United Kingdom VAT & Duties Tribunals Decisions

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URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20407.html
Cite as: [2007] UKVAT V20407

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Pecksniff's Bespoke Fragrances and Cosmetics Ltd v Revenue & Customs [2007] UKVAT V20407 (24 October 2007)

20407

DEFAULT SURCHARGE – Appellant forgot to put the cheque in with the return – whether a reasonable excuse – no– appeal dismissed– VATA 1994 Ss 59(7)(b) and 71(1)(b)

LONDON TRIBUNAL CENTRE

PECKSNIFF'S BESPOKE FRAGRANCES AND COSMETICS LIMITED

Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS

Respondents

Tribunal: DR A N BRICE

MRS C S De ALBUQUERQUE

Sitting in London on 3 October 2007

Mr P Mungavin, the Company Secretary of the Appellant, for the Appellant

Ms G Orimoloye, Advocate in the Office of the Solicitor of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

The appeal

1. Pecksniff's Bespoke Fragrances and Cosmetics Limited (the Appellant) appeals against a default surcharge penalty of £2,282.49. The penalty was imposed by the Commissioners for Her Majesty's Revenue and Customs (Customs) because the tax due for the accounting period ending on 31 March 2007 was not received in time

The legislation

2. Section 59 of the Value Added Tax Act 1994 (the 1994 Act) provides that where a value added tax return, or the tax due, is not received by Customs in time the taxable person is in default. A surcharge is imposed for the second and subsequent defaults. Section 59(7)(b) provides that a taxable person is not liable to a surcharge if he satisfies the Tribunal that there was a reasonable excuse for the delay. Section 71(1)(b) provides that 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 upon, is a reasonable excuse.

The evidence

3. A bundle of documents was produced by Customs. We heard oral evidence from Mr Paul Mungavin, the company secretary of the Appellant.

The facts

4. The Appellant has been in default since the accounting period ending in February 2004 since which date returns and/or tax have been sent late on seven occasions. This is the fourth time a financial penalty has been imposed. The returns are prepared by Mr Mungavin who is self-employed and who spends two days a week with the Appellant keeping the accounts, administering the payroll and preparing and signing the value added tax returns.
5. The return for the accounting period ending on 31 March 2007, and the tax due, should have been received by Customs on 30 April 2007. The amount of tax due was £16,549.94. The return was signed by Mr Mungavin on 30 April 2007 and was received by Customs on 1 May 2007. Thus the return was one day late. The cheque for the tax due was not sent with the return. Two weeks later Mr Mungavin was preparing cash flow forecasts when he realised that the cheque had not been sent and so he sent it. The cheque was received by Customs on 11 May.
6. At the hearing Mr Mungavin produced a copy of the Appellant's bank statement for dates between 27 April 2007 and 2 May 2007. This showed an account overdraft of £10,000 and a credit balance of £6,534.86 on 30 April 2007. However, by 1 May the credit balance had reduced to £1,511.37 and on 2 May it was £1,767.37. We did not see the entries for dates after 2 May.

The arguments

7. For the Appellant Mr Mungavin argued that he had forgotten to put the cheque in with the return and the failure to enclose the cheque with the return was a legitimate error. The Appellant did have the funds to pay the tax on 30 April. Also the Appellant factored its invoices and could have raised money to pay the tax. For Customs Ms Orimoloye argued that the Appellant had been liable to previous penalties and would have been aware of the default surcharge regime. The Appellant had not produced sufficient evidence to show that it had sufficient funds to pay the tax on the due date. She relied upon section 71(1)(b) and argued that the Appellant had relied upon Mr Mungavin to send the return and the tax and neither the fact of that reliance nor any dilatoriness on the part of Mr Mungavin could be a reasonable excuse.

Reasons for decision

8. We accept the evidence of Mr Mungavin when he said that he forgot to enclose the cheque. However we also note that the return was received late (albeit only one day late). We also note that, if the cheque had been sent with the return, and so received by Customs on 1 May, on that date there were not sufficient funds in the bank to meet the cheque. It may be that the funds could have been obtained through the factoring arrangements but we did not hear sufficient about these to be able to form a view.
9. The authorities which consider sections 59 and 71 of the 1994 Act (which was then the Finance Act 1985) are Commissioners of Customs and Excise v Salevon [1989] STC 907 and in Commissioners of Customs and Excise v Steptoe [1992] STC 757. These authorities establish the principle that it is for the tribunal to decide whether there is a reasonable excuse. The wrongful act of another person, or some unforeseeable and inescapable misfortune, could well be a reasonable excuse but there are limits on what could be regarded as a reasonable excuse. The taxable person is expected to exercise reasonable foresight and due diligence and to have a proper regard for the fact that the tax is due on a particular date.
10. In our view a mistake or oversight, albeit an honest mistake or oversight, cannot be a reasonable excuse for the late rendering of returns or the late payment of tax. Such a mistake or oversight is not compatible with the need for due diligence and a proper regard for the fact that the tax is due on a particular date.

Decision

11. Our decision is that the Appellant did not have a reasonable excuse for the delay in paying the tax for the accounting period ending on 31 March 2007.
12. That means that the appeal is dismissed.

DR NUALA BRICE

CHAIRMAN

RELEASE DATE: 24 October 2007

LON/2007/1237

13. .10.07