First-tier Tribunal (Tax)

[2011] UKFTT 386 (TC)

TC01241

Appeal number: TC/2010/1516

VAT - default surcharge – appeal dismissed

FIRST-TIER TRIBUNAL

TAX CHAMBER

GRAHAM ROTH T/A PHILLIPS ROTH & COMPANY Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL:  CHARLES HELLIER

LESLEY STALKER

Sitting in public at Holborn Bars London on 24 March 2010

The Appellant was neither present nor represented

Christopher Shea, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

The absence of the Appellant

1. The Tribunal was satisfied that the Appellant had had proper notice of the hearing.

2. When the Appellant did not appear Ms Stalker rang the Appellant at about 10.00am. at his office.  Mr Roth told her that, although he had not notified the Tribunal, he could not attend the hearing as he had contacted a stomach bug the previous night, and that he had a doctor’s certificate.  The Appellant later sent a copy of the certificate to the Tribunal.  The certificate, dated 28 March (and thus obtained before he went to work) certified that the Appellant had gastroenteritis.

3. The first hearing for this appeal had not been attended by Mr Roth.  The Tribunal on that occasion proceeded in his absence and dismissed his appeal.  That decision of that Tribunal was, on Mr Roth’s application, later set aside.  The next scheduled date for the hearing was postponed at Mr Roth’s request, and the one after that again postponed at his request – on less than 14 days notice.  Mr Roth had given no notice to this Tribunal of his inability to attend the hearing on 28 March until he was telephoned by Ms Stalker. 

4. Mr Roth was appealing against three default surcharges: for 08/07, 02/08, and 12/09.  In each case the VAT return had been signed by him on 6 October 2009 – well after the date on which the returns were required to be submitted.  In each case they had been received by HMRC after the date on which they were signed.  The Appellant was thus apparently in default in respect of each of these periods by reason of the late submission of his return.

5. Neither Mr Roth’s grounds of appeal as evident from the letters in which he notified his appeal to the tribunal, nor any of the correspondence he had had with HMRC suggested any reason for the late submission of these returns.  The Tribunal, even if it accepted all of Mr Roth’s contentions could not have found that there was any reasonable excuse for any of these defaults.

6. The Appellant’s letters of appeal indicated arguments which Mr Roth might advance in relation to his failure to pay on time the VAT shown on these returns.  Those arguments had no relevance to the question as to whether he had defaulted in failing to deliver his return on time. None of the other arguments advanced by Mr Roth had any relevance to his liability to the surcharges under the Vat Act 1994.

7. We concluded that even if Mr Roth had attended the hearing, his appeal would have been hopeless.

8. For that reason, and because of the repeated postponements of the hearing, we concluded that it was in the interests of justice to hear the appeal in the absence of the Appellant.

Legislation

9. Section 59 VAT Act 1994 sets out a regime for the imposition of default surcharges, colloquially penalties, chargeable if a person fails to comply with his obligations to deliver a VAT return on time or to make payment of the VAT shown as due on such a return on time.  Such a failure is termed a default.  Subsections (7) and (8) provide that a default which would otherwise give rise to a surcharge may be ignored if, inter alia, the taxpayer has a reasonable excuse for it.

10. Subsections (2) and (3) of that section provide for the creation of a surcharge period. If a surcharge period has been created and a person defaults for a VAT period within that surcharge period, he becomes liable (via subsection (4) ) to a surcharge in respect of the default. The surcharge is at the rate of 2%. 5%. 10% or 15% of the outstanding VAT for the period according as the default is the first, second, third, or fourth or subsequent default in the surcharge period in respect of which he had outstanding VAT.

11.  A surcharge period is created by the service of a surcharge liability notice. Such a notice may be served only if a taxpayer is in default in respect of a VAY period, and will specify a surcharge period commencing on the date of the notice and ending 12 months after the VAT period in relation to which the taxpayer was in default.  On a subsequent default in the surcharge period so created an extension notice may be served which has the effect of extending the surcharge period to  end 12 months after the period of the subsequent default. And so on.

Discussion

12. Mr Roth was no stranger to the default surcharge regime.  In the period from 1992 to 2007 he had incurred more than 50 surcharges ranging from a £30 to thousands of pounds.  It appeared that he had been within an extended surcharge period and incurring surcharges at the 15% level since 1994.

(i) The 08/07 Surcharge

13. No suggestion was made that a surcharge period was not in existence for the period of the 08/07 default or that a surcharge liability extension notice had not been served which covered that period.

14. We find that the 08/07 return was signed on 6 October 2009 and received by HMRC on 9 October 2009 and that payment in respect of that return was received by HMRC by instalments between 8 November 2007 and 12 February 2010.  Mr Roth therefore both delivered his return and made payment later than the prescribed date.  Unless Mr Roth had  reasonable excuses for his failures he must therefore be regarded as being in default in respect of this period.

