First-tier Tribunal (Tax)

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Cite as: [2011] UKFTT 171 (TC)

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Codicote Quarry Ltd v Revenue & Customs [2011] UKFTT 171 (TC) (15 March 2011)
VAT - PENALTIES
Reasonable excuse

[2011] UKFTT 171 (TC)

TC01040

Appeal number TC/2010/09468

VAT – late payment – default surcharge – reasonable excuse – proportionality – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

CODICOTE QUARRY LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: RICHARD J MANUELL

Mrs LESLEY STALKER

Sitting in public at Holborn Bars, 138-142 High Holborn, London EC1N 2NQ on 9 March 2011

Mr Colin Edmonds, company director, for the Appellant

Mrs Lynne Ratnett, Presenting Officer, for the Respondents

DECISION

1. This is the Appellant’s appeal against three VAT penalty surcharge notices issued against it, on 11 December 2009 in the sum of £2,578.14, at the 10% rate, on 11 June 2010 in the sum of £5,996.99 at the 15% rate and on 17 September 2010 in the sum of £1,241.62, also at the 15% rate, a total of £9,816.75. It was accepted by the Appellant that the VAT due for each of the relevant quarters, i.e., 10/09, 04/10 and 07/10 was paid late.

2. Mr Colin Edmonds ("Mr Edmonds"), one of the directors of the Appellant, gave evidence and was cross-examined. The Tribunal has kept a full note of his evidence.

3. In summary, Mr Edmonds produced no documents and accepted that those in the Respondent’s appeal bundle were accurate. He accepted that the Appellant had entered the 10% surcharge regime as the result of three previous defaults, the third of which had attracted a financial penalty of £907.56 and was not the subject of an appeal. Mr Edmonds said that the company had sent the VAT returns on time but not the payments. No VAT was currently owed and the company had been VAT registered for 40 years. The company was in credit by £8,000.00 for the past quarter with the Respondent and had not yet been refunded. He was dissatisfied with the Respondent’s administration and unhappy that he had been required to deal with 5 different offices. Their whole approach to businesses was totally unfair. There had been cash flow problems for the Appellant.

4. In response to questions by way of clarification from the Tribunal, Mr Edmonds said that a county council (which he named and which was an important customer) had been a persistent slow payer. The Appellant was not on cash accounting for VAT purposes.

5. Cross-examined, Mr Edmonds agreed that the surcharge notices had all been received and that he had been aware of the penalties. The company had tried to rectify the situation by making payments in stages. He was unaware of the November 2008 Business Payment Support Service, although he had been asking for assistance. He had spoken to the Southend HMRC office but could not identify any document.

6. Mrs Ratnett for the Respondents referred to the bundle of documents prepared by the Respondents for the appeal. She submitted that no reasonable excuse had been disclosed by the facts presented. These were the fourth, fifth and sixth defaults. The Appellant was already in the 5% penalty regime from its previous defaults and was aware of the consequences of non compliance, i.e. that the penalty rates would escalate. The penalties were geared to the tax payable and were proportionate. The only reason for non payment which had been advanced was shortage of funds, but that was barred as a reasonable because of Section 71(1)(a) VATA 1994:

71 Construction of sections 59 to 70.E+W+S+N.I.

(1)For the purpose of any provision of sections 59 to 70 which refers to a reasonable excuse for any conduct—

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

No unforeseeable event had been raised as a reason for late payment and the appeal should be dismissed.

7. Mr Edmonds reiterated that all VAT due had been paid. There had been no dishonesty. The Appellant considered that the penalties were disproportionate.

8. The Tribunal found that the undisputed facts failed to disclose any reasonable excuse in law. Mrs Ratnett’s submissions were sound and were adopted. The Appellant was on clear notice of its position and of the consequences of further defaults, which were fully explained in the information given by the Respondents when the earlier surcharge notices were served. There had been no evidence produced to show that there had in fact been cash flow difficulties, let alone that any such difficulty had been an unforeseeable event which had been the immediate cause of the late payment of VAT for any of the three quarters for which the surcharge notices under appeal had been issued. The Appellant’s last annual accounts for the year ended 28 February 2010, prepared by its accountants, indicated that the company had been profitable for that and the preceding accounting year, and held substantial assets. The surcharge penalties in the Tribunal’s view were not disproportionate, because, inter alia, of the strong public interest in the efficient and effective operation of the VAT collection system. The vast majority of VAT registered entities comply with the relevant legislation.

9. 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 MANUELL

RELEASE DATE: 15 MARCH 2011

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