19575

VAT DEFAULT SURCHARGE – Proportionality – No reasonable excuse – Short periods of default – Greengate Furniture Limited (Tribunal Reference 018280) considered and applied – Appeal dismissed

LONDON TRIBUNAL CENTRE

	STEEL SERVICES (GREAT YARMOUTH) LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S 
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	JOHN WALTERS QC (Chairman)
					KEITH DUGDALE FCA

Sitting in public in Lowestoft on 2 February 2006

The Appellant was not present or represented

Mr. Simon Chambers, Advocate, of the Solicitor’s Office of H.M. Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1. This is an appeal against a default surcharge in the amount of £3,529 made on Steel Services (Great Yarmouth) Limited (“the Appellant”) in respect of the VAT period 01-04, the quarter ended 31 January 2004.  The Tribunal heard the appeal in the absence of the Appellant.  Rule 26(2) of the VAT Tribunals Rules 1986 refers.

2. The surcharge is 5% of the VAT returned, namely £70,595.47.  The Appellant initiated a BACS payment of the full amount of VAT due, on 4 March 2004.  The payment either reached, or would normally have reached, the Commissioners’ bank account on 6 March 2004, but that day was a Saturday.

3. Mr. Chambers, who appeared for the Commissioners, told the Tribunal that the payment actually reached the Commissioners’ bank account on Monday 8 March 2004.  He said that the obligation on the Appellant using the BACS system for the payment of VAT was to ensure that the payment reached the Commissioners’ bank account seven days after the end of the month next following the end of the VAT period.  In this case the Appellant’s obligation was to ensure that the payment reached the Commissioners’ bank account on or before 7 March 2004.  That day was a Sunday.  Where the due date is not a banking day, the Commissioners require the payment to reach their bank account on or before the banking day next before the due date.  In this case, that day was Friday 5 March 2004.

4. The Tribunal was shown a Schedule of the Default Surcharge History of the Appellant.  The late payment in respect of the VAT period 01-04 was the 11th default in a history going back to 1989.  The earlier defaults had given rise to surcharges on three occasions, in respect of VAT period 08-96, a surcharge of £2,553.57, calculated at the 2% rate, in respect of VAT period 08-00, a surcharge of £687.00, again calculated at the 2% rate, and in respect of VAT period 07-03, a surcharge of £1,578.00, again calculated at the 2% rate.  The surcharge in respect of VAT period 01-04 was calculated at the 5% rate because it followed so soon after the surcharge calculated at the 2% rate in respect of VAT period 07-03.  

5. The Tribunal was also shown a Schedule of Defaults covering the last three defaults, namely those in respect of VAT periods 07-02, 07-03 and 01-04.  It appears that in each case the VAT due had been paid quite soon after the due date.

6. Mr. Chambers referred the Tribunal to the Tribunal Decision of Whitport plc v Commissioners of Customs and Excise (14337, Chairman: Angus Nicol, Release Date: 30 July 1996).  In that Decision it was held that a payment of VAT made by credit transfer and received by the Commissioners on the 8th day of the month, being the day after the 7th day, which was the revised due date, properly gave rise to a default surcharge.

7. In this case it appears that the Appellant does not take a point that the default surcharge is not properly made.  The Tribunal was referred to a letter dated 22 March 2004 sent to the Commissioners by Mr. B. E. Duffy, a Director of the Appellant, in which he appeared to accept that he had made an error in originating the payment so late.  He said: “I have read your Notice and understand the rules, but feel this punishment is very harsh given the circumstances.  Would you be so kind as to reconsider the percentage?”

8. It is therefore not suggested that there is a reasonable excuse for the VAT having been paid late (compare Customs and Excise Commissioners v Steptoe [1992] STC 757) – and we find that there was none – but it is the perceived harshness of the penalty imposed by the surcharge, which has given rise to the appeal.

9. This is a complaint that the surcharge imposed was disproportionate to the default.  Mr. Chambers referred the Tribunal to the case of Greengate Furniture Limited v Commissioners of Customs and Excise (Chairman: Theodore Wallace).  That case was heard in two stages.  In the first stage, the Tribunal decided that there was no reasonable excuse and noted the further issue of proportionality.  It concluded that the issue of proportionality should be listed for legal submissions, both in respect of Article 1 of the First Protocol to the European Convention of Human Rights and in respect of Community law.  Unfortunately, Mr. Chambers at the hearing of the present appeal was only able to provide the Tribunal with a copy of the Decision of the Tribunal in Greengate Furniture at this first stage.

10. Subsequently the Tribunal has been able to consider the final Decision of the Tribunal on the proportionality issue which was released (Reference 18280) on 11 August 2003 after an adjourned hearing lasting 3 days at which submissions were heard from Counsel instructed for the purpose by the Commissioners and Counsel instructed by the Treasury Solicitor as Advocate to the Court.

11. The Tribunal in Greengate Furniture recognised that the default surcharge regime was a “blunt instrument” to ensure compliance with the VAT payment regime “which only takes limited account of the blameworthiness of the trader” (ibid. paragraph 97).  The Tribunal was particularly exercised by its own lack of power to mitigate a default surcharge in an appropriate case, and considered whether the absence of any power to mitigate is “strictly necessary” (Louloudakis v Greece (Case C-262/99) [2001] ECR I-5547) and goes “further than is necessary in order to attain [the policy] objective” (Garage Molenheide BVBA and Others v Belgium (Case C-286/94 and joined cases) [1998] STC 126]) (ibid. paragraphs 99 et seq.).

12. The Tribunal found the justifications advanced for the absence of a power to mitigate to be “less than convincing” and the absence of the power to mitigate to be not “strictly necessary” (Louloudakis) and to cause the default surcharge regime to go “further than is necessary” in Garage Molenheide terms (ibid. paragraph 110).  However the Tribunal recognised that that in itself would not permit it to go behind the terms of the VAT Act to give relief in an appropriate case, because “the authorities make it clear that the legislature has a wide margin of appreciation when framing implementation policies in the area of taxation” (ibid. paragraph 111).  Its final conclusion was that the regime was not “devoid of reasonable foundation” (Gasus Dosier- und Fordertechnik v Netherlands (1995) 20 EHHR 403, [62]) and not properly to be described as “not merely harsh but plainly unfair” (International Transport Roth GmbH v Home Secretary [2002] 3 WLR 344, [26]) (ibid. paragraph 113).  The Tribunal added, with reference to the case before it: “There may be cases where a surcharge does not meet the test in Roth but this is not one of them” and dismissed the appeal.

13. We are unable on the material before us to rule that, unlike Greengate Furniture Ltd., this is a case which is “not merely harsh but plainly unfair” (Roth).  We will accordingly dismiss the appeal. 

14. There may be other facts or considerations which would assist the Appellant, of which we have been unaware in reaching our Decision.  In saying this, we mean no criticism of Mr. Chambers, who presented the case fairly.  If this is the case, the Appellant may wish to take advantage of its right, at its option, to apply within 14 days after the Release Date of this Decision for this Decision to be set aside, and for a re-hearing (rule 26(3) of the VAT Tribunals Rules 1986).  

JOHN WALTERS QC

CHAIRMAN
RELEASE DATE:16 May 2006

LON/2004/1896

££Steel Services (Great Yarmouth) Ltd v Revenue & Customs [2006] UKVAT V19575 (16 May 2006)