18910
	
	VAT – DEFAULT SURCHARGES  — reasonable excuse accepted for two defaults — no reasonable excuse for third

MANCHESTER TRIBUNAL CENTRE

 
 	
	IMPRESS METAL PACKAGING LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Richard Barlow (Chairman)

Sitting in public in Manchester on 22 November 2004

Mr P Jordan, acting Finance Manager and Mr R Cousin Jackson, Finance Director, for the Appellant 

Mr C Owen of the Solicitor’s office of HM Customs and Excise for the Respondents 

	© CROWN COPYRIGHT 2004

DECISION

1.	This is an appeal against surcharges under section 59A of the Value Added Tax Act 1994 in respect of the prescribed accounting periods ending June and September 2002 and March 2003.  Each of those periods was three months long and the appellant was at all material times required to make payments on account.  The appellant’s case is that it has a reasonable excuse for all the defaults in those periods.

2.	A default in respect of the period ending June 2001, which gave rise to the surcharge liability notice, which itself gave rise to the default in the period ending June 2002; was not disputed and nor was any excuse put forward as a reasonable excuse for the default.  During the course of the hearing Mr Owen, who represented the respondents, accepted that there were reasonable excuses for the defaults in respect of the periods ending September 2002 and March 2003.  The only remaining issue was therefore whether there was a reasonable excuse for the default in the period ending June 2002.

3.	The appellant was represented by Mr P Jordan, its acting finance manager, and Mr R Jackson Cousin, its finance director and they both gave evidence.  I accept their evidence as being entirely truthful but both were relying on what they had been told or had gleaned from company records as they both started to work for the appellant only after the period in question.

4.	The background facts are that the appellant is a large company and it is a subsidiary of a Dutch company.  A good deal of upheaval had occurred during 2001 because the administrative functions of the appellant had been transferred from South Wales to Norwich.  Further upheavals occurred because the Dutch parent company decided to start to use the group’s computer system, operated from the Netherlands, for much of the appellant’s record keeping and accounting functions.  This had already been done for some subsidiaries in other countries.  It was intended to implement use of the Dutch computer from 1 January 2002 but there was considerable delay because the Norwich system proved to be incompatible with the Dutch system.  

5.	The problems led to staff leaving, absenteeism and low morale.

6.	The return for the June 2002 period was submitted on time but the appellant was required to make payments on account and a payment of £1,717,226.60 due on 31 July 2002 was not paid until 1 August 2002.  The payment was made by direct transfer from the appellant’s bank to the Commissioners’ account.

7.	The appellant’s instruction to its bankers to transfer that payment was sent electronically (“on-line”) and it was marked urgent but it was not sent to the bank until 15.43 on 31 July 2002 and that proved to be too late to ensure that the payment arrived on that day.

8.	The precise circumstances within the appellant’s administration at that time were that the clerk who gave the on-line instruction was under pressure because an internal accountant had started a period of sick leave in April 2002 but had not been replaced immediately and was only replaced when it became apparent that the sick leave would be long term.  A temporary accountant had been given the task of preparing the VAT return which had been done in time.  The more senior accountant who checked the return was also temporary and was unfamiliar with the method of making payments and the clerk, who had been trained to arrange electronic payments, was unfamiliar with the actual requirements of paying VAT.

9.	The respect in which she was unfamiliar with the actual requirements for VAT payments was that she appears to have been unaware of the fact that it was vital that payment should be received by the due date.  Mr Jackson Cousin said that she did not appreciate the extreme urgency, though the person who was on long term sick leave would have appreciated that.  He added that the clerk arranging the payment would normally not have had to worry if a payment was made one day or the next and she may not have realised that 15.43 was too late in the day to ensure payment that day.  In a written submission prepared for the appeal it was said that neither the clerk nor the two temporary accountants had been aware of the consequences of late payment and had been under the impression that the company had seven days within which to pay anyway.   

10.	Given that it was appreciated that there was urgency about the situation, which is why the instruction about the payment was marked urgent, it is unclear why the clerk and the accountants thought they had seven days grace.

11.	Section 71(1)(b) of the Act precludes the appellant from putting forward the fact that it relied upon the accounts clerk to make the payment as an excuse but the appellant’s argument is that the unexpected difficulties which arose around the time in question amount to an excuse.

12.	The appellant is a large company and had had approaching three months after the accountant started her sick leave to make proper arrangements for the payment of VAT.  It is my holding that her absence and the other difficulties described above do not amount to a reasonable excuse for the late payment because it would be reasonable to expect effective alternative arrangements to have been made by 31 July 2002.  It is of course true that the payment was only one day late but the legislation is specific in applying the surcharge just as much to a delay of one day as to longer delays.  

13.	The appeal is allowed (by agreement) in respect of the defaults in the periods ending December 2002 and March 2003 but it is dismissed in respect of the default in the period ending June 2002 with the consequence that a surcharge of £34,344 is payable.  

14.	Neither party sought an award of costs and I make no order.

RICHARD BARLOW
CHAIRMAN
Release Date: 14 January 2005
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
MAN/04/0442