[2011] UKFTT 240 (TC)

TC01104

Appeal number:  TC/2010/09592

Value Added Tax – Value Added Tax Act 1994, Sections 59 and 71 – default surcharge - whether there was a reasonable excuse – delay in making payment by employed cashier -Appeal dismissed.

FIRST-TIER TRIBUNAL

TAX 

	LEONARDS SOLICITORS LIMITED	Appellants

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL JUDGE:	W Ruthven Gemmell, WS	

Sitting in public in Edinburgh on 24 March 2011

No appearance for the Appellants

Ms Liz McIntyre, for the Respondents 

© CROWN COPYRIGHT 2011

DECISION
The Appeal
1.	This is an appeal against the imposition of a default surcharge penalty in an amount of £2,178.09 being 15% of the net tax due in respect of the period ended on 30 September 2010 (09/10).
Legislation
2.	Value Added Tax Act 1994 provides:- 
Section 59 The default surcharge.

(1) Subject to subsection (1A) below if, by the last day on which a taxable person is required in accordance with regulations under this Act to furnish a return for a prescribed accounting period—
(a)  the Commissioners have not received that return, or
(b) the Commissioners have received that return but have not received the amount of VAT shown on the return as payable by him in respect of that period,
then that person shall be regarded for the purposes of this section as being in default in respect of that period.
(1A) A person shall not be regarded for the purposes of this section as being in default in respect of any prescribed accounting period if that period is one in respect of which he is required by virtue of any order under section 28 to make any payment on account of VAT.
(2) Subject to subsections (9) and (10) below, subsection (4) below applies in any case where—
(a) a taxable person is in default in respect of a prescribed accounting period; and
(b) the Commissioners serve notice on the taxable person (a “surcharge liability notice”) specifying as a surcharge period for the purposes of this section a period ending on the first anniversary of the last day of the period referred to in paragraph (a) above and beginning, subject to subsection (3) below, on the date of the notice.
(3) If a surcharge liability notice is served by reason of a default in respect of a prescribed accounting period and that period ends at or before the expiry of an existing surcharge period already notified to the taxable person concerned, the surcharge period specified in that notice shall be expressed as a continuation of the existing surcharge period and, accordingly, for the purposes of this section, that existing period and its extension shall be regarded as a single surcharge period.
(4) Subject to subsections (7) to (10) below, if a taxable person on whom a surcharge liability notice has been served—
(a) is in default in respect of a prescribed accounting period ending within the surcharge period specified in (or extended by) that notice, and
(b) has outstanding VAT for that prescribed accounting period,
he shall be liable to a surcharge equal to whichever is the greater of the following, namely, the specified percentage of his outstanding VAT for that prescribed accounting period and £30.
(5) Subject to subsections (7) to (10) below, the specified percentage referred to in subsection (4) above shall be determined in relation to a prescribed accounting period by reference to the number of such periods in respect of which the taxable person is in default during the surcharge period and for which he has outstanding VAT, so that—
(a ) in relation to the first such prescribed accounting period, the specified percentage is 2 per cent;
(b) in relation to the second such period, the specified percentage is 5 per cent;
(c) in relation to the third such period, the specified percentage is 10 per cent; and
(d) in relation to each such period after the third, the specified percentage is 15 per cent.
(6) For the purposes of subsections (4) and (5) above a person has outstanding VAT for a prescribed accounting period if some or all of the VAT for which he is liable in respect of that period has not been paid by the last day on which he is required (as mentioned in subsection (1) above) to make a return for that period; and the reference in subsection (4) above to a person’s outstanding VAT for a prescribed accounting period is to so much of the VAT for which he is so liable as has not been paid by that day.
(7) If a person who, apart from this subsection, would be liable to a surcharge under subsection (4) above satisfies the Commissioners or, on appeal, a tribunal that, in the case of a default which is material to the surcharge—
(a)the return or, as the case may be, the VAT shown on the return was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the Commissioners within the appropriate time limit, or
(b) there is a reasonable excuse for the return or VAT not having been so despatched,
he shall not be liable to the surcharge and for the purposes of the preceding provisions of this section he shall be treated as not having been in default in respect of the prescribed accounting period in question (and, accordingly, any surcharge liability notice the service of which depended upon that default shall be deemed not to have been served).

