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Cite as: [2012] UKFTT 354 (TC)

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Paul Ryan (UK) Ltd v Revenue & Customs [2012] UKFTT 354 (TC) (25 May 2012)
VAT - PENALTIES
Default surcharge

[2012] UKFTT 354 (TC)

TC02040

Appeal number: TC/2011/03829

VAT – default surcharge – reasonable excuse

FIRST-TIER TRIBUNAL

TAX CHAMBER

	PAUL RYAN (UK) LTD	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S	Respondents
	REVENUE & CUSTOMS

TRIBUNAL:	JUDGE CHARLES HELLIER
	NIGEL COLLARD

Sitting in public in Brighton on 10 January 2012

The Appellant was not represented

Colin Strudwick for HM Revenue and Customs

DECISION

Hearing in the absence of the Appellant.

1. No one appeared to represent the appellant at the commencement of the hearing. A telephone call to the appellant’s number elicited the information that Mr. Ryan, the director of the appellant who had signed the notice of appeal, was off sick and that no one there knew anything about the hearing.

2. We were satisfied that the appellant company had had proper notice of the hearing. Taking into consideration the ability for the appellant to apply to set aside our decision if it was just so to do, and the absence of any communication from the appellant in relation to the hearing, we considered it just to continue the hearing in the absence of a representative of the appellant.

3. The appellant is reminded of its right under rule 38 of the tribunal's rules to apply to have this decision set aside. The tribunal will do so if it considers that it is in the interests of justice so to do where the appellant’s representative was not present at the hearing.

The Appeal

4. The appellant appealed against a default surcharge of £1400.32 assessed by HMRC under section 59 VAT Act 1994 in respect of the 01/11 period (the VAT period ending on 31/01/2011), being 15% of the VAT shown on its return for that period of £9335.53.

5. A default surcharge may be assessed only if the taxpayer defaults in a "surcharge period". A surcharge period may be brought into existence only if a taxpayer defaults and HMRC serve a notice creating a surcharge period (see section 59(2) and (4)). Such a period runs for 12 months from the period of the default but may be extended if the taxpayer defaults in respect of a VAT period ending within the surcharge period and HMRC serve an extension notice extending the period to the end of 12 months after the period of that later default. And so on. (See section 59(3) VATA 1994).

6. There was no suggestion in the appellant’s notice of appeal or in the correspondence before us that the appellant disputed that: (1) it had defaulted in respect of the periods 10/08, 04/09, 10/09 and 07/10; (2) that a surcharge notice had been served creating a surcharge period in respect of the first of those defaults; and (3) that extension notices had been served extending that period to July 2011.

7. Thus the alleged default of the appellant for the 01/11 period fell within a surcharge period starting on 31 October 2008 and ending on 31 July 2011: a surcharge could therefore be assessed.

8. The amount of the surcharge is prescribed by section 59(7). It is a percentage of the outstanding VAT for the period of default. That percentage is 2%, 5%, 10% or 15% according to whether the default is the first, second, third or fourth or subsequent default in the payment of VAT in the (extended) surcharge period. In this case the 01/11 default would be the fourth default, and the rate of surcharge would be 15%.

9. Section 59(7) contains no provision permitting a reduction in the percentage charged or any mitigation of the charge. Where, however, there is a reasonable excuse for the default the default may be ignored and no surcharge arises (see section 59(7).

10. A "default" is a failure to deliver a VAT return on time or a failure to pay the VAT shown on the VAT return on time.

11. It was clear that the VAT shown as due on the 01/11 return was £9333.53. The appellant’s notice of appeal and its correspondence did not suggest that this VAT was not paid late. We therefore find that, unless the appellant had a reasonable excuse for the late payment, a surcharge of 15% x £9333.53 = £1400.32 was properly assessed for the period.

Reasonable excuse

12. Section 71(1) of VAT Act 1994 provides:

"For the purposes 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."

13. However it is accepted law that the reason for an insufficiency of funds may provide a reasonable excuse for a default even if the insufficiency on its own cannot.

14. The VAT for the 01/11 period was due on 7 March 2011 if paid electronically. Payment was in fact made on 30 March 2011 by BACS. It was thus 23 days late.

15. In its notice of appeal the appellant explained that its main area of activity was doing the work for insurance claims. This was seasonal work which came in surges. When a surge came the appellant had to pay out for the costs of extra staff to do the work and then had to wait some time before the insurance companies made payment. Thus a surge in work produced a deficit in cash. In the winter of 2010/11 the company was particularly busy and ran very close to its overdraft limit in the early months of 2011.

16. This account of the appellant’s position is supported by its VAT returns which show net VAT due for the periods from October 2008 to April 2011 of between £5,000 and £20,000, and periods of drought and surge. Thus in recent periods: