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Sir Christopher Wren's House Ltd v Revenue & Customs [2006] UKVAT V19504 (23 March 2006)

19504

Value Added Tax - default surcharge appeal by hotel group adversely affected by foot and mouth disease and 9/11 - profit of over £100,000 in 2001 turned into a loss of virtually £1.5 million in 2002 - request for appeal for an earlier period to be heard out of time

LONDON TRIBUNAL CENTRE

SIR CHRISTOPHER WREN'S HOUSE LIMITED Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: HOWARD M NOWLAN (Chairman)

Sitting in public in London on 15 March 2006

Mr Neil Owen of Southern VAT, for the Appellant

Mr J P Holl for the Respondents

© CROWN COPYRIGHT 2006

DECISION

INTRODUCTION

This was an appeal by Sir Christopher Wren's House Limited ("Wren"), a small to medium size hotel group, against two impositions of default surcharge, on the ground that it had a reasonable excuse for the late payment or instalment payment of its VAT for the material periods. Mindful that an insufficiency of funds to pay VAT is not a reasonable excuse, but that the factors causing that insufficient may constitute a reasonable excuse, Wren contended that its reduced turnover resulting from the effects of foot and mouth disease and more particularly 9/11, coupled with its inability to reduce its expenses to a corresponding degree, led to a financial crisis in 2002. This resulted in its earlier profits being turned into a 2002 loss of nearly £1.5 million, and Wren contended that this constituted a reasonable excuse for its VAT being paid in instalments in one period and being paid 17 days late in one of the others, and 1 to 2 months late in the third.

This appeal raised another issue. This Tribunal (John Avery-Jones) had already given Wren leave to appeal out of time against the default surcharge of £11,799.00 imposed for the most material period, namely the period 11/02. The rate of surcharge for that period had been 5% because there had been earlier defaults in the periods 05/02, and 08/02, the rates of surcharge for which had been nil and 2% respectively, the cash amount of the surcharge for the period 08/02 being £5,294. Understandably there had been no appeal for the first of those periods because there was no immediate financial penalty as a result of the technical default. On account of the relatively small figure involved in the second of the periods there had been no appeal within the prescribed time limits. Wren however sought my leave to appeal out of time in relation to the earlier two periods both because the same underlying causes occasioned the same reasonable excuse for all periods, and because the appeal for the earlier periods influenced the rate of surcharge for the 11/02 period, aside from the relatively small financial penalty in the period 08/02.

The Commissioners ("HMRC") resisted the request that I allow the appeals to proceed out of time. HMRC accepted that appeals were very rarely brought against technical defaults that occasioned no penalty (in other words defaults such as that in the period 05/02 in this case) but they contended that the proper course was for the taxpayer to appeal for that earlier period as soon as the technical default for the earlier period occasioned an actual imposition of surcharge, in other words in this case, in the following period 08/02. HMRC then confirmed that they would usually consent themselves to an appeal being brought out of time for the earlier period that occasioned no immediate penalty. They contended however that it was proper for the taxpayer to appeal in the first later period when a financial penalty was incurred, and that even though in this case the Tribunal had already given leave for the appeal for the period 11/02 to be brought out of time, it would still be inappropriate for the Tribunal to allow late appeals in respect of the earlier two periods.

THE FACTS AND EVIDENCE

Evidence was given before me by Mr. John Bishop, Group Financial Controller of Wren. I was also handed bundles of correspondence much of which was not directly referred to in the short hearing. None of the content of the correspondence appeared to be in dispute however and I will therefore summarise the evidence given by Mr. Bishop, and the most material matters to emerge from the correspondence.

Wren operated six hotels. Its biggest hotel was in Windsor, where a considerable proportion of its custom was dependant on Heathrow traffic, and business customers visiting Silicon Valley. Two other hotels were also in the Thames Valley. Another was at Stow in the Wold, and two were in Scotland located close to golf courses. Traditionally 20% of Wren's customers were American, and 40% were overseas visitors (including the Americans).