Section 71 Construction of sections 59 to 70.

(1) For the purpose of any provision of sections 59 to 70 which refers to a reasonable excuse for any conduct—
(a) an insufficiency of funds to pay any VAT due is not a reasonable excuse; and
(b) where 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.
(2) In relation to a prescribed accounting period, any reference in sections 59 to 69 to credit for input tax includes a reference to any sum which, in a return for that period, is claimed as a deduction from VAT due.

The Facts and Submissions
3.	The return was submitted in time but payment was not received until 9 November 2011.  It was due to be received on Sunday 7 November 2011 so in effect the due date for payment was 5 November 2011.
4.	The Appellants who were not represented at the hearing say that an error had been made by a longstanding employed cashier with 38 years experience.  They say this was a genuine mistake and that the penalty for failing to pay the tax due by two days is disproportionate and unjust.  They say in the economic climate, as a small business, they are affected by recession.
5.	The payment was made by a CHAPS payment on 9 November 2010.
6.	The Respondents say that the payment follows a pattern of late payments and provided evidence to show that the returns for the quarters ended September 2009, December 2009, March 2010 and June 2010 were all paid late.
7.	The Respondents say that the Appellants were issued with a Valued Added Tax Surcharge Liability Notice (VAT 160) on 13 November 2009 stating that the Appellants would be “liable to a surcharge if they were in default in respect of the prescribed accounting period ending within the surcharge period which runs from the date of this notice until 30 September 2010”.  This form explained what a default is, what would happen if there was a further default and how the surcharge is calculated.
8.	In particular, it stated that the rate of surcharge would increase progressively starting at 2% for the first payment default, increasing progressively to 5%, 10% and 15% for further payment defaults in a surcharge period.
9.	On 12 February 2010, a Value Added Tax Surcharge Liability Notice Extension (VAT161) was sent to the Appellants extending the surcharge period to 31 December 2010 and repeating the information in respect of what would happen if there was a default and how the surcharge was calculated.
10.	On 14 May 2010, a further Valued Added Tax Surcharge Liability Notice Extension (VAT 161) was sent in similar terms but extending the period to 31 March 2011.  At this stage, the surcharge assessment was notified as being calculated at a rate of 10%.  
11.	A Valued Added Tax Notice of Assessment Surcharge Liability Notice Extension dated 13 August 2010 was sent to the Appellants stating that the amount of the assessment was calculated at the rate of 15%.  A similar letter was sent on 12 November 2010, which is the subject of the Appeal.
12.	The charge at the level of 15% is, therefore, determined by the continuing default within the default surcharge periods.
13.	The Respondents say that that the Appellants were aware that the tax was due on or before 7 November 2010, that it was not paid at that date and that whereas there was a genuine error they did not believe it was a reasonable excuse on the grounds that reliance on another person is specifically excluded as a reasonable excuse in terms of the Valued Added Tax Act 1994, section 71(1)(b).  
14.	The Respondents say that they have no discretion as to the amounts being levied and that the Respondents provide businesses with various schemes to help with cash flow, but that the Appellants did not utilise any of those schemes.
15.	The Respondents carried out a review of their decision on 13 December 2010 stating that overlooking the payment was classed as a genuine mistake but for surcharge purposes this was not acceptable as a reasonable excuse.
Findings
16.	The Tribunal found on the facts that the Appellants did not have a reasonable excuse as the reason being put forward being the inaccuracy on the part of the person is prohibited from statute from being classified as a reasonable excuse and the impact of a recession is also not a reasonable excuse. 
17.	The Appeal is dismissed.
18.	This document contains full findings of fact and reasons for the decision.  Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.  The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

W RUTHVEN GEMMELL, WS
TRIBUNAL JUDGE

RELEASE DATE:  11 APRIL 2011