First-tier Tribunal (Tax)

[2011] UKFTT 327 (TC)

TC01187

Appeal number: TC/2011/00193

VAT – late registration penalty- whether appellant was in default during the period July 2008 to April 2009 – No – Appeal allowed.

FIRST-TIER TRIBUNAL

TAX

McMULLEN HOLDINGS LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: A F Hennessey (Judge)

J D Demack (Judge)

Sitting in public in Belfast on 8 February 2011

Nigel Thompson (Moore Stephens) appeared for the Appellants

John Corbett appeared for H M Revenue & Customs

© CROWN COPYRIGHT 2011

DECISION

Introduction

1.       This is an appeal by McMullen Group Holdings Limited (“McMullen”) against a decision by HMRC to impose a penalty on the company for late registration for the purposes of VAT.

2.       Initially HMRC issued a notice of assessment of a civil penalty to the appellants on 6^th July 2008 in the amount of £4,069, mitigated by 25% from £5,426.47, said mitigation being allowed for co-operation in registering voluntarily. The default period was 1^st July 2008 to 8^th April 2009.  The penalty was revised to £6,581.79 mitigated by 25% to £4,936.34 by a civil penalty amendment issued on 17^th August 2008.

3.       McMullen claims that it did apply for registration on or before the due date and that HMRC failed to deal with that application in a timely manner.

4.       We now set out the case as outlined by McMullen.

5.       McMullen is registered in Northern Ireland – the Company Registration Number is NI 067516 – and its main activity is the provision of management services to a number of associated companies. The company was incorporated on 13^th December 2007 and its registered office is 66 Lurgan Road, Moira, Craigavon, Co Armagh. The company retains Moore Stephens (“MS”), Chartered Accountants, as its agents and they are acting for the company in this appeal.

6.       It is the appellant’s case that MS completed and submitted on 8^th April 2008 to the VAT registration unit at Wolverhampton form VAT 1 together with a covering letter. In the application they indicated that this was a voluntary registration as McMullen intended making taxable supplies in the future. No certificate of registration was issued and MS state that they wrote to the VAT Registration Unit again on 1^st September 2008 indicating that they had not received a reply to their earlier submission. They further state that both before and after that date a number of telephone calls were made to the registration unit requesting an indication as to when the registration would be confirmed. They state that while the majority of those calls were unanswered, on some occasions a VAT officer did take a call and indicated that they would be called back but this did not happen.  On 6^th April 2009 they submitted a second VAT 1 with a covering letter setting out the position as stated above. They indicated in that letter that the company had exceeded the company registration limits on 31^st May 2008 and consequently the company was obliged to register no later than 1^st July 2008. They did request in the covering letter that the registration should take effect from 1^st April 2008.

7.       On 19^th May 2009 HMRC wrote to MS acknowledging the letter and submission of 8^th April 2009 and indicating that the late submission of the VAT registration rendered McMullen liable to a belated notification penalty. This letter set out the relevant legislation and requested details of VAT owed for the relevant period to enable a calculation of the appropriate penalty to be made. In this letter HMRC indicated that they had no record either of the original submission of 8^th April 2008 or the follow-up letter of 1^st September 2008 nor any record of any of the telephone calls that MS stated that they had made during the period 1^st April 2008 to 6^th April 2009 and as a consequence a penalty would be appropriate.

8.       An initial penalty notice was issued on 6^th July 2009 based on an assessment of the VAT due with a 10% mitigation for a voluntary registration. On 28^th July MS wrote to HMRC setting out the net VAT liability arising for the period 1^st July 2008 to 8^th April 2009 which resulted in a re-calculation of the penalty again mitigated by 10%. The revised mitigated penalty of £4,936.34 is the subject of this appeal. In their letter of 28^th July MS reiterated their position in respect of the earlier submission of an application to register and requested a review of HMRC’s decision to raise a penalty. HMRC wrote to MS on 12^th August 2009 rejecting this request and advising that a formal review could be sought or an appeal made to the first tier tribunal. It is this appeal which is now before the tribunal.

9.       The appellants provided the tribunal with a letter from HMRC National Operational Services, Complaints Team issued to MS in respect of their client The Duddy Partnership LLP. This letter dated 3^rd October 2008, was issued by HMRC in response to a complaint made by MS in respect of the late registration of the Duddy Partnership who were also their clients. MS had submitted a VAT1 registration form on behalf of this client and on failing to be advised of a VAT number had filed a formal compliant with the VRU on 3^rd September 2008.  In response to that complaint HMRC made two specific concessions – they apologised for the delay in registering the Duddy partnership and continued “Unfortunately your client’s application has been misfiled and has yet to be found by the Wolverhampton registration team. I am very sorry that you were promised call backs from a number of caseworkers within the registration team and they failed to do so.”

