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Cite as: [2008] UKVAT V20826

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J & A Young (Leicester) Ltd v Revenue & Customs [2008] UKVAT V20826 (08 October 2008)

20826

Climate Change Levy – Civil Penalty – Relief from Levy – whether valid claim for relief – FA 2006 Sch 6 – reasonable to reduce penalty – Appeal party allowed.

LONDON TRIBUNAL CENTRE

J & A YOUNG (LEICESTER) LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: DR K KHAN (Chairman)

MR R K BATTERSBY

Sitting in public in London on 16 September 2008

Mr R Vigar, Accountant, for the Appellant

Mrs G Orimoloye, Advocate, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The disputed decision of the Respondents is contained in a letter dated 10 January 2007 and is an assessment to a Civil Penalty for £50,526.76 in relation to incorrectly claimed relief from the Climate Change Levy (CCL). The Civil Penalty is calculated as 105% of £48,120.73, which is the amount of relief overclaimed for the period July 2004 to September 2006 inclusive. The penalty is comprised of an amount equal to the unpaid tax plus a 5% penalty.

Background

The Appellant is a company incorporated under the Companies Act (registration number 1222186) and carries on business as a plastic recycler from premises at Brook House, Hambledon Road, Egleton, Oakham, Rutland LE15 8AE. It is registered for VAT under the registration number 115827864 since 15 September 1975.

On 9 May 2006 HMRC Officer Sally Lenton received for verification a CCL repayment claim form (200X Tax Credit Claim) submitted by the Appellant. In order to verify the claim she visited the Appellant on 5 June 2006. The claim related to the period January to March 2006.

In order to qualify for CCL relief, the claimant must have entered into a negotiated energy efficiency agreement with the Department of Environment Food and Rural Affairs (DEFRA). When this agreement is completed and accepted, the claimant then issues certification in the form of Form PP10 (supporting analysis) and Form PP11 (supplier certification). These certificates inform the energy supplier of the claimant's entitlement to a reduction in the rate of the CCL. The CCL is a single stage tax chargeable at the time of supply to business users of electricity, gas and certain other commodities.

As part of her verification work, Officer Lenton had checked before her visit whether the Appellant had been issued by HMRC with an authorisation pack to claim CCL relief and whether a certificate had been issued confirming that a Climate Change Levy Agreement (CCLA) was in place. She found no evidence of these documents.

At the time of the visit, the Appellant could produce no supporting documentary evidence required for claiming the relief although claims had been made since 2001, when the tax was introduced.

In order to qualify for CCL relief there must be a CCLA, without this document the PP11 certificate provided to the energy suppliers should not be issued. This meant that the 80% CCL relief claimed on electricity supplies for the period to September 2006 had been overclaimed. An assessment was issued for the overclaimed CCL as a result of the incorrect PP11 certificate issued to the electricity supplier. The assessment was issued for the period July 2004 to September 2006. While the Appellant was not entitled to CCL relief prior to July 2004, the Respondents only have a power under the provisions of Schedule 6, paragraph 108(1) Finance Act 2000 to raise an assessment for a three year period.

There was a review of the assessment decision, which was undertaken by HMRC Higher Officer Allan Donnachie, who upheld the Civil Penalty assessment.

On 8 May 2007 the Appellant lodged a Notice of Appeal with the Tribunal.

The Appellant's grounds of Appeal

The Appellant's grounds of appeal in the Notice of Appeal are as follows:

(1) The company was eligible as a recycler for the CCL discount.

(2) Their only fault was that the director of the company did not sign a piece of paper and

(3) HMRC continued to allow the company to obtain a discount for five years and at no time did it question the giving of this relief.

The Appellant feels that if the alleged discrepancy have been brought their attention earlier, the application could have been corrected and the matter resolved. The Appellant says that it is unfair that the matter was only brought to their attention in 2006 and backdated to 2004.

The Respondents' contentions

Schedule 6, paragraph 44(1) and (2) Finance Act 2000 makes provision for an 80% reduction of CCL for energy intensive industries which have entered into a CCLA.

