposed course of
action.
Issues
Facts
11. Innova was a
company incorporated under the Companies Acts on 21 June 2007. Its registered
office was at Craigowan, 30 Brewlands Road, Symington, Ayrshire. The
Appellants and SP Campbell were its directors. The company was essentially a
staff agency. It provided personnel with specialist qualifications to
businesses in the financial
services industry such as banks, insurance
companies and others on short term contracts. These individuals were either
employees of Innova and hired out to third parties; or they were individuals
whose services were engaged as independent contractors; Innova then sub-contracted
these services out to third parties. The precise contractual arrangements
were not explored in evidence and no sample documentation was produced.
Whatever Innova paid the personnel on their books they charged a mark-up to
their own third party clients. The mark-up
varied
from 50% to 8%; latterly it
was nearer 8%.
12. Innova was the
successor (or phoenix) company of Synergi Global Solutions Ltd, a company in
which both Appellants were directors. It carried on a similar business to Innova,
namely contract consultancy. Synergi went into liquidation by order dated 27
July 2007 with PAYE tax NIC and VAT
debts of about £165,305 of
which £103,733.07 was attributable to outstanding PAYE
tax and NIC. Mr Roberts had given a personal guarantee up to £20,000 for the liabilities of Synergi. Following a dispute with
Synergi’s liquidator about work-in-progress, Innova found itself, at the
outset, under liability to pay the liquidator at least £73,000, a liability from which it never truly recovered. Innova was
significantly underfunded from the outset as the Appellants must have known.
Innova may never have been solvent.
22. No such
instructions were ever given, as no NIC or PAYE tax was ever remitted by Innova
to HMRC. Each month, from the outset of Innova’s trading, the Appellants
conducted
a
financial
review and each month they took the decision to refrain
from making any payments of PAYE tax or NIC, preferring to pay their own
substantial salaries and other creditors. The Appellants were, in effect,
propping up Innova with funds which ought to have been remitted to HMRC.
Innova did not at any stage generate enough funds to pay its debts as they fell
due. The Appellants were aware of this.
24. Innova factored
its book debts to Bibby Financial
Services. This aspect of Innova’s trading
arrangements was not explored in evidence.
27. Innova ceased
trading on or about 18 April 2008. It failed to submit VAT
returns for the
quarters to October 2007, January 2008 and April 2008. In other words, it did
not submit any
VAT
returns at all. Innova’s
VAT
liability has since been
assessed at £18,623 which has not been paid. On 21 August
2008, Innova was ordered to be wound up, a provisional liquidator having been
appointed on 18 April 2008.
29. Cornerstone
began trading in about May 2008 when a PAYE scheme was set up. It had the same
registered office as Innova. The Appellants were the directors of Cornerstone
and they awarded themselves the same salaries they had received from Innova.
HMRC officers visited
Cornerstone’s accountant on 27 February 2009 to examine
Cornerstone’s payroll records in order to quantify the debt owed to HMRC.
Thereafter, the Appellants made their first contact with HMRC in early March in
relation to Cornerstone’s liabilities.
Decision
32. We were referred
to a number of authorities
on the meaning of neglect, including Blyth
v
Birmingham Waterworks Co 1856 11 EX 781 at 784 for a definition of
negligence, Livingstone
v
HMRC TC 00369, 15/1/10, a PLN case,and Inzani
v
HMRC 1996 SPD 529.
33. We do not need
to consider these cases in detail. In our view,
neglect consists of a
failure to do what, in the circumstances, a reasonable and prudent person would
have done. Neither party disputed that proposition. It is unnecessary and
possibly inappropriate to embark on a consideration of negligence insofar as
this may be thought to be different from neglect in the present context.
Had we considered that necessary, an examination of modern Scottish
authority
on negligence would have been required. The modern notion of
negligence is probably not quite the same as it was in 1856. Negligence
involves identifying a duty of care, specifying the standard of duty to be
achieved, foreseeability, causation and remoteness and raises the question
whether it would be fair just and reasonable to impose a duty and consequent
liability on the person concerned.
34. We have,
however, no difficulty in holding on the balance of probabilities, that
Innova’s failure to pay the NIC specified in the PLNs was attributable to the
neglect on the part of the Appellants. HMRC have discharged the onus of proof
which rested on them. It was plain that the Appellants were fully aware of the
statutory obligations in relation to payment of NIC. They received information
each month about the financial
health of Innova including the amount of NIC due
and payable by the 19th of the month. They were personally
responsible for ensuring the payment of NIC and PAYE tax. They were
responsible for the decision each month, while Innova traded, not to pay NIC
and PAYE tax and chose instead to pay other creditors and their own salaries;
they thus propped up for as long as possible an ailing business with funds
which should have been remitted to HMRC. No attempt was made to discuss
matters with HMRC. They made no reasonable provision for the payment of NIC or
PAYE tax; even although they must have been aware that the liability to HMRC
was increasing each month.
35. Viewing
the
figures set out in our findings of fact broadly, Innova needed a turnover in
excess of £2m per annum (which allows a generous 33% mark up on direct costs)
in order to service outgoings of about £500,000 and break even. Their actual
sales over the life of the company fell far short of that rate.
37. No reasonable
and prudent businessman would have behaved in this way or conducted
business in
this manner. No reasonable and prudent businessman would have neglected to pay
the NIC as it fell due. Any reasonable and prudent businessman, having control
of the operations of Innova, would probably have ceased trading within a few
months of start-up at the latest or attempted to make arrangements with HMRC
about deferring payment. The irresistible inference from the facts as we have
found them to be is that Innova’s business was being funded at least in part by
money which ought to have been remitted to HMRC to meet the company’s statutory
obligations. In our
view,
no reasonable and prudent business man would, in the
circumstances, have
conducted
his business in such a manner. In our
view,
Innova’s persistent failure to pay NIC at or within the prescribed time is
attributable to neglect on the part of the Appellants, who throughout the
period of that neglect were directors of Innova. The relevant requirements of
s121C of the Social Security Administration Act 1992, as amended, have been
met.
39. The Appellants
produced no documents or any evidence on which we felt confident enough to
rely, to support the contentions advanced in their grounds of appeal. Apart
from his acknowledgement in evidence that he was aware at the material time of
Innova’s statutory responsibilities, there was little of what Mr Roberts
said in evidence which we were prepared to accept. In cross examination he was
evasive and devious. At one point he asserted that he and Martin had
approached HMRC about Cornerstone’s PAYE tax and NIC liabilities before HMRC
had started making enquiries. However, he eventually accepted (what he must
have been aware of all along) that his approach to HMRC followed on from HMRC’s
visit
to Cornerstone’s accountant. He asserted that Innova’s business was
viable
at the outset and would not accept that his
conduct as director of
Innova fell short of what a reasonable and prudent businessman would have done
in the circumstances. We were prepared to accept his evidence that he had no
formal qualifications whatsoever. He said he was a salesman and an optimist.
In some of the company records produced he is described as a nightclub owner
and operator. By the end of his evidence he was referring to Mr Pawley and Mr
Walsh by their first names.
Disposal
41. The appeals against the Personal Liability Notices are dismissed.
42. 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.