First-tier Tribunal (Tax)

[2010] UKFTT 627 (TC)

TC00866

Appeal reference: TC/2010/03013

VALUE ADDED TAX – default surcharge – whether reasonable excuse

FIRST-TIER TRIBUNAL

TAX

                                          EAST INDIA DEVONSHIRE SPORTS                        Appellant

 AND PUBLIC SCHOOLS CLUB LIMITED

- and -

THE COMMISSIONERS FOR

                                      HER MAJESTY’S REVENUE AND CUSTOMS         Respondents

Tribunal:        Fionagh Green (Judge)

                        Duncan Macbride (Member)

Sitting in public in London on 21 May 2010

Mr. Keith Goldacre, assistant secretary, assisted by Mr. Alfonso Gabriel for the Appellant

Mrs. Orimoloye, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.           This is an appeal dated 23 June 2009 against a surcharge amounting to £2,791.66 issued 15 May 2009 for Value Added Tax for the period 1 January 2009 to 31 March 2009 due 30 April 2009 and received 8 May 2009.

2.           The issues

Whether -

(1)  the Appellant could proceed with the appeal out of time as the notice of appeal dated 23 June 2009 was received more than 30 days after the date of the decision appealed

(2)  there is a reasonable excuse for the late payment of Value Added Tax for the period 1 January 2009 to 31 March 2009

The relevant legislation

3.           Section 19 Finance Act 1985 as amended by the Value Added Tax Act 1994 section 59:

“(1) [Subject to subsection (1A) below] If, by the last day on which a taxable person is required in accordance with regulations under this Act to furnish a return for a prescribed accounting period –

(a)   The Commissioners have not received that return, or

(b)  The Commissioners have received that return but have not received the amount of VAT shown on the return as payable by him in respect of that period,

then that person shall be regarded for the purposes of this section as being in default in respect of that period.

[(1A) A person shall not be regarded for the purposes of this section as being in default in respect of any prescribed accounting period if that period is one in respect of which he is required by virtue of any order under section 28 to make any payment on account of VAT.]

(2) Subject to subsections (9) and (10) below, subsection (4) below applies in any case where –

(a) A taxable person is in default in respect of a prescribed accounting period; and

(b) The Commissioners serve notice on the taxable person (a “surcharge liability notice”) specifying as a surcharge period for the purposes of this section a period ending on the first anniversary of the last day of the period referred to in paragraph (a) above and beginning, subject to subsection (3) below, on the date of the notice.

(3) If a surcharge liability notice is served by reason of a default in respect of a prescribed accounting period and that period ends at or before the expiry of an existing surcharge period already notified to the taxable person concerned, the surcharge period specified in that notice shall be expressed as a continuation of the existing surcharge period and, accordingly, for the purposes of this section, that existing period and its extension shall be regarded as a single surcharge period.

(4) Subject to subsections (7) to (10) below, if a taxable person on whom a surcharge liability notice has been served –

(a) is in default in respect of a prescribed accounting period ending within the surcharge period specified in (or extended by) that notice, and

(b) has outstanding VAT for that prescribed accounting period,

he shall be liable to a surcharge equal to whichever is the greater of the following, namely, the specified percentage of his outstanding VAT for that prescribed accounting period and £30.

(5) Subject to subsections (7) to (10) below, the specified percentage referred to in subsection (4) above shall be determined in relation to a prescribed accounting period by reference to the number of such periods in respect of which the taxable person is in default during the surcharge period and for which he has outstanding VAT, so that –

(a) in relation to the first such prescribed accounting period, the specified percentage is 2%;

(b) in relation to the second such period, the specified percentage is 5%;

(c) in relation to the third such period, the specified percentage is 10%;

(d) in relation to each such period after the third, the specified percentage is 15%.

(6) For the purposes of subsections (4) and (5) above a person has outstanding VAT for a prescribed accounting period if some or all of the VAT for which he is liable in respect of that period has not been paid by the last day on which he is required (as mentioned in subsection (1) above) to make a return for that period; and the reference in subsection (4) above to a person’s outstanding VAT for a prescribed accounting period is to so much of the VAT for which he is so liable as he has not been paid by that day.

