20060

VAT — LATE REGISTRATION PENALTY — Mitigation of Penalty — Appellant co-operated with the Respondents responding to their queries and providing accurate figures for VAT due — penalty mitigated in part — Appeal part allowed 

MANCHESTER TRIBUNAL CENTRE

	LESLIE RINGER  	Appellant

	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	 (Chairman)
				      MOHAMMED FAROOQ	  (Member)

Sitting in public in Birmingham on 23 February 2007

The Appellant appeared in person

Richard Mansell of the Solicitor’s office for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION
The Appeal

1.	The Appellant was appealing against a penalty in the sum of £6,268 in respect of his failure to notify liability for registration for VAT.

The Dispute
2.	The sole issue in dispute was whether the penalty should be mitigated in accordance with section 70 of the VATA 1994.

3.	The Respondents conceded that it was a proper case for consideration of a mitigated penalty.  The Respondents, however, submitted that it was not appropriate to reduce the penalty to nil.

The Facts
4.	The Appellant was engaged as a sub-contract labourer working principally for a company installing sports facilities including tennis courts and artificial cricket pitches. The Appellant invoiced the company for the services of himself and his son. The company would deduct income tax from its payment to the Appellant and remit the tax to the Revenue in accordance with the construction industry scheme. The Appellant would repeat the same exercise for his son.

5.	The Appellant’s turnover exceeded the VAT registration limit in February 2002, and was liable to be registered with effect from 1 April 2002.  The Respondents became aware of the Appellant’s liability to register for VAT on 7 April 2006.

6.	On 12 January 2005 the Respondents sent a letter to the Appellant querying whether he should be registered for VAT. The Respondents sent a reminder on 17 February 2005. The Appellant denied that he received the warning letter and reminder.

7.	On 4 April 2006 the Respondents issued a further letter advising the Appellant that he should be registered for VAT from 1 April 2002. On 7 April 2006 the Appellant contacted the Respondents querying the requirement to register. On 11 April 2006 he again contacted the Respondents confirming that he received the turnover figures. On the 19 April 2006 the Respondents issued an assessment for unpaid VAT in the sum of £35,072 for the period 1 April 2002 to 5 April 2006 plus a late notification penalty of £5,260 which represented 15 per cent of  the assessed VAT. The rate of 15 per cent is fixed by legislation which applies when the registration is more than 18 months late. The Appellant was given the option of making a single VAT return for the period 1 April 2002 to 5 April 2006 instead of accepting the assessment.

8.	Following contact with the Respondents the Appellant changed his accountant. On 5 July 2006 he supplied the Respondents with a long period return which declared an increased tax liability of £41,789 for the period in question. On 16 July 2006 the Respondents issued a revised assessment of £48,057 which included the late notification penalty of £6,268.

9.	The Appellant arranged with his principal contractor to reimburse him for the outstanding VAT excluding the late notification penalty. Unfortunately the Appellant was in the meantime declared bankrupt for non-payment of income tax. This meant he was unable to pay over the VAT to the Respondents because his bank account was frozen and subject to the control of the Official Receiver. The Appellant was taking steps to release himself from bankruptcy.

10.	The Appellant was not familiar with the requirements for VAT registration. He relied on his accountant to complete his self assessment return for income tax and deal with his tax affairs. His accountant failed to advise him about his potential liability for VAT. The Appellant stated that the arrangements of submitting a single invoice for the services of himself and his son were entered into for the convenience of the principal contractor. The Appellant did not regard his son as his employee. He also considered that the Respondents should have warned him earlier about his potential liability for VAT.

Reasons for Our Decision
11.	 The sole issue in dispute was whether the late notification penalty should be reduced. There were no grounds for finding a reasonable excuse for the Appellant’s failure to notify the Respondents of his liability for registration by the due date. 

12.	 The Appellant is responsible for ensuring that he complies with the legal requirements for VAT. He cannot avoid his responsibility by blaming his accountant and HM Revenue and Customs for not advising him of his liability to register. Although reliance on others can amount in law to mitigation, we did not consider the Appellant’s reliance on his accountant to be good mitigation in the circumstances of this Appeal. The fact that he did not regard his son as his employee was also irrelevant as a ground for reducing the penalty.

13.	The Appellant did not provide a convincing explanation for his failure to respond to the Respondents’ letter and reminder in January/February 2005. The Respondents’ advocate, however, considered that after 4 April 2006 the Appellant co-operated fully with the Respondents to resolve his VAT liability. The Appellant submitted a long period return which accurately stated his VAT liability.

14.	We are satisfied that the Appellant’s full co-operation with the Respondents to resolve his outstanding VAT liability constituted grounds for reducing the penalty. On balance we considered that a 40 per cent reduction was appropriate which left a penalty of £3,760 rounded down to the nearest £10.

Decision
15.	We decide for the reasons set out above to reduce the late notification penalty to £3,760. We, therefore, allow the Appeal in part. We make no order for costs.

                            

                                 MICHAEL TILDESLEY OBE
CHAIRMAN
RELEASE DATE:   8  March  2007

MAN/06/0792