19680

Default Surcharge:  Appellant the subject of a series of unfortunate events.  Had anticipated and provided adequately for his return and payment to be on time.  He overcame many hurdles but his cheque was returned because of early presentation of a direct debit which competed with his cheque to HMRC and both were not met.  His unauthorised overdraft would have been £1.44 for one working day only.  Appeal allowed.

EDINBURGH TRIBUNAL CENTRE

	55 NORTH LTD	Appellant(s)

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

		Tribunal:	 (Chairman):  Mrs G Pritchard, BL., MBA., WS

Sitting in Edinburgh on Thursday 3 August 2006

for the Appellant(s)	Mr Paul Begley

for the Respondents	Mr Russell Harrison

© CROWN COPYRIGHT 2006.

DECISION

This is an appeal against a default surcharge of £1750.14 applied at 10% in respect of non-payment of VAT for the quarter 12/05 due 31/01/06.

Mr Paul Begley appeared for the Appellant and was credible.  Mr Russell Harrison appeared for the Commissioners.

Mr Begley explained his circumstances.  He had had difficulty with previous VAT payment due to debtors not paying.  He was liable for VAT on Invoices.  When these are unpaid he has a liability beyond his means to pay.  He employs 10 people in the competitive world of magazine advertising.  He has a good customer list and also chases aged debts.  He became aware of the liability for VAT towards the end of January and phoned customers asking for payment of invoices so there would be sufficient funds available.  He did the return and posted the cheque timeously and expected it would be presented around Friday 3 February.  He realised on Wednesday 1 February that the cheque might go close to his overdraft limit and arranged a BACS loan transfer of funds on 01 February into his business account with Nat West Bank.

As he said at the Tribunal there was then a series of unfortunate events – namely a Direct Debit was presented early on 03/02, another small cheque was presented on 03/02.  HMRC’s cheque was presented on 03/02 and the BACS transfer did not happen.  His bank bounced all these transactions, which, had they honoured them would have taken his unauthorised overdraft to £1.44p.  The BACS transfer went through on 06/02 but was no use by then as the cheque was returned HMRC do not re-present cheques.  He was devastated that all his efforts failed as he still has a business to run and staff to keep and pay.

Mr Harrison submitted on behalf of HMRC that given Mr Begley’s awareness of his difficulties his arrangements were still somewhat insufficient to ensure the cheque for VAT due would be met.  He had looked at the history and taken that into consideration.

Mr Begley also submitted that the punishment was more severe than anything he could correspondingly claim from his customers.  He confirmed that he wished to be relieved of the obligation to pay this default surcharge as he had used his best efforts to comply and had been defeated by these unfortunate events which had all come on the same day.

I was satisfied that although the Appellant’s timings were likely to be a “close run” that he had as demanded by the legislation made his return and payment on time.  I consider his efforts do meet the statutory requirement.  He was so desperate to stay clear of trouble yet was defeated by circumstances beyond his personal control.  I believe he has learned from this.  The insufficiency of funds was so limited and narrow and exceptional that I believe S71 VATA 1994 is not applicable to the circumstances here.  The Appellant was not over optimistic.  He was borrowing to comply.  He was not in serious financial difficulty.

For all these reasons, the appeal is therefore allowed.

No expenses are found due to or by either party.

MRS G PRITCHARD, BL., MBA., WS

CHAIRMAN

RELEASE:  3 AUGUST 2006

EDN/06/39

££55 North Ltd v  Revenue & Customs [2006] UKVAT V19680 (03 August 2006)