First-tier Tribunal (Tax)

The Appellant’s contentions

The relevant law

In relation to the first prescribed accounting period 2%

In relation to the second such period 5%

In relation to the third such period 10%

In relation to each such period after the third such period 15%

10. In the context of this appeal it is to be noted that section 59(7) VATA provides as follows:

“If a person who apart from this subsection, would be liable to a surcharge under subsection (4) above satisfies the Commissioners or, on appeal, a tribunal that, in the case of a default which is material to the surcharge –

(a) the return or, as the case may be, the VAT shown on the return was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the Commissioners within the appropriate time limit, or

(b) there is a reasonable excuse for the return or VAT not having been so despatched

He shall not be liable to the surcharge and for the purposes of the preceding provisions of this section he shall be treated as not having been in default in respect of the prescribed accounting period in question (and, accordingly, any surcharge liability notice the service of which depended upon that default shall be deemed not to have been served).”

Consideration of the appeal

11.  Contrary to the Appellants’ assertions the Revenue presented a Schedule of Defaults which indicated that in respect of the accounting periods 03/09, 12/09, 03/10 and 06/10 the Appellant was in default of its obligations with respect to the submission of its returns and/or payment of VAT due.

12. Specifically:

For the period 01/01/2009 to 31/03/2009 (03/09) the due date for the return and any tax due was 30/04/2009. The return was received by the Revenue together with the return on 19/05/2009 some 20 days late.

For the period 01/10/2009 to 31/12/2009 (12/09) the due date was 31/01/2010. The return together with the tax due was not received until 01/04/2010 some 2 months late.

For the period 01/01/2010 to 31/03/2010 (03/10) the due date was 30/04/2010.The return was received on time on 30/04/2010 but the tax due was not received until 04/06/2010 some 35 days late.

For the period 01/04/2010 to 30/06/2010 the due date was 31/07/2010. The return was received in time on 23/07/2010 but the payment made through the BACS system was not with the Revenue until 13/08/2010.

13. The Revenue’s systems indicate that in each of the above cases a surcharge document was issued on stated dates. Copies of each of the surcharge liability notices (and surcharge liability extension notices) were exhibited to the Revenue’s appeal bundle. The Appellant did not dispute the fact that the notices had been sent to it nor in relation to any of the defaults did it contend that there was a reasonable excuse for the same other than the fact that the banking of its cheques in those cases where cheque payments were made was not within its control so that any delay due to late presentation of cheques would amount to a reasonable excuse.

14. On behalf of the Revenue Mrs Oliver explained that as an extra statutory concession the Revenue does not immediately impose a penalty on the occasion of a first default. For this reason the 03/09 period default attracted no penalty. A further concession applied in cases where the penalty payable does not exceed £400. This was the case for the second default by the Appellant for the period 12/09 which would have attracted a 2% penalty but as the tax due would have been £338 no penalty was charged. Similarly for the third default the Appellant escaped liability as the penalty, now 5%, was below the concessionary threshold at only £33.75. It was only with the fourth default where the tax due was £6,330.13 and the applicable rate 10% that a penalty of £633.01 became payable.

15. Mr O’Connell appears to have been under the impression that companies with a turnover of less than £150,000 per annum were not to be charged a default penalty or (and this remains unclear to the tribunal) that the rate of penalty should be reduced from 10% to 2%. There is no statutory provision to this effect. In her address to the tribunal Mrs Oliver on behalf of the Revenue said that the Revenue would consider allowing a concessionary default charge of 0% to a company whose turnover was less than £150,000 in its first year of trading where there had been a default in that year. This would not apply to the Appellant as the first of its defaults was not within its first year of trading and in any event the default charge was in fact levied at 0% for the first default in the period 03/09.

16. Mr O’Connell had contended that he had no knowledge of the fact that his company was within the default regime. This is not in the finding of the tribunal credible given the fact that default surcharge notices and extension notices were in each case sent to the company’s address at 114 Wellington Street. Leeds. When the company had first registered for VAT or shortly thereafter a letter had been sent to it on 24 January 2008 under the heading “Helping Business to get it right” drawing attention to further publications and websites available to assist companies in dealing with their tax related obligations. Attached to this was a summary of the most important aspects of the VAT system including a “VAT Reminder of Certain Legal Obligations” which briefly but pertinently included the following statement

“You must send in your VAT return and any payment due to arrive by the due date shown on the return. If you fail to do this you could be liable to a default surcharge”

This letter and its attachments were exhibited at page 36 of the Respondents appeal bundle.

The tribunal’s findings and decision

17. It is apparent to the tribunal from the correspondence passing between Mr O’Connell and the Revenue that the Appellant has not fully understood its obligations with respect to the need to ensure that it both files its returns and pays VAT due by the correct dates as shown on the return forms. The way in which the liability surcharge regime operates appears also not to have been understood by Mr O’Connell.

18. The Appellant has contended that in respect of certain occasions of default where payment was by cheque it cannot be held responsible for the Revenue’s delay in presenting the cheques for payment. To that extent it argues that the earlier defaults should be disregarded so as to reduce the applicable penalty rate to 2%. The tribunal rejects this argument as having no basis in fact. The delays in the first 3 defaults were in each case well in excess of any period which would provide an explanation such as that for which the Appellant contends. That the Revenue would withhold presentation of a cheque for 20 days (period 03.09), 2 months (period 12/09) or 35 days (period 03/10) is in the tribunal’s view unlikely in the extreme. No evidence to support that contention was presented by the Appellant and the tribunal simply rejects it as implausible.

19. It is the tribunal’s finding that the Revenue has dealt fairly with the Appellant effectively allowing the first 3 defaults without imposing a financial penalty. No reasonable excuse has been established by the Appellant for its default in respect of the period 06/10 or any of the preceding periods in which it was in default. Accordingly this appeal is dismissed and the penalty surcharge of £633.01 is confirmed.

20. 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.

CHRISTOPHER HACKING

TRIBUNAL JUDGE

RELEASE DATE:  27 March 2012