20013

DEFAULT SURCHARGE – Electronic payment – Payment in separate parts – One part would have been on time but for power cut at bank – Reasonable excuse for that part only

LONDON TRIBUNAL CENTRE

	MTT CONSULTING LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	THEODORE WALLACE (Chairman)

Sitting in public in London on 22 November 2006

Paul Mott, director, for the Appellant 

Jonathan Holl, advocate, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This was an appeal against default surcharges for the periods ending 31 December 2005 and 31 March 2006 imposed on the grounds that payments by electronic transfer were received two days after the extended period allowed by seven days in paragraph 21.3.1 of Notice 700.  The extension under Notice 700 is under the powers in regulation 40(3) of the VAT Regulations 1995.

2.	The only witness was Mr Mott.  I find the following facts.

3.	The Appellant has been registered for 6½ years. Its annual turnover is somewhat over £2 million. Following defaults for four earlier periods the Appellant was notified on 11 November 2005 that in the event of a default for the periods up to 09/06 the surcharge would be 15 per cent.

4.	Preparation of the Appellant’s returns were outsourced to an accountant. The figures were available by 31 January 2006. The Appellant used an on-line banking facility activated by Mr Mott’s computer. Mr Mott has been using on-line banking for around a year having started with monthly salary payments at the suggestion of HSBC, the Appellant’s bank. HSBC told him that he should allow 3 days for the money to reach employees’ accounts if those were with another bank. Mr Mott assumed that he had received material from HSBC as to how on-line banking operates but did not remember reading it.

5.	On 6 February 2006, a Monday, Mr Mott keyed into his computer a transfer to Customs of £62,918.75. He input details of Customs account and Sort code and clicked the payment icon. The computer responded by showing a specific menu for a transfer to Customs but with the sort code numbers blanked out. He keyed in the necessary details including the Appellant’s registration number.

6.	The initial screen had a note stating that BACS payments to other banks may take 3 days.  Mr Mott did not know whether that appeared on the dedicated Customs screen.  He told me that he thought that because the payment was to Customs it would be direct.

7.	On 5 May, a Friday, he keyed in an instruction to transfer £103,954.41, however the computer did not respond. He telephoned Mr Bell, the commercial manager at his branch of HSBC, who told him that there was a limit of £100,000 for on-line transfers. Mr Mott had apparently by then keyed in £53,954.41 and Mr Bell told him to key in another £46,045.59 to make up £100,000 and undertook to transfer the balance of £3,954.41 on receipt of a written instruction.  Mr Mott faxed the instruction on 5 May.  This was received by HSBC on 5 May. That instruction was being processed in accordance with HSBC’s procedures when there was a full power cut, that afternoon. The payment was processed on the next working day, 8 May.  Customs recorded £3,954.41 as received by CHAPS on 8 May.

8.	Mr Mott produced a letter dated 10 November 2006 from Mr Bell, of HSBC, confirming that he had received a written request to remit £3,954.41 to Customs on 5 May.  The letter stated,

“The payment instruction was being processed, in accordance with our procedures, but unfortunately the branch experienced a full power cut that afternoon and we were unable to send the electronic payment.

The payment was processed the next working day, being 8 May 2006 and would have been received by the beneficiary that day.

The situation was completely outside of our control and would confirm that this should in no way reflect on MTT Consulting Limited, who had followed the correct procedures to ensue that the payment should have been received by the beneficiary on 5 May 2006.”

9.	The schedule of defaults produced by Customs gave the payment of £3,954.41 as received by CHAPS on 8 May and the other sums keyed in by Mr Mott as received by BACS on 9 May.

10.	It seems clear that the letter by Mr Mott was only directed at the £3,954.41 and that this would have been transmitted by CHAPS on 5 May but for the power cut.

11.	In my judgment there was a reasonable excuse for that part of the default. There was however no reasonable excuse for the payments by BACS which would have been late even if they had been processed on 5 May.  There was no reasonable excuse for the 12/05 default. The surcharge for 03/06 is reduced to £15,000; the other stands.

THEODORE WALLACE
CHAIRMAN

RELEASED: 12 February 2007

LON/06/842