First-tier Tribunal (Tax)

[2010] UKFTT 372 (TC)

TC00654

Appeal number TC/2010/04388

Default surcharges under section 59 VATA 1994 for late payment of VAT – application of section 71(1) VATA – whether insufficiency of funds reasonable excuse – no

FIRST-TIER TRIBUNAL

TAX

                    PROFESSIONAL SEARCH SERVICES LIMITED   Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

TRIBUNAL: Mr Michael S Connell (Tribunal Judge)

                        Ms Beverley Tanner (Member)

Sitting in public at Manchester on 09 July 2010

For the Appellant : Mr John Ashcroft, Company Secretary of the Appellant company

For the Respondent : Mr P Jones, Representing Officer of HMRC

© CROWN COPYRIGHT 2010

DECISION

1.  The Appellant appeals the imposition of default surcharges under s.59 VAT Act (VATA) 1994 in respect of late payment of VAT for the periods ending March 2009, June 2009 and December 2009.  The surcharges were assessed respectively at 5%, 10% and 15% for late VAT paid for those periods, amounting respectively to £nil, £464.63 and £1,095.83.

2.  S.59(1)VATA 1994 states that, if by the last day on which the taxable person is required in accordance with the regulations under the Act to furnish a return for a prescribed accounting period HMRC have not received a VAT return or have received a return but have not received the VAT payable as shown on the return, then the taxpayer should be regarded as being in default in respect of that period.

3.  Mr Ashcroft on behalf of the Appellant company did not dispute that both the return and the related VAT were received late by HMRC.  He also agreed that there had been a previous default for the period ending 30 June 2008 the sum of £5,000.00 outstanding VAT due and payable by 30 July 2009 having not been paid until 10 September 2008.  HMRC had accordingly served on the Appellant company a surcharge liability notice specifying as a surcharge period for the purposes of s.59 a period ending on the first anniversary of the relevant accounting period and beginning on the date of the notice.  The default was a first default and accordingly no surcharge was payable.  There was a second default for the period ending 31 December 2008 the sum of £3,341.07 VAT due on 31 January 2009 not having been paid until 23 February 2009.  The applicable surcharge was 2% pursuant to s.59(5) but, because the surcharge amount was below the concession level, no surcharge was imposed.

4.  Under s.59(7) VATA, if a taxpayer who would otherwise be liable to a surcharge satisfies the Tribunal, in the case of a default which is material to a surcharge, that inter alia there is a reasonable excuse for the return of VAT not having been so paid, he shall not be liable to the surcharge.

5.  Mr Ashcroft gave evidence to the Tribunal in support of his contention that the company had a reasonable excuse why the VAT had not been received by HMRC on time.

6.  Mr Ashcroft explained to the Tribunal that, whilst he did not dispute that payment had been late and that in retrospect the company should have contacted HMRC prior to the VAT falling due in order to come to a deferral agreement, the company had suffered an insufficiency of funds which prevented payment having been made on time and also the surcharge penalty of 15% was unfair given that in both the defaults for the periods to 30 June 2009 and to 31 December 2009 there had only been short delays in payment.  Mr Ashcroft explained various reasons why the company had suffered cash-flow pressures, principally involving a doubling of disbursements, an unexpected bad debt of nearly £10,000.00 and tightening of credit terms by suppliers.  Mr Ashcroft also said that he had not received the surcharge liability extension notice which had been issued to his company on 15 May 2009 and 14 August 2009, even though these been addressed to the company’s principal place of business and not returned by the Post Office as undelivered.

7.  S.71(1) VATA 1994 specifically states that, for the purpose of the provisions in s.59, an insufficiency of funds to pay any VAT due is not a reasonable excuse.  On behalf of HMRC, Mr Jones said that had there been a request for a deferral arrangement it would have been given due consideration but there was no record of such a request having been received.  Mr Ashcroft conceded that his telephone call to HMRC was, as he described it, an informal call which was not followed up in writing.  Mr Ashcroft conceded that he had also made a conscious decision on behalf of the company not to pay the VAT because of the cash-flow difficulties and that he was aware of the  potential consequences of late payment.

8.  Having considered the facts and circumstances relating to the imposition of the VAT surcharges, the Tribunal concluded that they had been correctly levied and the appeal was dismissed.

9.  This Decision Notice contains full reasons and findings of facts.  A person seeking permission to appeal this decision must make a written application to the Tribunal for permission to appeal, which must be sent or delivered to the Tribunal so that it is received no later than 56 days after the Tribunal sends this Decision Notice to the party making the application.  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.

      MICHAEL S CONNELL

TRIBUNAL JUDGE

RELEASE DATE:  10 August 2010