(7) If a person who, apart from this subsection, would be liable to a surcharge under subsection (4) above satisfies the Commissioners or, on appeal, the tribunal that, in the case of a default which is material to the surcharge –

(a) the return or, as the case may be, the VAT shown on the return was dispatched at such a time and in such a manner that it was reasonable to expect that it would be received by the Commissioners within the appropriate time limit, or

(b) there is a reasonable excuse for the return or VAT not having been so dispatched,

he shall not be liable to the surcharge and for the purposes of the preceding provisions of this section he shall be treated as not having been in default in respect of the prescribed accounting period in question (and, accordingly, any surcharge liability notice service of which depended upon that default shall be deemed not to have been served).

(8) For the purposes of subsection (7) above, a default is material to a surcharge if –

(a) it is the default which, by virtue of subsection (4) above, gives rise to the surcharge; or

(b) it is a default which was taken into account in the service of the surcharge liability notice upon which the surcharge depends and the person concerned has not previously been liable to a surcharge in respect of a prescribed accounting period ending within the surcharge period specified in or extended by that notice.

(9) In any case where –

(a) the conduct by virtue of which a person is in default in respect of a prescribed accounting period is also conduct falling within section 69(1), and

(b) by reason of that conduct, the person concerned is assessed to a penalty under that section,

the default shall be left out of account for the purposes of subsections (2) to (5) above.

(10) If the Commissioners, after consultation with the treasury, so direct, a default in respect of a prescribed accounting period specified in the direction shall be left out of account for the purposes of subsections (2) to (5) above.”

The background and findings of fact

4.           The East India Devonshire Sports and Public Schools Club Limited is a private company limited by guarantee, registered in England with number 206617 and whose registered office is at 16 St James’ Square, London SW1Y 4LH.

5.           The Appellant is in default for the period 1 October 2008 to 31 December 2008 where the due date was 31 January 2009.  The VAT return for the period 1 October 2008 to 31 December 2008 was received by the Respondents on 6 February 2009 and payment of £118,555.91 VAT paid on 6 February 2009.  A surcharge document V160 was issued on 13 February 2009.  The surcharge document issued on 13 February 2009 stated that the Appellant may be liable to a surcharge if the Appellant was in default in respect of a prescribed accounting period ending within the surcharge period, which runs from 13 February and ending 12 months from the end of the latest period in default.  The notice gave information that if there was a default during a surcharge period and there is VAT outstanding for the tax period in default that the Appellant would be liable to surcharge and that for the first payment default during a surcharge period the surcharge would be 2% of the tax unpaid at the due date.  The rate of surcharge would then increase progressively for further payment defaults in a surcharge period.  The notes on the reverse of the default notice advised on how to avoid a default surcharge, including advice that “an agreement with your local HMRC office to defer payment does not prevent you from being surcharged for defaulting”.

6.           On 30 April 2009 Mr. Gabriel, the accounts manager for the Appellant telephoned HMRC and explained that the payment of VAT for the period 1 January 2009 to 31 March 2009 due 30 April 2009 would be a few days late and was informed that this should not a problem.  There was no contact centre enquiry form relating to this phonecall.  The Respondents had a contact centre enquiry form in respect of a call made on 25 February 2009 when Mr. Alfonso Gabriel advised that the Appellant had received a default surcharge and wanted to know why, the second contact centre enquiry form was completed on 21 May 2009 when Mr. Sheikh, an employee of the Appellant, indicated an appeal against the default surcharge the subject of this appeal and, on 22 May 2009, Mr. Gabriel called to inform that he was sending a letter of appeal.

7.           The Appellant and the Respondents agreed that the VAT return for the period 1 January 2009 to 31 March 2009 and the VAT of £139,583.44 were both received by the Respondents on 8 May 2009 eight days after the due date of 30 April 2009.  Payment was made by cheque.  The cheque in the sum of £139,583.44 was posted to the Respondents on Tuesday 5 May 2009.  Monday 4 May 2009 was a bank holiday.  The return and VAT was received by the Respondents on 8 May 2009 and the cheque cleared from the Appellant’s bank account on 12 May 2009.

8.           The committee members are the authorised signatories for cheques for the Appellant which is a gentlemen’s club and due to the sum of £139,583.44 being payable to the Respondents the cheque required three signatures.  Mr. Keith Goldacre is the assistant secretary to the Appellant, has prepared their accounts for the last 25 years and cooperated with the Respondents.  In the last two years his wife became disabled and Mr. Goldacre suffered from depression.  Mr. Goldacre attended The Priory clinic as an outpatient during the summer of 2008 until early spring 2009 and also kidney surgery in January 2009.  Mr. Alfonso Gabriel is the accounts manager for the Appellant who assisted Mr. Goldacre, and other officers were the company secretary who had been appointed three years ago but who did not assist with the accounts and a secretary.

