20074

Value Added Tax – application for an extension of time to serve a notice of appeal – default surcharges intended to be appealed against – delay in serving a notice of appeal of over 2 years – Tribunal had regard to several considerations the most important of which was the effect which a decision to extend (or not to extend) the time allowed for serving the notice of appeal would have on each party – the Tribunal’s conclusion on a consideration of the merits of the appeal was that the Applicant was unlikely in truth to be losing very much if the time for appealing were not extended – decision to refuse the application and strike out the appeal  

LONDON TRIBUNAL CENTRE

	 MRS. INGRID MARILYN BERMAN
	trading as CAVENDISH PERSONNEL	Applicant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S 
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	JOHN WALTERS QC (Chairman)

Sitting in private in London on 19 February 2007

The Applicant appeared in person, with Mr. Stanley Cowan, Accountant

Mr. Jonathan Holl, Advocate, HM Revenue and Customs, appeared for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	The Tribunal heard the application of Mrs. Ingrid Marilyn Berman for an extension of time to appeal, to enable the notice of appeal in this case, dated 19 August 2006, to be treated as having been served in time.  At the end of the hearing the Chairman announced his decision that the application was dismissed and a Direction was subsequently released that the application be dismissed and in consequence the appeal be struck out by reason of non-compliance with Rule 4 of the VAT Tribunals Rules 1986 (“the Tribunals Rules”).  Following the release of the Direction the Tribunal received a letter from Mr. Cowan on behalf of Mrs. Berman requesting a written document containing the findings of fact by the Tribunal and its reasons for the decision.  Rule 30(2) of the Rules refers.
2.	The appeal concerns default surcharges raised in respect of the VAT periods 05/02 (to 31 May 2002), 08/02 (to 31 August 2002), 11/02 (to 30 November 2002) and 11/03 (to 30 November 2003).  The default surcharges total £10,516.05.  Some of this amount has been paid.  The relevant surcharge liability notice was issued in respect of VAT period 02/02 (to 28 February 2002).
Findings of fact
3.	Mrs. Berman and Mr. Cowan gave evidence (though not on oath), which the Tribunal accepted.  From the evidence, the Tribunal found that Mrs. Berman’s business is an employment agency.  The staff are on weekly salaries and must be paid regularly. The business’s clients pay later.  This leaves a cash flow gap which has to be funded.  The main reason for the default was a bad debt which the business had suffered.  The bad debt was in the amount of £26,000.  This had to be seen in the context of an annual turnover of the business which £672,000 in the year ended March 2002, and £801,000 in the year ended March 2003, when the bad debt was suffered.  However, because of the heavy expenses of the business, the gross profit figure, which Mr. Cowan submitted was more relevant to establish the context, was in the order of £141,000 per annum.  The VAT liabilities of the business had been discharged.  
4.	There had been correspondence with the Commissioners about the default surcharges, in which Mrs. Berman (or Mr. Cowan on her behalf) attempted to achieve their withdrawal.  This took place up to May 2004, but in that month the Commissioners (on a reconsideration of the case) made their decision that they would enforce the default surcharges.  The form for appealing was sent to Mrs. Berman (or Mr. Cowan on her behalf) at the end of May 2004.  Mr. Cowan had left the matter of filling in the form and serving the notice of appeal to Mrs. Berman.
5.	As stated above, the notice of appeal was submitted on 19 August 2006.  There was thus a delay of 2 years and 3 months to be considered against the time limit laid down by the Rules (Rule 4) for serving a notice of appeal which is 30 days after the date of the document containing the disputed decision of the Commissioners.
6.	Besides the bad debt already referred to, the Tribunal accepted that Mrs. Berman’s partner in the business had been ill at a material time, and that she had other personal problems which caused her to leave the matter of filing the notice of appeal unattended.
Reasons for the Tribunal’s decision
7.	In considering whether to allow an extension of time for serving the notice of appeal, to enable the notice to be treated as if it had been served in time, the Tribunal had regard to the Commissioners’ general practice, which Mr. Holl told the Tribunal was not to object to an extension of up to 12 months from the due date.  The delay in this case was more than twice that length of time.
8.	The Tribunal also had regard to the interests of the administration of justice, in particular the legitimate interest of the Tribunal in the Rules being observed and the legitimate interest of the Commissioners in not having to meet stale claims.  It considered that the application for an extension of time had not been made promptly, although it accepted that the failure was not intentional.  It considered that there had been no good explanation given for the failure to file the notice of appeal in time, or more expeditiously than it was in fact filed.  The delay in serving the notice of appeal was caused by Mrs. Berman, rather than Mr. Cowan.
9.	The most important consideration to which the Tribunal had regard was the effect which a decision to extend (or not to extend) the time allowed for serving the notice of appeal would have on each party.  
10.	Mr. Holl very fairly said that he doubted that the Commissioners would experience insurmountable evidential difficulties in dealing with the appeal, notwithstanding the delay, but he submitted that there might be some difficulties.
11.	In estimating the likely effect which a decision not to allow an extension of time would have on Mrs. Berman, the Tribunal evaluated the merits of the proposed appeal, in order to form a judgment on what Mrs. Berman would be losing if time were not extended. 
12.	Having regard to the provisions of section 71(1)(a) of the Value Added Tax Act 1994, that “an insufficiency of funds to pay any VAT due is not a reasonable excuse”, and the submission that the defaults were, at least in part, caused by the bad debt suffered by the business, the Tribunal considered the relevant decision of the Court of Appeal in Customs and Excise Commissioners v Steptoe [1992] STC 757.  Applying that decision, the Tribunal decided that although insufficiency of funds could never of itself constitute a reasonable excuse, the underlying cause of the taxpayer’s default might do so.  Bearing that in mind, if the exercise of reasonable foresight and due diligence and a proper regard for the fact that the tax would become due on a particular date would not have avoided the insufficiency of funds which led to Mrs. Berman’s default, then she might well have had a reasonable excuse for non-payment (although that reasonable excuse would have been exhausted by the date on which such foresight, diligence and regard would have overcome the insufficiency of funds).
13.	However, the Tribunal concluded that even adopting the Steptoe gloss, summarised above, Mrs. Berman was highly unlikely to be able to establish a reasonable excuse for the defaults. 
14.	The bad debt on any view only represented a small part pf the business’s turnover.  It occurred in the year ended March 2003, whereas the relevant surcharge liability notice had been issued in the VAT period 02/02 (to 28 February 2002) and the bad debt itself would likely have affected only the defaults in the periods 08/02 and 11/02, not the defaults in the period 05/02 (which was too early to have been affected) or the default in the period 11/03 (which was too late to have been affected – apparently the VAT due for the periods 02/03, 05/03 and 08/03 was paid on time). 
15.	Apart from the bad debt of £26,000, the other explanations given for the defaults appeared to the Tribunal to be too vague to be likely in practical terms to amount to a reasonable excuse.  The Tribunal therefore concluded that Mrs. Berman was unlikely in truth to be losing very much if the time for appealing were not extended.
16.	Mrs. Berman had in the Tribunal’s view, not offered any good explanation for the delay in serving the notice of appeal.
17.	For these reasons, the Tribunal dismissed the application for an extension of time and directed that the appeal be struck out. 

JOHN WALTERS QC

CHAIRMAN
RELEASE DATE: 19  March  2007

LON/2006/0881