United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2008] UKVAT V20902

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Mediaid Training Services Ltd v Revenue & Customs [2008] UKVAT V20902 (18 December 2008)

20902

DEFAULT SURCHARGE – Reasonable excuse – Enquiry as to effect of part payment – Misunderstanding – No clear evidence as to what was said – Tribunal not satisfied within VATA s.59(7) – Complaint of lack of advice as to cash accounting held not a reasonable excuse – Principle of proportionality not infringed – Appeal dismissed

LONDON TRIBUNAL CENTRE

MEDIAID TRAINING SERVICES LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: THEODORE WALLACE (Chairman)

MRS ELIZABETH MacLEOD

Sitting in public in London on 9 January, 6 August and 27 November 2008

Richard Palmer, director, for the Appellant

Mrs Gloria Orimoloye, advocate, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

This appeal is against a default surcharge of £1,382.85 for the period to March 2007 which was at the 15 per cent rate. The payment which was by BACS was received on 9 May 2007.

Mr Palmer advanced three separate grounds of appeal. His main ground was that his son was told on the telephone that even if part of the VAT was paid on time the surcharge would be based on the full amount. His next ground was that the surcharge was disproportionate and against the principles of the Human Rights Act. His third ground was that he had not been advised of the cash accounting scheme.

If the Appellant was told that payment of part of the VAT on time would not reduce the amount of the surcharge payable this was clearly wrong in law because under section 59(4) of the VAT Act 1994 the surcharge is calculated on the outstanding VAT for the period. Such advice would give rise to a reasonable excuse in respect of the part of that surcharge attributable to the VAT which the Appellant could and would otherwise have paid in time, see Harman v Customs and Excise Commissioners (2003) Decision No.18415.

On the first day of the hearing the Tribunal decided against the Appellant in respect of the proportionality grounds and cash accounting and adjourned the appeal for the Appellant to adduce further evidence as to the telephone enquiry. The August hearing was adjourned to enable Martin Dent, of the Respondents' Debt Management Unit, to attend to give oral evidence, the Appellant having objected to his witness statement. Given the clear conflict between his statement and the evidence by Mr Richard palmer, Mr Dent's attendance was clearly essential.

We heard three witnesses, Richard Palmer, Matthew Palmer and Mr Dent.

Matthew Palmer, who was the company secretary, joined the Appellant in June 2005. He confirmed a statement dated 4 February 2008. He said that he made several calls to the Debt Management Unit around July 2005 concerning a refund awaited from the Inland Revenue. He told us that his impression from that call and several others was that surcharges were based on the whole amount on the return even if part was paid on time.

He said that on 26 April 2008 he called the help desk and told them that the Appellant did not have the full amount and asked what would happen if part payment was made. He was led to believe that the surcharge would be on the full amount, although he did not know exactly what was said. He was told that any further queries along those lines should be to the Debt Management Unit. He told his father who was not in his office. They returned to his office and he telephoned the Debt Management Unit with the speakerphone on. He confirmed the company details and his authority. He said that he did not really remember the conversation but the call was to ask about part payment. It was a short call lasting 3 to 5 minutes. He understood that there were seven days extra for electronic payment and the dates for that were discussed. He expected to have the money in time to make the payment. He understood from what he was told that part payment would not reduce the surcharge.

He told Mrs Orimoloye that he made several calls to the Help Desk when he first started but the only call he specifically remembered was that on 27 April when he was given specific advice that the surcharge would be on the whole amount in the return. He said that the sole purpose of the call was to ask about part payment in relation to a surcharge. He did not dispute what was in Mr Dent's Info Log Entry which made no mention of part payment but said that it was not complete. The call to the National Advice Centre was simply about what would happen if the payment was late; it was on the same day or on the afternoon before. He had not got a reference number for the call and had not taken any notes. There might have been an extra day between the calls.

He told the Tribunal that Mr Dent had told him that part payment would not prevent a full surcharge. He himself was not very confrontational so he did not comment to Mr Dent on what he had said. His father heard it and walked out of the room; he did not appear to be happy – quite the opposite.

Richard Palmer said that Matthew told him that there might not be enough money to pay all the VAT but that it was pointless to make part payment because the surcharge would be on the whole. They could pay just under £8,000. He told Matthew that was ridiculous and that he wanted to hear for himself.

He said that Matthew phoned up and clearly asked what would happen if a part payment was made. He was told "any penalty is based on the return." On hearing that he left the office. Another officer, Bernard Harris, told him that if wrong information was given that was a ground for appeal.

Cross-examined, he said that he could not say the exact words used. He maintained that, when asked what happened if only part was paid, they were told that the surcharge was based on the return. He was not saying that the officer said that it makes no difference.

