British
and Irish Legal Information Institute
Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
First-tier Tribunal (Tax)
You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Vividas Ltd v Revenue & Customs [2009] UKFTT 100 (TC) (13 May 2009)
URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00068.html
Cite as: [2009] UKFTT 100 (TC)
[New search] [Printable RTF version] [Help]
VAT - INTEREST
Default interest
- This appeal relates to interest charged on VAT following a voluntary disclosure of an error by Vividas Limited ("Vividas"), the Appellant.
- At the hearing Mr Christiaan Zwart of counsel represented the Respondents ("HMRC"). No one appeared on behalf of the Appellant. However the Tribunal's clerk telephoned the Appellant and spoke to Mr T Fenn, a director, who confirmed that he was aware of the hearing and asked that the appeal should proceed in the Appellant's absence. The Tribunal determined to proceed under rule 33 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, having been satisfied that the Appellant had been notified of the hearing and that it was in the interests of justice to proceed with the hearing in the Appellant's absence. A bundle of documents was produced by HMRC. No other evidence was given.
- The background facts were as follows:
- The correction of errors on VAT returns is governed by Regulations 34 and 35 of the Value Added Tax Regulations 1995 (SI 1995/2518). At the relevant time, these regulations permitted errors of up to £2000 to be corrected on a VAT return. However errors in excess of this amount could only be corrected in such manner as HMRC required. HMRC's requirements were set out in Public Notice 700/45 (How to correct VAT errors and make adjustments or claims). This required errors in excess of £2000 to be notified in writing to the taxpayer's local VAT Business Advice Centre, but without any adjustment being made on the VAT return.
- In this case the errors were in excess of the £2000 limit, and so could not be corrected on the VAT return. They could only be corrected by writing to the local VAT Business Advice Centre. Vividas's letter of 30 November 2007 amounted to such a letter, and therefore Vividas complied with the requirements of the VAT Regulations as regards the notification of errors.
- Although HMRC claim not to have received Vividas's original letter of 30 November 2007, they received a copy of the letter with the 12/07 VAT return. For the reasons given below, nothing turns on when or whether the original letter was received.
- The charging of interest is governed by section 74, VAT Act 1994. This deals with circumstances where VAT is recovered (or could have been recovered) by an assessment. This section applies in this case, as the errors could not be corrected on the VAT return itself. The errors were corrected by a separate voluntary disclosure (the letter of 30 November 2007). In consequence HMRC issued the Notice of Voluntary Disclosure which included an assessment for the VAT due as a result of the errors.
- Section 74 provides that interest is payable from the date when the VAT in question ought to have been paid (the due date for the VAT return for the period in which the VAT was incurred) until the date the VAT was actually paid. The rate of interest is determined by the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 (SI 1998/1461). Regulation 4 provides for the interest to be charged at a margin of 2.5% above the average base rates from time to time of the major UK clearing banks. Included in the bundle of papers before the Tribunal was correspondence between HMRC and Vividas. The correspondence included schedules prepared by HMRC setting out in detail the calculation of the £2787.83 interest charged, including the rates used and the periods over which the interest was calculated. These calculations were not in dispute.
- From the correspondence in the bundle before us, it appears that Vividas's appeal is made on three grounds
- We agree with HMRC's submission that interest is not a penalty for being honest. It is normal commercial restitution to reflect the late payment of a debt (in this case VAT). Dishonesty (and in some circumstances carelessness) is penalised through penalties and surcharges (and in the most serious cases, by criminal prosecution) and not through interest. HMRC accept that Vividas acted honestly and complied with their responsibilities under VAT law by notifying them of the errors discovered by the auditors.
- Nor do we consider that the rate of interest charged is high and absurd. The rate determined under the regulations represents a margin of 2.5% over the base rate of the major UK clearing banks and is therefore linked to rates of interest charged in the commercial sphere. We also note that the interest charged is "simple" and not compound. As the rate is set by regulations, it is not at the discretion of HMRC. Neither this Tribunal nor HMRC have any power to apply any different rate.
- We also note that any question as to when or whether the 30 November 2007 letter was received by HMRC is irrelevant to the amount of interest charged. Interest is chargeable from (i) the due date of the VAT returns on which the VAT in question ought to have been declared up to (ii) the date on which the VAT was actually paid (12 February 2008). The date on which the 30 November 2007 letter was received by HMRC is not relevant to this calculation.
- We appreciate that Vividas may now face difficulties as it is no longer trading. However this does not excuse Vividas from interest on VAT which was paid after it originally fell due for payment.
- We find that interest (in the amounts calculated by HMRC) is properly chargeable in respect of the errors. Accordingly we dismiss the appeal.
- No application was made for costs by HMRC, and we make no order.
[2009] UKFTT 100 (TC)
TC00068
Appeal number LON/08/1966
VOLUNTARY DISCLOSURE OF ERRORS - Default Interest - section 74 VAT Act 1994 - Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 - Interest a penalty for honesty - No - Interest rate high and absurd- no - Appeal dismissed
FIRST-TIER TRIBUNAL
TAX
VIVIDAS LIMITED Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY'S
REVENUE AND CUSTOMS (VAT) Respondents
TRIBUNAL: Nicholas Aleksander
Mrs LM Salisbury
Sitting in public in London on 27 April 2009
Christiaan Zwart of counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents
No one appearing for the Appellant
© CROWN COPYRIGHT 2009
DECISION
Background facts
(1) In a letter of 26 November 2007, Vividas was notified by its auditors that they had identified £20,361.09 of errors in its VAT returns. The auditors enclosed a draft of a letter to be written by Vividas to HMRC to notify HMRC of the errors..
(2) Vividas assert that on 30 November 2007 they sent a letter to HMRC largely in the form drafted by their auditors. This stated that errors had been made and would be corrected on the next VAT return. Attached to the letter was a schedule of the errors. HMRC have no record of receiving this letter.
(3) Vividas submitted its VAT return for period 12/07 under cover of a letter of 31 January 2008. Enclosed with the VAT return was a copy of the letter of 30 November 2007 and the schedule of errors. The figures on the VAT return were adjusted to take account of the additional VAT due as a result of the errors.
(4) Because the figures on the VAT return were internally inconsistent, the VAT return was rejected by HMRC's computer. However the covering letter and enclosures explained the situation and allowed HMRC to process the return. HMRC treated the letter as a voluntary disclosure, and issued a Notice of Voluntary Disclosure assessing VAT of £20,361.00 plus interest of £2787.83. As the additional VAT of £20,361.00 had been paid with the return, the only outstanding amount was the interest of £2787.83.
The correction of errors
Interest
Vividas's arguments
(1) The imposition of interest is a penalty for being honest
(2) The calculation of interest is high and absurd
(3) Paying the interest as a result of a genuine error is now an issue as Vividas is no longer trading.
Conclusions
Nicholas Aleksander
TRIBUNAL JUDGE
RELEASE DATE: 13 May 2009