The overall responsibility for the CCLA lies with DEFRA and the Secretary of State. The Respondents role is to oversee the application of the reduced rate. Therefore the Respondents would not have known whether the Appellant had complied with all the relevant paperwork. Given the Appellant were not a party to a CCLA, the PP11 certificate was incorrectly issued.

The Respondents say that the assessment was correctly issued under the provisions of Schedule VI, paragraph 101 of the Finance Act 2000 and that the Civil Penalty should be upheld and the appeal dismissed.

The Tribunal will now review the evidence and outline its views.

The Tribunal has reviewed the written evidence presented as well as the oral evidence given by the witnesses Dr A Mardapittas and Mr Jason Young for the Appellant and HMRC Officers Sally Lenton and Allan Donnachie. There was also further written evidence provided at the hearing by the Appellant which included a witness statement from R L J Vigar, Accountant to the Appellant, copy letter to the Appellant dated 29 September and various newspaper clippings and articles written about the incidences of governmental incompetence in dealing with files, forms and records.

The objective of the CCL is to encourage energy efficiency. It is also intended to stimulate investment in energy saving equipment. The aim of the legislation is to address issues of climate change, greenhouse gas emission and pollution standards set by the Kyoto protocol. The primary legislation in respect of CCL is set out in Finance Act 2000, Schedule 6 and the relevant secondary legislation in Climate Change Levy (General Regulations) 2001.

The legislation gives specific relief from the levy. In order to claim the relief there must be agreed documentation and certification issued which evidences compliance with the legislative requirements. The onus is primarily on the claimant seeking the relief to ensure compliance. Any payment errors will render the claimant liable to a penalty assessment.

It is required that claimant have in place a CCLA with DEFRA and its sector association. The purpose of the CCLA is, inter alia, to allow a discount on the levy if certain agreed targets are achieved. Where a business is a party to the CCLA they must complete the relevant forms PP10 and PP11 giving details of their facility number and self certifying their claim for the reduced rate levy. The CCLA is an agreement entered into with a nominated sector association which is checked by DEFRA, who may accept or reject the agreement. If accepted, a DEFRA certificate is issued to HMRC listing the facilities which are covered by the agreement and HMRC publish on their website an agreement notice which list details of the agreement When HMRC have published the agreement notice, the relief may be claimed. To claim the relief, the business must use form PP10 and PP11 to calculate the relief and certify to their suppliers their qualification for the relief whereupon the supplier may apply the levy discount to the relevant energy account. This is a short explanation of how the claim process works. The witnesses, Dr Mardapittas and Mr Donnachie gave evidence agreeing this procedure. Mr Jason Young gave evidence of the Appellant having complied with these requirements.

It seems reasonable to assume that the Appellant had not entered into the CCLA since no evidence was provided to show that this was done. There were no records at HMRC indicating that this Agreement was entered into and this was confirmed by the Appellant's witness Dr Mardapittas. Further, there was no evidence that an HMRC authorisation pack, which would have been issued to claimants at the inception of the legislation, was in fact sent to the Appellant. Officer Lenton gave evidence that no agreement notice was published on HMRC's website.

The legislation required a CCLA to be in place for good reason. This Agreement will ensure that energy efficiency and carbon saving targets which are required to achieve energy efficiency are met. This would monitor the progress of the energy efficiency in carbon emissions, create a transparency in reporting requirement and ensure that the CCL discount is given to the correct claimants. The agreement can also be amended over time to create new targets which may be required. The PP11 certificates will prove the date that the energy supplier received the supplier certificate, confirm the entitlement to the relief and ensure that the relief claimed is applied to the relevant account.

It is important that these procedures be complied with, not only because they are laid down by statute, which itself is a very compelling reason, but this allows the CCL to operate in practice with some certainty and transparency. It also ensures that the correct recipients are receiving the correct CCL relief.