Asked about the passage in Mr Dent's statement when he wrote, "The question of default surcharge penalties was not raised or discussed," he said that it clearly was discussed and pointed to the reference to "extra 7 days allowed" in Mr Dent's Log. He had stormed out in the middle of the conversation.

Mr Dent said that he joined Customs in October 2003 and had been at the Debt Management Unit throughout. The unit was not primarily concerned with default surcharges, its role being to chase outstanding debt. He was familiar with the default system. He dealt with about a hundred queries a day and had no real recollection of the telephone conversation apart from the electronic log. He normally took a note when talking and entered it onto the computer immediately afterwards. The return had not been due when they spoke. The unit aimed to get in as much money as possible; there was no reason to turn away a part payment. He knew that the law is that a surcharge is limited to the amount paid late.

He exhibited his Info Log entry which reads as follows unabbreviated:

"27/04/07 trader phoned – return due Monday and worried his calculations are incorrect. Accountant visiting on Monday to review figures. Suggested he fax copy to case worker, also phoning to discuss any payment issues. Confirmed extra 7 days allowed if paying electronically but, with bank holiday, BACS payment would need to be transmitted by Wednesday 2^nd."

Cross-examined by Richard Palmer, he said that the Advice Centre would advise traders to contact the Debt Management Unit for a time to pay agreement.

The conversation had started with the trader saying that he was not convinced that his accounts were correct and that the accountant was coming on the day when the return was due. The trader said that he was not certain that there was enough money and he told him in that case to refer to his caseworker at the Unit, Mr Smith. The call had been referred to Mr Dent because Mr Smith was not answering. Mr Dent put the entry onto the computer within minutes: it was a summary of what was said. The handwritten notes were shredded. The notes could be altered by any officer at the unit until the pad was locked because the page was full : this happened on 30 May.

Asked whether it would have been prudent to say, "Pay what you can", he said that it was left that the trader should call back if he could not pay in time. He said that they did not talk about penalties and it was not mentioned in the conversation.

Re-examined, he said that he did not recall any specific question about part payment. If it had been mentioned he would have said that Customs would take it.

An Info Log entry by Brian Harris on 24 May contained the following,

"Telephone call from an irate Mr R Palmer complaining about the default surcharge system …. Said a member of his staff rang for advice on 23.05.07 and asked for details of when to pay to avoid default surcharge and for some reason … the payment was sent two days later. Also asked if he could send a part payment as by the 2^nd would have most of the tax and was advised no. Advised Mr Palmer that the case worker had not recorded this fact and he was upset as he could have paid most of the VAT and the default surcharge would not have been as much."

Bank statements produced by the Appellant showed that his bank account was debited with the £9,199.09 VAT due on 4 May.

Conclusions

There was a direct conflict of evidence as to the conversation on the telephone between Matthew Palmer and Mr Dent on 27 April.

In our judgment all three witnesses were giving honest evidence. In the event there is no need to resolve the conflict for the reason that Mr Dent clearly failed when telling the Appellant that a BACS payment would have to be made by 2 May to arrive on time to point out that a CHAPS payment which involves same day transfer would avoid the problem. Since the BACS payment was initiated on 4 May, if the payment had been by CHAPS there would have been no default. CHAPS transfers were highly relevant to the Appellant's query. Given that BACS was discussed, Mr Dent should have pointed out the CHAPS could be used. In the context of the enquiry we find that there was a reasonable excuse.

Our reasons for rejecting the Human Rights and proportionality issues can be given briefly. In Greengate Furniture Ltd v Customs and Excise Commissioners [2003] V&DR the Tribunal decided, having heard submissions from an Advocate to the Tribunal, that the system of default surcharges does not infringe the principles of proportionality under EC law and does not infringe the European Convention on Human Rights. That decision did not and could not address the issue of whether the principle of proportionality might be infringed by a surcharge in a particular case. This is not such an extreme case that the surcharge is wholly disproportionate.

The other ground advanced was the lack of advice on cash accounting. As Mrs Orimoloye pointed out at the first hearing a copy of Notice 731 covering cash accounting was in fact sent to the Appellant in 2001. Mr Richard Palmer complained that cash accounting had not been explained to the Appellant and because he did not deal in cash they did not think it applied. If Customs had given specific advice in April 2008, it would have been much too late for the period in question since a trader is required to keep separate records from the start of using the scheme excluding output tax and input tax already accounted for on an invoice basis. We do not consider that the failure to give specific advice as to cash accounting before period 03/07 gives rise to a reasonable excuse.

The appeal is therefore allowed.

THEODORE WALLACE

CHAIRMAN

RELEASED: 18 December 2008

LON 2007/1298

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