Wren's business was adversely affected by foot and mouth disease and as will appear from the summary of the facts in relation to a number of its VAT periods, Wren enjoyed the slight accommodation provided to taxpayers adversely affected by foot and mouth in 2001. The foot and mouth epidemic officially ended on 14 January 2002 but as HMRC conceded in a published statement, its economic effects might well continue for "some time to come". The attacks on the World Trade Centre had occurred in September 2001, and Mr. Bishop suggested that the attacks resulted in the near total elimination of custom from American visitors, with the crisis if anything getting worse in the last half of 2002, than in the first half when traditionally domestic visitors constituted a higher proportion of Wren's guests. As a result of the combined effect of these two crises, Wren's business was very badly affected. It suffered a decline in turnover of approximately £1 million, with 2001's turnover of £9,630,788 being reduced to £8,639,978. Mr. Bishop described in a way that I found entirely credible that a hotel company cannot reduce its costs correspondingly when guest numbers fall. Marketing costs remain constant, and since many of the hotel's services cannot be withdrawn, reduced gross takings are likely simply to reduce profits or to turn profits into losses. Accordingly, 2001's profit of £106,273 was turned into a loss of £1,492,550 for calendar year 2002.

Under cross-examination Mr. Bishop was asked whether Wren had suffered from any significant bad debts in the relevant period. Mr. Bishop did not know the amount of any bad debt provision but he confirmed that bad debts were not the essence of the group's problem in 2002 and the first half of 2003. As he had described the problem resulted from significant numbers of guests staying away, and not from guests not paying.

Mr. Bishop was also asked why the shareholders did not re-capitalise the group. I thought that this was a slightly irrelevant question because a company rarely has any right to call upon its shareholders to re-capitalise it, and in many cases there will not only be no right that the company be re-capitalised but no realistic prospect of it being re-capitalised either. Thus if extraneous causes inflict hardship and financial crisis on a company, I cannot see that that can be something that can or should automatically be alleviated by the shareholders coming to the financial rescue of the company. Nevertheless whatever the merits of this point I was told that the loans from the principal director, and only shareholder, were increased in 2002 to £8.35 million as against £6.5 million in 2001, and I was also told that this strained the resources of the shareholder.

I will now summarise the history of Wren's VAT affairs for all relevant periods surrounding the periods actually the subject of the present dispute.

I was not given details of the period 02/02 but I was told that there was accepted to be no default, when presumably Wren was benefiting from a "time to pay" agreement. This treatment would have accorded with the slightly more relaxed attitude taken by HM Customs & Excise ("Customs & Excise") in the light of the foot and mouth epidemic.

Wren requested time to pay in the period 05/02 which was granted, but there was then a technical default. Because it was Wren's first default there was no penalty, but Wren was notified in a somewhat disjointedly worded standard form of the implications of the technical default. This point has no significance on whether Wren can establish relevant "reasonable excuse" in either this or later periods but while I accept that the standard form gives correct information which is readily intelligible to someone who knows what it is going to say, the full significance of the escalating, and potentially penal nature of the default surcharge provisions are certainly not clearly described in this form.

In the period 08/02 there was also a technical default, with approximately half of the tax being paid one month late, and the balance after a further month. This being the first chargeable default, the surcharge at the rate of 2% amounted to £5,294.00

In the following period, 11/02, that is the period under appeal on any basis, the tax was paid in full 17 days late. At 5% the surcharge amounted to £11,799.00. For one reason or another Wren did not appeal at the time. Later correspondence rather suggests that it was either not aware that it had a right of appeal or indeed that the default would be eliminated if it could demonstrate "reasonable excuse".

There was no default for the next period, 02/03.

Since they were simple, I will mention now before dealing with the more complex period 06/03 that the last two periods for which I was given information were periods 09/03 and 12/03, in both of which the tax was paid on time. The impression I gained is that the business had by then broadly recovered.

In the intermediate period, 06/03, a four month period following a change in end date for VAT periods, the VAT affairs are of some significance to the present appeal, and do not reflect particularly well on the stance then taken by Customs & Excise.

On 23 July 2003 Wren faxed a letter to Customs & Excise saying that its VAT of £310,000 was due for payment on 31 July. The letter explained that the group was "currently experiencing severe cash flow problems due to poor trading over the crucial June and July period." It explained that the group was in a position to pay £210,000 on 31 July, sending a post dated cheque to pay the balance of the VAT on 8 August. The letter asked the recipient to contact the writer "ASAP" and gave the phone number in the text. Customs & Excise appear not to have responded.

The then Group Financial Controller then appeared to follow up the letter with a phone conversation some days later, "as no one had the courtesy to telephone or write to me." In this conversation he was told that "whatever happened we would still be liable to a default penalty surcharge at 10% on the outstanding balance". As a result Wren decided to pay the whole amount of £310,000 on the due date. I am not clear whether this payment put the group in breach of its loan covenants, or whether it was able to negotiate a last minute relaxation of the bank loan covenants, but certainly one or other of those occurred. The letter from Wren dated 5 September 2003 (vigorously protesting the issue of a surcharge notice) indicated that its payment had put it in breach of its banking covenants.

