United Kingdom VAT & Duties Tribunals Decisions

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URL: http://www.bailii.org/uk/cases/UKVAT/2008/V20653.html
Cite as: [2008] UKVAT V20653

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Schriftbuild Und Image (UK) Ltd v Revenue & Customs [2008] UKVAT V20653 (21 April 2008)

20653

DEFAULT SURCHARGE – reasonable excuse – illness of employed accountant – reasonable excuse for first default but not for subsequent defaults as the problems caused by the illness were avoidable by the exercise of reasonable foresight and due diligence – Appeal allowed for one default but dismissed for the subsequent five defaults.

LONDON TRIBUNAL CENTRE

SCHRIFTBUILD UND IMAGE (UK) Ltd Appellant

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

ELIZABETH MACLEOD JP, CIPM (Member)

Sitting in public in London on 13 February 2008

William Hedley, managing director for the Appellant

Gloria Orimoloye, Advocate for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2008


 


DECISION

The Appeal

1. The Appellant was appealing against the issue of a surcharge liability notice for the period 07/03 and the imposition of default surcharges for the periods 10/03, 01/04, 04/04, 07/04, and 01/05 on the ground that it had a reasonable excuse for the defaults.
2. The amount of default surcharges was as follows:

Period	VAT Assessed (£)	Percentage for Default (%)	Default Surcharge (£)
07/03	44,319.98	0	Surcharge Liability Notice
10/03	25,661.95	2	414.71
01/04	37,129.27	5	427.26
04/04	37,846.17	10	3,469.31
07/04	31,454.59	15	3,218.18
01/05	19,821.65	15	2,973.24

The Dispute

3. The Appellant was established in 1994 and in the business of supplying re-manufactured toner cartridges for printers. The Appellant operated in a highly competitive business environment. During the period in question the Appellant employed between seven to twelve employees with an annual turnover ranging from £1.3 million to £2 million.
4. The Appellant contended that it had a reasonable excuse for the default surcharges. The Appellant entrusted the VAT administration to its employed accountant who fell behind in his work through illness which he did not disclose to his employers. In earlier correspondence with the Respondents the Appellant also cited a general downturn in business and two frauds committed on it as additional reasons for not complying with its VAT obligations. The Appellant did not pursue the additional reasons before the Tribunal (see letter of 29 June 2006 to Mrs F Lovett of the Respondents).
5. The Respondents submitted that the Appellant did not have a reasonable excuse. In their view the Appellant should have been aware that its accountant was behind with his work. In any event reliance on a third party was specifically excluded as a reasonable excuse by the legislation.

The Hearing

6. During the hearing the Respondents raised a preliminary matter that the Appellant had not submitted its Notice of Appeal within the required time limit. We were satisfied that the Appellant had not been dilatory in pursuing its right of appeal. The Appellant followed the advice given to it by the Respondents. We, therefore, extended the time limit in which to make an Appeal against the disputed matters starting with the period 07/03 to the date recorded on the Notice of Appeal.
7. We heard the evidence of Mr William Hedley, managing director, and of Mr Chris Bayliss, the general manager, for the Appellant. The Respondents supplied a bundle of documents which was admitted in evidence.
8. We announced our decision at the end of the hearing. The Respondents requested detailed reasons for our decision in accordance with rule 30(1) of Tribunal Rules 1986.

The Facts

9. The Appellant was a small company which relied entirely on its employed accountant to complete its accounts. The Appellant engaged the accountant in 1997 who carried out his duties meticulously until 2003 when he became ill suffering from a bleeding retina and later diabetes. The accountant was extremely worried about the prospect of becoming blind. As a result of his illness the accountant took numerous days off work for medical appointments, fell behind with his work, and displayed signs of increasing confusion.
10. The accountant was solely responsible for opening the Appellant's mail. He concealed the late VAT payments from the Appellant and provided false information about its finances. The Appellant only discovered the extent of the accountant's neglect in July 2005. The Appellant dismissed the accountant for gross misconduct in December 2005.
11. The Appellant's record of VAT compliance was good both prior and subsequent to the period from 07/03 to 01/05. The Appellant employed a trainee accountant in June 2003. He was not responsible for VAT but assisted the accountant with other duties to ease his workload.
12. Mr Hedley, the managing director was responsible for signing the VAT returns and cheques for the VAT payments. The accountant advised Mr Hedley orally that the Appellant had a dispensation from the Respondents to make late VAT payments. Mr Hedley made no further enquiries to check that the information given by the accountant was accurate.
13. The details of the Appellant's defaults are set out below:

