First-tier Tribunal (Tax)

[2014] UKFTT 584 (TC)

TC03709

Appeal number: TC/2014/01486

VAT – Default Surcharge – penalty – whether properly imposed – whether reasonable excuse

FIRST-TIER TRIBUNAL

TAX CHAMBER

The Tribunal determined the appeal on 03.06.2014 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 28.02.2014 and HMRC’s Statement of Case submitted on 09.04.2014 (with enclosures).

© CROWN COPYRIGHT 2014

DECISION

1.             The Tribunal decided that the Notice of Assessment of Surcharge dated 17.01.2014 in the sum of £1,150.08 was properly imposed.

2.             The appeal is dismissed.

3.             The Tribunal found that the VAT Return for the period 01.09.2013 to 30.11.2013 was received by the Respondents on 06.01.2104. The due date for payment was 07.01.2014 for electronic payments. Payments have been received by the Respondents as follows:-

FPS – 07.01.2014 (on time)      £6,000.00

FPS – 07.01.2014 (on time)      £5.000.00

FPS – 16.01.2014                      £3,000.00

FPS – 27.01.2014                      £3,000.00

FPS – 30.01.2014                      £3,000.00

FPS – 17.02.2014                      £2,000.00

FPS – 28.02.2014                      £1,000.00

FPS – 05.03.2014                      £2,000.00

After the 05.03.2014 payment there remained the sum of £9,001.78 outstanding.

4.             At the due date 07.01.2014, after the payments of £6.000.00 and £5,000.00, there was £23,001.78 outstanding. It is upon this sum that the 5% surcharge of £1,150.08 was imposed.

5.             The Tribunal further found that there was no reasonable excuse for the late payment of VAT for the period ended 30.11.2013. In particular the Appellants had been in the Default Surcharge Penalty regime since the period ended 31.08.2012 although by a series of concessions and Time to Pay arrangements they had not previously been required to pay any penalties. No Time to Pay arrangement was agreed by the Respondents in respect of the period ended 30.11.2013 and indeed no request for deferment under Section 108 of the Finance Act 2009 was made before the due date 07.01.2014.

6.             The Appellants have claimed that the reason for the late payments of VAT has been cash flow difficulties. Section 71(1)(a) of the VAT Act 1994 specifically excludes lack of funds from being a reasonable excuse for the late payment of VAT but the Tribunal has considered the underlying reason for the Appellants’ lack of funds in order to see whether any further allowance can be made to them in the context of this appeal.

7.             In a letter dated 13.01.2014 the Appellants say that “Our reason behind late payment is due to selling of stock and higher level of Sales against actual purchases. We have been unable to make purchases due to insufficient cash flow”. The Notice of Appeal also refers to customers, including Local Authorities and Government bodies, exceeding credit terms and failing to settle accounts. It is said that payments to the Respondents have been made continually within the Appellants’ means.

8.             It can be acknowledged that the Appellants have endeavoured to meet their obligations with regard to the payment of VAT as quickly as they were able to do so but the fact remains that they have been significantly late in making payment in full. Delinquent debtors have been a problem but that is not unusual in the current financial climate and must be treated as a normal business risk.

9.             The Appellants’ circumstances do not, therefore, take them outside the scope of Section 71(1)(a) of the VAT Act 1994 and their insufficiency of funds does not assist them in this appeal.

10.         There has been lengthy correspondence between the Appellants and the Respondents and the Appellants will have received numerous Notices concerning the Default Surcharge regime so they will have been aware, at all material times, of the consequences of failing to make timely payments.

11.         In so far as the Appellants have argued that the imposition of the surcharge is unfair or disproportionate the Tribunal applies the decision in the case of HMRC v Total Technology (Engineering) Limited [2012] UKUT 418 (TCC). Such an argument is unsustainable in this Tribunal.

12.         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.

WDF COVERDALE

TRIBUNAL JUDGE

RELEASE DATE: 10 June 2014