United Kingdom VAT & Duties Tribunals Decisions

One-On Railway Engineering Ltd v Revenue and Customs [2005] UKVAT V19247 (12 September 2005)

19247

VAT DEFAULT SURCHARGE — Appellant missed Bank deadline by five minutes to make telegraphic transfer — Appellant did not know about the deadline — Appellant had not made enquiries with bank about its timetable for making telegraphic transfer — no reason advanced for missing the deadline other than lack of knowledge — no reasonable excuse — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

ONE-ON RAILWAY ENGINEERING LIMITED Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Michael Tildesley OBE (Chairman)

Sitting in public in Birmingham on 22 August 2005

John Reidy, Managing Director, for the Appellant

Richard Mansell of the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2005

DECISION

The Appeal

1. The Appellant was appealing against a default surcharge in the sum of £8,548.61 imposed for its failure to pay the outstanding VAT due of £85,486.19 for the period 1 October 2004 to 31 December 2004 by the required date of 7 February 2005.
2. The issue in this Appeal was whether the Appellant had a reasonable excuse for not making the payment on time. The Appellant attended its bank on 7 February 2005 to make a telegraphic transfer of the VAT due. Unfortunately the Appellant missed the deadline for making transfers by five minutes which meant that the Respondents received the payment the following day which was one day late.

The Facts

3. I heard evidence from Mr John Reidy, the managing director of the Appellant company. I received document bundles from each of the parties.
4. The Appellant was a private company owned by Mr and Mrs Reidy. Mr Reidy was the managing and sole director of the Appellant company. The Appellant's business was the provision of engineering services to the railway industry.
5. In the year ending 30 September 2002 the Appellant's turnover was £3.1million. The Appellant was dependent upon one customer for 80% of its business. In 2003 the customer appointed a new Chief Executive who indicated that he would continue giving the same level of business to the Appellant. Unfortunately the customer's Chief Executive broke his word and gave the Appellant's work to another sub-contractor. The Chief Executive's decision was totally unexpected which created considerable uncertainty for the Appellant about its future business viability. It was at this time that the Appellant got into difficulty with its VAT payments resulting in the issue of surcharge liability notices for the periods ending 30 June and 30 September 2004.
6. Mr Reidy, the Appellant's managing director, however, took active steps to find new customers and deal with the immediate financial crisis. On behalf of the Appellant, he entered into a debt factoring agreement to ensure a guaranteed cash flow. Mr Reidy also kept the Respondents informed about the Appellant's financial position. As a result of Mr Reidy's efforts the Appellant was now in a stable financial situation. The Appellant's turnover was £1.8 million for the year ending 30 September 2004. The net profit was £11,209 compared with a loss of £57,905 for the previous year ending 30 September 2003.
7. Mr Reidy made arrangements with the Respondents to pay the VAT due by the BACs system. Under this arrangement the Appellant was required to ensure that the Respondents received the payment by the seventh calendar day following the due date of payment.
8. Mr Reidy submitted the Appellant's VAT return for the period ending 31 December 2004 on 28 January 2005 which was within the due date of 31 January 2005. Mr Reidy made arrangements to pay the outstanding VAT of £85,486.19 by telegraphic transfer on the 7 February 2005. He organised a payment of £88,000 from the factoring agents into the Appellant's bank account which was completed on the 7 February. On the morning of the 7 February 2005 Mr and Mrs Reidy underwent in Edgbaston a premier health assessment under their BUPA policy. Mr Reidy left Edgbaston at 1430 hours and arrived at his bank at 1505 hours, only to find that he missed the deadline of 1500 hours for making telegraphic transfers between bank accounts. He left instructions with his bank to make the transfer the following day with the result that the Respondents received the VAT payment on the 8 February 2005.
9. Mr Reidy fairly stated in evidence that he could have arrived at the bank by the cut-off time of 1500 hours. His reason for not meeting the deadline was that he was unaware that the bank operated a cut-off time. He assumed that he could make a telegraphic transfer at any time until the bank closed at 1530 hours. Mr Reidy made no prior enquiries about the bank's precise arrangements for telegraphic transfers.

My Decision

10. Section 59 of the VAT Act 1994 requires the Appellant to furnish the VAT return and pay the outstanding VAT within one month of the relevant accounting period. Where arrangements have been made to make the payment by BACs (telegraphic transfer), the period for receipt of payment is extended by seven calendar days subject to minor amendments where the seventh day falls at a weekend or a Bank Holiday. The Appellant failed to ensure that the Respondents received the payment by the seventh calendar day following the due date of 31 January 2005 for the period ending 31 December 2004. As the Appellant was subject to a surcharge liability notice for this period and had two previous default surcharges it was liable to pay a surcharge of ten per cent which amounted to £8548.61 for its default.
11. The Appellant can avoid the default surcharge if it can satisfy me that it had a reasonable excuse for not furnishing the VAT payment on time. I do not have the power to find mitigation for reducing the default surcharge. My jurisdiction is restricted to considering whether or not the Appellant has a reasonable excuse for not paying the VAT on time. If I find it has a reasonable excuse the default surcharge is quashed. If, on the other hand, I find there is no reasonable excuse the default surcharge will have to be paid. The legislation strictly construes the term "reasonable excuse". Insufficiency of funds and reliance on others cannot in law amount to a reasonable excuse. As a rule reasonable excuse only applies to circumstances which are beyond the control of the Appellant.
12. The Appellant's reason for not making the payment on time was that its managing director was unaware of the bank's policy of having a cut-off time of 1500 hours for making telegraphic transfers with the result that the managing director arrived at the bank five minutes late to make the transfer. Mr Reidy, the managing director, made an honest and genuine mistake. Unfortunately his mistake was not as a result of circumstances beyond his control. He could have avoided the mistake by making enquiries beforehand with the bank about its policies. On these facts the Appellant has not persuaded me that it has a reasonable excuse for not making the VAT payment on time in respect of the period ending 31 December 2004.
13. Mr Mansell for the Respondents, however, decided that the Appellant had a reasonable excuse for the default for the period ending 30 June 2004. Mr Mansell was of the view that the sudden collapse of the Appellant's business due to circumstances beyond its control amounted to a reasonable excuse. Mr Mansell was not sure whether the circumstances would apply equally to the default for the period ending 30 September 2004. He advised Mr Reidy to contact the Respondents and provide them with the necessary evidence to make a decision on this default. I could not consider these two defaults because they were not before me on Appeal. However, the effect of Mr Mansell's decision was that the relevant percentage of the VAT due for the surcharge for the period ending 31 December 2004 was reduced from ten per cent to five per cent. Further the percentage for the surcharge for the preceding period was reduced from five per cent to two per cent. This means that the amount of surcharge owed for the period ending 31 December 2004 was £4,274.30 less (£2519.96 – £1007.98) = £2,762.32.
14. I am satisfied that the Appellant did not have a reasonable excuse for the default in respect of the period ending 31 December 2004. The Appellant is required to pay the amended default surcharge of £2,762.32. I dismiss the Appellant's Appeal and make no order for costs.

MICHAEL TILDESLEY

CHAIRMAN
Release Date:

MAN/05/0356