From the evidence provided at the hearing, the PP11 certificate should not have been issued in the absence of a CCLA. It is clear in the legislation that where there has been incorrect certification there is a Civil Penalty. This is stated in Finance Act 2000 Schedule 6, paragraph 101, as follows:

"101-(1) …

(2) Where –

(a) a person gives, in relation to any supply (or supplies) of a taxable commodity (or taxable commodities) being made to him, to the supplier a certificate that the supply (or supplies) is (or are) to any extent –

(i) for domestic or charity use,

(ii) exempt under any of paragraphs [11], [12], [13], [14], [15]. [18], [18A] and [21];

(iii) a half-rate supply (or half-rate supplies), or

(iv) a reduced-rate supply (or reduced-rate supplies) and

(b) the certificate is (or becomes) incorrect;

the person shall be liable to a penalty;

(3) The amount of the penalty to which a person is liable under (this paragraph) shall be equal to 105 per cent of the difference between –

(a) the amount of levy (which may be nil) that would have been chargeable on the supply (or supplies) if the … certificate had been correct, and

(b) the amount of levy actually chargeable.

(4) The giving of a [certificate (or any revoking or varying it) shall not give rise to a penalty under this paragraph if (the person concerned] satisfies the Commissioners or, on appeal, an appeal tribunal that (the person has a reasonable excuse);

(5) Where by reason of giving a [certificate (or not revoking or varying it)] –

(a) a person is convicted of an offence (whether under this Act or otherwise), or

(b) a person is assessed to a penalty under paragraph 98;

that person shall not by reason of [that] be liable also to a penalty under this paragraph."

The Civil Penalty is 105% of the difference between the amount of the levy which would have been chargeable on the supply if the certificate had been correctly issued and the amount of the levy actually chargeable for the relevant period (in this case July 2004 to September 2006). The Tribunal believes that, this is not a disproportionate penalty since 100% represents the unpaid levy and 5% represents is the penalty.

There is power given to the Tribunal in FA 2000 Schedule 6 paragraph 104 to reduce the penalty if they think fit, it states:

"104-(1) Where a person is liable to a civil penalty –

(a) the Commissioners or, on appeal, an appeal tribunal may reduce the penalty to such amount (including nil) as they think proper; but

(b) on an appeal relating to any penalty reduced by the Commissioners, an appeal tribunal may cancel the whole or any part of the Commissioners' reduction,

(2) In determining whether a civil penalty should be, or should have been, reduced under sub-paragraph (1), no account shall be taken of any of the following matters, that is to say –

(a) the insufficiency of the funds available to any person for paying any levy due or for paying the amount of the penalty;

(b) the fact that there has, in the case in question or in that case taken with any other cases, been no or no significant loss of levy;

(c) the fact that the person liable to the penalty or a person acting on his behalf has acted in good faith."

In this case the Tribunal will reduce the penalty by 5% given that HMRC, perhaps due to workload, where not as diligent in undertaking a timely verification of the claim. It meant that the Appellant claimed relief for five years before HMRC realised the claim was faulty. While the onus is on the claimant to have correct paperwork, if the discrepancies in the paperwork had been brought to their notice earlier they would not have incurred the additional penalty. It is understandable that HMRC would have a very large workload in conducting verification of the claims made. However, a taxpayer who felt that they had complied with the legislation and sought professional help with the forms would understandably feel aggrieved if they have continued to receive a relief were one was not due. The undertaking of an earlier HMRC audit would have verified the correct taxpayer entitlement to the relief and the missing paperwork. It must be part of HMRC's job to establish, within a reasonable time, non-compliant claims. If the claim is non-compliant the taxpayer must repay the benefit received but should not be penalised for a delay in establishing such non-compliance where they had acted reasonably.

The Appellant would be entitled to feel aggrieved more so since they are making a valuable contribution to the reduction of green house gas emission and energy efficiency. In the circumstances, we believe that the Appeal should be partly allowed.

DR K KHAN

CHAIRMAN

RELEASED: 8 October 2008

LON 2007/0863