British
and Irish Legal Information Institute
Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Roundhouse Work Ltd v Customs and Excise [2004] UKVAT V18595 (19 April 2004)
URL: http://www.bailii.org/uk/cases/UKVAT/2004/V18595.html
Cite as: [2004] UKVAT V18595
[New search] [Printable RTF version] [Help]
- This was an appeal against an assessment to VAT by the Commissioners. There was a hearing on 31 January 2003 at which the Appellant withdrew its appeal against the Commissioners' assessment. That left as the only live issue the misdeclaration penalty which had been imposed by the Commissioners. In the light of these developments the Tribunal directed that the Commissioners should provide in writing within 28 days from the release of the Direction their reasons for submitting that no reasonable excuse was available to the Appellant under section 63(10)(a) of the Value Added Tax Act 1994 and would within that period send copies of those submissions to the Appellant's representatives and to the Tribunal and, secondly, that the Appellant or its representatives would within 28 days after the Commissioners' compliance with the preceding paragraph, provide in writing their arguments in reply to the Commissioners' submissions on the subject of reasonable excuse and would within that period send copies of those arguments to the Commissioners and to the Tribunal.
- The Commissioners' submissions were as follows:
- "The Appellant advanced for the first time at the hearing on 31 January that it had a reasonable excuse for the misdeclaration within the terms of section 63(10)(a) of the Value Added Tax Act. It was in fact the only ground of defence to the penalty.
- The facts were not in dispute. The events that gave rise to the imposition of the penalty were as follows:
- The essence of the Appellant's contention that it has a "reasonable excuse" is to be found in the following passage at paragraph 3 of its Statement of Case:
"The Appellant has to a significant extent relied upon the advice and actions of others, in this case, the company's auditors, who had suggested that to enable the accounts of the Appellant for the period to 30 June 1999 to show a true and fair view, it would be appropriate to reassess the value of sales made to its fellow subsidiary.
The directors signed off these accounts some several months after the completion of the VAT Return without any knowledge that in doing so it might lead to a further assessment of VAT.
It is further submitted that in doing so, they did not act unreasonably or negligently". - The Respondents contend that the Appellant's purported excuse that it "has to a significant extent relied upon the advice and actions of others, in this case, the company's auditors" falls squarely within the exclusionary rule under VATA s.71(1)(b). That section provides:
"71 Construction of sections 59 to 70
(1) For the purposes of any provision of sections 59 to 70 which refers to a reasonable excuse for any conduct – - The essence of the Appellant's case is that it relied entirely upon its auditors to advise it as to its financial affairs. In this particular instance, the auditors advised the Appellant to levy an extra charge of £75,000 – plainly a significant financial step – but failed properly to advise it as to the VAT implications of that charge. It is submitted that it ought to have been obvious to the Appellant's directors that rendering this extra charge would incur a VAT liability.
- The Appellant relies upon 3 authorities:
- The present case begins and ends with the issue of reliance. The Appellant made a gross error in failing to account for VAT on sales of £75,000. This was a fundamental error: it could not be characterised as a non-negligent misunderstanding. The Appellant's only defence is that it relied upon its auditors, who had themselves devised the charging of £75,000, for financial advice. The suggestion that such circumstances can amount to a "reasonable excuse" under VATA s.63(10) is expressly excluded by s.71(1)(b).
- The appeal should therefore be dismissed."
- The Appellant's submissions were as follows:
- "Reasonable excuse
1. It is not correct to say that the case of the Appellant "begins and ends" with the issue of reliance alone. Other factors outlined in the Appellant's Statement of Case must be considered in coming to any conclusion as to whether there is a reasonable excuse for the conduct of the Appellant.
2. The fundamental question in this case is whether there is a reasonable excuse for the inaccuracy. Taking all the circumstances of the case into consideration and viewing it from the standpoint of a reasonable and conscientious businessman, it is reasonably excusable for the inaccuracy to have been made and not reported until such time as the matter was raised during the routine inspection of HM Customs & Excise.
