First-tier Tribunal (Tax)

[2013] UKFTT 365 (TC)

TC02765

 

 

 

Appeal number: TC/2012/00057

 

VAT – default surcharge – Section 59 Value Added Tax Act 1994 – mistake - reasonable excuse - proportionality – appeal dismissed

 

FIRST-TIER TRIBUNAL

TAX CHAMBER

 

 

MR JOHN HOBSON t/a

RUBICON DEVELOPMENTS Appellant

 

- and -

 

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE & CUSTOMS Respondents

 

 

 

 

TRIBUNAL: MR G. NOEL BARRETT LLB (Presiding Member)

MR A REDDEN FCA

 

Sitting in public at Phoenix House Rushton Avenue Bradford on 25^th March 2013

 

 

Mr M Faulkes BSc (Hons) MRICS Surveyor, for the Appellant

 

Mrs N Newham of HM Revenue and Customs, for the Respondents

 

 

 

 

 

 

© CROWN COPYRIGHT 2013

DECISION

 

Introduction

 

1.    This is an appeal against a default surcharge of £9,335.45 for late payment of VAT by the due date (7^th September 2011) for the quarter ending 31^st July 2011. The surcharge has been charged at 15% of the VAT outstanding on 30^th September 2011.

 

 

The Law

 

2.    Regulation 40(2) of the Value Added Tax Regulations 1995 states:

 

“Any person required to make a return shall pay the Controller such amount of VAT as  is payable by him in respect of the period to which the return relates not later than the last day on which he is required to make that return”

 

3.    The provisions of Section 59(1) (a) and (b) of the Value Added Tax Act 1994 (VATA) operate such that a person shall be regarded as being in default for that period:

 

“ If, by the last day on which a taxable person is required…….to furnish a return …….the Commissioners have not received that return or……. have received that return but have not received the amount of VAT shown on the return……...”

 

4.    Where a default occurs and HMRC serves a surcharge liability notice (SLN), then if any further defaults are made by the taxable person before the expiry of the first anniversary of the last day of the period referred to in the default surcharge notice, then the taxable person becomes liable to a surcharge being the greater of the specified percentage or £30

 

5.    The specified percentages are set out in Section 59 (5) VATA:

 

“(a) in relation to the first such prescribed period the specified percentage is 2%

(b)   in relation to the second such period the specified percentage is 5%

(c)    in relation to the third such period the specified percentage is 10%

(d)   in relation to such period after the third the specified percentage is 15%”

 

6.    Section 59(7) VATA provides that the taxable person shall not be liable to the surcharge and shall not be treated as having been in default;

 

“If a person…….satisfies …..on appeal a tribunal that in the case of a default which is material to the surcharge….”

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

 

 

7  Section 59(7) VATA allows a trader to appeal to the tribunal, the onus is placed on the trader to satisfy the tribunal that either;

 

 

“ the payment 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 there is a reasonable excuse for the VAT not having been despatched on time.”

 

8 If the trader satisfies the tribunal on either of these grounds then the trader will be treated as not being in default in respect of the accounting period in question.

 

9  Section 71(1) VATA provides that:

 

“(a) an insufficiency of funds to pay any VAT is not a reasonable excuse: and

 

(b)   where reliance is placed on any 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.”

 

 

10 HMRC sends each SLN to the taxable person with notes advising what a default is and the consequences which will flow from further defaults. Those notes also advise the taxable person to contact HMRC’s local Debt Management Unit if they expect to have difficulty paying VAT on time.

 

 

The Evidence and our Findings of Fact

 

 

11   We were able to read the documentary evidence and also heard oral evidence from Mr Faulkes on behalf of the Appellant

 

12 Mrs Newham appearing on behalf of HMRC confirmed that the Appellant had a lengthy history of making VAT defaults and had first entered the default surcharge regime on 16^th June 2006.

 

13   As a result of continuing defaults by the Appellant the surcharge period was extended and the surcharge specified percentage, after more than three defaults, reached and remained at 15%.

 

14 The facts as to the serving of the SLN, the Appellants previous defaults, the due dates, and the subsequent failure by the Appellants professional advisors Carter Towler LLP, Chartered Surveyors to pay the Appellants VAT for the period 31^st July 2011, were not disputed by the Appellant’s representative.

 

 

 

15. We accept Mr Faulkes explanation that as a result of the Appellant’s historical VAT defaults, Carter Towler LLP, as his property portfolio managing agents, agreed to assist the Appellant to ensure prompt future payment of VAT monies. Carter Towler LLP agreed with the Appellant and his Bank that they would make direct transfers to pay VAT due to HMRC from their office, out of monies collected by Carter Towler LLP from the Appellant’s tenants.

 

16 Mr Faulkes explained further that unfortunately the payment made by Carter Towler LLP, for the period ending 31^st July 2011, which should have been received by HMRC by 7^th September 2011, was made by a BACS transfer, not to HMRC, but to a Rubicon Development bank account, (this being one of the Appellant’s associated companies). We find that this was purely a mistake on the part of Carter Towler LLP.

