20085

DEFAULT SURCHARGE –reasonable excuse –four days before the due date the Appellant could not find its return and so telephoned the Respondents’ National Advice Service saying that it did not want to be late and asking if it could use an amended copy of a previous return – the Appellant was told it was not possible to use an amended copy of a previous return but was also told that a duplicate return would be sent to the Appellant who should send it (with the tax due) to the Respondents by seven days after the due date – the Appellant received the duplicate return one day after the due date and returned it to the Respondents the same day and also on the same day authorised the payment of the tax – the tax was received by the Respondents four days after the due date – whether the Appellant had a reasonable excuse for the late payment of the tax – yes – appeal allowed – VAT 1994 section 59A(8)(b)

LONDON TRIBUNAL CENTRE

MONSTER WORLDWIDE HOLDINGS LIMITED
Appellant

 - and -   	

THE COMMISSIONERS FOR HER MAJESTY’S 
REVENUE AND CUSTOMS 
Respondents

Tribunal: DR A N BRICE (Chairman)
 MRS C S DE ALBUQUERQUE

Sitting in London on 14 March 2007

Mrs Kate Watson for the Appellant 

Mr J Holl, Advocate of the Office of the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The appeal
1.	Monster Worldwide Holdings Limited (the Appellant) appeals against a default surcharge penalty amounting to £7,711 in respect of the accounting period ending on 30 June 2006. The Appellant was a payment on account trader. The balancing payment and the return were due on 31 July 2006; the return was received on 2 August 2006 and the balance of the tax due for that accounting period of £154,231.15 was received on 4 August 2006.  

The legislation 
2.	Section 59(1) of the Value Added Tax Act 1994 (the 1994 Act) provides that where a return or the tax due is not received in time the taxable person is in default. Section 59(4) provides that a penalty is imposed for the second and subsequent defaults and the amount of the penalty is a percentage of the tax paid late. This was the third default and the percentage was 5%. Section 59(7)(b) provides that if a taxable person satisfies the tribunal that there was a reasonable excuse for the late sending of the return or the tax he is not liable for the surcharge. Section 59A applies to payment on account traders and contains provisions similar to those in section 59. Section 59A(8)(b) provides that if a taxable person satisfies the tribunal that there was a reasonable excuse for the late sending of the tax he is not liable for the surcharge.

The issue
3.	Thus what we had to decide is whether the Appellant had a reasonable excuse for the late sending of the tax which was due on 31 July 2006.

The evidence
4.	A small bundle of documents was produced by the Appellant and a large bundle of documents was produced by the Respondents. Mrs Kate Watson, who represented the Appellant at the hearing, also gave evidence (not on oath) of matters of fact and was questioned by the Tribunal and by Mr Holl for the Respondents.

5.	The documents produced by the Appellant included a statement dated 21 December 2006 and signed by Ms Christina Montgomery. Ms Montgomery was an Australian national who had been employed by the Appellant at the relevant time. Her employment ceased in December 2006 when she returned to Australia. In deciding what weight to give to the contents of her statement we bore in mind that she was not present at the hearing and so could not  be questioned by the Respondents.  

6.	The documents produced by the Respondents included a copy of a note of a Contact Centre Enquiry made of Neetu Kaur-Singh of the Respondents by the Appellant on 27 July 2006. In deciding what weight to give to the contents of this note we bore in mind that Keetu Kaur-Singh was not present at the hearing and so could not  be questioned by the Appellant.   

The facts
7.	From the evidence before us we find the following facts.

The Appellant and its value added tax payments
8.	The Appellant describes its business as an “online jobboard”. In 2003 the total amount of tax due from the Appellant was £10,182,204. On 14 January 2004 the Appellant was informed that it was included in the payments on account scheme. That meant that that in each of the first two months of an accounting period the Appellant had to pay monthly payments on account and at the end of the third month the Appellant had to render a return and make a payment equivalent to the balance of tax due as shown on the return. The information sent to the Appellant about the payment on account scheme included the following statement:

“Due dates for payment
Please note that businesses in the payment on account scheme are not entitled to the seven day extension to due date for payments by electronic transfer. If your company was previously granted the seven day extension this concession is now withdrawn. Payments on account must be received in the Commissioners’ account by the last working day of the month in which they are due. The balancing payment for the VAT return must be received in the Commissioners’ account on or before the due date indicated in the VAT return.” 

9.	Similar information was sent to the Appellant each year. The Appellant makes all its value added tax payments by electronic transfer. 

The telephone conversation of 27 July 2006
10.	The tax and return for the accounting period ending on 30 June 2006 were due to be received by the Respondents on 31 July 2006. All the figures for the return were ready by 27 July 2006 and the funds to pay the tax were available. However, the Appellant then realised that it did not have a return. Accordingly on that day Ms Montgomery, on behalf of the Appellant, telephoned the Respondents’ National Advice Service and spoke to Neetu Kaur-Singh. That much is agreed. As neither Ms Montgomery nor Neetu Kaur-Singh attended the hearing to give oral evidence we first describe their written evidence and then make our findings. 

