United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20203

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Danesfield Property Services Ltd v Revenue & Customs [2007] UKVAT V20203 (25 June 2007)

20203

DEFAULT SURCHARGE – Whether reasonable excuse – Non-attendance by Appellant – Appeal dismissed

LONDON TRIBUNAL CENTRE

DANESFIELD PROPERTY SERVICES LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: MISS J C GORT (Chairman)

MR T MARSH

Sitting in public in London on 31 May 2007

No appearance by or on behalf of the Appellant

Mrs G Orimoloye, advocate, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

This is an appeal against a default surcharge in the sum of £672.67 imposed in respect of the period 08/06. The due date for payment was 31 September 2006 and no payment was received until 23 October 2006, on which date the return was also received.

At the hearing of the appeal there was no appearance by or on behalf of the Appellant. A faxed message was received from him at10.15am on the day of, the hearing which was due to start at 10.30am, stating:

"Unfortunately I have been taken ill. I will of course provide an absence certificate. I would apologise for the inconvenience. … I want to be present at any hearing to present my case."

This fax is not signed but it is presumed to come from Mr Darren Bainbridge who had been corresponding with the Respondents about this appeal. He is the managing director of the Appellant company. There was no accompanying medical certificate received with the fax, and, as the appeal had already been adjourned on three occasions at the Appellant's request, it was decided to accede to the Respondents' application to hear the appeal in the absence of the Appellant under the provisions of rule 26(2) of the Value Added Tax Tribunals Rules 1986.

The Appellant ("the company") is an estate agency which traded as Edward Barclay. From the VAT 1 it appears that its first taxable supply was made on 30 December 2003, the business having been taken over as a going concern on 23 December 2003. Its estimated taxable supplies were £220,000 per annum. By a letter dated 17 June 2004 Mr Bainbridge wrote to the Commissioners stating that he was "very new to VAT" and would appreciate any help or advice. A VAT return was enclosed with that letter. By a letter dated 24 June 2004 he wrote informing them that he had made a mistake in completing that return and asking how he could deal with it.

The company first defaulted in the period 08/05. There were subsequent defaults in the period 11/05, 02/06 and 05/06, apart from the default with which we are currently dealing for the period 08/06. By a letter dated 24 October 2005 Mr Bainbridge wrote to the Commissioners stating that the business was experiencing difficulties, and as he had not been in business before, he was still getting used to the VAT element of the business. He set out in that letter a proposal to pay VAT by instalments. Again he asked for advice. The Commissioners replied by a letter dated 26 October 2005 stating that they were unable to agree to his request for time to pay the outstanding VAT debt.

In respect of the current default, Mr Bainbridge wrote a letter dated 14 November 2006 stating that he was greatly surprised to receive a surcharge. He also said that the company had up until the last twelve months submitted its VAT on time, however during the last twelve months it had changed from using an accountant to complete the VAT to a bookkeeper due to the cost involved with the accountant. He also referred to having family problems over the last twelve months. In fact it is quite clearly untrue that the VAT had been submitted on time during the past twelve months as the company had continually been late since the period 08/05. Although the company had not received a surcharge, this was only because of the de minimis rule applied by the Commissioners. In his letter of 14 November Mr Bainbridge also referred to two telephone calls he had with different members of the Commissioners informing them that he would be sending cheques late, and the fact that it had been confirmed to him that they agreed to this course of action and asking for the surcharge to be waived. The Commissioners replied to the company by a letter dated 1 December 2006 stating inter alia that during contact with the Debt Management Unit on 2 October 2006 it was agreed that he could defer his VAT payment for the period 08/06 until 20 October 2006. The return and payment were received on 23 October 2006. The Commissioners themselves had no record of the company having made contact with the Debt Management Unit on 2 October 2006, nonetheless any such agreement there may have been did not prevent the surcharge, and this was clearly stated in the notes on the reverse of each default notice where it states:

"If your return or payment are received late you may be liable to surcharge."

Mr Bainbridge replied by a letter dated 6 December 2006 commenting that the Commissioners had a discretion whether or not to issue a surcharge and querying when such a surcharge would not be issued. He also referred to the business suffering from "extreme" market conditions and the fact that the amount of the surcharge might "break the donkey's back". Further correspondence ensued in which the Commissioners set out the penalty regíme and how the company might be successful in establishing a reasonable excuse for late payment. It was suggested that Mr Bainbridge might provide financial information to establish whether or not the company had a reasonable excuse. The final letter from Mr Bainbridge states:

"… I do not feel the necessity to provide you with the requested information as this will not change your decision. However, should you be in a position to not charge the surcharge once the information has been provided then of course I would be more than happy to provide the information."

Despite Mr Bainbridge's assertion that HM Revenue & Customs had entered into a legal agreement to delay payment, we were informed by Mrs Orimoloye that it is the Commissioners' practice, when there is a time to pay agreement, to issue a written confirmation, and that no such agreement is effective unless the Appellant has signed it. In the present case there was no such time to pay agreement. Whilst it was accepted that Mr Bainbridge probably did contact the Debt Management Unit, and also gave a date when he would be sending the cheque, by the time he telephoned the Debt Management Unit on 2 October he had already passed the due date of 30 September for submitting the company's VAT and return. In such circumstances the Debt Management staff are advised to inform any caller that, even if they make a time to pay agreement, nonetheless a surcharge will still be incurred. There is no evidence as to whether or not that happened in this case.

The Commissioners had advised Mr Bainbridge that section 71 of the VAT Act 1994 excludes lack of funds from being a reasonable excuse for late payment of funds. Section 71 provides:

"(1) For the purpose of any provision of sections 59 to 70 which refers to a reasonable excuse for any conduct –

(a) an insufficiency of funds to pay any VAT due is not a reasonable excuse; and

(b) where reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied on is a reasonable excuse."

Mr Bainbridge was informed that to establish a reasonable excuse he would need to demonstrate the precipitating event giving rise to any lack of funds, and to show that the event was outside the normal hazard of trade in that there was some element of inescapable or unforeseeable misfortune, and that any loss of income was outside his control, and represented a significant percentage of the business income. In addition he should show he 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 he would also need to demonstrate why this specific shortage of funds meant he was unable to pay VAT at the time due. He was invited to submit documents which might assist in this regard. Unfortunately Mr Bainbridge chose not to submit any of those documents, as per his letter referred to at paragraph 4 above. It appears from the correspondence that the Appellant is relying on both shortage of funds and, to some extent the activity of his accountant. It also appears that the shortage of funds was in some part due to an accountant having been employed, which would not give rise to a reasonable excuse. In all the circumstances we are not satisfied that the Appellant has established that he has a reasonable excuse for the late payment in respect of the period 08/06 and this appeal is dismissed. It is relevant to point out, however, that, because Mr Bainbridge was not present at the hearing of the appeal, he has 14 days from the date of the issuing of this decision in which he may apply to the Tribunal for it to be set aside. To achieve a rehearing, it would almost certainly be necessary for him to provide a proper medical certificate showing why he was unable to attend the Tribunal on 31 May.

No order for costs.

MISS J C GORT

CHAIRMAN

RELEASED: 25 June 2007

LON 2006/1577