Banham Patent Locks Ltd v Revenue & Customs [2012] UKFTT 235 (TC) (04 April 2012)
[2012] UKFTT 235 (TC)
TC01929
Appeal number: TC/2011/06509
VAT – Default
surcharge – Reasonable excuse –Appeal allowed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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BANHAM PATENT
LOCKS LTD
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE CHRISTOPHER STAKER
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MR IAN ABRAMS
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Sitting in public in London on 8 December 2011
Mr Tom Ward and Ms
Beata Rees-Williams of the Appellant
Mr Philip Sheppherd and Ms
Lynne Ratnett for the Respondents
© CROWN COPYRIGHT
2012
DECISION
Introduction
1. This is an appeal against
the imposition of a default surcharges under s.59 of the Value Added Tax Act
1994 (the “Act”) on late payment of VAT for a number of periods between 1 July
2006 and 31 December 2008. The periods in question are conveniently numbered
as default numbers 1-9 in a document entitled “Schedule of defaults” produced
by HMRC for the hearing. These default numbers are used for purposes of
reference below. References below to a default number should be understood as
referring to what is claimed by HMRC to have been a default.
2. At the hearing of the appeal on 8 December 2011, the
representative of HMRC conceded that the Appellant had a reasonable excuse in
respect of a number of the defaults to which the appeal related (periods 1, 2 3
and one of the payments for default 4).
3. In relation to default 6, the Tribunal issued a direction
that the Appellant could file with the Tribunal and serve on HMRC any further
evidence in relation to the date of posting of its VAT return for that period.
The Appellant subsequently filed proof of posting, and in a letter to the
Tribunal dated 4 January 2012, HMRC conceded that the Appellant should not be
liable to a surcharge for that period.
4. What remain for decision are one of the payments for
default 4, and defaults 5 and 7-9.
The relevant legislation
5. Section 59 of the Act states in relevant part as follows:
(1) ... if, by the last day on which a taxable person
is required in accordance with regulations under this Act to furnish a return
for a prescribed accounting period—
...
(b) the Commissioners have received that return but have
not received the amount of VAT shown on the return as payable by him in respect
of that period,
then
that person shall be regarded for the purposes of this section as being in
default in respect of that period.
...
(2) Subject to subsections (9) and (10) below,
subsection (4) below applies in any case where—
(a) a taxable person is in default in respect of a
prescribed accounting period; and
(b) the Commissioners serve notice on the taxable person
(a “surcharge liability notice”) specifying as a surcharge period for the
purposes of this section a period ending on the first anniversary of the last
day of the period referred to in paragraph (a) above and beginning, subject to
subsection (3) below, on the date of the notice.
...
(4) Subject to subsections (7) to (10) below, if a
taxable person on whom a surcharge liability notice has been served—
(a) is in default in respect of a prescribed accounting
period ending within the surcharge period specified in (or extended by) that
notice, and
(b) has outstanding VAT for that prescribed accounting
period,
he
shall be liable to a surcharge equal to whichever is the greater of the following,
namely, the specified percentage of his outstanding VAT for that prescribed
accounting period and £30.
(5) Subject to subsections (7) to (10) below, the
specified percentage referred to in subsection (4) above shall be determined in
relation to a prescribed accounting period by reference to the number of such
periods in respect of which the taxable person is in default during the
surcharge period and for which he has outstanding VAT, so that—
(a) in relation to the first such prescribed accounting
period, the specified percentage is 2 per cent;
(b) in relation to the second such period, the specified
percentage is 5 per cent;
(c) in relation to the third such period, the specified
percentage is 10 per cent;
...
(7) 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).
...
6. Section 71(1) of the Act states in relevant part as
follows:
(1) For the purpose
of any provision of sections 59 to 70 which refers to a reasonable excuse for
any conduct—
(a) an insufficiency
of funds to pay any VAT due is not a reasonable excuse; and
(b) where reliance is placed on any other person to
perform any task, neither the fact of that reliance nor any dilatoriness or
inaccuracy on the part of the person relied upon is a reasonable excuse.
The evidence and submissions of the parties,
and the Tribunal’s findings
Generally
7. The Tribunal had before it a documents bundle, a witness
statement of Mr Ward with attached documents, and the case file. At the
hearing, Mr Ward gave evidence on behalf of the Appellant, and was cross
examined. Submissions were made on behalf of each of the parties.
8. It was common ground that for each quarter, the Appellant
was required to make monthly payments. The first two payments for each quarter
were payments on account, and the third payment was a balancing payments. The
amount of the payments on account to be made each month was determined annually
by HMRC and communicated to the Appellant by letter. Examples of such letters
were in the documents bundle at pages 47 (dated 31 January 2006, relating to
VAT periods 06/2006 to 03/2007) and 64 (dated 29 February 2008, relating to VAT
periods 06/2008 to 03/2009). Such letters are referred to below as the
“payment schedule”. The balancing payment required as the third payment for
each quarter would be determined by the amount of VAT due to be paid for the
quarter as indicated in the Appellant’s VAT return for that quarter.
