First-tier Tribunal (Tax)

[2011] UKFTT 129 (TC)

TC001003

 

 

 

Appeal number: TC/2010/02309

 

 

Value Added Tax – Three-Year Cap – Section 80(4) VATA 1994 – Repayment requested more than three years after the end of the period in which the last assessment was made – Whether capped – Yes – Appeal dismissed

 

 

FIRST-TIER TRIBUNAL

 

TAX

 

H C MOTORS LTD Appellant

 

 

- and -

 

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

 

 

 

TRIBUNAL: DR K KHAN (Judge)

 

Sitting in public in London on 27 January 2011

 

Mr Malcolm High  FCA, Accountant to the company, for the Appellant

 

Mr Jonathan Holl, Advocate in the Solicitor’s Office of HM Revenue and Customs, for the Respondents

 

 

 

© CROWN COPYRIGHT 2011

 

 

DECISION

 

 

Introduction

1. The disputed decision of the Commissioners for HM Revenue and Customs (hereinafter called “the Respondents”) is contained in a letter dated 21 January 2010 which is a decision not to repay an amount of £7,189.91 following the submission of VAT returns in respect of a tax period from 01/04/05 to 30/06/05 (the 06/05 period) and from 01/07/05 to 30/09/05 (the 09/05 period). 

 

Background

 

2. H C Motors Ltd (“the Appellant”) carries on business as a petrol station, garage and village shop from premises at High Cross, Ware, Hertfordshire ST11 1AZ.

 

3. The Appellant was incorporated on 04/06/1959 (Company number 00619577).

 

4. The Appellant was registered for VAT with effect from 01/04/1973 under registration number 213439878.

 

5. The annual sales recorded in the period 2002 to 2009 averaged approximately £1m.  In 2005 and 2006 the sales averaged £950,000.

 

6. The Respondents had recorded that the Appellant was in default within the meaning of section 59 Value Added Tax Act 1994 (“VATA 1994”) in respect of tax periods 06/06, 09/04, 12/04, 03/05, 06/05 and 09/05.

 

7. In each of those periods, in the absence of a return being rendered by the Appellant, the Respondents notify the Appellant of an assessment to VAT issued from the VAT Central Unit (“VCU”) in Southend in the sum of £2,967,  £3,262, £3,858, £4,182, £4,997 and £6,147.

 

8. It should be added that in the periods 06/06 to 12/09 – 16 periods - there were five periods when no returns were submitted.  The HMRC wrote to the Appellant on 6 March 2006 indicating that the Appellant had not been rendering its VAT returns but had been paying “central assessments”. The letter indicated that the central assessments could be for more than the actual liability of the Appellant.

 

9. The Appellant submitted VAT returns for the tax periods 06/05, 09/05, 12/05 and 03/06 which were received on 5/11/09.  All the returns were in respect of tax periods where the Respondents had been notified through central assessments under the provisions of section 73(1) VATA 1994.  All the returns were made in default within the meaning of section 59 VATA 1994.

 

 

 

10. The amount of output tax declared on the 06/05 return was given as £28,581.57. The amount of input tax declared on the 06/05 return was given as £31,844.30. The Appellant sought recovery of £3,262.73 and repayment of amount of the central assessment of £4,997.00.

 

11. The amount of output tax declared on the 09/05 return was given as £32,948.74. The amount of input tax declared on the 09/05 return was given as £28,994.55. The Appellant sought recovery of £2,192.81 being the difference between the amount of the central assessment paid of £6,147.00 and the net liability declared was £3,954.19.

 

12. By a letter dated 29/11/09 the Appellant was advised by the Respondents that under the provision of section 80(4) of VATA 1994, the Respondents were not liable to repay the amounts where the return was rendered more than three years after the end of the prescribed accounting period in which the assessment was made. The Appellant was advised that they could not receive a repayment for VAT considered to have been overpaid.

