[2011] UKFTT 384 (TC)

TC01239

Appeal number TC/2010/09556

VAT surcharges – late returns and payments of tax – payments made within 7 days allowed for electronic payment – payment by BACS causing delay in tax being received by HMRC – whether reasonable excuse – no – appeal dismissed.

FIRST-TIER TRIBUNAL

TAX 

	CV STAFF SERVICES LTD	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: MICHAEL S CONNELL (Tribunal Judge)

Sitting in public at Phoenix House  Rushton Avenue  Bradford  BD3 7BH on 22 March 2011

Mr Luske, proprietor of the Appellant Company, in person

Mrs Nadine Nawman, Officer of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	This is an appeal by the Appellant against 3 surcharge liability notice extensions and accompanying assessments of surcharge for the periods 01/10, 06/10 and 07/10.
2.	The Appellant operates an employment agency supplying unskilled farm labour and has been registered for VAT purposes since November 2004.
3.	The Appellant defaulted on 5 separate occasions, on each occasion filing its VAT return late and making payment of VAT late.  This appeal relates only to the third, fourth and fifth defaults.
4.	The first default which brought the Appellant into the default surcharge system occurred for the quarterly period ending 05/09.  The return and payment for this period fell due on 30.06.09.  However, the return was not received until 03.07.09 and the tax was not paid until 08.07.09.  Where payment is made electronically, the payment due date is extended by 7 days, save where it falls over a weekend.  The payment was 1 day late and the return 3 days late.
5.	A surcharge liability notice was issued on 17.07.09.  The surcharge liability period commenced on that date and was due to end on 31.05.10.
6.	The second default occurred for the period ending 12/09.  The return and tax fell due on 31.01.10.  The return was received by HMRC on 30.01.10 but the tax was not paid until 08.02.10.  As a result, a surcharge liability extension notice was issued extending the surcharge period to 31.12.10.  A surcharge of 2% of the tax due was imposed but, because this fell below the de minimis limit of £400.00, the surcharge was not charged.  The Appellant however was warned that, if it defaulted again, it would become liable to a surcharge at 5% of the tax due.
7.	The third default occurred for the period ending 01/10.  The return and payment for this period fell due on 28.02.10.  The return was received by HMRC on 03.03.10 and was therefore 5 days late, and the VAT received on 08.03.10 being 3 days late (the due date for payment having fallen over a weekend).  A surcharge liability notice extension was issued extending the default period to 31.01.11.  A surcharge of 5% of the tax due was imposed but again not charged as it fell below the £400.00 de minimis level.  The Appellant was warned that, if it defaulted again, it may become liable to a surcharge of 10% of the tax due.  The Appellant was also informed that there was no de minimis once the surcharge is at the level of 10%.
8.	The fourth default occurred for the period ending 06/10.  The return and payment for this period fell due on 31.07.10.  The return was received by HMRC on 08.09.10 and was therefore 32 days late, and the VAT payment was received on 09.08.10 and was 3 days late (the due payment date having fallen over a weekend).  A surcharge liability notice extension was issued on 13.08.10.  The Appellant had paid the sum of £10,000.00 by the due date and therefore the surcharge was calculated on the balance.  Tax assessed on the return was £11,497.84 and therefore the balance paid late was £1,497.84. The 10% surcharge was £149.78.  The default period was extended to 30.06.11 and the Appellant was informed that, if it defaulted again, it would become liable to a surcharge at 15%.
9.	The fifth default occurred for the period ending 07/10.  The return and payment for this period fell due on 31.08.10 but both the return and the tax due were not received by HMRC until 08.09.10, and were therefore each 1 day late.  A surcharge liability notice extension was issued, extending the default period to 31.07.11 and a surcharge was calculated on the tax due of £15,556.79 less £9,246.13 (representing the balance of £10,000.00 held by HMRC having allocated £753.87 of the £10,000.00 payment to an earlier period in respect of which tax was due) and therefore the tax paid late amounted to £6,310.66, on which a surcharge at 15% was imposed of £946.59.
10.	The basis of the Appellant’s appeal is that, in respect of the third default it had paid by BACS.  Payment had left its bank on Thursday 04.03.10 and should have been received by HMRC the same day.  In respect of the fourth default, the Appellant says that £10,000.00 was paid by the due date and the balance of £1,497.85 by BACS on 05.08.10, and again should have been received by HMRC on the same day.  In respect of the fifth default, £10,000.00 was paid by the due date but only £9,246.13 was allocated to the period as the balance was allocated to tax due in respect of earlier periods.  Mr Luske, the proprietor of the Appellant Company, says that what he thought was the balance of £5,556.79 was paid by BACS on 06.09.10 and should have been received by HMRC on the same day.
11.	It appears that the Appellant failed to take into consideration the amount of time a BACS payment takes to reach the payee.  The Appellant has also failed to take into account that, where a payment is due over a weekend, it has to be received by HMRC by the Friday before.  This is covered in Notice 700/50 Default Surcharges, which is referred to in the Notes that are on the back of each of the default notices issued.
12.	It is clear that Mr Luske thought that his instructions to his bank to pay VAT by BACS would ensure that payments reached HMRC’s bank account by the 7th day of the relevant month.  The Appellant produced bank statements which showed the date payments left its bank account.  There was a delay of several days before the payments were received by HMRC.
13.	Section 59(7) VATA 1954 states :
‘If a person who, apart from this sub-section, would be liable to a surcharge under sub-section (4) above, satisfied 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 showed 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

he shall not be liable for the surcharge and for the purposes of the proceedings of this section he shall be treated as not having been in default in respect of the prescribed accounting period in question …’
14.	Each VAT return clearly states in bold lettering that the taxpayer could be liable to a financial penalty if the VAT return, or VAT payable, is not received by the due date.  The return clearly shows the ‘due date’ and HMRC allows an additional 7 calendar days for the return to be received if it is sent to HMRC electronically.  
15.	The Appellant was advised in correspondence on 09.10.09 to ensure that it made its return and VAT payment by the due date.  The Appellant was specifically told that payments by BACS would take at least 3 days to reach HMRC.  Again the Appellant was reminded on 04.03.10 that payment must reach HMRC by the 7th day following the relevant period and to check with its bank how long payments are likely to take before reaching HMRC.  The Appellant was also told that, if the 7th day fell on a weekend, the payment must be received by HMRC on the Friday before the weekend.
16.	It is clearly for the Appellant to ensure that it submits its returns and that payments are received by HMRC by the due payment date.  The Appellant has been in the default system from the VAT period 05/09.  Although payments in respect of the three default periods appealed were respectively only 3, 3 and 1 day late, that does not excuse late payment.  Section 59 VATA provides for the gradual increase in the rate of surcharge for late payments.  No surcharges were imposed in respect of the periods 12/09 and 01/10 as the surcharge amount fell below the de minimis level.  However, the Appellant was warned in each case that future defaults may result in a surcharge being raised.
17.	In all the circumstances, the Appellant’s grounds of appeal did not show a reasonable excuse for the late returns and the late VAT payments.  Accordingly, the Tribunal dismisses the appeal and confirms the surcharges imposed.
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.

MICHAEL S CONNELL

TRIBUNAL JUDGE
RELEASE DATE: 9 June 2011