When Wren then paid its VAT it posted the cheque on 31 July, the cheque was received and banked on 1 August, and the surcharge notice was issued because the payment was one day late.

Wren's protest in relation to the surcharge was then reviewed and in a letter of 22 September it was told that the surcharge was confirmed. It was told that "if you can provide further information and/or there are facts, which may not have been fully taken into account, then you can apply to this office for further consideration".

Wren then sent a letter explaining the impact of 9/11 on the group's US customer business, and it became clear in that letter that Wren then realised that these adverse extraneous effects on its business might enable it to re-open the surcharge decisions for the earlier periods.

On 20 October the surcharge was cancelled. The letter remarked "Please note this is an exceptional decision". No further comment revealed the ground on which the decision had been changed.

In subsequent correspondence relating to whether Wren could establish that it also had reasonable excuse for the technical defaults in the periods 05/02, 08/02 and 11/02 Wren developed the argument that it was illogical for reasonable excuse to be conceded in the foot and mouth period, up to 02/02, and then to be conceded in 06/03, but refused in the three contentious periods in 2002 when the group had been suffering a continuing crisis throughout 2002, and indeed that crisis had worsened during the year. Figures for anticipated and actual results for the first half of 2002 illustrated that the actual results had been far worse than anticipated, and the second half of 2002 was said to have shown greater decline than the first half, so it seemed illogical to decline equivalent treatment in the later periods of 2002 as the situation deteriorated in contrast to that willingly conceded in the period 02/02.

In the course of correspondence relating to the earlier three periods, 05/02, 08/02 and 11/02 Customs & Excise sought to explain its eventual decision in withdrawing the surcharge for the period 06/03. The appeal for the period 11/02 and for the periods 05/02 and 08/02 (if entertained) should be judged on the merits of Wren's grounds for alleging reasonable excuse, and not on any possible inconsistency with the treatment given for the period 06/03, but I do note that the grounds given for the final decision on the 06/03 period have somewhat varied. The decision was simply "exceptional" in the letter of 20 October. In a letter of 19 October 2004, the surcharge was withdrawn "because you contacted Customs & Excise before the due date". In the course of the hearing before me, it was conceded that HMRC do sometimes accept that delay on their part can itself constitute the reasonable excuse for default. Finally, and also in the course of the hearing, it was suggested that the reason for the changed decision for the period 06/03 was that Customs & Excise had failed to mention that by paying the VAT electronically a further 7 day period of grace could have been obtained.

Notwithstanding this when the group was given the information that Customs & Excise would need to see before changing their earlier decisions on the three periods now in contention, the information that the group was asked to provide was exactly the same as the information that it was asked to provide, and that it did provide, when initially challenging the decision for the period 06/03.

Whilst the following points are not themselves decisive as to what constitutes reasonable excuse, I think that it is worth recording what was said to the taxpayer in the letter of Customs & Excise of 17 July 2004, as to the evidence that would have to be provided to sustain a claim for reasonable excuse. To quote the letter it said that:-

"To be successful in establishing a reasonable excuse you will need to be able to demonstrate that the causative event, giving rise to the lack of funds for each period was, either:

• Outside the normal hazard of trade in that there was some element of inescapable or unforeseeable misfortune, or:

• That any loss of income was outside your control and influence and was a significant percentage of the business income, or:

• You had done everything a prudent and competent business person mindful of their obligations to VAT would have done in the same or similar circumstances to try and pay the tax due, and;

• You would also need to clearly demonstrate why the specific shortage of funds meant you were unable to pay the VAT at the time due".

When the full information was duly provided to Customs & Excise in support of the contention that Wren could establish reasonable excuse for the defaults in the earlier periods, the main ground on which the claim was rejected as regards the most significant period, namely 11/02, was that "the group bank statement shows a balance of £277,158.79 as at 31/12/02 which would indicate that the group had sufficient funds in its bank account to pay the VAT liability of £235,981.22". Wren then responded by saying that the bank statement referred to was only one of a number of bank accounts. It said that the overall position, taking positive and negative balances in a number of other accounts, was that there was a net balance "at that time" of "only £39,000".

