18789
Default surcharge – Despatch of return and VAT – Whether Tribunal satisfied that despatched in time – VATA 1994 s.59(7)(a) – Dismissed on facts

LONDON TRIBUNAL CENTRE

	BESTWAY BUILDING AND CONSTRUCTION LTD	Appellant

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	THEODORE WALLACE   (Chairman)

Sitting in public in London on 22 September 2004

Alan Reece, director, for the Appellant 

Alistair Dougall, senior officer advocate, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

1.	This was an appeal against a default surcharge of 5 per cent for the period ending 31 July 2002.  The Appellant’s case is that the return with a cheque were posted in good time.

2.	Under regulations 25(1) and 40(2) registered traders are required to make a return and pay the tax by the last day of the following month, in this case 31 August 2002.

3.	Under section 59(1) of the VAT Act 1994 if by the last day the Commissioners have not received the return and the VAT due on the return the trader is in default.  The trader is liable to a surcharge depending on the number of defaults within the surcharge period, see section 59(4) and (5).

4	Section 59(7) provides,
“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 …

(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 recorded by the Commissioners within the appropriate time limit …

he shall not be liable to the surcharge.”

It is clear therefore that Parliament has expressly placed the burden of proof on the Appellant.

5.	In this case the return for period 07/02 showing £5,569.22 was signed by Mr Reece and dated “31/8/02”.  The cheque was stamped as received by Customs on 10 September.  A cheque stub produced by the Appellant for the VAT cheque was dated 31 August.

6.	Mr Reece gave evidence that he carried out the administration for the company which was really his brother-in-law’s company.  The business was building and decorating.  Apart from his brother, the other director, there were no employees.  Sub-contractors were used.

7.	Mr Reece did not draw any pay and operated from an office in Romford from where he ran another business.  The paperwork for the Appellant company was done at this office.

8.	He said that his brother-in-law would bring in the documents, they would prepare the return and would sign the cheque.  He said that they do this in the third week of the month after the end of the VAT period.  He said that the routine is always the same.  He made out the return in question.  He said that he knew that it was sent in good time in the envelope provided by Customs.  He gave the return to his personal assistant to post.  He did not keep a post book.  He said that there were sufficient funds in the bank to pay the VAT taking account of an overdraft facility of £6,000.

9.	Cross-examined, he told Mr Dougall that all cheques over £1,000 needed two signatures.  Two cheque books were used at a time, one was in the office, the other was kept by his brother-in-law, Reg.  Reg came into the office when he needed a counter signature.  There were 50 or 60 cheques in a book.

10.	He said that he had written in February 2003 stating that the return was despatched on 28 August.  He did this after looking at his diary. His life was very “appointment run” and there was an entry “Reg (VAT)”.  He did not have the diary with him at the hearing because he had not been asked for it but he could produce it. He said, “What is the point of meeting to do the return and not sending it?”  He said, “I dated the return on the last day until told that that was not the way to do it.”

11.	Asked about the return to 31 October 2001 which was dated 31 October but stamped as received on 28 December, he said that he did not recall receiving the surcharge notice dated 14 December; he assumed that the return must have been delayed in the post.

12.	He agreed that the return to April 2001 was dated 12 July and was late.  He said this was the initial return;  There was no training by Customs for small companies.

13.	He agreed that the return to July 2001 was dated 30 September.
14.	Asked again about the return to 31 October 2001, he said that it was Royal Mail delay.  Romford was a particularly bad area.  The delay was not the Appellant’s fault.  The return had been sent on 31 October.

15.	The return to 31 January 2002 was dated when sent on 19 February 2002.  However once they settled into a routine they dated the return by the due date.

16.	Mr Reece agreed that the return to 30 April 2002 was dated 31 May 2002 but said that it would have been sent before that date although recorded as received on 18 June.  He said that the same must have happened with the post as with the return under appeal. He said that his letter of 26 June 2002 stating that it was forwarded on 31 May would be true.

17.	He agreed that the return to 31 October 2002 was dated 25 November and was recorded as received on time. He said that they had got into a regular practice.

18.	Mr Reece said that the bank statements exhibited showed that there was enough money to pay the VAT at the due date. The balance was £2,773.86 in credit and there was an overdraft facility of £6,000.  A letter from Barclays Bank dated 18 October 2002 was a renewal letter.

19.	He said that the VAT cheque No.100421 was the first cheque in a new book.  He had sent the stubs for cheques 100421-424 but not 100415-420 as requested because the latter were from Reg’s book and were irrelevant. The books contained 50 or 60 cheques.

20.	Mr Dougall, for Customs, did not agree to Mr Reece producing the diary and copies of all cheque stubs after the hearing.  He said that he had ample opportunity to produce them before or at the hearing and had not done so.  He submitted that the Appellant had not shown that the return was sent in time to arrive at the due date.

21.	Mr Reece said that there was no point in sending the cheques stubs in the other book. He had sent the return on time and there was more than enough money to meet it.

Conclusion
22.	These cases are seldom easy.
23.	I am satisfied that the return was received late. The date stamped on the return is consistent with the date on which the cheque was debited.  The question is whether it was dispatched in proper time.

24.	I have no doubt that Mr Reece is convinced that the return was sent on time.  The issue however is whether he has satisfied the Tribunal.

25.	Initially he was very firm in asserting that his routine was always to send the return in the third week of the month.  Later he said that it was sent on 28 August; that is not by any stretch the third week of the month.

26.	He said that he dated returns on the due date until told not to do so, however he did not do so for periods 04/01, 07/01, 10/01 and 01/02.  Although he dated the return for 04/02 on the due date he said that was the date of despatch.  It is to be noted that for the period to 31 July 2002 his evidence involves him in post-dating both the return and the cheque.

27.	Mr Reece attributed the late receipt to the Royal Mail.  It is not however a question of whether the return was delayed by one or two days.  His case involves a prepaid envelope posted on 28 August not arriving until 10 September.  Furthermore he asserts that other returns were similarly delayed. It is relevant to note that the use of pre-paid official envelopes minimises the chance of error both in sorting and delivery. It is quite different from a handwritten envelope which may not be correctly or adequately addressed.

28.	I am not satisfied that the return was despatched on 28 August 2002.  The appeal is dismissed.

THEODORE WALLACE
CHAIRMAN

RELEASED: 8 October 2004

LON/04/1020