Tribunal quashes HMRC's decision to require security from the taxpayer

09 March 2016

In Half Penny Accountants Ltd v HMRC [2016] UKFTT 45 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal and quashed HMRC's decision to require security from the taxpayer.


On 6 February 2015, HMRC served a notice of requirement for security on the taxpayer. Whilst up to date with its returns, the taxpayer had not paid any VAT to HMRC since 6 December 2013. The taxpayer owed £68,717 in unpaid VAT and default surcharges in the sum of £8,963.79 had also been imposed.

The taxpayer attributed its cash flow difficulties to poor hiring decisions.

HMRC issued a notice to the taxpayer requiring security from it pursuant to paragraph 4(2)(a), Schedule 11, VATA 1994.

On 4 March 2015, the taxpayer wrote to HMRC, requesting a review of its decision to demand security. The taxpayer said in its letter that it was talking to another firm of accountants about being acquired and that should those talks prove to be successful it would be able to meet its liabilities. However if security was required, it would not be able to continue in business, which would affect the planned takeover. The taxpayer requested an extension of time to pay until May 2015, which would allow it time to sell at least part of the business the proceeds from which could then be used to pay the outstanding VAT.

HMRC carried out a review and upheld the decision to demand security. In its letter of response to the taxpayer dated 9 April 2015, HMRC referred to the taxpayer's poor compliance record and that if it was to grant the taxpayer further time, this would give it an unfair advantage over other taxpayers.

The taxpayer appealed to the FTT. 

The FTT's decision

The FTT allowed the taxpayer's appeal and quashed HMRC's decision requiring security from the taxpayer.

In the FTT's view, it was necessary for it to consider the situation at the time the review was carried out by HMRC (as opposed to when the decision to demand security was originally taken). Accordingly, the FTT was able to take into account that HMRC knew, at the later time, that the taxpayer was seeking a buyer for its business.

The FTT examined HMRC's decision to not take into account the potential takeover and whether HMRC was right to ignore this information and, if not, whether HMRC would inevitably still have maintained its demand for security had that information been taken into account.

The FTT concluded that by excluding the potential business sale from its considerations, HMRC was ignoring something that was potentially relevant "to the protection of the revenue". If the sale went ahead as planned, it would improve the ability of the taxpayer to meet its VAT obligations.

On this basis, the FTT allowed the appeal as it did not appear to them inevitable that HMRC's decision would have been the same, had it taken the sale of the business into account. It reiterated that its jurisdiction was supervisory, and that accordingly it was not for the FTT to decide, or even speculate, how consideration of the potential sale of the business would have affected HMRC's decision. 


The FTT has confirmed that HMRC must consider the position at the time of any review rather than when the decision to demand security was taken and must take into account all relevant information. HMRC must take into account circumstances which would improve the taxpayer's ability to meet its VAT obligations. Failure to do so is likely to lead on appeal to the FTT quashing its decision to require security from the taxpayer.

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