9. In relation to each of the defaults in dispute which are
considered below, the Appellant’s case is that it had a reasonable excuse for
the late payment of the VAT. The burden of proof in each instance is on the
Appellant to establish a reasonable excuse throughout the period of default.
10. It
is convenient to deal with each of the defaults separately.
Default 4
11. Default
4 relates to the first of the payments on account for VAT period 06/07 (1 April
2007 to 30 June 2007). The amount of the balancing payment was £84,431, due to
be paid by 31 May 2007.
12. Mr
Ward produced evidence of a letter to the Appellant’s bank dated 14 February
2007, giving instructions for 8 balancing payments to be made in the sum of
£84,431. This letter provides for the making of all of the balancing payments
set out in the payments schedule dated 31 January 2007. The instruction to the
bank provided that the first such payment was to be made on 26 May 2007, well
in advance of the 31 May 2007 deadline. The instructions also provided for all
of the other balancing payments to be made well in advance of the deadline.
13. The
Appellant’s case is that the bank simply did not act on this instruction. The
evidence is that the payment due on 31 May 2007 was not made until 26 June
2007. Mr Ward’s evidence was that the Appellant had previously had problems
with its accounts manager at the bank, and had asked for a new accounts
manager. When matters then did not improve, it took its business to another
bank.
14. The
Tribunal takes into account that this default was the first balancing payment
due for that year. The evidence is that each of the subsequent balancing
payments for that year were made on time. This is consistent with the
Appellant taking active steps to resolve the problem.
15. On
all of the evidence and circumstances of this case as a whole, the Tribunal is
satisfied that there is a reasonable excuse for this default. It follows that
the appeal is allowed in relation to this default.
Default 5
16. Default
4 relates to the balancing payment for VAT period 12/07 (1 October 2007 to 31
December 2007). The due date was 31 January 2008. Payment was not made until
7 February 2008.
17. Mr
Ward produced evidence of a letter to the Appellant’s bank dated 30 January
2008, giving instructions for this payment to be made by CHAPS. The letter
indicates that it was sent by fax and by post. Mr Ward said in his evidence
that the instruction should have been acted on the same day. The Appellant’s
case is again that the bank simply did not act on this instruction.
18. The
Appellant had a similar problem in respect of the balancing payment for VAT
period 06/07 (1 April 2007 to 30 June 2007). The Appellant sent a materially
identical instruction to the bank dated 30 July 2007, for the balancing payment
due on 31 July 2007. It was not paid until 1 August 2007. HMRC conceded that
there was a reasonable excuse in relation to this default, admittedly in
circumstances where payment was only a day late and only 10p less than the
amount due.
19. On
all of the evidence and circumstances of this case as a whole, the Tribunal is satisfied
that there is a reasonable excuse for this default also. It follows that the
appeal is allowed in relation to this default.
Defaults 7-9
(a) The
evidence and submissions of the parties
20. Defaults
7-9 related to VAT periods 06/08 (1 April 2008 to 30 June 2008) to 12/08 (1
October 2008 to 31 December 2008).
21. The
Appellant’s case is as follows. The Appellant never received the payment
schedule dated 28 February 2008 (referred to in paragraph 7 above).
Previously, the Appellant had always received a payment schedule on 31 January
of each year. In 2008, the date of the payment schedule was changed to the end
of February. The Appellant’s own calculations indicated that the amount of VAT
that it was required to pay had now fallen below the threshold for the requirement
to make payments on account. In the circumstances, the Appellant concluded
that it was no longer required to make VAT payments on account. Furthermore,
the Appellant had overpaid VAT over the previous two years. Furthermore, on 29
February 2009, HMRC wrote to the Appellant stating that as the Appellant no
longer fulfilled the criteria for inclusion in the payment on accounts regime,
it had been withdrawn from that regime (page 94 of the bundle). The Appellant
never received the default notices for VAT periods 06/08 (1 April 2008 to 30
June 2008) or 09/08 (1 July 2008 to 30 September 2008). It only received the
default notice for period 12/08 (1 October 2008 to 31 December 2008). Indeed,
HMRC have been unable to produce for the hearing a copy of the default notice
in respect of VAT period 06/08 (1 April 2008 to 30 June 2008). Furthermore,
the default notice in respect of the period of 09/08 (1 July 2008 to 30
September 2008) was not issued until 27 November 2008 (page 35 of the bundle).
22. In
cross-examination it was put to Mr Ward that the Appellant never enquired of
HMRC whether it had now fallen out of the payment on account regime, and that a
letter of the Appellant to HMRC dated 17 June 2008 (pages 87-89 of the bundle)
made no reference to the Appellant no longer being subject to payments on
account. Mr Ward said that the Appellant company never had any financial
difficulty in making payments on account on time, and that it simply had no
commercial reasons not to make all payments by the applicable deadline. The
letter dated 17 June 2008 dealt with other matters.
