United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2005] UKVAT V19120

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19120

LONDON TRIBUNAL CENTRE

Fibreglass Grating Limited Appellant

- and -

The Commissioners of Revenue and Customs Respondents

Tribunal: DR KAMEEL KHAN (Chairman)

MRS S SADEQUE

Sitting in public in London on 16 February 2005

Colin Burns, Director, for the Appellant

Philip Webb, Advocate, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

This is an appeal against a Default Surcharge for the Value Added Tax period 01/05/04 to 31/05/04. The total amount of the surcharge is £1616.62. The Appellant completed monthly VAT returns from the start of 2003. In their letter to Her Majesty's Revenue and Customs ("HMRC") dated 12 February 2003 it was pointed out that the change from quarterly to monthly returns was made since "this would not only assist us with our cash flow but also ensure that we were able to pay you on time". The tax assessed for the relevant period was £17,757.64. The surcharge was issued on 16 July 2004 at the rate of 15%.

Background

The Appellants supply fibreglass grating which is a fibreglass product used as a cost effective alternative to other grating material such as wood and steel. The product is slip resistant and offers good traction in wet and slippery whether conditions. It is lightweight and chemical resistant and often used in ports, harbours and marine development.

Fibreglass Grating Limited ("the Company") is a family run business which has a broad range of customers. It employs between 6 and 7 people and has a turnover of approximately £600,000. Mr Burns, who appeared for the Company, has overall responsibility for the staff and for running its affairs. Between April and June 2004, the Company obtained a substantial contract (£155,000) to provide fibreglass grating to the Olympic Stadium in Greece. This represented the largest single contract for the Company and about 25% of its turnover. It meant that the Company had to commit substantial capital to the importation of goods from China and attendant services such as customs duties freight, transport and storage charges. It was a busy time and a substantial amount of the Company's cashflow and employee time was allocated to the Olympic contract.

On 1 June 2004, Mrs Patricia Jones was employed by the Company as a part-time bookkeeper (2 to 3 days per week) and her contract ran until 16 July 2004. Mrs Jones became ill soon after she started work and had to take time off to attend various hospital appointments. In a letter addressed, "to whom it may concern" from Mrs Jones dated 10 February 2005 she stated:

"During the short time I worked for Fibreglass Grating, it obviously took some time to take over from the last person and this, as well as cashflow problems resulted in my only being able to do the May VAT return on my last day at work".

The return, signed on 16 July 2004 was received by HMRC on 18 July 2004. Mrs Jones was still in the employment of the Company on 30 June, this being the due date for the 05/04 return.

The Appellant contend that the Company had cashflow difficulties in the relevant period. These difficulties arose when letter of credit payments had to be made for imported Chinese goods and payments of VAT, excise duty, freight and port delivery charges arose at the same time. This was a contributing cause to the late payment of the VAT. The sales invoices for May together with bank statements for the same period were provided to the Tribunal. These show that while the Company was overdrawn by £6,207.37 at the end of May, it did have a £30,000 overdraft facility for its use. On the 30 June, the Company had an overdrawn balance of £6,751.46 but the overdraft facility was available to deal with this amount.

The Company's usual terms of payment is 30 days. To speed up payment, and help cashflow, the Company used the services of a factoring company offered by their bank which paid 80% of an invoice to the Company. There are no bad debts for the month of May and the overdraft facility was available in this period.

The Appellants' Argument

The Appellant says that the main reason for the late return was due to the illness of the bookkeeper. Her illness affected her performance during her period of employment. While no medical certificate was provided to the Tribunal to evidence the bookkeeper's illness, a letter from the bookkeeper was provided stating that she was ill and the nature of her illness. Further, the Appellant stated that they had experienced cashflow difficulties at the time and where unable to pay the outstanding VAT due on time.

The Respondent's Argument

The Respondent's main argument is that reliance on another person such as a bookkeeper to perform tasks, is not a reasonable excuse. Further, they contend that under Section 71 VATA 1994, lack of funds is not a reasonable excuse for late payment of Value Added Tax except if exceptional circumstances prevail.

Decision

Where reliance is placed on another person to perform any task, neither that reliance nor the dilatoriness on the part of the person relied upon is a reasonable excuse. The delegation of the task by the trader is therefore not a reasonable excuse. However, it is sometimes necessary to consider why the task was delegated and the circumstances surrounding the delegation in deciding if there is a reasonable excuse. Illness can provide a reasonable excuse if the person delegated the responsibility for the VAT return is absent from work at the time the return is due to be finished. However, if the trader should have devoted additional resources to preparing and submitting the returns on time, then there is no reasonable excuse.

In this case, Mrs Jones was ill in the period when the return was due to be signed and she took time off work. It would have been reasonable for the Appellant to have made arrangements for the return to have been duly completed on time. Mrs Jones had several doctor's appointments and it was known that she would be taking time off work and would have needed assistance at the time when the Company had a substantial contract and employees were very busy. She was also new to the job and by her own admission took some time to "take over" from the previous person. In the circumstances, we do not feel there is a reasonable excuse for the late filing of the VAT returns and higher priority should have been given by the Company to the completion of the return given that the employee in charge of the task was ill and was new to the job.

The second contention that the Appellant had insufficient funds to pay the VAT is not a reasonable excuse. We found from looking at the Appellant's bank statements that while there was significantly greater demand on the Company's cashflow, there was a debt factoring agreement and an overdraft facility in place which would have provided the requisite finance to pay the outstanding VAT for the relevant period, on time.

We understand that many small traders work long hours and are under considerable pressure of work. However such businesses should allow themselves sufficient time to complete and return their VAT returns with the requisite payment. Accordingly, the appeal in this case should be dismissed.

DR K KHAN

CHAIRMAN

RELEASE: 16 June 2005

LON/2004/1852