United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2005] UKVAT V18968

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CVME Truck Rental Ltd v Customs and Excise [2004] UKVAT V18968 (08 March 2005)

18968

DEFAULT SURCHARGE – Reasonable excuse – Insufficiency of funds – Postal strike blamed for failure to pay tax and submit return on time – No evidence of effect of postal strike – Appeal dismissed

LONDON TRIBUNAL CENTRE

CVME TRUCK RENTAL LIMITED Appellant

and –

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: STEPHEN OLIVER QC (Chairman)

CAROLINE de ALBUQUERQUE

Sitting in public in London on 23 February 2005

No appearance for the Appellant

Jonathan Holl for the Respondents

© CROWN COPYRIGHT 2005

DECISION

This appeal was listed for hearing on 23 February 2005. No one attended to represent CVME Truck Rental Ltd ("CVME"). The hearing notice had been sent out on 21 January 2005 stating that the hearing was to take place at 2.45pm on 23 February 2005. On 22 February 2005 a message was received from the Mudd Partnership of which Mr T Hollis is a partner. This letter reads as follows:

"Mr Hollis will not be able to attend the hearing on 23 February due to medical treatment. The following however has been filled out to Customs and Excise and the case could be settled without me being in attendance."

The proper officer of this Tribunal immediately responded with the following message:

"We understand you are content for this appeal to be heard and determined in your absence. If that is not so, please send or fax a medical certificate."

Despite a telephone reminder in the morning of 23 February, no response has been received from the Mudd Partnership. On that basis we have formed the view that CVME is content for the appeal to be heard and determined in its absence.

We therefore proceeded to hear the appeal under rule 26 of the VAT and Duties Tribunal Rules. These enable us to hear and determine an appeal in the absence of a party. The party in question has the right to make a written application to the Tribunal within 14 days to have the decision set aside on such terms as the Tribunal thinks just. The application, if made, will be the subject of an oral hearing but the Tribunal cannot entertain such an application unless the Appellant attends the hearing in person.

CVME appeal against a default surcharge relating to the 9/03 period. The due date for payment was 31 October 2003 and the payment was in fact received on 3 December 2003. The tax shown as due on the return was £49,946 and the surcharge at 10% worked out at £4,994.

CVME appealed against the default surcharge putting forward as the grounds of their appeal:

"Customs did not consider the disruption caused by postal strike sufficient reasonable excuse".

CVME's return was dated 21 October 2003 and it is recorded as having been received by the Customs on 4 November 2003. Nonetheless, as already noted, payment was not received until 3 December 2003. A surcharge liability notice was issued on 21 November. On 1 December 2003 CVME wrote to the Commissioners drawing their attention to the fact that they had already contacted the Debt Management Unit in early November to advise them of the problem that they had. The problem referred to in that earlier letter was that several of their major customers had been severely affected by the recent disruption in the postal service.

A fuller explanation of the reason for the late payment was given in a letter to the Customs of 1 December 2003. This makes the point, first, that CVME had been advised by a number of their customers that those customers had been unable to obtain payment from their own customers and were therefore unable to pay CVME promptly. The second point made in their letter was that several of CVME's customers have only limited access to electronic banking and had had to send staff out to collect payments as they became available. This had given rise to delays over communication and authorization. In the third place, most customers had required original invoices and not faxed or photocopied ones and, where these had been held up in the postal system, there had been delays in processing the authorization. As a result invoices were received after a cut-off date with "consequent payment being delayed". The last point made in the letter is that the nature of the truck rental business of CVME was such that most of its outgoings were either finance payments by direct debit or staff wages neither of which could be delayed or postponed on account of the events already referred to.

On 9 December 2003 the review officer of the Commissioners wrote asking for clarification of a number of points such as details of bank statements, a break down of moneys received, details of any action taken to obtain outstanding payments, details of the customer base providing approximate percentages and details of the usual credit terms allowed to customers. CVME responded with a photocopy of the bank statement at 31 October showing that they were overdrawn to the extent of £162,700 against an authorized overdraft of £150,000. They included printouts of customer receipts for the five months from July to November 2003. They explained that they were a truck rental company with an annual turnover approaching £4 million. Their profit came from the margin between the rental they charged for a vehicle and the monthly finance payments made by them in purchasing it, adjusted for residual value. They pointed out that they made monthly returns under the "invoice date accounting system".

The difficulty that we have is that at no point in correspondence is any explanation whatever given as to the existence of a postal strike in the latter part of 2003. Nor is there any evidence of any disruption in postal services at that time. We would need to have reasonably clear evidence from the postal services as to the existence of such a strike or disruption to the services. We would also need to know that the strike and/or disruption took place in areas where CVME's apparently defaulting customers carried on their businesses. No evidence of any sort was provided by CVME, nor has anything been submitted by the Mudd Partnership as their representatives in this appeal. We would have expected some such evidence to have been submitted as a preparation for the hearing of this appeal.

So far as we can ascertain, in the month of October 2003 (at the end of which the return payment for the 9/03 period were due) £380,758 was received from customers. The apparent VAT ingredient in that works out at £56,708. At the end of that month the net tax due to the Commissioners was £49,946. This indicates that the tax received by CVME in October 2003 was more than enough to meet its tax liability. Of itself, that does not establish the case for the Commissioners. But, on the face of it, it does indicate that, whatever the effect of the postal disruption, CVME's cash position should not have been adversely affected.

There is no break down of receipts customer by customer; such a break-down would provide specific evidence of poor payment from particular defaulting customers. Nor is there any evidence showing the trend of receipts on a month-by-month basis.

All in all we are driven to the conclusion that CVME's failure to pay the tax on time was the result of insufficiency of funds. Insufficiency of funds is excluded from ranking as a reasonable excuse by VAT Act 1994 section 71(1)(a). We are not satisfied that there was any excusable underlying reason for the insufficiency of funds. We are therefore forced to conclude that CVME does not have a reasonable excuse for its failure to pay the tax on time for the 9/03 period. We therefore dismiss the appeal.

STEPHEN OLIVER QC

CHAIRMAN

RELEASED: 8 March 2005

LON/04/136