United Kingdom VAT & Duties Tribunals Decisions

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URL: http://www.bailii.org/uk/cases/UKVAT/2009/V20975.html
Cite as: [2009] UKVAT V20975

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Ricecooker Ltd (t/a Liquorish v Revenue & Customs [2009] UKVAT V20975 (13 March 2009)

20975

DEFAULT SURCHARGE – whether reasonable excuse – no – appeal dismissed

LONDON TRIBUNAL CENTRE

RICECOOKER LIMITED T/A LIQUORISH Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: DR JOHN F AVERY JONES CBE (Chairman)

RAY BATTTERSBY

Sitting in public in London on 11 March 2009

Ashkhan Candey, solicitor and director of the Appellant, for the Appellant

Gloria Orimoloye, Senior Officer HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009


 


DECISION

1. Ricecooker Limited trading as Liquorish appeals against a default surcharge for period 11/07 of £666.28. The Appellant was represented by Mr Ashkhan Candey and the Respondent ("HMRC") by Miss Gloria Orimoloye.
2. We find the following facts:

(1) The Appellant runs a restaurant in Dulwich which has been in operation for about five years. In October 2007 the general Manager was asked to leave and the deputy manager, Mr Salugo, took over as general manager in November 2007.

(2) Mr Salugo over-ordered stocks in advance of Christmas. Mr Candey, who described himself as in effect the managing director, went abroad on 26 December 2007 and did not return until 13 January 2008. The other director Mr Anderson was available and signed the VAT return on 9 January 2008.

(3) The VAT for the period 11/07 was due on 31 December 2007 but due to a shortage of funds this was not paid until 21 January 2008 when the Vat return was received by HMRC. Mr Candey on his return advanced further funds to the Appellant and out of these funds the VAT was paid.

(4) The Appellant had defaulted in payment of VAT on time for periods 02/07 (surcharge liability notice issued); 05/07 (2 per cent surcharge); 08/07 (5 per cent surcharge). This caused the 10 per cent surcharge for period 11/07 of £666.28 that is in issue in this appeal.

(5) The surcharge liability extension notices for periods 08/07 and 11/07 were wrongly addressed to the Appellant at 123 Lord Land, rather than Lordship Lane, but the Appellant does not claim that they were not received.

3. Mr Candey, for the Appellant, contends that the shortage of funds was due to unforeseeable and inescapable misfortunes, relying on the judgment of Scott LJ in Customs and Excise Commissioners v Steptoe [1992] STC 757, consisting of the general manager leaving and Mr Salugo over-ordering stock.
4. Miss Orimaloye, for HMRC, contends that the cause of the shortage of funds was the internal failings of the Appellant to supervise and train Mr Salugo properly, which is not a reasonable excuse.
5. The ratio of Steptoe is found in the judgment of Lord Donaldson where he says at p 770:

That said, there must be limits to what could be regarded as a reasonable cause. Nolan LJ, as I read his judgment explaining and expanding on his judgment in Customs and Excise Comrs v Salevon Ltd [1989] STC 907, is saying that if the exercise of reasonable foresight and of due diligence and a proper regard for the fact that the tax would become due on a particular date would not have avoided the insufficiency of funds which led to the default, then the taxpayer may well have a reasonable excuse for non-payment, but that excuse will be exhausted by the date on which such foresight, diligence and regard would have overcome the insufficiency of funds.

Scott LJ on the other hand is of the opinion that the underlying cause of the insufficiency of funds must be an 'unforeseeable or inescapable event'. I have come to the conclusion that this is too narrow in that (a) it gives insufficient weight to the concept of reasonableness and (b) it treats foreseeability as relevant in its own right, whereas I think that 'foreseeability' or as I would say 'reasonable foreseeability' is only relevant in the context of whether the cash flow problem was 'inescapable' or, as I would say, 'reasonably avoidable'. It is more difficult to escape from the unforeseeable than from the foreseeable.

It follows that if I have correctly interpreted the two judgments, I am in agreement with Nolan LJ rather than Scott LJ. On the other hand if I have incorrectly interpreted either or both, my views are those that I have attributed to Nolan LJ.

6. The issue is therefore whether the exercise of reasonable foresight and of due diligence and a proper regard for the fact that the tax would become due on a particular date would have avoided the insufficiency of funds. We consider that it would. Mr Salugo had only just taken over the job of general manager and this was his first Christmas period. The directors could have told him from their experience of business over the four previous Christmases that he was over-ordering but they did not stop him from doing so. In this respect the directors, and hence the Appellant, did not therefore live up to the standards expected of a reasonable businessman. Had they done so the shortage of funds would have been avoided.
7. Accordingly we find that the Appellant does not have a reasonable excuse for the late payment of VAT for period 11/07 and we dismiss the appeal.

JOHN F AVERY JONES

CHAIRMAN

RELEASE DATE: 13 March 2009

LON/08/2442