Global Vehicle (UK) Ltd v Customs and Excise [2004] UKVAT V18546 (26 March 2004)

VAT – Default surcharge – s.59 VATA 1994 – Whether a reasonable excuse was shown – Misdirection by an officer relied on by the Appellant, to the effect that a late payment of VAT in specified circumstances would not attract a surcharge – Finding that no misdirection established – Held no reasonable excuse shown – appeal dismissed

LONDON TRIBUNAL CENTRE

	GLOBAL VEHICLE IMPORTS (UK) LIMITED	Appellant

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	MR JOHN WALTERS, QC   (Chairman)
						 MRS ELIZABETH MACLEOD, CIPM

Sitting in public in London on 14 January 2004

Mr Stephen Johnston, of S Johnston & Co Ltd, Chartered Accountants, for the Appellant 

Mr Jonathan Holl, Advocate, of the Office of the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

1.	This is an appeal against liability to a default surcharge of £10,596.04, notice of which was issued on 11th April 2003 in respect of the Appellant’s VAT prescribed accounting period of three months ending 28th February 2003 (period 02/03).  The Appellant’s VAT return for that period was received by the Commissioners on 1st April 2003.  Although this was one day late, the Commissioners take no point on this.  The return showed VAT payable of £155,960.44.  Of that amount, £50,000 was sent with the return. This left £105,960.44 outstanding.  The surcharge is calculated at 10% of this amount (i.e. 10% of £105,960.44 = £10,596.04).
2.	The surcharge is raised under section 59 VAT Act 1994 (“VATA”) – see: section 59(4) and, particularly, section 59(5)(c), which specifies a rate of 10% “in relation to the third .. period” in respect of which a taxable person has been in default during a surcharge period.  Generally, a surcharge period is a period (of – unless it is extended – slightly less than 12 months) specified by the Commissioners in a surcharge liability notice (and beginning on the date of the notice).  The Commissioners serve such a notice on a taxable person who is late with either their VAT return or the amount of VAT shown as payable in the return. Where a rate of 10% is specified in a surcharge notice, the relevant default is the fourth default within the period starting with the default which prompts the issue of the original surcharge liability notice and including the resultant surcharge period.
3.	Section 59(7) VATA provides as follows:
“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 (and, accordingly, any surcharge liability notice the service of which depended upon the default shall be deemed not to have been served).”
4.	Mr. Johnston submits for the purposes of section 59(7)(b) VATA that there is a reasonable excuse for the VAT relative to period 02/03 not having been 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.
5.	The appeal is brought pursuant to section 83(n) VATA.
      The circumstances of the default

