United Kingdom VAT & Duties Tribunals Decisions

Design and Stereos v Customs and Excise [2003] UKVAT V18295 (29 August 2003)

18295

Default Surcharge: One specific bad debtor – one customer in liquidation. Sums insufficient proportion of total sales to found a reasonable excuse – Appeal Dismissed.

EDINBURGH TRIBUNAL CENTRE

DESIGN AND STEREOS Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: (Chairman) Mrs G Pritchard, BL., MBA., WS

Sitting in Edinburgh on Tuesday 19 August 2003

for the Appellant HEARD ON PAPERS ONLY

for the Respondents Mr A McCue

© CROWN COPYRIGHT 2003.

DECISION

This is an appeal against the imposition of a default surcharge in respect of the quarter 09/02 in the sum of £612.91 which was applied at the rate of 10%. Value Added Tax was due on 31/10/02 and was not received by the Commissioners until 15/11/02.

The Appellant was unable to attend the Hearing but provided a written submission in which he explained that one particular debtor T Faulkner had caused particular problems with his business. He also recorded that a customer James McDade had gone into voluntary liquidation and recorded that a firm called Tinto Design owed £1818.00 but only paid £727.00 on 23/4/03. He asked the Tribunal to consider that his company was only a small one and had a hard time keeping employees in jobs without the added pressure of the default surcharge. He indicated that he was now under a Bank of Scotland cash flow scheme so that his VAT returns could be on time.

Section 71 Value Added Tax Act (VATA) 1994 provides that a claim with regard to insufficiency of funds will not be treated as a reasonable excuse for non-payment of VAT. However the terms of this part of the Act have been looked at in case law and there is some ground where a particular debtor provides a very large proportion of a person's business for some consideration to be taken of the amount due to a company when the VAT return is due.

As a result on 25/02/03 in response to correspondence from the Appellant, Miss Cook a reviewing officer of the Commissioners sent a letter requesting details of all invoices relating to the particular quarter and to the previous quarters when default surcharges had also been applied, to establish the proportion which the debt bore to the rest of the business. She received no reply and wrote again on 02/04/03. The Appellant replied on 07/04/03 but only again repeated the cash flow difficulty with one customer. He gave no details for the calculation which Miss Cook wished to carry out to be done. Miss Cook wrote again on 23/04/03 asking for the particular percentage of business attributable to that client and the normal payment terms and details of delays in payment. In response the Appellant sent details of the Faulkner account for the period in question indicating invoices which had been sent during the quarter under dispute. They amounted for the period of July, August and September to £2915.38. This was 4% of the Appellant's total sales and was not a proportionate sum sufficient to allow the default surcharge to be lifted.

In the Appellant's submission to the Tribunal he also mentioned James McDade but the letter which was sent to the Tribunal indicated that the monies were due by the Appellant to the liquidator. If this is incorrect and the sum of £2749.50 is due to Design and Stereos, that sum would still be insufficient to form a sufficient proportion of the total sales so as to allow a reasonable excuse for non-payment of VAT.

With regard to the third account mentioned by the Appellant due by Tinto, this is not an account due in the period of the appeal and is not taken into consideration in this case.

It appears that it would be more suitable for the Appellant to be on a cash counting basis so that VAT was only due when payment came in but the Appellant does not appear to have adopted this procedure.

In the circumstances there is insufficient evidence provided by the Appellant to allow the appeal based on the Appellant having a reasonable excuse for failure to submit the VAT return and payment on time for the quarter 09/02. The appeal is dismissed.

No expenses are found due to or by either party.

MRS G PRITCHARD, BL., MBA., WS

CHAIRMAN

RELEASE: 29 AUGUST 2003

EDN/03/17