11.	Ms Montgomery stated that she suggested the possibility of using a copy of the previous return, blanking out the entries on that copy return and then inserting the figures for the accounting period ending on 30 June. She said that the Appellant did not want to be late in sending in its return and the tax. She stated that she was told that it was not possible to adopt that procedure but that a duplicate return would be sent to the Appellant and there would be an extension of seven days (until 7 August 2006) for sending back the return and the tax.

12.	Neetu Kaur-Singh’s note stated that the Appellant called at 12.45 on 27 July. The note contained the name of the caller and the VAT registration number. It stated:

“Caller cannot find return for 06/06 and needs a duplicate return. 

Advised will send Duplicate Return. Ordered via VISION. 

Caller state they do not wish to be late.

Advised caller to avoid lateness they can make electronic means of payment, cleared by 7th August and return with us by this date also, under a 7 calendar day extension, bank details on return and quote VRN on payment also”.

13.	The two statements are not inconsistent with each other although that of Ms Montgomery is fuller than that of Neetu Kaur-Singh. We accept both statements. 

The rendering of the return and the payment of the tax 
14.	The duplicate return was received by the Appellant on 1 August and completed and returned to the Respondents on the same day. It was received by the Respondents on 2 August. Also on 1 August the Appellant authorised the electronic transfer of the tax which was not received by the Respondents until 4 August. In view of the large amount of tax due we accept the evidence of Ms Watson that, for internal audit purposes, the completed tax return was needed for the authorisation of the amount of the payment and that the Appellant relied upon the fact that the Respondents had granted them a seven day extension until 7th August. We accept the evidence of Ms Watson that, if the National Advice Service had advised the Appellant to make the payment before sending in the return, then the payment could and would have been made on time.  

The arguments
15.	For the Appellant Ms Watson argued that the Appellant had not asked for an extension and had been willing to send the tax and a return made up from a copy of a previous return both of which would have been received by the Respondents by the due date of 31 July. The Appellant had been told that this was not possible but had been granted a seven day extension to complete a duplicate return and pay the tax. The Appellant had relied upon the seven day extension. The payment on account scheme had not been mentioned during the telephone conversation between Ms Montgomery and Neetu Kaur-Singh. The seven day extension had nothing to do with the payment on account scheme but was a one-off arrangement to deal with the fact that the Appellant did not have a return. 

16.	For the Respondents Mr Holl argued that the lack of a return did not explain why the Appellant did not transfer the tax on time. The National Advice Service had not been informed that the Appellant was a payment on account trader and so was not entitled to the seven day extension for electronic payments. 

Reasons for decision
17.	We have already accepted the evidence of Ms Watson that, for internal audit purposes, the completed tax return was needed for the authorisation of the amount of the payment and that the Appellant relied upon the fact that the Respondents had granted them a seven day extension until 7th August. We have also accepted the evidence of Ms Watson that, if the National Advice Service had advised the Appellant to make the payment before sending in the return, then the payment could and would have been made on time.  

18.	Neither the statement of Ms Montgomery nor the Contact Centre Enquiry Note mentions the payment on account scheme and we find therefore that it is most probable that the scheme was not mentioned during the telephone call. We are of the view that it was not incumbent on the Appellant to mention the scheme because the query made by the Appellant had nothing to do with the scheme. It concerned only the fact that the Appellant did not have a return. In any event Neetu Kaur-Singh could have asked the Appellant if it made payments under the payment on account scheme, or could have checked with the Respondents’ records, if that information was relevant to the advice given.   

19.	The Appellant fully accepted that it was not entitled to the seven day extension for electronic payments but in our view it was reasonable for the Appellant to conclude that it had been given a seven day extension because it did not have a return. 

20 	There may have been a misunderstanding during the telephone call of 27 July. However, we are satisfied that the Appellant was only trying to deal with the particular problem of not having a return and would have sent a return consisting of an amended copy of the previous return and the tax on time. However, the Appellant was told to complete a duplicate return and was given the seven day extension for both the return and the tax. We accept that the Appellant could have paid the tax before sending the return to the Respondents but we also accept that, having been granted what the Appellant thought was a seven day extension, it was reasonable to follow normal procedures and wait for the completion of the return before authorising payment. We are impressed by the fact that the Appellant did not use the full seven day extension but sent the return to the Respondents on the same day as receiving it and authorised the payment on that day also. The Appellant did not need time to pay as the funds were available. 

Decision
21.	Our decision is that the Appellant had a reasonable excuse for the late sending of the tax which was due on 31 July 2006.

22.	The appeal is therefore allowed.

DR A N BRICE

CHAIRMAN

RELEASE DATE: 27  March  2007

LON/2006/1252
26.03.07