[2011] UKFTT 781 (TC)
TC01615
Appeal number: TC/2011/02784
VAT
default surcharge – late payment of tax – main reason for late payment was
insufficiency of funds – whether reasonable excuse – no – appeal disallowed
FIRST-TIER TRIBUNAL
TAX
MILLSIDE
LIMITED Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL: MICHAEL S CONNELL (TRIBUNAL JUDGE)
Sitting in public at 11 Albion Street Leeds on 4 August 2011
Mr M Flesher, Director of the
Appellant Company, for the Appellant
Mrs N Newham, Senior Officer
of HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal by the Appellant, Millside Limited, against the imposition of a
VAT default surcharge of £3,079.17 in respect of the period to 30 September
2010.
2. The
Appellant’s VAT fell due for payment on 31 October 2010 but was paid on 30
November 2010. The amount due was £20,527.83. The Appellant had previously
defaulted in periods 09/09, 12/09, 03/10 and 06/10. As this was the fifth
default a surcharge amounting to 15% of the tax due was imposed on 19 November
2010.
3. Mr
Flesher, director of the Appellant company, explained that the company is a
small company trading in the supply of industrial pipework with only five
employees and run by two directors. The company has an accounts manager who
works three days a week and a general office typist who works two days a week.
Trading conditions are extremely difficult and cash flow is always a problem.
They have a number of core customers who often pay invoices late, although they
have never defaulted.
4. Mr
Flesher put forward three grounds of appeal -
(i) at
the time of the VAT default his accounts manager was on sick leave and the
directors were not therefore aware of the situation;
(ii)
the company was awaiting payments from various large companies who were
currently taking longer than the standard thirty day payment period. The
company had however already paid HMRC VAT on these invoices and this had
created serious cash flow problems;
(iii)
the directors of the company expected that interest would be payable on
late VAT payments, but did not realise that there would be a VAT default
surcharge.
HMRC’s
contentions
5. Mrs
Newham on behalf of HMRC said that whilst HMRC sympathised with the Appellant’s
position, none of the grounds put forward constituted a reasonable excuse.
Insufficiency of funds is specifically excluded under s 71(1)(a) VATA 1994 as
being a reasonable excuse for the late payment of VAT and insufficiency of
funds can only be considered when a tax-payer is able to demonstrate that the
circumstances that led to the loss of income and subsequent default were
unforeseen and entirely outside their influence and control. Mrs Newham added
that the directors of the company must have been aware that a VAT default
surcharge would have been payable in respect of late payment of VAT because the
company had previously defaulted in four separate periods when surcharge
liability notices were issued fully explaining the surcharge regime and the
rate of surcharge that would be applied should the company default within the
surcharge liability period.
Conclusion
6. As
evidenced from the consistently late VAT payments, the directors of the company
had not exercised reasonable diligence and attention to the need to make
payments on time. Although it was clear that there were significant constraints
on the company’s cash flow due to late payment by customers it was nonetheless
for the Appellant to arrange its business affairs in such a way that VAT was
paid on time. The Tribunal sympathised with the Appellant, particularly given
the difficult trading conditions described by Mr Flesher, but such problems as
HMRC say are no more than the normal hazards of trade and do not warrant
exceptional discretion. The company’s directors made no contact with HMRC
regarding the likelihood that it would be unable to pay its VAT on time and
appear to have been unaware that ‘time to pay’ arrangements might have been
available.
7. In
the circumstances the Appellant’s grounds of appeal do not show a reasonable
excuse for the late VAT payment. The appeal is accordingly dismissed and the
VAT default surcharge confirmed.
8. 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.
MICHAEL S CONNELL
TRIBUNAL JUDGE
RELEASE DATE: 2 December 2011
