19837

VAT – PENALTIES  -  late registration  -  self-employed plumbing and heating engineer  -  informed that charging VAT on business receipts “a grey area”  -  failure to appreciate need for registration  -  responsibility to seek advice on requirements of VATA  -  no reasonable excuse for avoiding liability to penalty  -  mitigation of penalty by 50 per cent for cooperation correct  -  appeal dismissed  

LONDON TRIBUNAL CENTRE

	STEPHEN LAWRENCE EDWARD CONDON	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	MICHAEL JOHNSON (Chairman)
						SHEILA WONG CHONG FRICS

Sitting in public in London on 27 September 2006

The Appellant appeared in person

Jonathan Holl, of the Solicitor’s office of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This is an appeal against a penalty imposed on the Appellant pursuant to section 67(1) of the Value Added Tax Act 1994 (“VATA”) for his failure to register for VAT as from 1 December 2000.  The amount of the penalty under appeal is £3,224, ie 15 per cent of the VAT due in respect of the period for which the failure endured, which the Respondents (“HMRC”) have mitigated by one half pursuant to section 70(1) of VATA.

2.	The Appellant has advanced his appeal on the basis that it came as a surprise and a shock to him to discover that he was required to be registered, and that his conduct was not such that he should in the circumstances be liable to the penalty, having regard to section 67(8) of VATA.  Alternatively, he invites the tribunal to mitigate the penalty further under section 70(1), ideally (from his point of view) to nil.  

3.	The Appellant is a self-employed plumbing and heating engineer.  He has been proprietor of his own one-man business since 1970.  He is now in his early sixties and is approaching retirement.  

4.	The Appellant described to the tribunal the nature of his work.  

5.	We find that the Appellant has typically worked on new-build construction projects where the main contractor has retained the Appellant as a bespoke sub-contractor.  He told the tribunal, and we accept, that he provides his services as a skilled tradesman who is good at his job and can be relied upon to solve problems.  

6.	So, for example, the Appellant may be asked to rectify defects that have arisen within the plumbing or heating installations of newly-built properties.  He charges the main contractor for his labour, and bills the main contractor at cost for any materials he purchases and uses during the course of his work.  He told the tribunal that materials might amount to 15 – 20 per cent of his bill.

7.	The Appellant told the tribunal that he has not been concerned with VAT at any time in his career.  During cross-examination, he did not admit that he was alerted at any stage to the potential impact of VAT on his business, either with regard to outputs or inputs.  In tribunal, the Appellant sought to give the impression of being naïve as to VAT matters.  

8.	It appears that, when the Appellant was in touch with the Inland Revenue about annual accounts for his business, he was informed that there was no need for him to employ an accountant to prepare his accounts.  So he was not alerted to the VAT implications of his trading.           

9.	Notwithstanding this, we find the attitude of the Appellant towards VAT to be a somewhat ambivalent one.  

10.	He was not ignorant of the existence of VAT, because he admits that, about 5 years ago, he approached the accountants of one of the companies for which he worked, enquiring as to his potential responsibility to charge and account for VAT.  It appears that the Appellant received an equivocal reply to this enquiry, on the lines of “it’s a grey area”.  

11.	Clearly, we think, he made his approach because he was concerned that he might need to be registered for VAT.  The reply that he received put him on notice, in our opinion, that the VAT position as it applied to his job should be looked into further.  His next move ought to have been to make enquiry from some other source:  most obviously, at his local VAT office.

12.	Yet, in his letter to HMRC dated 15 May 2006, the Appellant wrote that he was unaware of the VAT threshold and “would have appreciated having it brought to my attention when it was first evident that I should have been registered, apparently 6 years ago.”  We agree: it is apparent to the tribunal that the Appellant should indeed have become acquainted fully with his need to be registered as from 2000. 