23. On
behalf of HMRC it was submitted that the Appellant was within the payment on
account regime in 2008, that a payment schedule dated 29 February 2008 is in
the documents bundle, that it was addressed to the correct address, and that
there is no reason to consider that it was not received. If it had not been
received, it would be expected that the Appellant would have contacted HMRC to
ascertain the position, since if the Appellant had fallen out of the payment on
account regime, it would be expected that HMRC would also have sent a letter
confirming this. Guidance is available on the HMRC website on the criteria for
determining whether a company falls within the payment on account regime.
(b) The
Tribunal’s findings
24. The
question whether there is a reasonable excuse must be determined on the
circumstances of the case as a whole.
25. The
Tribunal notes that in each of these VAT quarters, the Appellant made payment
in full of the VAT due for that quarter by the deadline for the balancing
payment in respect of that quarter. That is entirely consistent with the
Appellant proceeding on the assumption that it had fallen out of the payment on
account regime.
26. The
Tribunal is satisfied on the evidence, as Mr Ward said in evidence, that the
Appellant never had any financial difficulty in making payments on account on
time, and that it simply had no commercial reasons not to make all payments by
the applicable deadline. That is entirely consistent with the Appellant being
genuinely unaware that it was subject to the payment on account regime.
27. HMRC
has been unable to produce for the hearing a copy of the default notice in
respect of VAT period 06/08 (1 April 2008 to 30 June 2008). Mr Ward gave
evidence that the Appellant never received it. On the evidence as a whole, the
Tribunal is satisfied on a balance of probabilities that it was never sent.
28. Mr
Ward gave evidence that the Appellant also never received the payment schedule
dated 29 February 2008, or the default notice 09/08 (1 July 2008 to 30
September 2008). The Tribunal found Mr Ward to be a credible witness. In view
of the evident difficulty surrounding the default notice in respect of VAT
period 06/08, and having regard to the other matters above, the Tribunal is
persuaded on a balance of probabilities that there was some technical problem
with the issuing of notices to the Appellant at that time, and that the
Appellant did not receive them.
29. Mr
Ward said that in the circumstances, and based on his own calculations, he
considered that the Appellant had fallen out of the payment on account regime.
The Tribunal accepts on the evidence that Mr Ward did not simply assume this to
be the case as a result of not having received a payment schedule for the
year. His evidence, which the Tribunal finds credible, is that he actively
calculated that the Appellant had now fallen below the threshold of the payment
on account regime. A particularly significant aspect of this case is that in
the following year, on 5 May 2009, HMRC did in fact notify the Appellant that
it had now fallen out of the payment on account regime. From this the Tribunal
concludes that, even if Mr Ward was erroneous in his calculation and conclusion
that the company now fell out the regime, it was an understandable and
reasonable conclusion for him to have come to. In the circumstances, the
Tribunal does not consider that he is deprived of a reasonable excuse by his
failure actively to contact HMRC to clarify the position.
30. Mr
Ward accepted that the Appellant received the default notice for period 12/08.
However, this default notice was only issued on 27 November 2008. It may not
have been received by the Appellant before 28 November 2008, which was the
second last of the payments on account to which this appeal relates. It might
be argued that this penalty notice should have put the Appellant on notice that
it was still subject to the payment on account regime, such that the Appellant
must have had notice of this on 31 December 2008, the due date for the last of
the payments on account to which this appeal relates. However, this argument
was not pressed by HMRC as a discrete argument, and Mr Ward therefore did not
have an opportunity to deal with it expressly. The evidence before the
Tribunal does not directly indicate when the 27 November 2008 default notice
was received by the Appellant, or what was the Appellant’s reaction to it. The
Tribunal is prepared to assume that if the Appellant quite reasonably
considered that it was not subject to the default payment regime, a penalty
notice of this nature would not necessarily immediately clarify any
misapprehension. Indeed, the initial reaction to such a default notice might
have been one of confusion. The Tribunal therefore cannot assume that the
Appellant should have known of the requirement to pay a balancing payment by 31
December 2008, by reason alone of this default notice.
31. In
all of the above circumstances, the Tribunal finds that the Appellant had a
reasonable excuse in respect of all of the payments on account in this period,
with only the possible exception of the last payment on account due on 31
December 2008. However, for the reasons given above, the Tribunal finds that
the reasonable excuse extends also to the last payment on account due on 31
December 2008.
32. It
follows that the appeal is allowed in its entirety in relation to defaults 7-9.
Conclusion
33. The appeal is allowed.
34.
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.
DR CHRISTOPHER STAKER
TRIBUNAL JUDGE
RELEASE DATE: 4 April 2012
