20536

DEFAULT SURCHARGE – tax due on date which was a bank holiday – tax paid two days later – clerical error - whether reasonable excuse – no – appeal dismissed – VATA 1994 S59(7)(b) 

LONDON TRIBUNAL CENTRE

INDEPENDIENTE LIMITED 
Appellant

 - and -   	

THE COMMISSIONERS FOR HER MAJESTY’S 
REVENUE AND CUSTOMS 
Respondents

Tribunal: DR A N BRICE
 MRS R A WATTS DAVIES MHCIMA FCIPD

Sitting in London on 28 November 2007

Andrew McDonald, Chairman of the Appellant, for the Appellant 

Jonathan Holl, Advocate in the Office of the Solicitor of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The appeal
1.	Independiente Limited (the Appellant) appeals against a default surcharge penalty of £12,630, The penalty was imposed by the Commissioners for Her Majesty’s Revenue and Customs (Customs) because the tax due for the accounting period ending on 30 March 2007 was not received in time 

The legislation
2.	Section 59 of the Value Added Tax Act 1994 provides that where a value added tax return, or the tax due, is not received by Customs in time the taxable person is in default. A surcharge is imposed for the second and subsequent defaults. However, section 59(7)(b) provides that a taxable person is not liable to a surcharge if he satisfies the Tribunal that there is a reasonable excuse for the delay. 

The evidence
3.	A bundle of documents was produced by Customs. We heard oral evidence from Mr Andrew McDonald, the Chairman of the Appellant, who also represented the Appellant at the hearing. A signed statement by Mr Neville Acaster, the previous Director of Finance and Business Affairs of the Appellant, dated 12 November 2007 was produced at the hearing. In considering what weight to give to the contents of this statement we bore in mind that Mr Acaster did not attend the hearing to give oral evidence and so could not be questioned.    

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

5.	The Appellant is in the music/media business and has been registered for value added tax for about eight years. The Appellant was in default in the accounting periods ending on 30 March 2006 and 30 September 2006. In the accounting period ending on 30 March 2006 no penalty was imposed but the Appellant was sent a surcharge liability notice. In the accounting period ending on 30 September 2006 the amount of the penalty was £2,383 which was 2% of the tax paid late. 

6.	In the accounting period ending on 30 March 2007 the Appellant’s value added tax return should have been received by Customs on 30 April 2007 (which was a Friday). The return was received in time. The usual due date for the tax was also 30 April 2007. However, the appeal proceeded on the basis that the tax due should have been received on 7 May 2007 which was a bank holiday and that would be the case if payment were made by electronic transfer. We therefore find that the due date for the payment of the tax was 7 May 2007. Mr Acaster arranged for the payment of the tax, amounting to £252,610.35, to be made on 9 May 2007. Thus the tax was received two days late. The penalty was 5% of the tax paid late. 

7.	In correspondence with Customs after the imposition of the penalty the Appellant argued that the delay had been very short as a result of a clerical error. The Notice of Appeal was lodged on 9 August 2007 and the grounds of appeal were stated to be that the penalty was excessive and out of proportion to the interest costs of the delay and reference was also made to the fact the 7th May was a bank holiday.  

The arguments
8.	For the Appellant Mr McDonald accepted that the tax had been sent late by reason of an error made by the Appellant’s previous finance director but argued that it had been only two days late. The Appellant was a good company with a large turnover which paid high taxes. The music industry was going through a difficult time and there had been a substantial decline in sales because people were downloading music from the internet. Some of the customers of the Appellant were taking ten and a half weeks to pay their bills when the amounts were due in thirty days. The size of the penalty was disproportionate to the extent of the delay. Mr McDonald calculated that interest at a commercial rate on the amount paid late for two days would be £107 which meant that a penalty of £12,630 was too high. The amount of the penalty was therefore excessive.  

9.	For Customs Mr Holl argued that a clerical error, in forgetting about a bank holiday, could not be a reasonable excuse. He relied upon the Tribunal decision in Greengate Furniture Limited v Commissioners of Customs and Excise [2003] V&DR 178 for the principle that the default surcharge regime was not disproportionate. The Appellant had been warned of the penalty regime because it had two previous defaults and had had to pay a previous penalty.

Reasons for decision
10.	Although we sympathise with the difficulties facing the music industry we are not satisfied on the evidence before us that an insufficiency of funds was the reason why the tax was paid late. From the outset the Appellant stated that the late payment was due to a clerical error. No documents were produced to us to show how the decline in the industry, or the late payment of invoices, had affected the Appellant’s ability to pay the tax on time. We find, therefore, that the real cause of the delay was the clerical error by the previous finance director who had failed to appreciate that the due date was a bank holiday. That cannot be a reasonable excuse. 

11.	We have considered Mr McDonald’s argument that the penalty seems excessive for a delay of only two days. However, in Greengate that question was argued before the Tribunal who had the advantage of hearing counsel instructed by the Treasury Solicitor as Advocate to the Tribunal. In Greengate the returns and tax were late on four occasions by 6, 12, 4 and 8 days respectively. The surcharges were at the rates of 2%, 5%, 10% and 15% respectively. These rates were equivalent to annual interest rates of 122%, 152, 912% and 684% respectively. In its decision the Tribunal fully reviewed both the European and our national legislation, and the European and national authorities. The Tribunal concluded, at paragraph 111, that the authorities made it clear that the legislature had a wide margin of appreciation when framing implementation policies in the area of taxation. The appeal was dismissed. The Tribunal also expressed the view, in paragraph 113, that there might be cases where a surcharge was “not merely harsh but plainly unfair” within the test in International Transport Roth GmbH v Home Secretary [2002] 3 WLR 344 at paragraph 26 and so could not be permitted but concluded that the surcharges in Greengate were not such surcharges. We are of the view that the surcharge in this appeal is not such a surcharge either.  . 

Decision     
12.	Our decision is that the Appellant did not have a reasonable excuse for the delay in paying the tax for the accounting period ending on 30 March  2007. 

13.	That means that the appeal is dismissed.

DR NUALA BRICE

CHAIRMAN

RELEASE DATE: 16 January 2008

LON/2007/1360
15.01.08