10.    A later paragraph in that letter addressed the telephone issue in greater detail  “I am sorry that you have had problems getting through to the registration unit at Wolverhampton. I can confirm that the telephone lines into the registration team have been limited due to the amount of calls they have been receiving. The high volume of calls experienced is hampering the caseworkers in processing the registration applications, thus delaying the issue of VAT registration numbers. A decision was made by the Senior Officers to restrict the number of lines into the teams to enable them to concentrate on processing the applications.”

11.    HMRC provided the tribunal with a copy of the minutes of the 71^st Joint VAT Consultative Committee (JVCC) meeting held on 15^th October 2008 and drew our attention to the section on service standards at agenda item 2.1. which referred to VAT registration updating. Point 3.2 stated “HMRC is currently recruiting around 80 permanent staff, the majority to be based at Wolverhampton, and is actively monitoring staffing levels to ensure optimum levels are maintained. Point 3.5 noted “JVCC members highlighted a number of cases where the HMRC registration service was demonstrably better than in the past”.

12.    Finally HMRC also supplied the tribunal with a progress sheet which logs the actions taken upon receipt of a VAT registration form. This sheet was initially opened on 14^th April 2009 and relates to the VAT 1 submission of 8^th April 2009.

13.    The tribunal heard evidence from Mervyn Dolan, a tax consultant employed by MS, in respect of the timetable of submissions, letters and telephone calls made in the period from 8^th April 2008 to 6^th April 2009. Copies of the original registration form and letters were included in McMullen’s documentation but MS were unable to produce a log of the telephone calls which they had made during this period and indicated that such a record was not maintained. In cross-examination they estimated that between six and twelve calls had been made but most had gone unanswered.

14.    Mr Corbett for HMRC gave evidence that the Registration Unit at Wolverhampton had no record of receiving either the original VAT 1 form and accompanying letter or the follow-up letter of 1^st September. Both the HMRC officer who issued the amended final assessment and the reviewing officer had also indicated the failure to locate the earlier submissions. Mr Corbett further stated that there was no record of any telephone call having been received from MS in respect of this application for registration. HMRC policy was that all telephone calls received were logged with an indicator to return the call if appropriate. A note of the content of any call was also recorded as illustrated in the progress sheet provided.

15.    The relevant legislation underpinning the issue of a penalty and consequently this appeal is set out in the Value Added Tax Act 1994, Schedule 1 wherein the requirement for a trader to notify their liability to be registered is set out.

16.    A person who makes taxable supplies becomes liable to be registered under this Schedule if:

17.    Failure to register at the proper time renders a person liable to a penalty under the VAT Act 1994, Section 67(1) and HMRC have statutory powers under Section 76 of the VAT Act 1994 to raise a civil penalty. This section further authorises the Commissioners to mitigate a penalty as they see fit.

18.    The tribunal in reaching its decision took particular notice of the HMRC letter to MS in response to the latter’s complaint about the delay in registering the Duddy Partnership for VAT. The tribunal noted that the complaint related to the same time period as in the present case. While the tribunal notes that the Duddy Partnership case does not relate to a late registration it notes the HMRC’s confirmation that it had misplaced and still not retrieved the VAT 1 registration form.

19.    HMRC acknowledged in that letter that its handling of telephone calls had been unsatisfactory and further confirmed that the registration centre had been unable to handle the volume of applications submitted. There was an unequivocal acceptance that its service had been poor.

20.    The tribunal also noted the minute of the JVCC meeting, again contemporaneous, where HMRC confirmed that it was engaged in substantial recruitment, mostly at the registration centre, and that it was reviewing the substance and level of complaints relating to VAT registration. The tribunal noted that HMRC representatives sought feedback on registration problems to help HMRC identify particular problem areas.

21.    Finally the tribunal noted from the in-house internal progress sheet prepared by HMRC and supplied to us its positive assessment of the appellant’s agents.

22.    The tribunal is satisfied that HMRC, by its own admission, was experiencing significant difficulties in the registration unit during the relevant period, accepts that the appellants had filed the VAT 1 registration form timeously, and finds in their favour.  The tribunal allows the appeal.

23.    The appellants sought an order for costs and the tribunal reserved its decision.

24.    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.