 

13. The Appellant sought to explain their circumstances and the events leading to their default. They said that their workshop had suffered a fire and was not in business  and their bookkeeper who completed and filed the returns had departed in March 2004. This left the company in some difficulties and meant that a director had to complete the records and accounts of the business and this resulted in deadlines not being met. Further, the company’s accountants were changed in 2006 from a large firm to a sole practitioner and a new bookkeeper was appointed in that year to bring the company accounts and tax affairs (including VAT returns )up-to-date. The Appellant was under the impression that they had six years to get their VAT affairs in order.  They were not aware that they had only three years after which they could not have recovered overpaid VAT.

 

14. An internal HMRC review was done on the 06/01/10 and the decision not to issue repayment was upheld. The review officer notified the Appellant that pursuant to section 80(4) VATA 1994 overpaid VAT would not be repaid. 

 

15. Under section 80(4) VATA 1994, the Commissioners are not liable to repay any amount of VAT overpaid where the return was rendered more than three years after the end of the prescribed accounting period in which the assessment was made.  The payment of an assessment is considered to fall under the terms of that provision. 

 

The Appellant’s contentions

 

16. The Appellant contends that HMRC’s decision is wrong.  They outlined their decision in their letter to HMRC of 14 December 2009.  In that letter the following point was made.

 

“I got into the position of not being able to complete my VAT return on time, because I had a fire in my garage workshop in December 2003, and then in Spring 2004 my bookkeeper left.  The fire in the workshop meant that the workshop was completely out of use, and so I have not been able to use the workshop since that date; therefore I have not receive any income from the workshop, which meant that it was difficult for me to breakeven.  When my bookkeeper left, I thought I could do the work myself i.e. completing the accounting records and the VAT returns.  However, I got into a mess, as basically I am a car mechanic and not a bookkeeper, accountant or administrator.

 

I could not afford to ask my accountant for help to complete the return.  I know now that they were too big a firm for my small company, and as we were suffering to pay their fees already, we were left with no alternative to paying the estimated assessments, which pushed my company into a position of making a loss each year.  I was therefore very nervous that the bank would call in my overdraft.

 

In Autumn 2006 I changed accountants to a sole practitioner, who introduced me to a bookkeeper, and together they have helped me get up to date with my company accounts and my tax affairs.  Having done that, then are now helping me to get up to date with my VAT returns, and you will be able to see from my file that I have made great strides in getting up to date.  However, I was under the illusion that I have six years to get figures to you, and this is the normal commercial situation, that you can claim debts for a six year period.  I was therefore horrified that you are relying on a section that is tucked away in the VAT Act 1994, and I wonder how many people in business know the existence of this section.”

 

Respondents Submissions

 

17. The Appellant failed for many years to comply with their statutory obligations to make returns as required by Regulation 25 VATA 1995  including before the date of the fire in December 2003 and  before the bookkeeper departed in August 2004.

 

18. The Appellant has been in default within the provisions of section 59 VATA 1995 although the Appellant has not been notified of the defaults nor served with a  Surcharge Liability Notice, Surcharge Liability Notice Extensions  or surcharges for its failure to be compliant.

 

19. The Appellant has put forward no “reasonable excuse” for their conduct ,within the meaning of section 59(7) VATA 1994, sufficient to satisfy the Respondents that there was a valid reason for the non-compliance.  It is the responsibility of the directors of the Company, under the provisions of the Company’s Act, to ensure that tax returns are made at the correct time and with the appropriate payment.

 

 

20. The Appellant also failed to submit returns for the periods 06/04, 09/04, 12/04 and 3/05 and remains in default in respect of these periods.

 

21. VAT is a self-assessment tax where there is an expectation that the “reasonable businessman” will acquaint himself of the relevant provisions to ensure that his business is and remains compliant.  The Respondents provide information in printed Public Notices with an online version.  Notice 700, “The VAT Guide” section 21.2 deals with “late, incomplete returns and payments” while section 19.2 deals with “What records must I keep?”  The Appellant should have been familiar with these provisions.

