Pennine Industries Ltd v Customs & Excise [2004] UKVAT V18471 (27 January 2004)

	VALUE ADDED TAX  — default surcharge — no reasonable excuse — appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

 
 	
	PENNINE INDUSTRIES LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	Richard L Barlow 

Sitting in public in Manchester on 8 January 2004

Mr M Seddon, managing director, for the Appellant

Mr R Mansell of the Solicitor’s Office of HM Customs and Excise for the Respondents

	© CROWN COPYRIGHT 2004
DECISION

1.	The appellant appeals against a surcharge assessment of £7284 notified to it by a notice dated 25 July 2003 in respect of the tax period ending 31 May 2003.  The surcharge arose under section 59 of the VAT Act 1994 because the return for that period had not been received by the due date and or because the tax payable had not been paid by the due date.  Mr Seddon did not dispute that the appellant was liable to a surcharge, in principle, as the company had been in default on two previous occasions within the previous twelve months and had been made subject to a 2% penalty on the second of those occasions with the result that the penalty under appeal was a 5% penalty.

2.	Nor did Mr Seddon take any point about notification of the liability notices on the earlier occasions.

3.	However, Mr Seddon put forward on behalf of the appellant the defence that the VAT return for the period ending May 2003 had been despatched at such a time that it was reasonable to expect that it would arrive by the due date and, in respect of the payment, he argued that there was a reasonable excuse for the late payment.

4.	The VAT return was received by the respondents on Tuesday 8 July 2003.  The appellant was allowed to make its returns seven days after the statutory due date because it paid by direct payments to the respondents’ account.  The return therefore arrived one day late.  Mr Seddon said in evidence that Mr V English was responsible for drawing up the return, signing it and despatching it by post.  Mr Seddon said Mr English might have posted it the day he signed it or the next day.  The return is signed and dated 30 June 2003 (a Monday) so that on that basis it would have been posted either on that day or on 1 July which would have resulted in it arriving within the period allowed, provided there had been no delay in the post.

5.	Mr Seddon did not claim to be aware of any delay in the post at that time and his knowledge of when the return was posted appeared to be based on his assumption about Mr English having followed the normal procedure.  Had the evidence rested there I would have found that the appellant had not discharged the burden of proving on a balance of probabilities that the return had been posted in time for it to be reasonable to have expected it to arrive by the due date.  His assumption would not have been sufficient, especially as the earlier defaults indicated that the company had not carried out a correct procedure on the despatch of the two previous returns.

6.	In fact Mr Seddon later said that Mr English would not have posted the return on the Monday (i.e. 30 June) but that he “would have” posted it on the Friday (i.e. 4 July) and would have attempted to arrange the CHAPS payment on Monday 7 July.  He then admitted that he did not know when Mr English posted it.

7.	When he was summing up the appellant’s case, Mr Seddon claimed that he had spoken to Mr English on “the Saturday” (i.e. 5 July) and that he had said he had already posted the return.  Mr Seddon said that Mr English did not say on which day he had posted the return but that he suspected it was on the Friday (4 July).

8.	My finding is that Mr Seddon did not make any enquiry as to when the return had been posted.  Had his evidence that he recollected speaking to Mr English on the Saturday been truthful, he could not have first claimed that he thought the return had been posted on either 30 June or 1 July nor would he have said that the return “would have” been posted on Friday 4 July.  The evidence is shown to be false also by the fact that Mr Seddon, at an earlier point in the hearing, had said he did not know when the return was posted.

9.	I would add that it was clear that Mr Seddon had not realised that the date of receipt of the return was an issue in the case until part way through the hearing and I find that he attempted to tailor his evidence to suit the appellant’s case as his understanding of the relevance of this issue increased.

10.	The first ground on which the surcharge was challenged therefore fails entirely.  The evidence does not establish that the return was despatched at a time when it would have been reasonable to expect it to arrive by the due date.  That finding requires the appeal to be dismissed because no reasonable excuse was contended for as far as the default consisting of the late receipt of the return was concerned.  The only challenge about that was the defence that the return had been posted in time.

11.	The appellant put forward as a reasonable excuse for the late payment that the company had changed its bankers shortly before the relevant payment was due and that it had not realised that the new bank required instructions to make a CHAPS payment by 2.30pm if the payment was to be made on the same day, whereas the previous bank had a later cut off time of 4pm.

12.	Where reliance is placed on another person to carry out a task any dilatoriness or inaccuracy by that person is not capable of being a reasonable excuse because that is expressly excluded by section 71 of the VAT Act 1994.  However, the excuse put forward in this case is not exactly that the new bank had failed in its duties but that the appellant could not reasonably have been expected to realise that the new bank would have a different cut off time.

13.	I hold that that is not a reasonable excuse in this case.  The appellant knew that there was a cut off point for arranging CHAPS payments in that it was admitted that the previous bank needed instructions by 4pm and it was in my judgment unreasonable simply to assume without inquiry of the new bank that its arrangements would be the same.  The appellant has a large turnover and can reasonably be expected to conduct its affairs with reasonable attention to the correct formalities.  

14.	Mr Seddon laid great stress on the fact that the company acted as an “unpaid tax collector”.  That fact is entirely irrelevant to any issue in this case but it can of course be said that the company received a significant cash flow advantage by being able to hold the tax amounting to £145,682 for the whole of the month of June and for the extra seven days in July.  The advantages of the direct payment arrangement can reasonably be said to carry with them corresponding responsibilities which reinforce the fact that it can reasonably be expected that a business will act responsibly in making sure that its payments arrive in due time.  The fact that the appellant had been in default on earlier occasions also added to what could reasonably be expected of it in terms of making sure the payment was made on time and in requiring that it should make sure that its procedures fitted in with the bank’s requirements.

15.	The appeal is therefore dismissed.

RICHARD BARLOW
CHAIRMAN
Release Date:

MAN/03/632