First-tier Tribunal (Tax)

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URL: http://www.bailii.org/uk/cases/UKFTT/TC/2011/TC01266.html
Cite as: [2011] UKFTT 413 (TC)

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Impossible TV Ltd v Revenue & Customs [2011] UKFTT 413 (TC) (24 June 2011)
VAT - PENALTIES
Default surcharge

[2011] UKFTT 413 (TC)

TC01266

Appeal number TC/2010/4390

VAT –default surcharge -whether surcharge notice served on taxpayer -section 98 VATA –whether reasonable excuse -whether surcharge proportionate

FIRST-TIER TRIBUNAL

TAX

IMPOSSIBLE TV LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: CHARLES HELLIER

HARVEY ADAMS

Sitting in public at Holborn Bars, London on 31 March 2011

The Appellant was not represented

Steve Braeger for the Respondents

DECISION

The Absence of the Appellant

1. The Appellant was not represented when the hearing started. The Appellant’s representatives, Calder & Co had written to the tribunal on 28 February 2011 acknowledging receipt of the notice of the hearing and indicating (on the understanding that their letters to HMRC and the Tribunal administration would be placed before the tribunal hearing the appeal) that the Appellant would not be represented at the hearing,.

2. We were satisfied that in these circumstances the Appellant had received notice of the hearing and that it was just to proceed in the absence of a representative for the Appellant.

Background

3. The Appellant appeals against a default surcharge of £3,044.05 imposed at the rate of 5% in respect of the period ending 31 December 2009 (the 12/09 period).

4. The Appellant did not dispute that (i) it had been late in paying the VAT due for the 09/08 and 03/09 periods (ii) that the VAT return for 09/09 had been received late, and (iii) it had paid the VAT due for the 12/09 period, the period of the appeal, late.

The relevant law

5. Section 59 VATA 1994 provides for liability to default surcharges if a taxpayer is late in paying the VAT for a period or submits his VAT return late. A default surcharge may be assessed under that section only if such a default occurs in relation to a VAT period within a “surcharge period”. If a taxpayer defaults HMRC may serve a “surcharge liability notice” on him. That notice will creat (and specify) the surcharge period, which commences when HMRC serves the surcharge liability notice on the taxpayer, and ends 12 months after the end of the period of default. If a taxpayer defaults within the surcharge then HMRC may serve another notice on him (a surcharge liability extension notice) extending the surcharge period to 12 months after the end of the period of the subsequent default.

6. If once a surcharge period has been created or extended, a taxpayer defaults in respect of a period ending within the surcharge period then subsection (5) imposes a liability to a default surcharge of 2%, 5%, 10%, or15%, of the outstanding VAT of the period depending on whether the default is the first, second, third, or fourth or subsequent default in the surcharge period (although defaults relating to late delivery of a VAT return do not cause the rate of surcharge to increase).

7. Subsection (7) provides (a) that if a payment or a VAT return is despatched at such a time and in such a manner that it would be reasonable to expect that it would be received in time, there is no default, and (b) that if there is a reasonable excuse for a default it is effectively to be ignored.

8. Section 98 VATA provides that any “notice…to be served on ..any person for the purposes of this Act may be served…by sending it by post in a letter addressed to that person or his representative at the last or usual residence or place of business of that person or representative.”

9. In Enersys Holding UK Limited 2010 UKFTT 20(TC) the tribunal found that a default surcharge levied under section 59 should be set aside because the surcharge was disproportionate. We shall return to this issue later.

The Facts

10. We drew the following facts from the documentary evidence before us.

11. The Appellant’s business address was initially 11 Marlborough Place. In March 2008 it moved to Frederick Terrace. Late in 2008 or in the first part of 2009 it opened additional offices at 3 Market Mews.

12. VAT returns for the periods ending on and after March 2008 (after the move to Frederick Terrace) appear to have been sent to Marlborough Place. Returns submitted by the Appellant for the periods from June 2008 to December 2009 were, with the exception of that for 12/08, prepared and signed by Calder & Co using a copy of the return for 06/07 with the address amended to Frederick Terrace (but without amendment of the post code) and the relevant period appropriately amended. The 12/08 return however was signed by Peter Scott of the Appellant and was an unamended return bearing the Marlborough Place address.

13. Calder & Co say in their letter of 28 May 2010 that the change to Frederick Terrace in March 2008 was notified to the VAT office. In his submissions Mr Braeger says that “there is no record, other then the manuscript amendments to the [VAT] returns submitted, of the Appellant having notified a change of address prior to July 2009.” We make no finding on this issue.

14. Mr Braeger told us that in December 2008 post sent to Marlborough Place had been returned to HMRC. It appeared that HMRC had been told of the Frederick Terrace address for on 7 May 2009 they wrote to the Appellant at that address asking for formal revised details of its place of business. After some delay the Appellant replied in July 2009 giving its place of business as Market Mews.

15. On 14 November 2008 HMRC, following the late receipt of payment for 09/09, sent a surcharge notice addressed to the Appellant at Marlborough Place. The notice specified a surcharge period which lasted to 30 September 2009

16. On 15 May 2009, following the late receipt of Vat for the 03/09 period, a Surcharge Liability Extension Notice (“SLEN”) was sent to the Appellant addressed to it at Marlborough Place. This notice made clear that if a previous notice had not been served it took effect as an initial surcharge notice. It extended the surcharge period so that it finished on 31 March 2010.

