19836

VAT – PENALTIES  -  default surcharge  -  electronic payment by method resulting in receipt of tax later than 7 calendar days after the due date  -  repetition of circumstances of previous late payment -  taxpayer warned on previous occasion of need to ensure tax received within the 7-day concessionary period  -  cash-flow difficulty not such as to provide reasonable excuse having regard to statutory exclusion  -  no reasonable excuse apparent  -  appeal dismissed

LONDON TRIBUNAL CENTRE

	S P WOUND COMPONENTS LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	MICHAEL JOHNSON (Chairman)
						CHRISTOPHER PERRY

Sitting in public in Plymouth on 12 October 2006

The Appellant was not represented

Simon Chambers, counsel instructed by the Solicitor for H M Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This appeal is against a default surcharge for £750.10 incurred in respect of the Appellant’s VAT accounting period 01/06.  The Appellant contends that it has a reasonable excuse for the late payment of its tax due in respect of that period.

2.	The surcharge under appeal was imposed at the rate of 15 per cent, in view of previous defaults by the Appellant in paying its tax on time.  The grounds of appeal, as expressed in the Form Trib 1, are as follows:

“That the penalty of 15 per cent is unreasonable for a payment received only one day late.  Money was paid by BACS and 15 per cent seems to be unduly high for a minor infringement.” 

3.	H M Revenue and Customs (“HMRC”) were represented at the hearing by Simon Chambers of counsel.  There was no attendance on behalf of the Appellant.  The bundle of relevant documents passed to the tribunal by Mr Chambers indicated that the Appellant’s business is carried on from a unit in the Stanley Green Crescent Industrial Estate, Poole, Dorset.  That being so, we allowed quite a long period after the scheduled start of the hearing for a representative of the Appellant to arrive to present the appeal, but no-one arrived, and no message was received to explain the non-attendance.

4.	Having considered the contents of the bundle provided, we decided to proceed to hear the appeal in the absence of the Appellant, as we are entitled to do pursuant to rule 26(2) of the Value Added Tax Tribunals Rules 1986 (as amended).  We were influenced in so deciding by what appeared to us to be the poor merits of the appeal. 

5.	As the grounds in the notice of appeal state, the payment of tax for the period 01/06 was made electronically by BACS.  By concession, for electronic payments, HMRC allow an extra 7 calendar days beyond the due date for payment to be received.  The due date for payment was 28 February 2006 and the 7 extra days expired on 7 March 2006.  Had the tax arrived with HMRC on that day, it would have been accepted by HMRC as having been paid in time.  

6.	In fact, the tax arrived on 8 March 2006.  In a letter dated 4 April 2006 written to the Appeals Unit of HMRC, Mr Geoffrey Budden, director of the Appellant, stated that the payment was made to HMRC “by Bank Transfer” on 6 March 2006. The Appellant’s case therefore appears to be that it was reasonable for the Appellant to believe that the transfer would take effect in such a way that the money would be received by HMRC by the following day at the latest. 

7.	We could understand such a ground of appeal, if the case were that the reasonable belief of the Appellant was that the transfer by the bank would be a “same day” transfer.  However, as we indicate above, the default with which we are concerned was no more than the latest in a series.  The tax payable for the Appellant’s VAT accounting period 07/05 was also received one day late using BACS; prior to that, there had been 3 other similar defaults, where in each case the payment was just slightly late.

8.	In the case of the default for period 07/05, Mr Budden wrote to the Appeals Unit by letter dated 20 September 2005 to say that payment had been made by BACS on 5 September 2005, so that, as the author of the letter believed, it would “be within the 10 working days permitted for electronic payment.”   That payment was received by HMRC on 8 September 2005, ie the eighth calendar day after the due date. 

9.	In a letter to the Appellant dated 11 October 2005, HMRC pointed out that the extra period allowed for electronic payment was 7 calendar days, not 10 working days.  That letter stressed that payments needed to reach HMRC within the 7 calendar days.  

10.	Mr Budden was accordingly on notice, at the time that he arranged with the Appellant’s bank for payment of the tax due for the period 01/06, that the electronic payment needed to be of a kind that would ensure receipt within that 7-day “window”.  That might have been achieved by a same-day electronic payment made on 6 March 2006.  But the payment took longer than that to reach the recipient, just as had happened with the payment due in respect of period 07/05.

11.	Mr Chambers submitted, and we accept, that no reasonable excuse exists that the tribunal should accept for the late payment in respect of that period.  As we see it, the Appellant had been told that it needed to adjust its payment method to comply with the 7-day concession.  The evidence is that that was not done, so that the position with regard to the 01/06 period is a mere repetition of that which arose in respect of period 07/05.

12.	For the avoidance of doubt, we should perhaps indicate that we would not have allowed an appeal in respect of the surcharge for period 07/05, because it is clear that Mr Budden had misunderstood the length of the concession, assuming it to be longer than it in fact was.  There is no explanation apparent to us for this assumption, seeing that 7 calendar days was the length of the published concession, as much at that time as now.

13.	The Appellant’s letter dated 4 April 2006 also mentioned that the Appellant had a temporary cash-flow problem arising at the end of February 2006.  That was said to have delayed the payment by 2 days.  However there is also in the bundle a note of a conversation with Mr Budden over the telephone on 20 September 2006 in the course of which it appears to have been explained to HMRC that the cash-flow problem related to money payable to the Appellant on 22 February 2006 which was not received until 1 March 2006.

14.	If that was the proximate cause of the late payment to HMRC, it appears to us to be one that the tribunal is barred from accepting as a reasonable excuse by reason of section 71(1)(a) of the Value Added Tax Act 1994.  The one week’s delay in payment to the Appellant appears to have been no more than a short commercial delay of the sort commonly experienced.

15.	It seems to us that the Appellant’s main bone of contention has been that it has been surcharged at such a high rate for only a single day’s delay in accounting to HMRC.  However, in the absence of a reasonable excuse, this tribunal has no power to intervene.  We have no power to mitigate the surcharge.  All that we can do is to declare that the Appellant shall not be liable to the surcharge if a reasonable excuse exists.

16.	In our judgment there is no such excuse in this case.  We indicated at the end of the hearing that such was our decision.  This appeal accordingly stands dismissed.  This document records the reasons for our decision.

17.	No application was made for costs and none are awarded. 

MICHAEL JOHNSON
CHAIRMAN

RELEASED: 26 October 2006

LON/06/0570