19320
	VAT – PENALTIES — default surcharge — time-to-pay agreement for payment of tax by instalments — surcharge imposed in respect of unpaid instalments — liability to surcharge not fully spelt out in agreement and not appreciated by taxpayer — otherwise all the tax would probably have been paid by the due date — reasonable excuse for late payment established — appeal allowed 

MANCHESTER TRIBUNAL CENTRE

 
 	
	PREMIER LEISURE (EVENTS) LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Michael Johnson (Chairman)
						Roland Presho FCMA

Sitting in public in North Shields, Tyne and Wear on 13 October 2005 

There was no appearance on behalf of the Appellant 

Bernard Haley, of the Solicitor’s office of HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	When this default surcharge appeal was called on for hearing, no-one had attended on behalf of the Appellant.  However, having considered the folder of papers concerning the appeal handed to the tribunal by Mr Haley, representing Her Majesty’s Revenue and Customs (“Customs”), and having been invited by him to accept the contents of the folder at face value, we decided to proceed with the hearing in the absence of the Appellant.  This is a course that we are enabled to adopt, pursuant to rule 26(2) of the Value Added Tax Tribunals Rules 1986 (as amended).

2.	The appeal concerns a default surcharge for £4,932.30, calculated at 15 per cent of tax due, relating to the Appellant’s VAT accounting period ending on 31 December 2004.  The due date by which the Appellant was required to have paid the tax due and made its quarterly VAT return was 31 January 2005.

3.	The following matters appear from the folder before the tribunal.

4.	The Appellant lodged its VAT return with Customs for the quarter 12/04 on 14 January 2005, ie a fortnight or so before the due date.  

5.	The tax due in respect of that quarter amounted to £49,323.01.  The payment of that amount by 31 January 2005 would have caused cash-flow difficulties for the Appellant, so it reached an agreement with Customs in January 2005 to pay the tax by three equal instalments.

6.	The agreement is evidenced by a letter of acceptance from Customs dated 26 January 2005 (copied at page 27 of the folder).  The first instalment of tax had by then been paid, so the letter records that Customs had agreed that the remaining £32,882.01 due could be paid by instalments of £16,441.00 on 28 February 2005 and £16,441.01 on 31 March 2005. 

7.	Nothing was said in the letter about a default surcharge of nearly £5,000 being additionally payable in respect of the £32,882.01 remaining unpaid.  All that the letter states in this regard is –

“Acceptance of this arrangement does not prevent or cancel the recording of defaults, liability to surcharge, and interest where applicable.”

8.	In a letter to Customs dated 1 April 2005 (copied at page 31 of the folder), Mr Spenceley, director of the Appellant, has protested that the Appellant was under the impression that no penalty would be levied.  He ended his letter –

“We have strictly kept to the dates the payments were due as agreed and would appreciate your consideration in this matter.”

9.	Mr Haley informed us that the Appellant had provided Customs with two post-dated cheques for the instalments payable in February and March and that the cheques were duly honoured.  It is therefore correct that the Appellant kept to the agreed arrangement, as Mr Spenceley states. 

10.	Customs have maintained that it was clear from the agreement that the surcharge in dispute would be due.  We disagree.  We think that, if the agreement had been that an additional £4,932.30 was payable, that amount would have been set out in the schedule of payments.  As it is, the letter does not indicate that a penalty of that amount would be imposed in consideration of the agreement.

11.	We note that Mr Spenceley’s letter dated 1 April 2005 does not state that the full amount of tax due could not have been paid by 31 January 2005; merely that to do that would lead to cash-flow difficulties for the Appellant.  We feel that avoiding liability for the surcharge of almost £5,000 is a matter that would probably have been decisive against the Appellant accepting the instalment arrangement had the position been properly appreciated by Mr Spenceley.  

12.	The Appellant’s excuse for not paying the £32,882.01 in time is that the Appellant believed that it could make the instalment payments without liability for surcharge.  The penalty might have been avoided had all the tax been paid by 31 January.  In the circumstances of this case we think that the excuse put forward is a reasonable one.  

13.	We conclude that the Appellant has satisfied us that the surcharge should be avoided pursuant to section 59(7)(b) of the Value Added Tax Act 1994, and we decide that the Appellant should not be liable to the surcharge.

14.	This appeal is therefore allowed.

MICHAEL S JOHNSON
CHAIRMAN
Release Date:2 NOVEMBER 2005
MAN/05/0406