Palacath Ltd v Customs & Excise [2003] UKVAT V18340 (20 October 2003)

VAT DEFAULT SURCHARGE – Failure to make payment of VAT by due date – unsigned cheque – Customs did not notice the cheque was unsigned – no reasonable excuse found – Appeal Dismissed

LONDON TRIBUNAL CENTRE

PALACATH LIMITED 	Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE 	Respondents

Tribunal: Michael Tildesley (Chairman)
         Ranvir Suri JP (Member)

Sitting in public in London on 27 August 2003

Appellant appeared in person

Mr Palmart for the Respondents

 CROWN COPYRIGHT 2003

DECISION

	The Appeal
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1	The Appellant is appealing against a default surcharge under section 59(4) of the VAT Act 1994 in the sum of £1,808.90 in respect of the period ending 31 December 2002.  The due date for the period was 31 January 2003, and the payment was not received until 20 February 2003.  This was the Appellant’s third default since the issue of the surcharge liability notice, and a surcharge of 10 per cent of the tax declared was imposed.
	
	The Facts	

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2	The Appellant’s business was property development and registered for VAT under registration number 234 8593 40.	

	
3	During the last 2 years the Appellant has a history of default in respect of its VAT returns.
	
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Period Ending

31.03.01

31.12.01

31.03.02

31.12.02	
Due Date

30.04.01

31.01.02

30.04.02

31.01.03	
Date Payment Received

10.05.01

07.02.02

15.05.02

20.02.03	
Tax Assessed

       £
21,304.90

18,655.51

18,780.97

18,089.08	
Surcharge

       £
    0.00

    0.00

    939.03

   1,808.90	

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4	The Appellant sent the VAT return and payment for the period ending 31 December 2002 on 27 January 2003 which was received at VAT Central Unit on 30 January 2003.  Unfortunately one of the Appellant’s Directors inadvertently failed to sign the cheque for the VAT payment.  This error was picked up by the Appellant’s bank when the cheque was presented for payment.  The bank returned the cheque to the Respondents, which then passed it on to the Appellant.  By the time the Appellant received the unsigned cheque the deadline of 31 January 2003 for the VAT payment had passed.	

	
5	Payment of the outstanding amount of VAT was received by the Respondents on 20 February 2003.	

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6	The Appellant’s Director made a genuine mistake in not signing the cheque.  Mr Erlich, on behalf of the Appellant, put forward no substantive reasons for the mistake happening.  It was due to inadvertence on the part of a Director who was 80 years old and his memory was not as good as it once was.	
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7	The Appellant had sufficient funds to pay the VAT due.	

Submissions	

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8	Mr Erlich on behalf of the Appellant submitted that the initial mistake in failing to sign the cheque would not have resulted in late payment if the Respondents had noticed that the cheque was not signed.  In Mr Erlich’s view, the Respondents could have contacted the Appellant before the due date, about the unsigned cheque. The Appellant would have then arranged immediate payment avoiding the surcharge.	
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9	Mr Erlich drew the attention of the Tribunal to the contents of the Customs and Excise Charter (HM Customs and Excise Notice 400) which requires the Respondents to:

•	Provide a good quality service
•	Handle your affairs promptly and accurately
•	Be accessible to you in ways that are convenient to you
•	Try to keep your costs to the minimum necessary
•	Take reasonable steps to meet special needs
•	Be courteous and professional

Mr Erlich contended that the Respondents’ commitment to provide a good quality service and handle taxpayers affairs accurately required them to notice unsigned cheques when received and not to present them to the bank.  In order to comply with the Charter, the Respondents should have had a facility to spot defective cheques and notify taxpayers of that defect.  In short it was the Respondents’ fault why the Appellant had not paid the outstanding VAT by the due date.	
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10	Mr Palmart, on behalf of the Respondents, pointed out that an honest mistake did not amount to a reasonable excuse for avoiding payment of the surcharge.  The Appellant was on notice that it was liable for a surcharge and should have taken greater care before posting an unsigned cheque.	
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Reasons for the Decision	

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11	Section 59 of the VAT Act 1994 requires a taxable person to furnish a return for a prescribed accounting period by the due date.  If the Commissioners for Customs and Excise have received the return but not  the amount of VAT shown on the return by the due date, then the taxable person shall be regarded as being in default and liable to a surcharge.	

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12	In this Appeal the Appellant failed to pay the VAT by the due date and was liable to a surcharge of 10% of the outstanding VAT because of the number of previous defaults during the surcharge period.	

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13	Under Section 59 (7) of the VAT Act 1994 if the taxpayer satisfies the Tribunal that there is a reasonable excuse for the return or the VAT not having been despatched by the due date, he shall not be liable to the surcharge.	

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14	Section 71 of the VAT Act 1994 provides that where reliance is placed on any other person to perform any task, neither the fact of the reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse.	

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15	The Appellant sought to persuade the Tribunal that but for the failure by the Respondents to act professionally and in accordance with its own  Charter Standards, late payment of the VAT due would have been avoided.  In other words, it was the Respondents’ responsibility to ensure that the Appellant had carried out its legal duty for submitting the correct amount of VAT on time to the Respondents.	

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16	We disagree with the Appellant’s submission.  In our view it was the Appellant’s responsibility to submit the correctly completed cheque payment in order for the VAT remittance to be honoured.  The Respondents cannot be held responsible for the Appellant’s failure to sign the cheque.  Further, the defence of reasonable excuse must relate to the actions of the Appellant, not those of a third party.  The fact that the Respondents failed to spot the unsigned cheque did not in our view amount to a reasonable excuse for why the Appellant defaulted with its VAT payment for the period 1 October 2002 to 31 December 2002.  The reason for the default was the Appellant’s failure to sign the cheque.	

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17	The Appellant advanced no substantive reason for not signing the cheque.  It was a genuine oversight that in itself, however, cannot amount to a reasonable excuse.  The Appellant was fully aware of the consequences of not paying the VAT on time and should have taken greater care when submitting the cheque for payment.	
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18	We, therefore, dismiss the Appeal.  The Appellant is liable to pay the surcharge of £1,808.90.  We make no order for costs.	

         MICHAEL TILDESLEY
						CHAIRMAN	
		
						RELEASED	

	

LON 03/411