17. The Appellant paid the VAT for 09/09 by three electronic payments made on the same day and on time. The VAT return for this period was dated 23 October 2009 and was received by HMRC on 17 November 2009

18. On 13 November 2009, following the late receipt of the VAT return for 09/09, HMRC sent a SLEN to Market Mews. It extended the surcharge period so that it ended on 30 September 2010. It also made clear that if a period had not been created one was to be created by service of the notice.

19. The VAT due for 12/09 was paid electronically in four instalments, one on 5 February, and three on 12 February.

The Appellant’s arguments

20. In their letters to the tribunal and HMRC Calder & Co make the following points:

(1) The delayed 12/09 payments arose as a result of the Appellant having online banking problems when he came to arrange payment. The only time the Appellant made large payments was when it paid VAT. There were problems over the maximum amounts which could be sent by electronic banking. It would be unfair to impose a surcharge when its difficulties arose only in this connection.

(2) The 09/09 payment were made on time and the 09/09 VAT return “was sent on 23 October 2009 and hence, in the normal course, should have been received prior to the due date”. They suggest that in the intervening period “perhaps the delay was also partly caused by postal strikes at the time”.

(3) The Appellant did not receive two surcharge liability notices (of 14 November 2008 and 15 May 2009) which created and extended the surcharge liability period and warned of the possible liability for surcharge if there was a further default. They had not been received because they were addressed to premises from which the Appellant had moved (VAT returns for completion by the Appellant had likewise been sent by HMRC to a previous address).

(4) Given the lack of notification and the banking difficulties the Appellant had a reasonable excuse for its default in the 12/09 period

(5) If the Appellant did not have a reasonable excuse and the surcharge was due under the plain words of the Act, then the charge in this case was disproportionate: a penalty of £3,044.55 for between two and four days delay was plainly unfair and should be set aside.

The Respondents’ arguments

21. Mr Braeger made comprehensive, detailed and helpful submissions. He said:

(1) Given that the 12/08 return, sent by HMRC to MP, was completed and submitted on its original form by Mr Scott on behalf of the Appellant, it was reasonable to suppose that it must have been forwarded to the Appellant’s new address. It was thus also reasonable to suppose that the surcharge notice and SLEN of 14 November 2008 and 15 May 2009 had been forwarded to the Appellant at Frederick Terrace, and thus had been received by the Appellant.

(2) That conclusion was bolstered by the fact that the 09/09 SLEN of 13 November 2009 had been addressed to Market Mews and must have been received by it. That notice indicated that a previous surcharge period was being extended. The Appellant made no fuss at this time, that suggested that they knew that a surcharge period had been created and that the earlier notices had been received.

(3) In any event the Appellant must have known that in relation to the 12/09 period it was potentially liable to a surcharge. It could not claim ignorance.

(4) The Appellant had used electronic means to make payment before the payment it attempted to make for 12/09. It must have been aware that there were payment limits.

(5) In the circumstances the surcharge was not plainly unfair.

Discussion

(a) Service of Notices

22. A surcharge may be levied only if a surcharge period has been created. It can be created only if HMRC serve notice on the taxpayer. If the letters of 14 November 2008 and 15 May 2009 were not served on the taxpayer then the surcharge period could have come into existence only by virtue of the notice which was served on the Appellant on 13 November 2009. Were that the case the surcharge liability could be only at 2% because the default for 12/09 would be the first default in the period created by that notice.

23. We start by considering the effect of section 98 VATA. If the address to which these letters were sent was the “last or usual” address of the Appellant, then the notices would be deemed by section 98 to have been validly served.

24. We accept that by 14 November 2008 the Appellant had moved to Frederick Terrace. Marlborough Place was therefore not its “usual address” at that time.

25. If “last “in section 98 means “last known” then since Marlborough Place appears to have been the last place of business known to HMRC until some time in December 2008, the notice of 14 November would have been validly served, but since by 7 May 2009 HMRC knew of the Frederick Terrace address, the Marlborough Place address was not at that time the last known address and section 98 would not deem the notice sent on 15 May to have been validly served.

26. However, section 98 does not say “last known” but “last”. This suggests to us the address at which the person actually had a place of business most recently before the sending of the letter, rather than the place last known to the sender. The last actual place of business at the time of these letters was Frederick Terrace. We therefore conclude that section 98 does not deem the notices to have been validly served.

27. But in our view if by reason of the notices having being despatched by HMRC they were received by the Appellant, then as a matter of construction of section 59 it is right to say that the notices were in fact served on the Appellant.

28. We accept Mr Braeger’s argument that since the 12/08 VAT return must have been received by the Appellant it is likely that other mail addressed to Marlborough Place was forwarded to the Appellant to Frederick Terrace. We accept that this is not certain and that some mail may not have been redirected, but on balance it is likely that business mail would be redirected, and more likely than not that at least the letter of 14 November was received. We agree that some marginal additional support is given by the fact that the Appellant made no fuss about the 09/09 notice.

29. We note that the only evidence we had that the letters had not been received was Calder & Co’s statement to that effect. Had we had evidence from the Appellant that, for example, they kept a post book and religiously entered each day’s post in it, but that it did not register the receipt of the letters, our view would have been very different. But our job is to decide on the basis of the evidence presented to us, and we had no evidence other than Calder & Co’s statement of what had we suppose been told to them, and no way of questioning the person who had told it to them.

30. We therefore conclude that the 14 November 2008 notice created a surcharge period which ended on 30 September 2009.