First-tier Tribunal (Tax)

[2010] UKFTT 637 (TC)

TC00876

Appeal number: TC/2010/07048

VAT - Default Surcharge s 59 VATA - Reasonable Excuse? No, on the facts - Appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                             TEKNIKO LIMITED                            Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS [VAT]         Respondents

                        TRIBUNAL: ADRIAN SHIPWRIGHT (TRIBUNAL JUDGE)                                                               RICHARD THOMAS   (TRIBUNAL MEMBER)                        

Sitting in public at Holborn Bars, 138-142 Holborn, London EC1N 2NQ on 23 November 2010

Geoff Khan, Director for the Appellant

Gloria Orimaloye, Advocate. HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.    The Tribunal decided that the Appeal be dismissed as no reasonable excuse within the statutory limited meaning had been shown.

2.   This is an appeal by Tekniko Limited against the imposition by the Respondents ("HMRC")of a default surcharge for the period 02/09 of £625.88 under section 59 Value Added Tax Act 1994 (“VATA”).  The imposition was upheld on review by HMRC.

3.   There have been other defaults but most of these had been discharged on review and were not the subject of this appeal. There was a default for the period 08/08 which led to there being a surcharge liability period which extended to 08/09. Accordingly, the default in 02/09 was within the surcharge liability period.

4.   It may be that the appeal before us was bought out of time. However, HMRC confirmed to us that they did not wish to take any point on this and so we heard the appeal. We did this as we did not consider that there was any detriment to anyone affected in the circumstances under consideration in this case.

5.   The Appellant told us that as he had set out in his appeal notice "… this situation has arisen due to the complete ineptitude and unprofessionalism of my previous accountant…"

6.   The Appellant carried on business as a recruitment agency in the public sector.

7.   The Appellant was paid on 30 day terms but had to pay the workers weekly which caused cash flow problems. There were no circumstances, however, such as to bring the case within the decision of the Court of Appeal in CCE v Steptoe [1992] STC 757 (see paragraph 11) and we so find. The Appellant’s business was essentially a cash business and we so find.

8.   We were told that the relevant material etc was sent to the then accountants in good time but the then accountants did not submit the returns or make the payments in time.

9.   The Appellant accepted that HMRC had not received what it should have received by the due date for the period under appeal. However, we were told that this was due to the ineptitude of the then accountants and cash flow difficulties.

10.    The review letter of 13 July 2010 said of the period under appeal:

"Period 02/09

The information you have provided cannot be accepted as a "reasonable excuse" within the terms of the law. The reason for this is as follows: –

Unfortunately reliance on third parties to submit the return/payment is not classed as a reasonable excuse, this is specifically stated in the law. It is your responsibility to ensure the return payment is submitted in time to meet the due date."

11.    Section 71 VATA provides:

“(1)     For the purpose of any provision of sections 59 to 70 [under which the surcharged was imposed] which refers to a reasonable excuse for any conduct—

     (a)     an insufficiency of funds to pay any VAT due is not a reasonable excuse; and

     (b)     where reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse…”

The Court of Appeal in Steptoe decided that a reason for an insufficiency of funds could in itself amount to a reasonable excuse in certain circumstances.

12.    We asked the Appellant whether there was anything else that might amount to reasonable excuse or anything else that should be drawn to our attention. We were told there was not.

13.    We find this on the information and evidence before us no reasonable excuse within the limited technical meaning of the phrase for these purposes has been shown by the Appellant, the onus being on the Appellant to do so if the Appellant were to be successful.

14.    Accordingly, we dismiss the appeal.

15.    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.

ADRIAN SHIPWRIGHT

TRIBUNAL JUDGE

RELEASE DATE: 10 DECEMBER 2010