3. The Tribunal is reminded of the following (undisputed) facts:
(i) All VAT Returns completed by the Appellant were submitted by the due date.
(ii) Payments of VAT (as computed by the Returns) were made on or before the due date.
(iii) Returns were completed for the Appellant's fellow subsidiary in due time and VAT in respect thereof paid on or before the due dates.
(iv) All sales of the Appellant were purchased by the Appellant's fellow subsidiary where supplies are fully taxable for VAT purposes.
(v) The Appellant and its fellow subsidiary have common directors, and one in particular who assumes responsibility for submitting the VAT Returns of the two companies.
4. It is submitted that in this case, there are no less than three issues upon which the Appellant can rely so as to demonstrate that its conduct was neither unreasonable nor reckless. These are discussed below.
5. The Appellant having completed its Return for the period under review and the corresponding Return for the fellow subsidiary having been prepared on the same basis, reasonably believed that an accurate return had been submitted to HM Customs & Excise. It had no reason at that time to form any other view.
6. The adjustment to the Appellant's accounts under review as suggested by the company's auditors, carried with it a corresponding adjustment to the accounts of the fellow subsidiary. In total, taking the adjustments as a whole, the VAT position was tax neutral in that any additional VAT payable by the Appellant would be wholly deductible by the fellow subsidiary. In the mind of the Appellant therefore, there was nothing to report. The adjustments were seen as 'paper' entries with no other implications. The Appellant had unintentionally strayed into unfamiliar territory where, not unreasonably, it did not fully comprehend the full VAT implications. It is further submitted that in these circumstances the Appellant did not act negligently.
7. The third and final issue is that the adjustments were recommended by the company's auditors. No advice was given by the auditors as to the VAT implications of the adjustments. With hindsight it would have been preferable had the auditors had advised on this aspect also, but they did not and the Appellant therefore acted on what might be regarded as less than complete advice.
8. At no time did the Appellant delegate any of its responsibilities or obligations to complete or submit its Returns.
9. Such reliance as placed on the advice of the company's auditors does not in any event fall within the provision of s.71(1)(b) VATA 1994. That subsection provides:-
".... 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 that person relied upon is a reasonable excuse."
This subsection is intended so as to disqualify a taxpayer from delegating its duties and responsibilities under the VAT provisions to some other person.
It is respectfully submitted that this is not the case here. The Appellant takes full responsibility for the submission of its Return, and seeks only to demonstrate that it acted reasonably and not negligently in acting upon the advice of the company's auditors.
It is submitted that there is no reliance on another person, within VATA 1994 s.71(1)(b) where there is no delegation and a third party gives information which can be reasonably accepted. Furthermore, a person may have a reasonable excuse if he acts on the basis of advice given by a third party which turns out to be incomplete or inaccurate. We refer the Tribunal to the case of Enterprise Safety Coaches Ltd v C&E Commissioners (1991) VATTR 74 a summary of which was submitted with the Appellant's Statement of Case.
10. Finally, the Tribunal is respectfully reminded that there has been no loss of tax to HM Customs & Excise in this matter, and that the Appellant at all times has acted in good faith.
11. The appeal against the penalty should therefore be allowed." - The Commissioners were asked to respond the Appellant's written submissions dated 28 March 2003 and those submissions were as follows:
- "The Appellant's case is that it should not be liable for a penalty because it has a "reasonable excuse" for its conduct within the meaning of s.73(1)(a) of the VAT Act 1994 ("the 1994 Act").
- To the extent that the Appellant continues to argue that the blame for the failure to account for VAT should be laid at the door of its accountants because they recommended the adjustments to the accounts and failed to inform the Appellant of the VAT consequences, this is an argument of reliance and is precluded by s.71(1)(b) of the 1994 Act.
- To the extent that the Appellant accepts responsibility for the failure to account for VAT, it has shown no reasonable excuse.
