First-tier Tribunal (Tax)

[2011] UKFTT 22 (TC)

TC00899

Appeal number:  TC/10/07160

VALUE ADDED TAX - Section 3 and Schedule 1 VAT Act 1994 – Failure to register in respect of taxable supplies – co-operation and personal circumstances considered – whether further reduction in penalty is justified – Appeal dismissed.

FIRST-TIER TRIBUNAL

TAX

BRIAN MCADAM PLUMBING AND HEATING Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL JUDGE: W RUTHVEN GEMMELL, WS

Sitting in public at George House, 126 George Street, Edinburgh on Wednesday 15 December 2010

Mr Brian McAdam for the Appellant

Mr Allan Donnachie, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       This is an Appeal by Brian McAdam Plumbing and Heating (McAdam) against the imposition of a penalty of initially £2,423.85, being 50% of unpaid VAT due to non-registration, subsequently reduced by 50% to £1,211. 

Legislation

Value Added Tax 1994

Section 3 -

Taxable persons and registration.

(1) A person is a taxable person for the purposes of this Act while he is, or is required to be, registered under this Act.

(2) Schedules 1 to 3A shall have effect with respect to registration.

(3) Persons registered under any of those Schedules shall be registered in a single register kept by the Commissioners for the purposes of this Act; and, accordingly, references in this Act to being registered under this Act are references to being registered under any of those Schedules.

(4) The Commissioners may by regulations make provision as to the inclusion and correction of information in that register with respect to the Schedule under which any person is registered.

Schedule 1 Registration in Respect of Taxable Supplies

1. - Liability to be registered

(1) Subject to sub-paragraphs (3) to (7) below, a person who makes taxable supplies but is not registered under this Act becomes liable to be registered under this Schedule—

(a) at the end of any month, if the value of his taxable supplies in the period of one year then ending has exceeded £61,000 ; or

(b) at any time, if there are reasonable grounds for believing that the value of his taxable supplies in the period of 30 days then beginning will exceed £61,000.

(2) Where a business carried on by a taxable person is transferred to another person as a going concern and the transferee is not registered under this Act at the time of the transfer, then, subject to sub-paragraphs (3) to (7) below, the transferee becomes liable to be registered under this Schedule at that time if—

(a) the value of his taxable supplies in the period of one year ending at the time of the transfer has exceeded £61,000; or

(b) there are reasonable grounds for believing that the value of his taxable supplies in the period of 30 days beginning at the time of the transfer will exceed £61,000.

(3) A person does not become liable to be registered by virtue of sub-paragraph (1)(a) or (2)(a) above if the Commissioners are satisfied that the value of his taxable supplies in the period of one year beginning at the time at which, apart from this sub-paragraph, he would become liable to be registered will not exceed £59,000.

The Facts

2.       The followings facts were found:-

3.       HMRC met with McAdam on 12 October 2009 which led to McAdam producing books and accounts and relevant papers on 13 November 2009.

4.       At this meeting a VAT 1 form was signed which led to the establishment of 1 February 2007 as the effective date of registration for VAT.

5.       It was then established that the net tax due for the period 1 February 2007 to 8 October 2009 was £16,159. 

6.       HMRC then levied a penalty of 15% of £16,159 resulting in £2,423 and by notice dated 1 February 2010 applied a 25% reduction for McAdam’s co-operation resulting in a revised penalty of £1,817. 

7.       On 8 February 2010, McAdam asked for an independent review but this request was not received until 10 May 2010 at which time it was sent by fax. 

8.       On that date a proposal was made that outstanding VAT would be repaid by £1,000 monthly instalments and HMRC agreed to this on 18 May 2010.

9.       In relation to the outstanding liabilities for tax McAdam was able to obtain approximately £10,000 from one commercial (VAT paying) business for whom he carried out a great deal of work but could not recover VAT from private customers retrospectively. 

10.    On 3 June 2010 McAdam notified HMRC of further very sad personal reasons for the non-registration and on 14 June 2010 a further 25% reduction was made to the penalty which as adjusted equalled £1,211. 

11.    On 24 June 2010 McAdam asked for an independent review. 

12.    On 5 August 2010 HMRC upheld their decision of 14 June 2010 and stated that following the reduction of 25% for co-operation and a further 25% for personal circumstances they could find “no further grounds for any further mitigation of the penalty”.

Submissions

13.    Mr McAdam stated that he met his accountant once a year and/or sent information to his accountant once a year.  He was aware that the basis of assessment for tax had been on a previous year basis and that accordingly the tax treatment of his accounts was often “a year behind”.

14.    Mr McAdam did not use his accountants to prepare accounts on the basis that he was giving him continuous information monthly or frequently. 

15.    McAdam had registered for VAT when the business had started as there was a wish to reclaim VAT on the purchase of a van.  At that time the company was below the VAT threshold. 

16.    Mr McAdam confirmed that he knew that there was a VAT threshold but said he did not know it had ever been exceeded. 

17.    McAdam stated that it was his accountant’s fault that he had not noticed the business had exceeded the threshold.

18.    McAdam said he had done everything to correct the problem as soon as HMRC had drawn it to his attention and that the penalty as adjusted was unfair. 

19.    HMRC stated that there is a requirement for taxpayers to comply with the reporting requirements; that 25% had been discounted for co-operation and a further 25% for personal circumstances from the 15% of unpaid VAT penalty.

20.    HMRC could find no grounds for any further mitigation of the penalty.

Reasons for the Decision

21.    The Tribunal was sympathetic with Mr McAdam’s personal circumstances and cognisant of the co-operation when the failure to register became known.

22.    The Tribunal noted that this had resulted in a 50% reduction in the penalty of 15% of unpaid tax.

23.    The Tribunal considered the contention that McAdam’s accountant was at fault/responsible for not advising McAdam of the breach in the threshold but, based on the evidence and circumstances submitted, felt that the primary duty in knowing whether at the “end of every month the Value Added Tax of supplies in the previous one year” had exceed the VAT threshold rested with McAdam.

24.    In light of this and the reduction already given, the Appeal is dismissed.

Appeal Procedure

25.    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.

W RUTHVEN GEMMELL, WS

TRIBUNAL JUDGE

RELEASE DATE:  20 DECEMBER 2010