9.           The notes on the reverse of paper VAT returns detail the acceptable methods of making payment of VAT.  The notes state “please allow enough time for payment to reach us by the due date.  We suggest you allow at least three working days for this.  If the due date falls on a weekend or bank holiday please ensure payment is received by the previous bank working day.  Seven extra calendar days are allowed for the return and payment to reach the Respondents if payment is made over the internet using the Bill Pay service.  The notes on the reverse of the paper VAT returns also state that further information on deadlines for filing a return and making payment is available online at www.hmrc.gov.uk by selecting “VAT” followed by “VAT Returns and accounts” and “Deadlines for your VAT Return and payment”.

10.        The notice of appeal was dated 23 June 2009, received 30 March 2010 – more than 30 days after the date of the decision.  Mr. Goldacre posted the appeal dated 23 June 2009 in response to the letter dated 19 June 2009.  The appeal letter was sent again after a telephone call from Mrs. Johnston on behalf of the Respondents, who raised an enquiry regarding non-payment of the default surcharge.

The submissions of the parties

11.        The Appellant contends that:

(a)   the appeal should be allowed to proceed out of time and that the reason for the appeal being out of time was that the original appeal letter had not been received by the Respondents

(b)  the Appellant was at fault for the late delivery of the return and payment of VAT but that the Appellant had a reasonable excuse for the late return and late payment because of previous cooperation, bad health suffered by Mr. Goldacre, pressure of work on Mr. Gabriel who was working long hours and at weekends while Mr Goldacre was at home recovering and that the late delivery had happened during their busiest trading period and at the end of their financial year.  The Appellant is a mutual trading company and any profit is ploughed back into the fabric and structure of the club and that a default surcharge would take funds away from the members.  The late delivery was described as a “one off”.   Mr. Gabriel had sent the cheque in the sum of £139,583.44 on Tuesday 5 May 2009 and that due to the large sum the cheque required three signatures and that one signature took an additional few days to obtain.  Mr. Gabriel had contacted the Respondents to advise them that the return and cheque would be a few days late and understood from the response that this would be acceptable to the Respondents.

12.        The Respondents contend that:-

(a) there is no reasonable excuse for the eight day delay in receiving the return and VAT payment of £139,583.44 as it was known by the Appellant that larger payments required more than one signature on a cheque and that it was considered that the return should have been prepared in sufficient time for the appropriate number of signatures to be obtained in advance of the due date in order to achieve compliance.  Arrangements should have been made by the Appellant to ensure that the appropriate number of signatories were available to sign the payment.

(b) the Appellant had not provided medical evidence in respect of Mr. Goldacre’s illness or the specific dates when he was unavailable for work.

(c) there was no record of the telephone call by Mr. Gabriel to the Respondents on 30 April 2009 to discuss late payment for the period 1 January 2009 to 31 March 2009.

(d) the Appellant had not provided copies of an itemised phone bill detailing the call or any notes of the phonecall or the name of the person spoken to by Mr. Gabriel.

(e) it was the responsibility of the Appellant to ensure the VAT return and full payment of any tax due was received by the Commissioners on or before the due date – 30 April 2009.

(f) the notes on the reverse of the paper VAT return detail the acceptable methods of making payment and states that the Appellant must allow enough time for payment to reach the Respondents by the due date, and suggests that the Appellant allow at least three working days for the payment to be received.

(g) the Appellant is in default in respect of the earlier period 1 October 2008 to 31 December 2008 and that the guidance notes on the surcharge liability notice issued to the Appellant on 13 February 2009 would have made the Appellant aware from the guidance notes on the surcharge liability notice that there were potential financial consequences of a future default within the surcharge period.  The details of the rising scale of surcharge are explained on the reverse of each surcharge liability notice and this would have enabled the Appellant to calculate the potential surcharge in the event of a further default.

(h) from prior returns the amount of tax due for the quarter in question was not exceptional.  There was no indication that the requirement to obtain multiple signatures in order to initiate payment by cheque of this scale was either new or unforeseeable.

(j) staff absences, both planned and unexpected, are a risk common to most businesses and require business planning and contingency arrangements to facilitate effective  business continuity.