The response to this, by Customs & Excise, was that "the figures taken from the Group Bank A/C would reflect the overall position and be shown on the Group VAT return. I am therefore not clear why this would create a misleading impression as to your client's ability to pay their VAT". In response to this, a letter as recently as 3 March 2006 re-iterated that the overall net balance was in fact £39,246.21, and enclosed papers that confirmed this. It was further alleged that constrains on the group's overdraft facilities, and the need to pay salaries demonstrated that the VAT liability could not be met in full at the time.

THE REQUEST THAT I GIVE LEAVE TO APPEAL OUT OF TIME FOR THE EARLIER PERIODS 05/02 AND 08/02

Notwithstanding that this Tribunal had already given leave to Wren to appeal out of time in respect of the period 11/02, HMRC objected, as mentioned above, to the further request that Wren be allowed to appeal against the technical default for the period 05/02, and against the default and 2% surcharge for the period 08/02. As I have also recorded, the ground for that objection was that although HMRC accept that taxpayers cannot be expected to appeal in time for the technical default without surcharge in the first period, i.e. the period 05/02, because they cannot sensibly be expected to incur costs in challenging a default that occasions no immediate penalty, taxpayers should nevertheless appeal within the statutory time period applicable to the first later period when the earlier default might lead to some actual surcharge. Appeals out of time will normally be permitted by HMRC at that time, but not later.

I understand the fair logic of not expecting the taxpayer to appeal against the technical default in the ordinary time period applicable to the period 05/02 itself. But that logic, it seems to me, should also extend to permitting a late appeal against the defaults initially imposed in both periods 05/02 and 08/02 within the time period applicable to the period 11/02 if there was no financial penalty in respect of the period 05/02 and only a small penalty in the period 08/02 whereupon the costs of appealing would hardly justify the costs and management time involved in appealing within the earlier statutory periods.

In the present case it seems to me that:

• the taxpayer has always sought to keep Customs & Excise fully informed in relation to its financial position, and the financial hardship it was suffering, and the implications that this had on its ability to pay its VAT on time;

• correspondence suggests that Wren did not appreciate the grounds on which it might have appealed against the earlier defaults until the dealings with the period 06/03, when its treatment by Customs & Excise provoked the company into appealing;

• once the Tribunal has given leave to Wren to appeal out of time in respect of the period 11/02, it seems logical to me to allow Wren to appeal also in respect of the two earlier periods when on any basis, whatever the company and its then Group Financial Controller had appreciated about the basis on which it might appeal, an appeal would hardly have been worth raising, at least to eliminate the immediate financial penalty involved in the 08/02 period; and

• fundamentally the same considerations apply, as regards reasonable excuse, to all of the periods, 05/02, 08/02, 11/02 and 06/03, and indeed to the earlier periods when in accordance with the published statement concerning foot and mouth disease, reasonable excuse was accepted. On Wren's evidence it appears that Wren was actually more adversely affected by the effect of 9/11 on its American and other overseas visitors, and on Wren's evidence its financial situation actually deteriorated through 2002. It was indeed the group's good fortune that its principal director and shareholder could significantly increase his loan to the group, because that apart, the clear demands by the group's bankers to reduce the overdraft, and a loss of approximately £1.5 million would have led to a much more serious situation still. In any event it seems to me that relatively little further investigation is required now to examine the two earlier periods, and to proceed with an appeal against the surcharge for the period 11/02, and ignore the earlier periods would be unsatisfactory.

For these reasons, I allow Wren to bring its appeal now in respect of the two earlier periods, 05/02 and 08/02 in addition to the period 11/02.

MY DECISION ON THE SUBSTANTIVE POINTS

The law that I must apply here is clear. Mere insufficiency of funds cannot constitute a reasonable excuse for the non-payment or late payment of VAT. However if some factor outside the control of the taxpayer occasions the insufficiency of funds, and that extraneous factor is "out of the ordinary", then the taxpayer may be able to demonstrate "reasonable excuse". The relevant factor is more likely to constitute reasonable excuse if it is an isolated or "one-off" factor in that if a business faces a continuing down-turn then either the business must be re-structured to accommodate the long-term down-turn in business or at any rate if the business is going to continue in its weaker state this must manifestly be on the basis that the business will be able to pay its debts as they become due. Having suggested that the factor that may substantiate a claim of reasonable excuse for late or instalment payment of VAT will generally be a non recurring factor, it nevertheless seems perfectly possible that a chain of events, such as the foot and mouth crisis, the 9/11 attacks, and then SARS and the Iraq war can constitute a succession of uncontrollable events that might well mean that a business faces a financial crisis which cannot be described as "long-term", or part of the ordinary pattern of trading, but nevertheless it may last for quite a period.

