United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2004] UKVAT V18804

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Ward Security Ltd v Customs and Excise [2004] UKVAT V18804 (15 October 2004)

18804

LONDON TRIBUNAL CENTRE

WARD SECURITY LTD Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Dr. David Williams (Chairman)

Miss S Wong Chong FRICS

Sitting in public in London

David Ward, Director, for the Appellant

Mr Holl for the Respondents

© CROWN COPYRIGHT 2004


 


DECISION

1. This appeal came before us as an appeal against a default surcharge of £4156.32 in respect of the period 1 May 2003 to 31 July 2003. There was a notice only in respect of the period 1 November 2002 to 31 January 2003, and a default surcharge of £1960.96 in respect of the period 1 February 2003 to 30 April 2003.

Neither had been subject to appeal. There have been no defaults since 1 August 2003.

2. Mr Ward, director of the appellant company, appeared with Mr Venning, now the financial controller of the appellant but appointed to that role since the problems that gave rise to this case. Mr Ward told us, and we accept, that he had tried to sort out the defaults of VAT and deal with the default surcharge notice when it was first raised. He had not previously been involved in any VAT dispute. He had been told that he could not appeal until a surcharge had been imposed. He had taken advice from the official VAT helpline but did not have any other help with the finances or VAT until Mr Venning joined the business. He realised that he had only appealed against the surcharge for the period from 1 May 2003, but really wanted to bring the whole history of the default problem into the picture.
3. Having heard the evidence offered by Mr Ward with the help of Mr Venning, Mr Holl, on behalf of the respondents, indicated that he would have no objection to the tribunal considering, by way of late applications, the earlier periods from 1 November 2002 as well as the period from 1 May 2003. Mr Ward asked us to do that. After noting Mr Holl's views and after conferring, we gave an oral decision during the hearing that we would extend time under rule 19 of the Value Added Tax Tribunal Rules 1986 and consider the full period from 1 November 2002 to 31 July 2003. We think it just to do so, and waive any irregularity thereby arising.
4. Mr Ward accepted that the appellant had defaulted in paying its VAT bills promptly. But he drew attention to the dates, confirmed in the Schedule of Defaults, on which full payment was actually made. There were no major defaults. Payment for the VAT due for the period to January had been about a week late in March 2003, the next payment a few days late in June 2003, and the payment for the period to 31 July was made in September 2003 in two instalments, the smaller second instalment about three weeks late. Payments were made by electronic transfer and this account takes note of that. In each case the position had been explained to the local VAT office and full payment had been made without any further proceedings. The appellant had had temporary cash flow problems because of an expansion of business but these had now been completely resolved.
5. It was explained to Mr Ward that it was for him to show that he had a reasonable excuse for the default, and that it was not a reasonable excuse that the appellant did not have the funds to pay: Value Added Tax Act 1994, sections 59 and 59A. He accepted both points. He explained, with help from Mr Venning and in reply to questions from the tribunal and Mr Holl, how the cash flow difficulties arose. The appellant's business had expanded in 2002 but at the same time its major customer had switched from meeting the appellant's charges monthly to meeting them quarterly. Unfortunately, that quarterly period was out of phase with the VAT quarters that applied to the appellant. Mr Ward had spoken to the local VAT office about this. The office had agreed to have the appellant's tax periods changed, but could not guarantee that they would be in phase with the quarterly accounting that concerned the appellant. As it turned out, they were not and marginally made matters worse in the short term. In addition, the transfer to quarterly payments by the main customer had not gone smoothly, and the first and second quarterly payments were late – the first substantially late. This was compounded by a further problem. The appellant had previously used a factoring service to assist with its cash flow, the factoring service accepting the monthly payments from customers. But the factoring service did not operate on quarterly payments. At the same time, bank credit was restricted as the bank was aware of the availability of credit from the factoring service.
6. All these factors came together at a time when Mr Ward and the other director were hard pressed by the general expansion of the business. Their business was one that depended on having good staff relations. In September, in particular, they had given priority to paying their staff on time to paying their VAT on time.
7. We accept Mr Ward's account as an honest account. We also accept that the defaults on each occasion were only brief and that they have not recurred, and further that Mr Ward and the appellant kept the VAT office fully informed throughout. Nonetheless, we do not accept that they amount to a reasonable excuse for the continuing defaults. There were an unusual set of factors operating on the appellant's cash flow at the end of 2002 and they had an obvious combined temporary adverse effect on the finances of the business. We accept the explanation as establishing a reasonable excuse for the initial default, given in particular the muddle over the changes of the VAT periods as a well-intentioned but counterproductive attempt to resolve the problems. But we do not accept that as a continuing excuse. As Mr Ward now accepts, the appellant should have acted earlier than it did to get additional expertise to deal with the problem. Accordingly, we accept that a reasonable excuse is shown for the first period, but for neither of the subsequent periods. The surcharge liability notice should therefore be removed in respect of the period to 31 January 2003.
8. Mr Holl submitted that if we took that view then the default surcharge for the period to 31 July 2003 should be assessed at the 2% rate, not the 5% rate under section 59 of the Act, as the surcharge for the period to 30 April 2003 would become the first period, not the second (as the respondents had regarded it). We agree, and accordingly the penalty for the period to 31 July 2003 should be reduced to 2% of £83,126.45, a sum of £1,662.53, in place of £4,156.32.

DAVID WILLIAMS

CHAIRMAN

RELEASED: 15 October 2004