First-tier Tribunal (Tax)

[2010] UKFTT 59 (TC)

TC00372

Appeal number TC/2009/10427

VAT Default Surcharge – Appellants thought the relevant VAT was not paid late – found that it was – found that no reasonable excuse provided – appeal dismissed

FIRST-TIER TRIBUNAL

TAX CHAMBER

                                             E & M PANKHURST                          Appellants

trading as MAYS TERRACOTTA

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Value Added Tax)                                                                Respondents

                                                TRIBUNAL: JOHN WALTERS QC

                                                                        MARK BUFFERY FCA                                                                   

Sitting in public in London on 20 November 2009

Helen Balcombe and May Pankhurst for the Appellants

There was no appearance by or on behalf of the Respondents

© CROWN COPYRIGHT 2010

DECISION

1. When the appeal was called on for hearing there was no appearance by or on behalf of the Respondents (HMRC). The Tribunal through their clerk made enquiries and ascertained that HMRC had been notified of the hearing. The Tribunal decided that in the circumstances the proper course would be to proceed with the hearing in the absence of HMRC.

2.  This was an appeal against a default surcharge imposed in respect of the VAT period 07/08 at the rate of 10%, in the sum of £1770.56.

3. From the evidence received, the Tribunal finds that the Appellants’ VAT liability for the period 07/08 was received by HMRC in two instalments, on 9 and 10 September 2008.  The VAT liability was £17,705.67.  The due date for payment was 31 August 2008, but HMRC give 7 days grace for payments made by electronic transfer, making the effective due date in this case 7 September 2008.

4. The payments were made by a Co-op Bank cheque for £8,000 and a Barclays Bank cheque for the balance of £9,705.67.  Mrs. Pankhurst tried to pay both amounts at a bank at Polegate on 5 September 2008 (a Friday), but the banks there would not accept the Co-op Bank cheque.  She went to a different bank in Hailsham on Monday 8 September 2008 and that bank accepted the cheque. She misunderstood the period of grace given by HMRC for payments made by electronic transfer.  She thought 7 business days grace was given, rather than 7 calendar days grace.

5. Mrs. Pankhurst was aware that the Appellants were in the default surcharge regime, but she was not aware that a further default would incur a liability to a surcharge at 10%. 

6. The papers before the Tribunal contained details of the information sent to the Appellants informing them that they were in default for the VAT period 07/07 and that in consequence they could be liable if they were in default in respect of period ending within the surcharge period running until 31 July 2008. The Tribunal also had details of the information sent to the Appellants recording that they were in default for the period 10/07 and that the surcharge period was extended to 31 October 2008.  That information warned them that a further default could incur a surcharge calculated at 5%. The Tribunal also had details of the information sent to the Appellants recording that they were in default for the period 01/08, that the surcharge period was extended to 31 January 2009 and that a further default could incur a surcharge calculated at 10%.

7. Mrs. Pankhurst told us that the VAT liabilities for the periods 07/07 and 10/07 were paid in instalments by agreement with HMRC.  The letters from HMRC to the Appellants agreeing the Time To Pay arrangements do state in terms that such arrangements “do not stop or cancel the imposition of a surcharge”.

8. The Notice of Appeal gave as grounds for the appeal that the Appellants thought that the payment of the full amount of VAT due for the period 07/08 was not late.  The point is made that it appeared nonsensical that instalment payments of the liabilities for periods 07/07 and 10/07 should not attract default surcharges, but that a payment in full of the liability for 07/08 should attract a surcharge.

9. This last point may be explained by the fact that surcharges calculated at 10% are always collected, though surcharges calculated at lower rates below a certain amount are not collected.

10. The Tribunal found that the Appellants had not made out a reasonable excuse which would have enabled the Tribunal to allow the appeal.  Accordingly we must dismiss the appeal. We indicated to the Appellants at the conclusion of the hearing that this would be the result.

11. We do however recognise that the Appellants have made a great effort to comply with their VAT liabilities in economically difficult circumstances and that the imposition of the surcharge of £1,770.56 is likely to give rise to considerable hardship for them.  We note also that the payment of the liability for the 07/08 period, although late, was only 2 or 3 days late. 

12. The Appellants asked at the conclusion of the hearing that they should be allowed to pay this surcharge by instalments and though this is not something which the Tribunal has jurisdiction to direct, we do indicate that our decided view is that it would accord with principles of good administration of the VAT system and general administrative fairness that HMRC (if they cannot waive the surcharge entirely) should allow the Appellants the opportunity to pay the surcharge in instalments which they can afford.

JOHN WALTERS QC

JUDGE OF THE FIRST-TIER TRIBUNAL

RELEASE DATE: 8 February 2010