13.	The Appellant made belated application for registration in 2006 on the basis that, having regard to his declared takings and the relevant threshold for registration, his correct registration date was 1 December 2000.  HMRC were then in a position to look to him for payment of £42,991 as arrears of VAT owed.  However fortunately, as we were informed, the Appellant has managed to obtain payment of that amount from those concerns to which he has made taxable supplies, so that the VAT has been accounted for without leaving the Appellant out of pocket.

14.	He however remained liable to the penalty for late registration.  The Appellant has been totally cooperative with HMRC in arriving at his tax liability, which was, as we find, reflected in the reduction of the penalty by 50 per cent.  

15.	Jonathan Holl, appearing for HMRC, submitted that the Appellant should have been aware of the requirement for registration in 2000.  He submitted that an individual engaged in business should take steps to acquaint himself with the requirements of the law as they affect his business.  The Appellant, he submitted, had to discharge the onus of proving to the tribunal that it was reasonable for him to be ignorant of the impact of VAT on his trading.

16.	Once he appreciated that VAT was a “grey area” in respect of the Appellant’s business, Mr Holl said, the Appellant should have gone to H M Customs and Excise (as they then were) for advice.  He did not do that, and the resultant penalty was appropriate, to reflect the fact that he did not do so.  Mr Holl submitted that the Appellant had not proved the existence of a reasonable excuse for failing to have himself registered.

17.	Mr Holl submitted that the level of mitigation was correct.  He invited us to dismiss the appeal.

18.	For his part, the Appellant submitted that he just didn’t know about VAT.  He would not have wanted to deprive the state of what was rightly due in tax, and would not now be before the tribunal had he appreciated the true position back in 2000.  As a busy tradesman, about whose concerns the contractors who provided him with work did not wish to know, he had lacked the opportunity to learn about the impact of VAT on his business.  It was not his fault that he lacked the requisite knowledge.   

19.	The Appellant said that the tax due had been collected and paid to HMRC, with no resultant loss of revenue.  The Appellant said that he was the victim of circumstance.  He asked us to allow the appeal in such a way that he should not be liable to the penalty.

20.	In our judgment, Mr Holl is correct in submitting that businesses do need to be proactive in attempting to ensure that they fulfil all the requirements of the law.  We think that that must have been appreciated by the Appellant when he asked the main contractor’s accountants about the matter of charging VAT.  What we think the Appellant was then attempting to do was to clarify what, if anything, he as a self-employed tradesman was expected to do with regard to VAT.

21.	The reply that the Appellant received, namely that VAT was “a grey area”, should have alerted the Appellant to the need to make further enquiry.  It is accepted by the Appellant that he could have done with appreciating at the time that he was required to be registered (or not, as the case might be).  A trader who, having failed to make enquiry, finds that the law applies to him in a particular way which he did not suspect, is nevertheless subject to the consequences in the same way as if he had been fully informed.  

22.	It is not suggested that anyone was under a duty positively to provide the Appellant with advice about VAT without being asked: rather it was up to the Appellant himself to go out and seek such advice.   He failed to do that, and his conduct in failing to do that is in our judgment the true justification for the penalty in this case.

23.	We therefore conclude that the Appellant does not have a reasonable excuse for his conduct within the meaning of section 67(8) of VATA.     

24.	With regard to mitigation of the penalty, we do not doubt that the Appellant was in good faith.  However section 70(3) and (4)(c) of VATA direct us to disregard that fact in considering our power to mitigate.  Similarly, section 70(4)(b) directs us to disregard the fact that there has been no loss of VAT to the state.  

25.	We however think that it is entirely right to take into account the complete cooperation of the Appellant with HMRC throughout the investigation of this matter.  HMRC have allowed mitigation of 50 per cent in this case, and that is in our view an appropriately high level of mitigation.  We do not think that anything that we have heard in tribunal should encourage a still higher level of mitigation.  In our view, the level of mitigation allowed by HMRC is correct.

26.	For the above reasons, we dismiss the appeal.

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

MICHAEL JOHNSON
CHAIRMAN

RELEASED: 26 October 2006

LON/06/817