20044

Mis-declaration Penalty – statutory conditions for penalty met – whether reasonable excuse – Appellant making mistake but honest and acting in good faith – whether sufficient without more to afford reasonable excuse – appeal dismissed – VAT Public Notice 700/42 section 3.1.

EDINBURGH TRIBUNAL CENTRE

	DEEVIEW HOMES LTD	Appellant(s)

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

			Tribunal:	 (Chairman):  T Gordon Coutts, QC

Sitting in Aberdeen on Thursday 1 March 2007

for the Appellant(s)		William Young

for the Respondents		Russell Harrison

© CROWN COPYRIGHT 2007.

DECISION

The taxpayer who was represented before the Tribunal by a director challenged the imposition of a mis-declaration penalty imposed upon the company in relation to admittedly erroneous VAT returns for the periods 09/04, 12/04 and 03/05.  The mis-declarations were of such an amount as to attract the imposition of the penalty.  It arose because the taxpayer failed to ascertain or recognise that different tax treatment applied to renovations and to new build.

No excuse for the mis-declaration and mis-apprehension of the law was put forward other than that it was complicated.  The fact that a trader thinks any particular VAT legislation is complicated, whether it be so or not, does not in the view of the Tribunal afford that trader in a particular instance with a reasonable excuse without more.

The appeal was presented on the basis that the taxpayer did have a reasonable excuse for the event.  The Respondents had stated to the Appellants that “genuine mistakes, honesty and acting in good faith” are not accepted as reasonable excuses for penalty purposes – see VAT Public Notice 700/42 Section 3.1.

The Appellant argued, founding on dicta in Appropriate Technology 1991 VATTR 226 and Clean Car Company Ltd 1991 VATTR 234, that the Commissioners had not applied the test of whether a reasonably conscientious business man would have considered that the company acting as it did in the circumstances in which it found itself had made the tax return with due care.

It is to be noted that in Clean Car Company and Appropriate Technology there was more to be said than that there had been a mistake.  In the one instance there was serious illness in the other a fault on a computer system and absence of an accounts manager.  In the present case there was nothing of that sort.  In sum this taxpayer’s argument was that his conduct was that of a conscientious business person accepting the need to comply with VAT requirements and that that provided him with sufficient excuse to avoid a mis-declaration penalty.  He stated that neither of his accountants had picked up the mis-declaration on audit but that does not assist in the consideration of the preparation of the returns in issue.

Additionally, Mr Young appeared to be arguing that there was some obligation on the Respondents to conduct enquiries to establish whether the taxpayer might or might not have been acting within a reasonable excuse.  He also indulged in a protracted discussion about the absence of any statutory definition of reasonable excuse.  That latter matter is wholly irrelevant.  A reasonable excuse in any case requires to be judged on the facts put forward by the misdeclarer and cannot be defined beforehand except where matters are to be statutorily excluded from general consideration.

Nothing was put forward in this case either to the Respondents or to the Tribunal to provide any additional material beyond that of there being a genuine mistake and acting in good faith.

That the mistake should have been genuine and that there should have been good faith would be axiomatic because in their absence there could be no argument whatsoever about reasonable excuse even if there also were other factors appropriate for consideration.

In the view of the Tribunal the starting point is to consider whether there had been a mis-declaration.  That having been established the next question was whether the taxpayer has provided a reasonable excuse.  The authorities indicate that a reasonable excuse requires to be something more than the commission of a genuine and honest mistake.  It is always for the taxpayer to take steps to ascertain his VAT liability, this is particularly so in matters involving construction.  In the present case the taxpayer took no steps whatsoever to ascertain the liability of a new and different form of activity between that of new build as opposed to renovation.  The purpose of the statutory mis-declaration penalty was to encourage, to use a neutral term, accurate accounting.  In the present case the taxpayer accounted inaccurately and is not entitled to found upon that mistake being honest or in good faith as providing him with a reasonable excuse for the failure accurately to account for its legal liabilities.

The appeal is dismissed.

T GORDON COUTTS, QC

CHAIRMAN

RELEASE:  8 MARCH 2007

EDN/06/85