United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2006] UKVAT V19500

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Promanex Group Ltd v Revenue & Customs [2006] UKVAT V19500 (15 March 2006)

VALUE ADDED TAX — default surcharge — payment-on-account trader — conflicting and confusing information given by Respondents — trader acting on mistaken belief that seven days' grace allowed to it when making payments electronically — one default excused because of confusion — whether subsequent default also excusable — no — further default attributable to bank error excusable — appeal allowed in part

MANCHESTER TRIBUNAL CENTRE

PROMANEX GROUP LIMITED Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Colin Bishopp (Chairman)

Sitting in public in Birmingham on 13 February 2006

Ben Howard, Finance Director, for the Appellant

Bernard Haley, of their solicitor's office, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

In this appeal Promanex Group Limited ("Promanex") challenges the imposition on it of a default surcharge amounting to £70,406 as a consequence of its making two payments of VAT after the due date for those payments. Promanex is a "payment on account" trader required to make monthly payments to the Respondents: in each quarter it makes two payments on account, followed by a balancing payment (see the Value Added Tax Act 1994 section 28, the Value Added Tax (Payments on Account) Order 1993 (SI 1993/2001) and the Value Added Tax Regulations 1995 (SI 1995/2518) regulations 44 to 48). The payment on account Promanex was due to make by 31 October 2004 was received by the Respondents on 1 November 2004, and the balancing payment due on 31 December 2004 was received on 7 January 2005, as Promanex accepts.

Promanex was directed to make its payments by electronic means by notice of direction served by the Respondents in March 2004. It had hitherto used cheques. The notice made it clear that the seven calendar days' extension to the due date for payment, available to other traders using electronic means of payment, is not available to traders making payment on account. The notice was accompanied by a letter which, oddly and incorrectly, was written on the basis that Promanex had been brought within the payments on account scheme for the first time. It set out the payments on account which were to be made, and specified the due dates for the making of those and the balancing payments. The first of the payments on account required to be made electronically was to be made by 30 July 2004.

On 26 June 2004 the Respondents wrote from their Large Payers Unit at Liverpool to Promanex, reminding it that its balancing payment for the accounting period 05/04 was due to be made in cleared funds by 30 June 2004, pointing out that the seven-day extension was not available, but indicating that it would be available if instead Promanex made monthly returns. Accordingly to the receipt stamp, Promanex received that letter on 28 June 2004. Ben Howard, Promanex's finance director who represented it at the hearing, was evidently a little confused by the letter and on 29 June 2004 he telephoned the Large Payers Unit for further guidance. Mr Howard told me he had no real recollection of the call, but he did not challenge the accuracy of a note of it included in the bundle of documents produced at the hearing by Bernard Haley, who represented the Respondents. It shows that the seven-day extension was explained but that Mr Howard was also told that it was not available to traders making payments on account; nor, contrary to the indication given by the letter, was it open to Promanex to make monthly returns.

On 30 June 2004 Promanex received another letter from the Large Payers Unit, also dated 26 June 2004. The opening paragraph reads:

"This letter is a courtesy reminder to advise that your VAT return and payment are due to be received in the Commissioners Account on or before 30-Jun-04. According to our records your company currently submits their VAT payments by cheque, please can I take this opportunity to remind you that should you choose to change your payment method to an electronic transfer, then you would be entitled to take a 7-calenday [sic] extension to due date. By paying electronically you also benefit from a more secure and reliable method of payment whilst extending your due date."

Mr Howard told me that he did not make any further enquiries as a result of that letter, but placed it on his file. He did, however, follow the advice it contained when making Promanex's balancing payment for the 08/04 period, due on 30 September 2004: the payment was made electronically, but on 7 October 2004. The lateness of the payment resulted in the imposition of a default surcharge, by notice of 3 November 2004, received by Promanex on 9 November. Mr Howard challenged the surcharge, by a letter of 1 December 2004 in which he drew the Respondents' attention to the second of their letters of 26 June. His letter was acknowledged on 22 December 2004 but he did not receive an substantive reply until February 2005. That reply correctly explained the payment on account system, and the fact that the seven-day extension is not available to traders within the system. Its author went on to say that the default which Mr Howard had challenged was to be excused; although she did not give reasons, it can be surmised that she accepted that Mr Howard had been confused by the second of the 26 June letters.

In the meantime, Promanex made three further payments: its two payments on account and its balancing payment for the period 11/04. The first, due by 29 October, since 31 October 2004 was a Sunday, was initiated by instructions to Promanex's bankers on 29 October 2004. Mr Howard produced copies of his fax to the bank, sent during business hours. Mr Haley accepted that, had the bank acted on the instruction in a timely fashion, the payment would have been received on the same day and therefore in time; it was, as he agreed, the bank rather than Promanex which was at fault and the penalty, or so much of it as is attributable to this default, should be withdrawn. The next payment, due by 30 November 2004, was made on time. The third, the balancing payment due by 31 December 2004, was made and received on 7 January 2005.

Mr Howard's case was that he was still under the impression that Promanex was entitled to seven days' grace, and that the payment had been made within the extended time. He had not then received the response to his challenge to the September surcharge and was relying on the second of the 26 June letters. It was unfair to penalise Promanex when it had been misled by the Respondents themselves. Mr Haley's argument was that it ought to have been clear to Promanex by the end of 2004 that the seven day extension was not available to it: although conflicting advice had been given in June, Mr Howard had received correct advice by telephone and even if there was any residual confusion it was, or should have been, resolved by the imposition of the September surcharge, which ought to have caused Mr Howard to review his procedures for making payments.

I am bound to say that I find it remarkable that the Large Payers Unit, which must be assumed to be charged with the duty of administering the payment on account scheme which large traders are obliged to use, should give plainly incorrect advice to traders. It is by no means obvious (nor does any of the letters explain) why payment-on-account traders cannot, while others can, benefit from the seven-day extension. Were I considering the September payment, I would have little hesitation in accepting (as, to her credit the reviewing officer did) that Promanex had a reasonable excuse for the default.

The difficulty for Promanex, however, is that I am not required to consider the September payment, but that made in January 2005. Mr Howard can certainly be forgiven for being confused by the conflicting information he was given in June, although it does seem to me that he was a little too ready to rely on the second of the 26 June letters to the exclusion of the other letter of that date and what he was told by telephone. But even if he had convinced himself that seven extra days were available I agree with Mr Haley that the imposition of the September surcharge should have made him reconsider. His letter of challenge focuses entirely on the apparent failure of the Respondents to allow the seven days; had he re-read the entirety of the correspondence he received in March and June, and read the Public Notices, he would have realised that he could not be certain that his belief that the extra seven days were available was correct. A further enquiry would have been prudent but instead Mr Howard simply assumed that the December payment could properly be made by 7 January. It is also conspicuous that Promanex did not take advantage of the supposed extension when making the payments due at the end of October and November 2004.

I may allow the appeal only if I am persuaded that there is a reasonable excuse for the default: see section 59A(8)(a)(ii) of the Value Added Tax Act. The test is strict, and it is for the trader to satisfy the tribunal that an excuse is made out. As I have indicated, I take the view that there was such an excuse for the September default, but the excuse became spent as soon as the surcharge liability notice was served, since it put, or ought to have put, Promanex on further enquiry. I am not persuaded that there is a reasonable excuse for carrying on with a mistaken practice without making that further enquiry.

The appeal succeeds to the extent that it was conceded by Mr Haley (which will necessitate recalculation of the penalty for the December 2004 default), but it must otherwise be dismissed.

COLIN BISHOPP

CHAIRMAN
Release Date: 15 March 2006

MAN/05/0793