 

17. We further accept, that the error was not discovered until 22^nd September 2011, when Mr Faulkes enquired of Rubicon Development’s bank as to the credit balance held on their account, which was far higher than he anticipated it ought to have been and that it was not until Mr Richard Parker of Carter Towler LLP’s accounts team investigated the matter when he returned from holiday on 26^th September 2011, and reported the administrative mistake to Mr Faulkes on the 28^th September 2011, that the error was corrected by means of a BACS payment to HMRC that same day.

 

18. Because of the Appellants previous defaults the late payment resulted in a surcharge at a specified percentage of 15% being levied on the Appellant, which Mr Faulkes suggested was unreasonable and payment of which would cause hardship to Carter Towler LLP in the nature of staff redundancies. He accepted however that a mistake would not normally be accepted as a reasonable excuse for late payments.

 

19 Mr Faulkes fully accepted responsibility for Carter Towler LLP’s error and offered to pay “a reasonable amount of interest” on the late payment.

 

20 Mrs Newham drew the tribunal and the Appellant’s representative’s attention to Section 71(1)(b) VATA:

 

“(b) where reliance is placed on any 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.”

 

21 Mrs Newham submitted and we accept that just because a tax payer has arranged for another person to be responsible for payment of his VAT on time, that that does not discharge the tax payer from the responsibility of ensuring that it is in fact paid on time

 HM

 

22 Mrs Newham confirmed and again we accept that this was the Appellants 17^th default; that the sales return for the quarter in question amounted to £450,389 which she indicated “seemed” to be the average figure looking at previous quarters returns and we accept her submission that the surcharge in the sum of £9,335.45 was not significant in that context.

 

23  Mrs Newham noted and we accept Mr Faulkes own admission that;  “Carter Towler LLP, as the Appellants property portfolio managing agents, agreed to assist the Appellant to ensure prompt future payment of VAT monies.”

 

24  We were also asked to have regard to the fact that the  print out of the BACS payment run provided by the Appellant’s representative, was actually signed as authorised by two members of  Carter Towler LLP, which again we note and accept.

 

 

Reasonable Excuse

 

 

25  This was a costly mistake by Carter Towler LLP, but the fact remains that they were professional Chartered Surveyors and had been appointed to the particular task by the Appellant, specifically to ensure that the Appellants VAT payments were paid on time. As such they had a professional duty of care to the Appellant.

 

26  Although this appeal is brought on behalf of the Appellant, by Carter Towler LLP, the default is in law the Appellant’s default.  It is not the case that any separate appeal lies on behalf of the Appellants professional representatives.

 

27  We must follow the established law as it stands in Section 71(1) (b) VATA

 

28  Carter Towler LLP’s mistake must be attributed to the Appellant; it is established law that a tax payer cannot rely on the acts or omissions of a third party to establish a reasonable excuse.

 

29  We do not therefore accept that the Appellant has a reasonable excuse for the late payment of VAT.

 

 

 

Proportionality

 

 

30  Mr Faulkes in part submitted that the amount of the surcharge imposed was disproportionate to Carter Towler LLP’s mistake and cited the hardship it would cause Carter Towler LLP and offered on the part of Carter Towler LLP to pay a reasonable amount of interest instead.

 

31  The question of whether or not this tribunal has the power to determine  whether or not a particular penalty, (as decided upon by Parliament), is or is not proportionate to the particular “default” was examined recently in great detail by the Upper Tribunal in the case of HMRC v Total Technology (Engineering) Limited [2012] UKUT 418 (TCC).

 

32  In that case the payment was only one day late; previous defaults had been due to innocent errors; the tax payer had an excellent compliance record prior to the first of the defaults;  the amount of the penalty was £4,260.26 and the tax payers profits were around £50,000 per year

 

33  Mr Justice Warren and Judge Bishopp said at page 26 para 81:

 

“…………..the VAT default surcharge regime penalises only the failure to deliver a return and to make payment of the tax owed by the due date …………It is to be noted that the penalty does not increase as time goes by: the penalty is for failure to do something by a due date, not a penalty for a continuing failure to put right the original default……”

 

34  At page 31 para 99 they concluded:

 

“In our judgment there is nothing in the VAT default surcharge which leads us to the conclusion that its architecture is fatally flawed. There are however some aspects of it which may lead to the conclusion that, on the facts of a particular case, the penalty is disproportionate. But in assessing whether the penalty in any particular case is disproportionate, the tribunal must be astute not to substitute its own view of what is fair for the penalty which Parliament has imposed.”

 

35  In this particular case we do not find that the surcharge is disproportionate in either the context of the number of defaults by the tax payer or as to the amount of the surcharge in relation to the quarterly sales.

 

 

Decision

 

 

36  In the circumstances we dismiss the appeal.

 

37  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.

 

 

 

 

 

 

G. NOEL BARRETT LLB

TRIBUNAL PRESIDING MEMBER

 

RELEASE DATE: 25 June 2013