- Certainly, no such excuse can be found in the Appellant's perception that the adjustments to the accounts were "paper entries with no other implications". These were substantial changes to the accounts that were intended to have a substantive effect on the company's financial position – otherwise they would not have been made. One of the consequences was a significant further liability for VAT.
- The suggestion that the Appellant did not need to make a voluntary declaration because, taking into account the tax position of an associated company, the adjustment would be "tax neutral" strikes at the very heart of the VAT system. The system relies on full returns being made to the Commissioners, even if they do demonstrate a position of tax neutrality. It cannot be "reasonable" for a VAT registered company not to bother to make returns to the Commissioners simply because it knows that the amount of the extra payment for which it has become liable will be recoverable by an associated (but separately registered) company.
- In conclusion, the Appellant's submissions have not disclosed a "reasonable excuse" either on the basis that the failure to account for VAT was the responsibility of its accountants or on the basis that the failure was its responsibility and was excusable since the return (taken with the return of another company) would have disclosed a "tax neutral" change of circumstances.
- The appeal should therefore be dismissed."
- Having carefully considered the submissions made by both parties, we have reached the clear conclusion that the Commissioners were correct and that the Appellant had no reasonable excuse either under s.63(10)(a) of the VAT Act 1994 nor under s.71(1)(b) of that Act. The appeal is therefore dismissed. There will be no direction as to costs.
VALUE ADDED TAX – Misdeclaration penalty – whether reasonable excuse – s.63(1)(a) and s.71(1)(b) Value Added Tax Act 1994
LONDON TRIBUNAL CENTRE
ROUNDHOUSE WORK LTD Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Peter H Lawson (Chairman)
S K Das LLB, ACIS
Sitting in public in London on 31 January 2003
D A G Grant FCA, FTII for the Appellant
Andrew O'Connor, Counsel, for the Respondents
(a) The Appellant was a new company. Its sole business was manufacturing kitchen furniture and supplying it to an associated company.
(b) The Appellant submitted its VAT Return for the period 06/99 on time.
(c) Subsequently – in or about January 2000 – the Appellant's auditors reviewed the accounts of the Appellant and its associated companies for the financial year ending 30.6.99.
(d) The auditors advised that the Appellant should charge its associated company an extra £75,000 in respect of the supplies made during that period (i.e. year ending 30.6.99) "to reflect the economic reality of the situation which existed between the two companies".
(e) The payment was made and was accounted for as sales in the Appellant's accounts.
(f) By a concession made during the hearing on 31 January 2003, the Appellant now accepts that it was liable to account for output tax in respect of these payments.
(g) Since the return for the relevant period (i.e. 06/99) had already been made by the time this extra charge was levied, the Appellant ought to have made a voluntary disclosure.
(h) No such voluntary disclosure had been made at the time the discrepancy was noted during a control visit, nearly 2 years later, in October 2001.
(i) The assessment and penalty were levied shortly thereafter.
(a) ...
(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."
(a) In Appropriate Technology (Decision No 5696) a "reasonable excuse" was found where the appellant company had relied upon a faulty computer system. This was reliance on a computer system, not a "person" – therefore the statutory exclusion was not in issue, as it is here. In any event, the Tribunal concluded that the accounts staff of the appellant had acted "with due care". The same could not be said in the present case.
(b) In Nor-Clean ...Decision No 5954), again, the issue of reliance, which is central to the present case, did not arise. The case concerned a technical error made by the appellant company's director. In finding a reasonable excuse the Tribunal found that the mistake did not amount to "ignorance of primary VAT law" and was not negligent. It is submitted that neither of these propositions apply to the error in the present case.
(c) The case of Enterprise Safety Coaches Ltd ...Decision No 5391) did concern an accounting error, but one that had been caused by false information being passed to the accountant by the director of the appellant company. Again, the issue of reliance did not really arise.
Conclusion
LON/02/711