6.	A bundle of documents was produced to the Tribunal and this evidence was supplemented by the oral evidence of Mr. Johnston and Ms. Crystelle Pearce, an employee of S. Johnston & Co, Ltd., the Chartered Accountants of whom the Appellant is a client.  
7.	The Appellant’s VAT return for the period 08/00 (due date 30th September 2000) showed VAT due of £ 12,994.41 and was received after the due date (on 25th October 2000). No VAT was received by the due date.
8.	A surcharge liability notice in respect of the period 08/00 was accordingly issued – on 13th October 2000.  This notice warned the Appellant as follows:
“You may be liable to a surcharge if you are in default in respect of a prescribed accounting period ending within the surcharge period which runs from the date of this notice until [and the space for a date was left blank]”
9.	It appears that neither the return nor the VAT due was late in respect of the following period, 11/00. However the return for the period 02/01 and the related VAT, due on 31st March 2001, were not received until 2nd May 2001.
10.	A notice of assessment of tax and surcharge and a surcharge liability notice extension in respect of the period 02/01 was accordingly issued – on 12th April 2001.  This gave notice of tax assessed of £24,709.00 and surcharge at 2% assessed of £494.18.  The notice warned the Appellant as follows:
“The surcharge period previously notified to you is EXTENDED until 28/02/02.  If no surcharge period has been notified to you previously, the period beginning on the date of this Notice and ending on 28/02/02 is hereby specified as a surcharge period for the purposes of Section 59 or 59A of the VAT Act 1994.
If you default again within the prescribed accounting period ending within the surcharge period it will be further extended and you may become liable to a surcharge assessment calculated at the rate of 5% …”
11.	The surcharge for the period 02/01 was recalculated as £538.16, by reference to the figure for tax shown in the return for that period. 
12.	It appears that neither the return nor the VAT due was late in respect of the following period, 05/01.
13.	It also appears that neither the return nor the VAT due was late in respect of the following period, 08/01, although a surcharge was assessed for that period.  That surcharge was subsequently withdrawn (as notified by a letter from Mr. Marles of the Commissioners’ Default Surcharge Appeals section to Mr. Johnston, dated 8th February 2002). 
14.	With regard to the following period, 11/01 (due date 31st December 2001), the return was sent to the Commissioners under cover of a letter dated 21st December 2001 from the Appellant, accompanied by a payment of one third of the tax due.  Payment of the balance was promised (and apparently paid) in two instalments at the end of January and February 2001. 
15.	A surcharge was assessed for the period 11/01 but it was withdrawn (as notified by Mr. Marles in his letter dated 8th February 2002) because Mr. Marles believed that the Appellant was misled into thinking that he would be able to pay the VAT for that period in instalments without incurring penalties.  Mr. Marles added that “it is not usually our policy to waive surcharges when traders are seeking time to pay their VAT but on this occasion I feel it is appropriate”.
16.	Although the return for the following period, 02/02, due on 31st March 2002, was received before the due date, only £23,010.93 out of the tax of £73,010.93 due, was received before the due date.
17.	A notice of assessment of surcharge and a surcharge liability notice extension in respect of the period 02/02 was accordingly issued – on 12th April 2002.  This gave notice of surcharge at 5% assessed of £2,500.  The notice warned the Appellant as follows:
“The surcharge period previously notified to you is extended until 28 February 2003. 
If you default again in respect of a prescribed accounting period ending within this surcharge period it will be further extended and you may become liable to a surcharge assessment calculated at the rate of 10% …”
18.	A time to pay agreement was reached whereby the Commissioners agreed to allow the Appellant’s outstanding debt to be paid on or before 31st May 2002 (see: a letter from Mr. Andrews of the Commissioners’ Southampton Debt Management Unit to the Appellant, dated 15th April 2002).  In that letter it was stated that the arrangement was subject to a number of conditions, and noted in bold type that:
“Acceptance of this arrangement does not prevent or cancel the recording of defaults, liability to surcharge, and interest where applicable.”
19.	The returns and associated tax for the periods 05/02, 08/02 and 11/02 appear to have been submitted and paid on time.
20.	However, difficulty was anticipated with regard to the period 02/03 (due date: 31st March 2003) and on 26th March 2003 a telephone call was made by Ms. Crystelle Pearce of S. Johnston & Co. Ltd. (acting for the Appellant) to the VAT Advice Line (Contact Centre) in which Ms. Pearce asked whether there would be a surcharge if the tax due for 02/03 was not fully paid by the due date.
21.	There is in the bundle a file memorandum apparently sent to the Appellant by Mr. Johnston, recording as follows:
“Crystelle contacted the VAT Advice Line regarding the case and spoke to Joanne ref no A/11648.  Crystelle stated that the company may be late in paying this tax and Joanne stated the rules as follows:
a) First time being late within 12 months – no penalty, no interest
b) The company had to advise the Debt Management Unit at the time they were making payment [giving the telephone number of the Unit].”
22.	At the hearing Mr. Holl, who appeared for the Commissioners, produced the Contact Centre Enquiry Report which had been made by reference to this telephone enquiry.  It was a matter of justifiable complaint by Mr. Johnston that the Commissioners had failed to produce this document at any earlier stage, even though the matter had been referred to the Commissioners’ Regional Complaints Unit.
23.	The report gave the reference AIE11648 and mentioned “mrs Piearce” (sic) by name.  The Enquiry Notes recorded were as follows:
“Agent: Joanne Austin
Date 25 Mar 2003 Time: 14:10
Caller said her client was late paying 11/01 vat return and not been late since then., she said this vat return 0203 will only have part payment, will there be a surcharge?
Advised caller if first time late in 12 month period then will receive a surcharge liability notice but no surcharge, then second time will go to 2% then 5, 10 and 15%”
24.	We heard oral evidence from Ms. Pearce, but not from Joanne Austin.  Ms. Pearce said that the question on which she had especially wanted advice, was when precisely the “free year” ran from, that is, whether a late payment in respect of the period 02/03 would be treated as being the first time in a 12 month period when the tax payment was late.  She knew that there had been a default in respect of the period 02/02 and that consequently the surcharge period was extended until 28th February 2003.  But, as the due date for payment relative to the period 02/03 would be after 28th February 2003 (i.e. on 31st March 2003), she thought a late payment of the tax due for the period 02/03 might not be affected by the extension of the surcharge period to 28th February 2003, and would, therefore, be effectively a “first time late” in a new “12 month period”.  Ms. Pearce’s oral evidence was that she had obtained confirmation from Joanne Austin in the telephone call that this was indeed the position.
Decision
25.	The material conflict of evidence in this case is between Ms. Pearce’s oral evidence that she knew the surcharge period was extended until 28th February 2003, which could only be so because there had been a default in respect of the period 02/02, and Joanne Austin’s note that “caller said her client was late paying 11/01 vat return and had not been late since then”.
26.	It is material because Mr. Holl submitted that if there had been a misdirection – i.e. if, on consideration of all the relevant facts, Joanne Austin had indeed assured Ms. Pearce that a late payment of tax due for period 02/03 would not attract a default surcharge – then the Commissioners would regard that as a reasonable excuse within section 59(7)(b) VATA.
27.	The Tribunal bears in mind that the burden of showing on the balance of probabilities that there is a reasonable excuse is in terms placed on the Appellant by section 59(7).
28.	Although we accept that Ms. Pearce thought that Joanne Austin had assured her in effect that a late payment of tax due for period 02/03 would not attract a default surcharge, we are not satisfied that Ms. Pearce put all the relevant facts before Joanne Austin.  In particular, we are not satisfied that she informed Joanne Austin that the surcharge period was extended until 28th February 2003.  Therefore we find that there was no misdirection on which the Appellant can rely as amounting to a reasonable excuse.
29.	As a matter of law, for an appellant to show a reasonable excuse requires the appellant to satisfy the tribunal that there was a situation where “the exercise of reasonable foresight and of due diligence and a proper regard for the fact that the tax would become due on a particular date” would not have avoided the default (see: Customs and Excise Commissioners v Steptoe [1992] STC 757).
30.	The Tribunal observes that the extract from the surcharge liability notice extension in respect of the period 02/02, which we have recited above at paragraph 17, shows that late payment of the tax due for the period 02/03 could attract a surcharge notwithstanding the fact that the due date for payment of the tax would fall after 28th February 2003.  This answers the point referred to by Ms. Pearce in her oral evidence (see: paragraph 24 above).  In all the circumstances the Appellant has failed to show a reasonable excuse for the default.   
31.	The Tribunal therefore dismisses the appeal.

JOHN WALTERS QC
CHAIRMAN

RELEASED:

LON/03/899