First-tier Tribunal (Tax)

[2009] UKFTT 392 (TC)

TC00388

  Appeal number:  TC/2009/13781

V A T:  - failure to make timeous payments – default surcharges - reasonable excuse - Appeal allowed.

FIRST-TIER TRIBUNAL

TAX

                                                  HIPISOL LTD                                Appellants

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                            REVENUE AND CUSTOMS (V A T)        Respondents

TRIBUNAL:              John M Barton, WS (Judge)

                                    Peter R Sheppard (Member)                                               

Sitting in public in Edinburgh on Friday 4 December 2009

Grant Roy, for the Appellants

Miss Katie Martin, Shepherd & Wedderburn, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1   The Respondents (“HMRC”) had imposed default surcharges of £612.02 and £91.80 upon Hipisol Ltd (“the Appellants”) in respect of periods to 31 May 2006 and 31 August 2006 respectively.

2   The Tribunal allowed the appeal against both of the default surcharges.

Summary of facts

3   Grant Roy had been registered for VAT since 1 February 2003.    He was outwith the United Kingdom, and latterly in Australia from March 2004 to August 2006.  Prior to March 2004, he had not been in default in regard to his VAT obligations.

4   During the period that Mr Roy was abroad, he had difficulty in receiving communications from the VAT office, and Mr Roy was in default on eight occasions, giving rise to a succession of penalties, latterly at the rate of 15% of the outstanding tax.  Mr Roy did not appeal against any of these determinations.

5   Mr Roy’s liability for VAT for the three months to 31 May 2006 amounted to £4,080.17 and was payable by Mr Roy not later than 7 July 2006.      On 6 July 2006, Mr Roy telephoned the VAT office to explain that he was awaiting payment from his principal client, and that funds would not be available until about 7 July.    Mr Roy was advised to wait until he received intimation of a default surcharge, and then to write a letter.    Mr Roy was not advised about making a payment to account.    HMRC confirmed that they did receive a telephone call on 6 July 2006 from Mr Roy and did not dispute his account of the conversation.

6   The sum of £4,080.17 was received by HMRC on 12 July 2006.    A notice of assessment of surcharge for the sum of £612.02 in respect of the three months to 31 May 2006, was sent to Mr Roy on 14 July 2006. 

7   Mr Roy’s liability for VAT for the three months to 31 August 2006 amounted to £3,057.63 and was payable by Mr Roy not later than 7 October 2006.     The said sum was received by HMRC on 5 October 2006.     A notice of assessment of surcharge for the sum of £91.80 in respect of the three months to 31 August 2006, was sent to Mr Roy on 13 October 2006. 

8   On 22 November 2006, Mr Roy requested a review of the default surcharge assessment for the period to 31 May 2006.   HMRC replied on 23 November 2006, advising that the surcharge assessment was being maintained, but that Mr Roy was entitled to appeal.    Mr Roy did not receive that letter.

9   In March 2009, Mr Roy formed a limited company in the name of the Appellants and on 19 June 2009, he made application to transfer his VAT registration to the name of the Appellants.  HMRC declined to effect that transfer, informing him that there was an outstanding liability of £591.11 representing the aggregate of the said sums of £612.02 and £91.80, less a credit of £112.71. 

10   On 10 July 2009, Mr Roy wrote to HMRC requesting that the liability of £591.11 be removed from his file.  HMRC replied to Mr Roy on 4 August 2009, insisting on the default surcharge for the period to 31 May 2006, and informing him of a right of appeal.  HMRC also enclosed a copy of the said letter of 23 November 2006 which Mr Roy had not previously received.

11   Mr Roy lodged a Notice of Appeal in the name of the Appellants.   Under the heading “Details of the decision(s) you are appealing”, Mr Roy inserted “23/11/2006” in response to “Date of Decision(s)”, and he inserted  “£591.11” as “The amount of tax or penalty”.

Reasons

12   The listing of this appeal merely contained the name of the Appellants; and it was only as a result of a preliminary enquiry instigated by the Tribunal that HMRC produced a transcript of a notice of assessment of surcharge for the sum of £612.02 in respect of the period to 31 May 2006 and a further transcript of a notice of assessment of surcharge for the sum of £92.80 in respect of the period to 31 August 2006.     The Tribunal has accordingly regarded this Appeal as relating to both Notices.

13   The Tribunal heard the evidence of Mr Roy and found him to be wholly credible, particularly in relation to the telephone call of 6 July 2006.    He did not recall the possibility of a part payment having been conveyed to him; and he added that if this had been mentioned, he would have made a payment.

14   Much of Mr Roy’s evidence and submissions were directed to the difficulties of communication with the VAT office over the period that he was in Australia.    It was over this period that Mr Roy was repeatedly in default, resulting in the level of surcharge rising to 15%.   Mr Roy did not appeal against any of the default notices issued over this period.

15   Mr Roy’s evidence showed that he had expected a payment from his principal client and that he had intended to use these funds to settle his VAT liability for the quarter to 31 May 2006.      It is accepted, on the authority of Customs and Excise Commissioners v Steptoe[1992] STC 757 that in certain circumstances, such a delay might constitute a reasonable excuse; but the Tribunal is of the opinion that this does not apply in the present case as Mr Roy was on a Cash Accounting scheme, and therefore he had previously had payment of the tax which had then become payable to HMRC.

16   However, the Tribunal found it significant that Mr Roy had not been fully advised when he had telephoned HMRC on 6 July 2006 – the day before the payment became due.     At that time, Mr Roy then had available funds of over £350.   If Mr Roy had been fully advised, he could at least have materially reduced his liability to a surcharge and perhaps even raised funds to avoid a surcharge altogether.    As it was, he relied on the advice to take up the matter after the surcharge notice had been issued. 

17   The Tribunal finds in respect of that telephone call, that Mr Roy was misled or alternatively ill advised, such as to constitute a reasonable excuse, and the appeal against the surcharge of £612.02 is accordingly allowed.  (See J.H.Harman v H.M. Customs & Excise (2004) (VTD 18415); and Alisdair Macqueen v HMRC (2007) (VTD 20386).)

18   Miss Martin, who appeared for HMRC, doubted whether there had been an appeal against the surcharge for the subsequent period to 31 August 2006, as the notice of appeal had referred to the letter of 23 November 2006 which only specified the surcharge for the earlier period.    However, it is significant that the notice of appeal also referred to the sum of £591.11 (which amount included the surcharge for both periods), and  that in response to the enquiry from the Tribunal, HMRC had also produced a transcript of a Notice of Assessment of Surcharge in respect of this latter period.

19   The amount of the surcharge for this latter period, namely £92.80, bears no apparent relationship to the VAT payment of £3,057.63 which had been due for the period to 31 August 2006.   That payment of £3,057.63 appears to have been made prior to the due date. However it appears that HMRC applied it firstly to repay the £612.02 surcharge which is the subject of the first part of this appeal and secondly the balance of £2,445.61 against the VAT payment due for the period to 31 August 2006. This had the effect of creating for that period a further shortfall of £612.02 on which the respondents levied a 15% surcharge of £91.80. The payment being of the precise amount to the penny of the amount due on the VAT return demonstrated to the Tribunal that the payment by the Appellants was intended to meet in full the amount due on the VAT return and was not intended as a payment intended to settle the disputed surcharge.  The appeal against the surcharge for the period to 31 August 2006 is accordingly allowed.

MR JOHN M BARTON, WS

TRIBUNAL JUDGE

RELEASE DATE: 16 December 2009