15. We deal below with Mr Roth’s submissions.  We there conclude that they disclose no reasonable excuse. We thus find that Mr Roth was in default for 08/07 both in respect of the delivery of his return and in respect of payment.

16. As a result we dismiss his appeal against the 08/07 surcharge and find that the surcharge liability extension notice served in respect of this period on 12 October  was validly served and extended the then existing surcharge period to 31 August 2008, so that a default in relation to the 02/08 period could potentially fall within it.

(ii) The 02/08 surcharge

17. We find that the 02/08 return was signed on 6 October 2009 and received by HMRC on 9 October 2009.  The VAT due in respect of the period had, at the date of the hearing, not been fully accounted for to HMRC, but payments of some of the VAT had been received on 9 May 2008 and 12 February 2010.  Mr Roth was thus late in delivering his return and in paying his VAT.  He is thus to be treated as in default in respect of this period unless he has a reasonable excuse for his failures.

18. As we find below, Mr Roth’s submissions do not disclose any reasonable excuse for these failures.  As a result he was in default both in respect of the delivery of his return and in respect of payment.

19. We therefore dismiss the appeal in relation to the 02/08 default.  We also find that as a consequence the surcharge liability extension notice served on 11 April 2008 was validly served and extended the surcharge period to 28 February 2009 with the result that the surcharge period covered the 02/09 period.

(iii) The 02/09 Surcharge

20. We find that the 02/09 return was signed by Mr Roth on 6 October 2009 and received by HMRC on 9 October 2009.  The VAT due in respect of the period was unpaid at the date of the hearing.  Mr Roth was therefore late both in respect of the delivery of his return and in respect of his payment for this period.  As a result he is to be regarded as being in default in relation to this period unless he has a reasonable excuse for his failures.  As we find below, none of Mr Roth’s arguments disclose a reasonable excuse.  He was therefore in default.

21. We dismiss the appeal against the surcharge for 02/09.

Reasonable excuse

22. The Tribunal has power to allow an appeal against a surcharge if it is shown that the taxpayer had a reasonable excuse for his default or exceptionally where the surcharge is wholly unfairly disproportionate.  The surcharges under appeal were not in our view disproportionate in the circumstances.  Mr Roth can succeed only if he had one or more reasonable excuses for his failures.

23. In the letters in which Mr Roth makes his appeal and in his correspondence with HMRC Mr Roth offers only one argument that he should be excused the surcharge.  He says that he is a shareholder in Goldtique Vista and one of that company’s tenants was Riverside Flexibles.  Goldtique extended credit to Riverside when it was in financial difficulties, allowing it to owe the rent it should have paid because Goldtique thought there was a realistic chance of Riverside being able to trade out of its difficulties.  He says that the Crown (including HMRC) forced Riverside into administration.  This action was he says ridiculous and resulted in the effective loss of £500,000 of tax to the Crown and £150,000 of rent due to Goldtique.  Mr Roth is incensed by the irresponsible action of HMRC.  He says that in these circumstances asking him to pay a surcharge is grotesque.

24. Although Mr Roth may consider the actions of HMRC to be irresponsible, there is nothing here which points to any sort of excuse, let alone a reasonable one for his failure to deliver his returns for the periods under appeal on time.  Indeed it appears that HMRC’s actions took place after 6 October 2009 when Mr Roth signed the VAT return.  (His letter of 14 December 2009 says that the administration took effect “last week”).

25. Nor can we see any link between Goldtique’s loss due to Riverside’s administration in December 2009 and Mr Roth’s failure to pay in October 2008, April 2008 or April 2009 (taking the last time for payment as 7 days after the end of the month following the return since electronic payment permits an extra 7 days).  Not only did Goldtique’s losses arise after the date for Mr Roth’s payments, but there was no suggestion of an immediate cashflow loss to Mr Roth occasioned by Goldtique’s lost income. The actions of HMRC did not provide any excuse for Mr Roth’s failure to make payment.

26. The statute makes no provision for circumstances which are not connected to the taxpayer’s default to be taken into consideration in determining whether or not a surcharge is payable. The actions of HMRC in relation to Riverside are irrelevant to Mr Roth’s liability. Whatever the rights or wrongs of HMRC’s actions against Riverside an appeal against surcharges levied on Mr Roth in respect of antecedent failures on his behalf is not the forum in which any success can be had by airing them.

Conclusion

27. We dismiss the appeals.

Rights to Appeal

28. 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.

CHARLES HELLIER

TRIBUNAL JUDGE

RELEASE DATE: 10 JUNE 2011