[2013] UKFTT 626 (TC)
TC03013
Appeal number:
TC/2012/05180
VAT default surcharge - VAT
paid late due to “restrictions on internet banking” - whether reasonable
excuse - no – insufficiency of funds - whether reasonable excuse - no - appeal
dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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ARTISAN
FURNISHINGS LIMITED
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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 MICHAEL S CONNELL
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RAYNA DEAN
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Sitting in public at Alexandra
House, The Parsonage Manchester on 17 May 2013
The Appellant did not attend
and was not represented.
Anne Sinclair, Officer of HM
Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2013
DECISION
The Appeal
1.
Artisan Furnishings Limited (“the Appellant”) appeals against a default
surcharge of £8,378.16, for its failure to submit, in respect of its VAT period
ended 31 December 2010, by the due date, payment of the VAT due. The surcharge
was calculated at 15% of the amount due of £55,854.44.
2.
The point at issue is whether or not the Appellant has a reasonable
excuse for making late payment.
3.
The Appellant did not attend the hearing and was not represented. The
Tribunal was however satisfied that the Appellant had been notified of the
date, time and venue of the hearing and that it was in the interests of justice
to proceed.
Background
4.
The Appellant’s principle business activity is the manufacture and
retailing of curtains.
5.
Section 59 of the VAT Act 1994 (“VATA”) requires a VAT return and
payment of VAT due on or before the end of the month following the relevant
calendar quarter. [Reg 25(1) and Reg 40(1) VAT Regulations 1995].
6.
The Appellant paid VAT on a quarterly basis and usually paid by direct
debit. HMRC may allow additional time for payment when made by electronic
means, and pursuant to Regulation 40(4) of the VAT Regulations 1995 allow an
additional seven days after the end of the calendar month when payment would
normally fall due together with a further three days when the VAT is collected
by direct debit. Limitations apply if the due date falls on a weekend or a bank
holiday in which event the due date defaults to the last previous working day.
7.
The Appellant had previously defaulted on VAT payments in period 03/08
when a VAT Surcharge Liability Notice was issued. Further Surcharge Liability
Noticed had been issued thereafter.
8.
The Appellant submitted its 12/10 VAT return electronically on 7
February 2011 and HMRC automatically attempted to collect payment of £55,854.44
by direct debit three days later on 10 February 2011. The direct debit failed
due to there being insufficient funds in the Appellant’s bank account.
9.
Section 59 VATA sets out the provisions in relation to the default
surcharge regime. Under s 59(1) a taxable person is regarded as being in
default if he fails to make his return for a VAT quarterly period by the due
date or if he makes his return by that due date but does not pay by that due
date the amount of VAT shown on the return. The Commissioners may then serve a
surcharge liability notice on the defaulting taxable person, which brings him
within the default surcharge regime, so that any subsequent defaults within a
specified period result in assessment to default surcharges at the prescribed
percentage rates. The specified percentage rates are determined by reference to
the number of periods in respect of which the taxable person is in default
during the surcharge liability period. In relation to the first default after
the issue of a surcharge liability notice the specified percentage is 2%. The
percentage ascends to 5%, 10% and 15% for the second, third and fourth default.
10.
A Surcharge Liability Notice at 15% was issued for £8,378.16 on 11
February 2011.
11.
Payment of VAT for period 12/10 was remitted by the Appellant by BACS in
three instalments; £20,000 was paid on 21 February 2011, £20,000 on 22 February
2011 and £15,854.44 on 23 February 2011.
12.
HMRC contend that the Appellant should have been aware of the potential
financial consequences of making late payments, having been in the default
surcharge regime from 03/08 and having defaulted on seven previous occasions.
13.
A taxable person who is otherwise liable to a default surcharge may
nevertheless escape that liability if he can establish that he has a reasonable
excuse for the late payment which gave rise to the default surcharge(s).
Section 59 (7) VATA 1994 sets out the relevant provisions : -
‘(7) If a person who apart from this sub-section
would be liable to a surcharge under sub-section (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 then 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 ..’
14.
The initial onus of proof rests with HMRC to show that a surcharge has
been correctly imposed. If so established, the onus then rests with the
Appellant to demonstrate that there was a reasonable excuse for late payment of
the tax. The standard of proof is the ordinary civil standard on a balance of
probabilities.
15.
Section 59(7) must be applied subject to the limitation contained in s
71(1) VATA 1994 which provides as follows : -
‘(1)
For the purposes of any provision of section 59 which refers to a reasonable
excuse for any conduct -
any insufficiency of funds to pay any VAT due is not
a reasonable excuse.’
