[2009] UKFTT 34 (TC)

TC00003

Misdeclaration penalty - no appeal against assessment - transfer of land as a going concern - failure of accountants to notify and elect on time - Vat chargeable - no reasonable excuse - mitigation of 70% allowed by Customs - mitigation of 100% allowed by tribunal - appeal allowed 	

MANCHESTER TRIBUNAL CENTRE

 
 	
					JOHN CONNELL	                 Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	                                                                                                                    Respondents

Tribunal: 	Elsie Gilliland (Chairman)
		John Lapthorne(Member)
					
Sitting in public in Birmingham 15 January 2009

Jonathon Lewis, accountant, for the Appellant

Kim Tilling of the Solicitors' office of HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2009

DECISION

1.	The tribunal heard the appeal of John Connell (the Appellant) against a misdeclaration penalty imposed by Customs in respect of the accounting period 09/06 in the sum of £2345. There was no appeal against the assessment. The Appellant was represented by Jonathon Lewis his current accountant. 
2.	It was submitted on behalf of the Appellant that he had been let down by his previous accountants on whom he had relied to deal with his Vat returns including the particular transaction which in due course had given rise to the penalty. The facts were not in dispute nor that the procedure should have been done differently but this was not an attempt to avoid VAT. The aim of the appeal was to have the penalty removed or reduced.
3.	The tribunal was informed that the business of the Appellant was a portfolio of personal properties of which the 2 units in question had formed a part and more recently a care home for autistic children. Because of financial circumstances more than 90% of the business had been sold.  The problem appeared to relate to advice given as to waiver of exemption of VAT on the disposal of 2 named commercial properties Units 8 and 9 Mere Farm Business Complex Redhouse Lane Northampton. The assessment arose because the Appellant had not accounted for VAT on the sale to Really Flexible Mortgages Ltd. (RFM).
4.	For Customs it was submitted that this was a circular transaction.  The Appellant was the sole director of RFM. He had opted to charge VAT on the rents when he owned the properties. Had RFM of which he was sole director complied with all the requirements to waive the exemption, as a transfer of a going concern there would have been no tax due.
5.	The problem had been identified on an assurance visit to the Appellant's previous accountants. Mitigation had been allowed by Customs of 70%. Customs did not consider that mitigation of 100% was appropriate as there was no voluntary disclosure. There was no appeal against the assessment and no issue that Vat should have been charged on the sales of the two properties.
6.	The further submissions of the representative of the Appellant were to the effect that it was unreasonable to expect his client to have the kind of knowledge necessary to be aware of the tax requirements in the circumstances in question and that it was reasonable for him to rely on the knowledge and paperwork of his accountants. The Appellant did not have the money to make the payment and it was of relevance to the tribunal to be aware of this.
7.	The case as presented to the tribunal is based on the reliance of the Appellant on a professional adviser who it is claimed on behalf of the Appellant got the advice and paperwork wrong. There are two specific powers available to the tribunal. First if the taxpayer can satisfy the tribunal that he has a reasonable excuse for the misdeclaration (s63 (10) of the Act) then the penalty may be cancelled. In the decision in Appropriate Technology Ltd. v CCE [1991] VATTR 226 it was stated that the question to be asked by the tribunal was:  
" ... would a reasonable conscientious businessman who knew all the facts of the case... and who was alive to and accepted the need to comply with one's responsibilities in regard to  rendering of VAT returns, consider that [the taxpayer] in acting as it did in the circumstances in which it found itself, had acted with due care in the preparation of its return".
8.  The scope of a "reasonable excuse" is however limited by s71(1) of the Act which provides:
(a) an insufficiency of funds due to pay any VAT due is not a reasonable excuse; and
(b) when 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.
 9.  In CCE v D&DA Harris [1989] STC 907 the High Court held that the effect of what is now s71(1) (b) precluded inaccuracy and delay on the part of an accountant from providing a reasonable excuse for the failure in that case to notify for registration to VAT. In the instant case the tribunal holds that the Appellant cannot rely on the alleged failures of his previous accountants to complete and submit the relevant forms in time as constituting a reasonable excuse.  
10. The second power of the tribunal is to mitigate. Under s70(1) of the Act in the case of a misdeclaration (s63(10)) it has power to reduce the amount of the penalty to such amount (including nil) as it thinks proper. By s70(4) of the Act certain matters are not to be taken into account including under (a) insufficiency of funds  for the payment of any VAT due or for paying the amount of the penalty under(b) the fact that there has been no or no significant loss of VAT and under (c) that  the person liable to the penalty or anyone acting on his behalf has acted in good faith. So far as mitigation is concerned there is no limit on the reduction of the penalty the tribunal may allow. In the case of TRJordan v CCE  [1994] VATTR 286 it was stated that essentially the question is how far the taxpayer is to blame for the defaults. The representative for the Appellant submitted that the Appellant was a lay person and that the misdeclaration was entirely due to the wrong advice of his adviser. There is copy correspondence from the previous accountants in the bundle of documents submitted by Customs in which they acknowledge that there could have been a misunderstanding and on the face of it acknowledging some error on their part. For Customs it was pointed out that the Appellant was a businessman and would himself have had an understanding of how his business was affected by tax.
11.The legal position is that there may be mitigation in circumstances where there is a degree of reasonable behaviour which falls short of establishing a "reasonable excuse".  It is clear that the Appellant's financial position is serious but that is not a consideration that the tribunal can take into account. Neither is the absence of a loss of VAT (s70 (4) (a) and (b). However he was not informed by Customs of the assurance visit to his accountants and knew nothing of it. There has been no attendance at the hearing on behalf of those previous accountants and so the tribunal can refer only to the copy letters in the bundle. It is not suggested in those letters from the accountants that there had been fault on the part of the Appellant in instructions or paperwork. Substantial mitigation of 70% has already been allowed by Customs. Their unwillingness to consider more was it was said because there had been no voluntary disclosure. However the tribunal is satisfied that the Appellant's own behaviour was reasonable in leaving the VAT matters in the hands of the accountants who were acting for him and in taking their advice and no personal blame is involved. Accordingly mitigation of 100% is allowed in respect of the penalty the subject of the appeal.
12.The appeal is allowed.
13.We direct that the Appellant is entitled to costs and in the absence of agreement between the parties on these the issue of costs shall at the request of either party be referred to a Chairman sitting alone.

MAN/08/1197

ELSIE GILLILAND
CHAIRMAN
Release Date: 26 March 2009