20550

Default surcharge - electronic payment - extended due date - payment late - difficulties with online banking system - failure to allow sufficient time for BACS payment – is bank holiday reasonable excuse – no -  appeal dismissed

LONDON TRIBUNAL CENTRE

	KARAKUSEVIC CARSON LLP	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	MISS J M POWELL (Chairman)
						MR P D DAVDA FCA

Sitting in public in London on 24 October 2007

Mr Karakusevic, a member of the Appellant LLP, for the Appellant

Mr Simon Chambers, advocate, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	This is an appeal against a decision of the Respondents with respect to a default surcharge being a reasonable excuse appeal as defined by rule 2 of the Value Added Tax Tribunals Rules 1983 as amended.  The default surcharge in question relates to the period ending on 31 March 2007 where payment was not received until 9 May 2007.  The appellant says it has a reasonable excuse for its failure to make payment by the due date and the Respondents do not agree.  Mr Karakusevic, a member of the Appellant LLP appeared for the Appellant and, having affirmed, also gave oral evidence.  We heard oral evidence from Ms Carol McEwan, a book keeper employed by the Appellant.  Mr Simon Chambers, advocate, appeared for the Respondents.

2.	We found the following facts:-

3.	The Appellant LLP (or its members) has or have been for the last 6 or 7 years in business as architects and admit that the organisation of their finances has lagged behind its professional progress. Ms McEwan was employed to redress this weakness.  The Appellant registered to make payments of its VAT electronically and the relevant period was one of the first times where it chose to use this method.  Some time earlier the Respondents have a record of Ms McEwan enquiring about the extended due dates where the electronic method of payment is used.

4.	The relevant period ended on 31 March 2007 and the normal due date would have been 30 April.  Where the electronic method of payment is used the due date can be extended for up to 7 days but may not fall on a weekend day or on a Bank holiday and so the extended due date will fall on the last week day to occur before the seventh day in such a case.  May 7 2007 was a Bank holiday and so the last weekday which occurred before that was May 4 and this was the extended due date for electronic payments made in respect of the period ending on 31 March 2007. Accordingly, payment had to be made on or before that date if it was to be on time. 

5.	Ms McEwan was due to be on holiday on the due date.  On 24 April she prepared the VAT return and arranged a meeting with Mr Carson, a member of the LLP who had bank signing rights.  She met with Mr Carson on that day and they went through the return and tried to make electronic payment using the BACS system.  They failed to access the online payment system operated by the Appellant’s bank but, realising that the payment was not immediately due, they did not persevere.   Ms McEwan went on holiday and no further attempts to file the return and action payment were made before she left.

6.	The next attempt to file the return and make payment was made on May 4 2007, the extended due date.  Ms McEwan was still on holiday and again it proved difficult to access the bank’s online payment system.  When the bank was eventually contacted by telephone, the Appellant was told that the payment of £30,000 could not be made using the BACS system for which the firm had an upper limit of £10,000 but that if a signed authority was given the payment could be made by CHAPS.  There was no one at the firm with the available time to visit the bank before 2.30pm which was the cut off time for making a CHAPS payment that day.  Later in the evening on the Friday Mr Carson spoke with HMRC and tried to make a payment over the telephone.  He was told that this was impossible and he was also told about the due dates for electronic payments and warned that a surcharge was likely to be imposed.  On Saturday 5 May Mr Carson went to the bank and authorised a payment which was received by the Appellants on 9 May.  At all relevant times the Appellant had sufficient funds to make the payment.

7.	The Appellant submitted that it had made a slight mistake but that it is being penalised for a small error whereas its public sector clients are not penalised on the many occasions they pay late.  Whilst it may justifiably be annoyed about receiving late payment from its own clients this is not an excuse for late payment of the VAT due (even if such an excuse would be reasonable) since there is no evidence that the Appellant was short of funds, so that the two matters are simply not related to each other.  The Appellant criticised its bank.  There were obviously difficulties with its online payment system on 24 April and again on 4 May but the extent of the problems was unclear.  The Appellant had asked its bank to provide a written explanation of the situation but the bank did not do so.  It might have been interesting to understand the nature of the problems but on the evidence before us the Appellant did not try and make payment for some days after the first failure on 24 April and they did manage to speak to someone when they next tried to make payment on 4 May.  In fact, even if the online service had been working without problems on 4 May and even if there had been no upper limit placed on the BACS payment method, the BACS payment would have arrived too late since BACS payments are not instantaneous and the payment would not have arrived with the Respondents on the same day, 4 May, the due date.  The only instant payment method is by CHAPS and it is this method that was offered by the bank to the Appellant on the due date and which it did not have time to use.  The Appellant also submitted that it was not clear whether it was within a surcharge period in view of the statement on the surcharge liability notice that “the period ending on 31/03/07 is hereby specified as a surcharge period for the purposes of Section 59 or 59A of the VAT Act 1994” and the payment was not due on any basis until after 31/03/07.  This submission raised a potentially interesting point but of course the surcharge period is stated to be for the purpose of two statutory provisions and when these are examined it is plain that a default is within the period if it occurs in relation to a period ending on or before the date specified in the notice.  Even if the period was unclear - and it is by no means obvious that it is unclear -there is no evidence that the Appellant acted in a particular way in reliance on whether the period had or had not expired; it does not seem to have considered the surcharge period at all.  The Appellant failed to understand the requirements of the electronic payment system. They had been left with a completed return by their book keeper and failed to action payment and file the return until the very last moment despite having encountered problems with the banking system some days previously.  Having left things until the last moment it risked having to devote its entire attention to making payment if things went wrong. Things did go wrong. Even if the system had worked smoothly it would have been unable to arrange payment on that day without one of its members (or someone with signing rights) going personally to the bank with a signed authority - or, possibly, sending a courier to the bank with a signed letter (an option not explored at the hearing).  Whilst we have sympathy with the argument that they were simply too busy to deal with the bank at short notice, they did not need to put themselves under that pressure. 

8.	The Respondents submitted very shortly that whilst it would perhaps have been instructive to understand what went wrong at the bank on 24 April when there would still have been time to organise payment the fact is that no further action was taken by the Appellant for some days.  They accept that in the end there was a genuine error but that information concerning electronic payment is widely available and the Appellant should have been vigilant to ensure payment was made on time. 

9.	We broadly agree with the Respondents.  There was a genuine error on the part of a busy organisation but the efforts they made in the context of the resources available to them, and particularly since the return had been prepared for them in good time, were not sufficient. The last minute problems could have been foreseen and were not sufficient to amount to a reasonable excuse. 

10.	We dismiss the appeal and make no order as to costs.  

MISS J M POWELL
CHAIRMAN

RELEASED: 25 January 2008

LON 2007/1383