First-tier Tribunal (Tax)

[2011] UKFTT 128 (TC)

TC001002

Appeal number: TC/2010/08680

VAT default surcharge for late payment – whether there was a reasonable excuse – appeal allowed

FIRST-TIER TRIBUNAL

TAX

DENTAL IT LTD Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: J. Blewitt (JUDGE)

Sitting in public at Manchester on 14 February 2011

Mr L. McNaughton, Managing Director, for the Appellant

Mrs N. Newham, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

The Appeal

1.       This is an appeal by Dental IT Ltd, through its Managing Director Mr McNaughton, against default surcharges imposed for the late payments of VAT for the periods 01/10 and 04/10 totalling £1,245.74.

The Legislation

2.        Section 59 of the Value Added Tax Act 1994 (“the 1994 Act”) provides that where a return or tax due is not received within the specified time, the taxable person is deemed to be in default.

3.       Surcharges are then imposed for the second and any subsequent defaults save for where the amount of tax due falls within the “de minimis” rule applied by HMRC.

4.       Section 59 (7) (b) states that if a taxable person satisfies the Tribunal that there was a reasonable excuse for payment not being made on time, then he is not liable to the surcharge.

5.       The Tribunal is bound by the legislative provisions set out at Section 71 of the 1994 Act which make clear that insufficiency of funds and reliance on another cannot amount to a reasonable excuse. Numerous case authorities also follow this principle.

The Issue

6.       The sole issue to be decided in this appeal was whether there was a reasonable excuse for the late payments made.

Facts

7.       There was little dispute as to the facts of this case. The Appellant first defaulted in the 01/09 period, following which a help letter was issued to the Appellant by HMRC. Ms Beesley, a Company Director and the person responsible at that time for submitting the VAT returns and payment,  was aware of the default, possibly by receipt of the help letter although this was a matter upon which I could not be certain, but certainly by information given to her in a telephone call with HMRC on 9 March 2009, a transcript of which was before me and which made clear that payment was late.

8.       A further default occurred in the period 04/09, again relating to a late payment of VAT, following which Ms Beesley received a Surcharge Liability Notice which prompted her to call the HMRC helpline again. It is the content of this telephone call which goes to the crux of this case. Ms Beesley did not attend the hearing, having left the company in early 2010, however I was greatly assisted by the transcript of the telephone conversation between Ms Beesley and HMRC on 23 June 2009 in which she stated the company had received a surcharge liability notice and that she wanted to “check what’s going on”. In summary, Ms Beesley was told that payment had been received on 10 June 2009 and was therefore late; it being due on 7 June 2009. The HMRC representative at the VAT call centre stated that no financial penalty was attached to the late payment and that Ms Beesley had “at the latest until the 7^th” to make payment.

9.       Further defaults occurred in respect of late payments in the periods 07/09 and 10/09 following which Surcharge Liability Notice Extensions were issued, although it remains unknown if they were received. No penalties arose as the tax due fell below the de minimis amount of £400. The payments were 3 and 4 days late respectively.

10.    The penalties subject of this appeal were issued for the periods 01/10 and 04/10.

Evidence

11.    Mr McNaughton stated that he had delegated the tasks of VAT and PAYE to Ms Beesley until she left the company in early 2010. Mr McNaughton presented as a genuine and honest witness and I accepted that he was wholly unaware of the fact that there had been any defaults until he was notified of those against which the appeal is now brought. It was also clear that Mr McNaughton ran the company efficiently and as far as he was aware Ms Beesley, and subsequently Ms Callan, were complying with the deadlines for submitting the company’s returns and VAT payments. However none of these facts could amount to a reasonable excuse. Mr McNaughton submitted that HMRC had failed to make the company aware of the fact that payments took time to clear and as a result they had fell in to default.

12.    Ms Beesley’s role was taken over by Ms Becky Callan who attended the hearing and gave credible evidence to the Tribunal. Ms Callan described how she had received clear and unambiguous instructions from Ms Beesley as to the procedure for submitting returns and payments. Ms Callan was instructed by Ms Beesley that both the return and payment must be made on the 7^th of the relevant month. Ms Callan stated that she had spent time with Ms Beesley prior to taking over the role, during which she had observed that procedure being carried out by Ms Beesley. Ms Callan stated that she found the process straightforward and that she had followed the same procedure without any doubt when she took over.

Decision

13.    If the Appellant had sought to rely on his reliance on either Ms Beesley or Ms Callan as the sole ground of appeal then I would have no hesitation in dismissing this appeal; the case authorities and legislation make clear this would not amount to a reasonable excuse.

14.    I did not accept the Appellant’s submission that HMRC ought to have made the company aware of the fact that payments made by BACS can take 2 or 3 days to clear. Ignorance of the law or banking procedures involved in making payments cannot amount to a reasonable excuse and the onus must rest with the taxpayer to ensure he is aware of, and meets, his obligations under the VAT regime.

15.    I now turn to the telephone call made by Ms Beesley to the HMRC VAT call centre on 23 June 2009. In reviewing the transcript I find as a fact that Ms Beesley was clearly seeking assistance and clarification as to why the Surcharge Liability Notice had been issued and how the company could ensure compliance in the future. Ms Beesley was advised by HMRC that the company had “at the latest until the 7^th” to make payment.

16.    It is clear from the records produced by HMRC that following this advice, all VAT returns submitted by Ms Beesley were received by HMRC on the 7^th of the relevant month. I infer from the very short default periods of payment that the tax due was paid on the same date, although not cleared until after the deadline. This is corroborated by the evidence of Ms Callan, which I accept, that she was told by Ms Beesley that she must submit both the return and payment on the 7^th.

17.    I find as a fact that Ms Beesley had acted as any reasonable business person in seeking advice from the HMRC VAT call centre and that she had acted upon that advice to ensure compliance with the Appellant’s VAT obligations. I bear in mind HMRC’s submissions that information is widely available on the HMRC website, which warns of delays in electronic payments; however I find as a fact that the specific advice given by the HMRC representative by telephone clearly indicated that payment by or on the 7^th of the relevant month would ensure that the deadline was met. Ms Beesley acted upon that advice.

18.    It is unfortunate that matters were no doubt confused by the fact that no penalties were imposed for the two subsequent defaults due to the fact that they fell below the £400 threshold, in all likelihood confirming to Ms Beesley that the company was fulfilling its obligations. I accept the evidence of Ms Callan and Mr McNaughton that the company did not receive any Surcharge Liability Notice Extension forms in respect of these defaults and as a result the Appellant (through Ms Beesley and Ms Callan) continued to follow the advice given by HMRC.

19.    In the particular circumstances of this case I find that the Appellant had, through the periods of default, acted on the misleading advice given by HMRC and that there was a reasonable excuse.

20.    The appeal is allowed.

21.    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.

TRIBUNAL JUDGE

RELEASE DATE: 18 February 2011