In the course of cross-examining Mr. Bishop, HMRC established that Wren had not suffered any unexpected level of bad debts in the period under review, and it had not in particular suffered a bad debt at the hands of one very large customer. Whilst this was not specifically asserted, the implication was that a loss of customers, rather than experience of bad debts or late payment by customers was less likely to afford a reasonable excuse for instalment payment of VAT.

This has led me to contrast three factors that might give a taxpayer financial difficulties, these three being temporary loss of custom, experience of bad debts, and experience of regular late payment of debts by customers, in particular by one very major customer. That third factor has of course already been held to have provided a reasonable excuse for the late payment of VAT by a higher court. The feature of late payment of debts does admittedly have the aggravating feature to a taxpayer accounting for its VAT on an earnings basis that it will diminish the cash immediately available to pay VAT, without at the same time reducing the gross takings that are the measure of the outputs for VAT purposes. On the other hand it seems fairly self evident that unexpected marked reduction in gross takings though loss of customers or experience of bad debts are ultimately more serious considerations for a business than simply late payment of the trader's gross receipts. Admittedly both loss of customers and bad debts are likely to reduce the trader's outputs for VAT purposes, but nevertheless if the trader has an inflexible cost base, loss of customers and total non payment of debts are obviously more serious considerations than simple late payment of debts. Another observation worth making is that if a trader regularly experiences delay in recovering is debts, particularly debts owing by its main customer, this feature in time is likely to become something that the trader must either correct or live with. The regularity of late payment may thus cease to provide a reasonable excuse for late payment. By contrast if a trader faces a significant loss of customers through a succession of outside events over which it has no control, but they simply make the trader's financial situation worse over quite a significant period then this appears not to be the sort of situation to which the trader must simply adapt. Provided that the events can realistically be said not to impact on the medium to long term prospects of the business, it seems reasonable to say that the chain of events might provide a continuing reasonable excuse for the trader's instalment payment of VAT.

I have also contrasted the implications of a loss of customers with bad debt experience since HMRC suggested that the lack of experience of bad debts weakened Wren's claim to sustain a reasonable excuse for instalment payment of VAT. Wren of course was never maintaining that experience of bad debts was remotely relevant to its financial crisis in 2002 and the first half of 2003.

I can see no material difference between the implications of loss of customers through some such event as 9/11 and experience of bad debts. Both are likely to result in a corresponding reduction in the trader's outputs for VAT purposes, and both deprive the trader of its gross receipts. The only differences that I can see are that experience of bad debts might in part result from poor credit control or poor administration in collecting debts on the part of the trader. In contrast no-one could blame Wren for the loss of customers that it suffered through any of the four factors that I have just listed, 9/11 probably being much the most serious for a business with 20% of its customers generally being Americans, and 40% overseas visitors.

HMRC also argued in correspondence and in the hearing before me that it was almost inconceivable for a trader to demonstrate reasonable excuse in late payment of VAT if the trader has received payment from its customers of the amounts reflecting its VAT liability because "you have received our money. You are lucky to be able to use it for the period until your VAT is due, but if you no longer have it available, you cannot demonstrate reasonable excuse because you had our money in the first place and you have lost it". I think that this argument is ill conceived. What the trader receives from its customers is its gross takings. Some customers may have the benefit of an input deduction for VAT purposes, and others will not. But so far as the supplying trader is concerned, the whole receipt is payment for goods or services. The trader's VAT liability is then a distinct liability, and indeed one that in liquidation would have no particular priority. It is certainly a liability that the trader must provide for most seriously because of the serious implications of non or late payment, but it is certainly not right to say that any element of the trader's gross receipts are "the money of HMRC". The only reason why I stress this is that I consider it wrong to say that HMRC must be paid first before all other creditors. The implications of the surcharge regime may make it extremely advisable never to default in relation to payment of VAT but I consider that a trader might well still sustain a reasonable excuse for late payment of VAT if it chose to pay staff who might otherwise walk out of the door on not being paid, rather than pay the VAT first. Both are equal creditors, and although the surcharge implications of being late in paying VAT are most serious, it is wrong to suggest that the VAT must be paid first, or effectively that the trader should treat itself as a temporary trustee of HMRC's money.