16.
Although an insufficiency of funds to pay any VAT due is not a
reasonable excuse, case law has established the principle that the underlying
cause of any insufficiency of funds may constitute a reasonable excuse
Appellant’s Case
17.
No one from the Appellant company attended the hearing, but copy
correspondence between the Appellant and HMRC indicated that the Appellant was
suffering cash flow shortages at the time of the default. Mr Nadat, the company
accountant, said that they had previously had a time to pay arrangement and
that they had only just finished paying overdue balances when the default
occurred.
18.
Mr Nadat said that the full amount was not paid in one go because of
payment restrictions on internet banking.
19.
Mr Nadat also complains in correspondence with HMRC that the Appellant
had not received a default surcharge notice at the time of the default and
therefore was not aware that a penalty had been levied until some considerable
time afterwards
HMRC’s Case
20.
Ms Sinclair for HMRC said that a surcharge liability notice was issued
in March 2008 and extension notices in September 2008, December 2008, June
2009, December 2009 and March 2010.
21.
The potential financial consequences attached to the risk of further
defaults would therefore have been known to the Appellant after issue of the
Surcharge Liability Notice and subsequent default extension notices. The
information contained on the reverse of each Notice states:
‘Please remember your VAT returns and any tax due
must reach HMRC by the due date. If you expect to have any difficulties contact
either your local VAT office, listed under HM Revenue & Customs in the
phone book as soon as possible, or the National Advice Service on 0845 010
9000.’
22.
The requirements for submitting timely electronic payments can also be
found -
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In notice 700 "the VAT guide" paragraph 21.3.1 which is
issued to every trader upon registration.
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On the actual website www.hmrc,gov.uk
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On the E-VAT return acknowledgement.
23.
Also the reverse of each default notice details how surcharges are
calculated and the percentages used in determining any financial surcharge in
accordance with the VATA 1994 s 59(5).
24.
Therefore, HMRC say that the surcharge has been correctly issued in
accordance with the VATA 1994 s 59(4).
25.
With regard to the Appellant’s grounds of appeal, it is specifically
stated in s 71(1) VATA 1994 that an
insufficiency of funds is not a reasonable excuse.
26.
HMRC may allow additional time for payment if requested. However, any
request must be made prior to the date on which the VAT falls due. No request
for a time to pay arrangement was received by HMRC prior to the default for the
period 12/10.
Conclusion
27.
The Appellant was clearly aware of the due date for payments of its VAT
and the potential consequences of late payment.
28.
The surcharge was correctly issued in accordance with VATA 1994.
29.
The Appellant’s only ground of appeal is that it was suffering cash flow
shortages at the time of the default.
30.
In Customs & Excise Commissioners –v- Steptoe [1992] STC 757 the
tax-payer argued that although the proximate cause of his default was
insufficiency of funds, the underlying cause of that insufficiency, namely the
unexpected failure by a major customer to pay him on time, amounted to a
reasonable excuse. The Court determined on a majority that the statutory
exclusion of insufficiency of funds as an excuse did not preclude consideration
of the underlying cause of insufficiency and that a trader might have a
reasonable excuse if it were caused by an unforeseeable or inescapable event or
when, despite the exercise of reasonable forethought and due diligence, it
could not have been avoided. The Court nevertheless made it clear that the test
had to be applied strictly.
31.
To decide whether a reasonable excuse exists where insufficiency of
funds causes the failure, the Tribunal must take for comparison a person in a
similar situation to that of the actual tax-payer who is relying on the
reasonable excuse defence. The Tribunal should then ask itself, with that comparable
person in mind, whether, notwithstanding that person’s exercise of reasonable
foresight, due diligence and a proper regard for the fact that the tax would
become payable on the particular dates, the tax-payer would not have avoided
the insufficiency of funds which led to the failures.
32.
The Tribunal accepts that the underlying cause of the default may have
been cash flow shortage. However the Appellant has not provided any background
information which may assist the Tribunal, and in particular no reasons have
been given as to why a time to pay arrangement was not requested by the
Appellant.
33.
The burden of proof is on the Appellant to show that the underlying
cause of its failure to meet its VAT payment obligations was due to unforeseen
circumstances or events beyond its control. In the Tribunal’s view, for the
reasons given above, that burden has not been discharged and there was no
reasonable excuse for the Appellant’s late payment of VAT for the 12/10 period.
34.
The appeal is accordingly dismissed and the surcharge upheld.
35.
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: 25 October 2013