Conclusions

13.        The tribunal allowed the appeal to proceed out of time.  There was an appeal dated 23 June 2009 which had been posted by Mr. Goldacre but not received by the Respondents.  Mr. Goldacre had received a telephone call from Mrs. Johnston on behalf of the Respondents and Mr. Goldacre was able to lodge a further appeal notice.

14.        The Appellant had received the bundle of documents and schedule of default from the Respondents on 20 May 2010.  Mr. Goldacre assisted by Mr. Gabriel asked for the appeal to proceed notwithstanding the late service of the bundle and schedule of default.

15.        There was agreement between the parties that the return and payment of the VAT were received eight days late by the Respondents on 8 May 2009.  Payment was made by cheque and not by BACS payment or online payment.  Monday 4 May 2009 was a bank holiday and Mr. Gabriel had sent the return and cheque on Tuesday 5 May 2009 with the cheque clearing from the bank account on 12 May 2009.  The tax for the quarter in question was not exceptional and there was no indication that the requirement to obtain multiple signatures in order to initiate the payment by cheque of the VAT of £139,583.44 was either new or unforeseeable.

16.        It was accepted that Mr. Gabriel had contacted the Respondents to explain that the return and payment would be a few days late even though there was no formal contact centre enquiry form completed.  There was no record or itemised copy of a phonecall and no details of the name of the person to whom Mr. Gabriel had spoken.  It was decided that any response from the Respondents would have been without full information and that the Appellant would have been aware of the detailed information provided on the reverse of the default notice issued to the Appellant on 13 February 2009 which states that “an agreement with your local HMRC office to defer payment does not prevent you from being surcharged for defaulting”.  There were three formal enquiries recorded with the contact centre on 25 February 2009, 21 May 2009 and 22 May 2009 but none in respect of any contact on 30 April 2009.

17.        It is the legal responsibility of the Appellant to insure that the VAT return and full payment of any VAT due are received by the Commissioners on or before the relevant due date of 30 April 2009.  The Appellant should have been aware that they were already in a default period as a result of the late receipt of the return and payment of VAT for the period 1 October 2008 to 31 December 2008 when the return and tax was paid six days late.  The guidance notes on the surcharge liability notice issued on 13 February 2009 made clear the potential financial consequences of future defaults within the surcharge period.  The notes on the reverse of the VAT return itself also made it clear that the return and payment of VAT must reach the Respondents by the due date and suggested that the Appellant allow at least three working days for payment to be received.  The VAT for the period 1 January 2009 to 31 March 2009 was not exceptional.  Multiple signatures for the cheque would have been required for previous payments.  The tribunal accepted that Mr. Goldacre and his wife had suffered considerable ill health even though there was no medical evidence before the tribunal.  Mr. Goldacre had however been ill since late 2008 and the other officers of the Appellant would have been aware that he was not well and unable to work.  In his evidence to the tribunal Mr. Goldacre said that the “last thing on his mind was VAT” and that there had been one slip-up and that the imposition of the default surcharge was “pretty petty”.  However, staff absences are a risk common to most businesses and require business planning and contingency arrangements to facilitate effective business continuity and as Mr. Goldacre had been ill since late 2008 alternative arrangements should have been made.  It was also not one slip-up as the Appellant was already in a default period and should have been most aware of their obligations and that the return and VAT payment had to be made by the due date of 30 April 2009.  The reverse of the VAT paper form, the guidance notes on the surcharge liability notice issued to the Appellant on 13 February 2009 and information available on the internet should have made it clear to the Appellant that their legal responsibility was to ensure that the return and payment of the VAT must be made and received by the Respondents by the due date of 30 April 2010.  It was known by the Appellant that larger payments require more than one signature on a cheque and the return should have been prepared in sufficient time for the appropriate number of signatures to be obtained in advance of the due date in order to achieve compliance. 

18.        Having carefully considered all of the evidence the tribunal decided that the Appellant did not have a reasonable excuse in law for the late return and payment of VAT for the period 1 January 2009 to 31 March 2009.  The rate of surcharge is laid down in law and the law does not grant the tribunal any discretion to mitigate the surcharge, and which was considered to be proportionate in all the circumstances.  The appeal is therefore dismissed.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

FIONAGH GREEN

TRIBUNAL JUDGE
Release Date: 1 December 2010