Magna Kansei Ltd v Revenue & Customs [2006] UKVAT V19905 (22 November 2006) 

19905

VALUE ADDED TAX — default surcharge — instructions for electronic payment submitted to bank 13 minutes after cut-off time — payment arriving one late — whether reasonable excuse — whether Appellant prevented by unforeseen circumstance from making timely payment — no — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

MAGNA KANSEI LIMITED
Appellant

- and –

THE COMMISSIONERS FOR HER
MAJESTY’S REVENUE AND CUSTOMS
Respondents

Tribunal:	Colin Bishopp (Chairman)
Roland Presho

Sitting in public in North Shields  on 14 November 2006

John Franks, Finance Manager, for the Appellant

Charles Morgan, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

.DECISION

1.	In this appeal, Magna Kansei Limited challenges the imposition on it of a default surcharge of £16,419. The penalty was imposed when the Appellant’s balancing payment for its prescribed accounting period 12/05 arrived one day late. The surcharge represents 2 per cent of the tax due. 
2.	The Appellant is a large trader required to make payments on account, that is two monthly payments followed by a balancing payment each quarter. The payment due for the month of January 2005 arrived late—we were not told why—and that fact brought the Appellant within the surcharge liability regime. The default on that occasion did not lead to the imposition of a penalty, but to the issue of a surcharge liability notice, warning it that any further default within the following twelve months would render it liable to a surcharge. The Appellant did not argue that there had been no such default, or that there was a reasonable excuse for it. The default with which we are concerned occurred within the 12 month period. The balancing payment should have been in the Respondents’ account on or before 31st January 2006; in fact it reached the account on 1 February.
3.	John Franks, the Appellant’s finance manager who represented it before us, told us that during January 2006 the company encountered a number of problems. It is a joint venture company, with American and Japanese owners, which trades as a supplier of automotive parts to various motor manufacturers. At the beginning of the month, it had five senior management members who were able to authorise bank payments but during the course of the month two left. One was replaced immediately but it had not been possible in the time available to arrange for his authorisation and, by the end of the month, there were only three authorised persons, of whom Mr Franks was one. The terms on which the Appellant was required to trade with some, at least, of its customers were onerous—the Appellant had to respond to its customers’ demands in time-scales measured in minutes and its senior managers were requested to, and did, attend the customers’ premises at very short notice. 
4.	The Appellant’s year-end is 31 December and in January 2006 it and its auditors were engaged in work leading to the preparation of its annual accounts. That factor impinged to some extent on the work necessary to prepare its VAT return for the period, which also ended on 31 December. The return and the balancing payment were due to be received by the Respondents, as we have said, on 31 January (a Tuesday) and, since the Appellant is a payment-on-account trader, the seven days of grace which are usually available to a taxpayer making electronic payments were not available to it. By midday on 31 December the amount of tax due had been calculated, and the necessary electronic payment had been keyed into the Appellant’s computer system. Unfortunately, of the authorised signatories only Mr Franks was on site; the other two had been called out to see a customer. One returned shortly after 4pm and the payment instructions were immediately sent to the Appellant’s bank, but by then the cut–off time for a same day transfer (4 pm) had passed, and the payment (although debited to the Appellant’s bank on 31 January) reached the Respondents’ account only on the following day.
5.	Mr Franks’ argument was that the Appellant had made every reasonable effort to ensure that the payment reached the Respondents on time and that it should not be penalised for its failure to meet its bank’s cut-off time by, as we are satisfied from the documents produced to us, only 13 minutes. He described the cumulative difficulties we have listed as unusual, and outside the control of local managers, and argued that the difficulties had confounded the efforts to make timely payment, which would otherwise have succeeded. For the Respondents, Charles Morgan of counsel argued that none of the factors identified by Mr Franks could amount to a reasonable excuse. The true reason for the lateness of the payment was that the Appellant had left making the arrangements to the very last day and had allowed no room for unforeseen factors. 
6.	We are permitted to allow the appeal only if we are satisfied that the Appellant has a reasonable excuse for the default: see sections 59(7) and 59A(8) of the Value Added Tax Act 1994. The expression “reasonable excuse” has been interpreted, in many cases before this tribunal and the courts, to mean a circumstance which has led to the default despite the exercise of proper care and foresight by the taxpayer. In essence, an unforeseeable event or one against which precautions could not realistically have been taken is required. Unfortunately for the Appellant, we are not persuaded that any such circumstance is to be found here. The fact that the Appellant’s year-end occurred on 31 December and that work on the annual accounts would be required in January was wholly predictable. Steps could have been taken to ensure that the VAT return was prepared in good time, and not at the last minute, despite that work. Likewise, the reduction in the number of authorised signatories was not unforeseeable. It was, in one case, known in advance to the Appellant but no steps were taken in time to make the successor an authorised signatory. In the other, the Appellant’s owners brought about the reduction themselves by putting the person concerned on “gardening leave”. It could easily have been impressed upon the absent signatories that the presence of one of them was required but, as Mr Franks, conceded, even when it became clear that time was running out, no attempt was made to contact them so that one could return in order to authorise the payment. We are bound to agree with Mr Morgan that the Appellant took the risk of leaving the payment until the last day, and had made insufficient allowance for unforeseen problems. It is unfortunate that a delay of less than 15 minutes has led to the imposition of a large penalty but that is the effect of any system which imposes a deadline for the undertaking of a task. 
7.	We must, therefore, dismiss the appeal.

COLIN BISHOPP
CHAIRMAN
Release Date: 22 November 2006
MAN /06/206