Applying those principles to the facts of the present case, I think that Wren succeeds in all three periods in establishing that events entirely outside its control created a temporary financial crisis which lasted throughout 2002 and the first half of 2003, and indeed it became worse in the second half of 2002 than in the first half. The absence of American visitors will be obvious to anyone. The reduction in gross turnover of £1 million is manifestly serious for a business that understandably found it hard to reduce its cost base. Indeed, as the £1.5 million loss suggests, the competition for remaining business was doubtless so strong that the group was presumably trading on much more adverse terms than usual in relation to the business that it retained, on top of losing 10% of its gross takings.

Had I been called upon to decide whether Wren's financial situation would have justified a finding of reasonable excuse for the marginal instalment basis of payment that it requested in advance for the period 06/03, I would have found in favour of Wren, quite aside from the grievances that Wren undeniably had on account of its treatment by Customs & Excise for that period. After all, full payment of VAT on the due date would either have put it in breach of its loan covenants, or compelled it to seek last minute accommodation from its bankers.

The ground on which I conclude that Wren suffered an insufficiency of funds, as a result of the extraneous events, to pay its VAT on time for the critical period 11/02 is that the overall consolidated bank balances of the group (manifestly the measure that will concern the bank) appear to have stood at the figure of £39,246.21 twice notified to HMRC, not the figure of £277,158.79 which was available on one bank account and which was the figure on the basis of which HMRC contended that there was ample money to pay the VAT of £235,981.22. HMRC have nowhere disputed the consolidated figure put forward by both Wren and its VAT advisers as recently as 3 March 2006.

At the short hearing before me neither party addressed me on the detail of the group's cash position at the material dates relevant to the two earlier periods 05/02 and 08/02. Since however I consider the general adverse picture of the group's trading position to be well established, and since I accept that 9/11 had an even worse effect that foot and mouth disease which had led to the earlier confirmation that reasonable excuse would be accepted for surcharge purposes, I think it reasonable to confirm that reasonable excuse also existed for the two periods 05/02 and 08/02. In particular I am very influenced by the summary of the events relating to period 05/02 in Southern VAT's letter of 3 March 2006. This letter has the following passages relating to 05/02.

"The sequence of events of the first half of 2002 is important here. The foot and mouth crisis of 2001 had had an adverse impact on our client, which you acknowledged by agreeing a time to pay agreement in respect of period 02/02, and also recording no default in respect of that period.

In March of 2002, a press release was issued by the (then) Inland Revenue, on behalf of both revenue departments, confirming that help would continue to be offered to those adversely affected by the foot and mouth crisis (a copy of which we enclose). Our client clearly fell into this category, and had also by this time suffered further damage to its overseas visitor business as a result of the events of 11 September 2001 (9/11).

Our client had continuing cash flow problems as a result, as a consequence of which the company was unable to find all the funds necessary to pay the tax due on the 05/02 return at 30 June 2002. You agreed a further time to pay agreement, but recorded a default against the late payment of the tax. This I consider to be contrary to the policy set out in the March press release referred to above issued some ten weeks before the end of period 05/02.

As evidence of our client's financial difficulties at this time, we enclose a comparison of their VAT returns for 2001 and 2002, showing a marked reduction in business (that is a further deterioration beyond the acknowledged problems resulting from foot and mouth), and an extract from the management accounts for the half-year to 30 June 2002, showing an overdrawn bank balance of over £700,000.

The true effects of 9/11 became fully apparent, it should be noted, as the tourist season of 2002 got under way. Domestic business predominates in the winter and Christmas period (covered by the February returns).

It seems clear that our client had reasonable excuse for the failure to remit on time the tax due in respect of period 05/02. We request your consideration of now withdrawing the default against that period (a course of action which is also compatible with the aforementioned press release).

We feel it is also relevant that our client has always taken steps to keep you informed of their position and to reach formal agreements for staged payments, demonstrating their commitment to meeting their VAT liabilities."

I agree with all of those contentions and for this reason and for those summarised above, I allow Wren's appeal against the recorded defaults for all three periods 05/02, 08/02 and 11/02.

No order was requested in respect of costs but I would have awarded reasonable costs to the Appellant, had an order been requested. The Appellant should accordingly apply to the Tribunal within 28 days for costs to be ordered unless the parties can agree in the meantime the amount of the Appellant's costs to be borne by the Respondents.

HOWARD M. NOWLAN

CHAIRMAN

RELEASE DATE: 23 March 2006

LON/04/2295