 

22. The Respondents are bound, as are the Appellant, by the provisions of section 80(4) of the VATA 1994 where “the Commissioners shall not be liable or claim under this section – (a) to credit an amount to a person under subsection (1) or (1A) above, or in (b) to repay an amount to a person under subsection (1B), if the claim is made more than four years after the relevant date”. The Appellant has put forward no grounds that would disapply section 80(4) (the time limit was three years and not four years) 

 

(g) the Respondents contend the appeal should be dismissed.

 

Conclusions

 

23, The law in this area is very straight and the Appellant does not have a defence in saying that they did not know the law.  HMRC provides briefings and guidelines on the law together with a very accessible website which would help taxpayers in obtaining helpful and explanatory information.  Further, there are HMRC telephone hotlines available to assist the taxpayer with urgent queries in the preparation and submission of their returns and with any other questions which they may have. The taxpayer, and in this case a company turning over in excess of £1m, should have able professional advisers such as accountants, auditors and bookkeepers ,who would assist in the preparation of VAT returns in a timely manner and in the payment of the requisite VAT due.  They would also provide advice on difficult points.

 

24. It is no excuse for the Appellants to say that they did not have a bookkeeper and returns were not prepared or submitted for several years.  They choose to dismiss the accounting firm who prepared their accounts and returns.  Accounts were prepared for Companies House and for tax purposes and it would have been a simple task to have the VAT returns prepared at the same time.  The Tribunal understands that all businesses may have delays in the preparation of those returns but the expectation is that these delays would not be significant. In the event of delay, HMRC could be provided with estimates of the tax due or arrangements could be made for payments on account. No payment and no returns is not an acceptable way forward.

 

25. The company was formed in 1973 and for over twenty years would have prepared tax returns, paid tax and satisfied various compliance requirements for doing business.  It would not have been new to the company that deadlines for returns had to be met.  Further, HMRC had written to the Appellant in 2006 to explain that they were eligible for a repayment of tax. They were put on notice. It was explained that tax was being collected under central assessment and this could result in an overpayment of tax. However, this warning was not considered and the returns which were due in 2005 were not received until November 2009 some four years late. In the circumstances, the Appellant cannot complain if a repayment of tax was not made due to the three year deadline for repayment being missed.

 

26. The Appellant appointed new auditors in 2007 having dismissed their previous accountants some two years before.  It is understandable that fees for professional advisers could be high but this is no excuse for not having advisers at all especially where the company had to meet its compliance obligations.  In spite of fines for late returns (for example to Companies House) the Appellant did not see fit to act quickly to get their house in order and prepare the necessary returns or to seek a refund of overpaid tax.

 

27. The Appellant says that “he was not informed” by HMRC of the three year limit. It is the obligation of taxpayers to find out for themselves or to ask the appropriate questions of HMRC. The fact that information was not provided by HMRC on the time limit for repayment of VAT due where there was an overpayment, is not an excuse for the taxpayer saying they did not know the law.

 

28. The Tribunal understands there was a fire at the premises.  However, in spite of the fire the turnover and sales in the company did not drop in the relevant periods and it seems that business was carried on as usual.  The Tribunal appreciates that there would be difficulties associated with dealing with the fire at the workshop but by the Appellant’s own admission, the workshop operated on a “negligible” basis and was not a major part of their business.

 

29. Mr Holl for the Respondents said that the Appellant operated a “well-oiled machine” before 2005 and it is difficult to understand why that machine did not continue to function in a good and proper manner. The loss of a bookkeeper does prevent continuity but the appellant should have appointed another bookkeeper to get their returns and tax paid on time.  This is what a reasonable businessman would do in the circumstances.

 

30. The Tribunal understands that in these difficult times businesses need all the help they can get, need to save money and would be grateful for a repayment of overpaid. However the Tribunal can find no good reason for allowing this appeal especially where the time limits for repayment are clearly laid down in law and in the circumstances therefore the appeal would be dismissed.

 

31. 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.

 

 

 

 

DR K KHAN

TRIBUNAL JUDGE

 

RELEASE DATE: 21 February 2011