Period	Due Date for Return and Payment	Date Return Received	Date Payment Received
07/03	31/8/03	01/09/03	30/09/03
10/03	30/11/03	01/12/03	12/01/04
01/04	29/02/04	04/03/04	02/04/04, 04/05/04
04/04	31/05/04	07/06/04	13/07/04, 18/08/04, 02/09/04, 02/11/04
07/04	31/08/04	07/09/04	15/09/04, 01/10/04,19/10/04
01/05	28/02/05	17/03/05	22/03/05

Reasons for Our Decision

14. Section 59 of the VAT Act 1994 requires the Appellant to furnish VAT returns and pay the outstanding VAT within one month of the relevant accounting period. The Appellant failed to pay the VAT owing by the due date for the accounting periods 07/03, 10/03, 01/04, 04/04, 07/04 and 01/05 and was liable to pay surcharges in the sum of £12,612.35 for its defaults.
15. The Appellant can avoid the default surcharges if it can satisfy the Tribunal on the balance of probabilities that it had a reasonable excuse for not furnishing the VAT returns and payments on time.
16. The defence of reasonable excuse is strictly construed. The legislation takes no account of the difference between a trader who has made a genuine effort to comply albeit without success and a trader who has made very little effort and it takes no account whatever of the extent of lateness. Either a trader is on time or he is not; either he exercises due diligence or he does not. No account is taken of the degree of culpability. Under section 71 of the VAT Act 1994 insufficiency of funds and reliance on any other person to perform a task are specifically precluded from being reasonable excuses.
17. The Appellant contended that the late payments of its VAT returns during the disputed period were due to the illness of its accountant which caused him to act out of character. The Appellant referred to two decisions of the VAT and Duties Tribunal, Timark Warehousing Limited, VAT Decision Number 10360, and Gregson and Bell (Engineers) Limited, VAT Decision Number 12366, which decided that illness of a book-keeper amounted to a reasonable excuse.
18. Section 71(1)(b) of the VAT Act 1994 specifically precludes reliance upon another to perform a specific task from constituting a reasonable excuse. However, we are entitled to examine the underlying cause of the default, in which case illness of key personnel may amount to a reasonable excuse provided the consequences of the illness for submitting VAT returns on time could not have been avoided by the exercise of reasonable foresight and of due diligence coupled with a proper regard for the tax becoming due on a particular date.
19. The Appellant submitted that it was not aware that the accountant was making late VAT payments. The Appellant's submission, however, ran counter to the evidence. Mr Hedley, the managing director, accepted that he signed the VAT returns and cheques for payment. He knew that the cheques were dated after the due date for payment. Mr Hedley accepted the word of the accountant that the Appellant had a dispensation from the Respondents to make late payments. We consider that it was reasonable for Mr Hedley to accept the verbal assurance of the accountant that the Appellant had a dispensation on the first default, particularly as he had no reason to suspect that the accountant was acting out of character. However, we hold that on subsequent VAT quarters a prudent business person would have made further enquiries to satisfy him that the Appellant had indeed the dispensation. Mr Hedley did not do this but continued to accept the word of the accountant despite the successive defaults with late payments.
20. We find that the Appellant had a reasonable excuse for the first default for the period ending 07/03. The defaults for the successive periods of 10/03, 01/04, 04/04, 07/04, and 01/05 could have been avoided by the exercise of reasonable foresight and due diligence. The Appellant, therefore, did not have a reasonable excuse for the defaults for the successive periods.

Decision

21. We allow the appeal in respect of the default for the period ending 07/03 but dismiss the appeals in respect of the other periods in dispute. We direct the Respondents to recalculate the various surcharges in accordance with our decision and inform the Appellant. We make no order for costs.

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 21 April 2008

LON/