20662

Vat – default surcharge – Late submission of return – Damaged return – Held: No reasonable excuse – Greengate Furniture applied

LONDON TRIBUNAL CENTRE

	H5 HOTELS LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	CHARLES HELLIER (Chairman)
						MRS R S JOHNSON

Sitting in public in London on 5 March 2008

Max Hamilton, Director, for the Appellant

Gloria Orimoloye, instructed by the solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	The Appellant appeals against a default surcharge under section 59 VAT Act 1994 in respect of the period 06/07 (the period ending 30 June 2007).  The surcharge was assessed at 10% of the late paid VAT for that period.

2.	Section 59 provides that if a person is in default in the payment of VAT or delivery of a VAT return for a period then, providing certain conditions are satisfied, that person may be liable to a default surcharge.  Mr Hamilton did not dispute that those conditions were satisfied.  Thus so long as there was a default in respect of 06/07 the liability to the surcharge would arise.

3.	There is a default for a period if the VAT return or the VAT shown as payable on the return does not arrive with the Commissioners by the time specified in Regulations made under the Act.  Mr Hamilton did not dispute that both the return and the related Vat were received late.

4.	But section 59(7) VATA provides that a person is not to be regarded as in default in respect of a period if either 

(a)	the return or the VAT was despatched at such time and in such a manner that it was reasonable to expect that it would be received on time; or
(b)	there is a reasonable excuse for the return or the VAT not being received on time.

Mr Hamilton did not argue that there were circumstances within (a) but gave evidence of circumstances potentially relevant to (b).  In relation to (b) we must note the restriction in section 71 VATA that “where relevance is placed on another person to perform a task rather the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse”, although there may be a reason for the delay or inaccuracy which may be grounds for a reasonable excuse.

5.	Mr Hamilton told us that the Appellant had no shortage of funds to pay the VAT.  He showed us copies of the bank statements.  We accept that the delay was not motivated or caused by a shortage of funds.

6.	Mr Hamilton told us that when they were getting ready to submit the return and pay the VAT (the due date was 31 July 2007), it was realised that the return form in the Appellant’s possession was muddy and water damaged.  He told us that the figures for the completion of the return came to him on 30 or 31 July 2007, but when he saw the return and the envelope he saw that it was not in good condition.

7.	The Appellant’s accountant contacted HMRC on 31 July 2007 and requested a duplicate return.  The return was received by the Appellant, signed by Mr Hamilton on 8 August 2007 and received by HMRC together with the cheque for the VAT on 11 August 2007.  There was some delay between the receipt of the return and its being signed by Mr Hamilton since he had been on holiday and no other director was authorised to deal with the VAT.

8.	We do not find that the Appellant had a reasonable excuse for either the late submission of the return or the late payment of VAT.

9.	In relation to the return, we think it would be reasonable to expect the taxpayer either to have noticed the damage to the return earlier or to have patched up, photocopied, and completed the damaged return and submitted that.

10.	In relation to the VAT payment, we see no reason why the VAT could not have been remitted to HMRC even if the return was not sent at the same time.  Even if the return had been totally unusable that would not have been a reasonable excuse for the failure to send the VAT cheque.

11.	We therefore find that within the terms of section 59 a liability to a surcharge arose.

12.	Mr Hamilton argued that the size of the surcharge was unjustified.  The Appellant had to generate £75,000 of gross revenue to make sufficient net revenue to pay this surcharge.  With an annual turnover of about £1.5m, that was a considerable penalty.

13.	We indicated that in Greengate Furniture Ltd VATDR 178 (VTD 182180), the tribunal had considered the proportionality of similar surcharges.   It was apparent that Mr Hamilton was unaware of that decision.  We directed that the Appellant should have 14 days to consider that decision and make representations if it wished in relation to whether the surcharge was unjust or disproportionate and any comment it should wish to make on the reasoning of the tribunal in Greengate.

14.	The Appellant duly wrote to the Tribunal on 12 March 2008 noting the factual differences between the circumstances of Greengate and the fact of its case, but without questioning the reasoning of the tribunal in that case.

15.	In Greengate the tribunal heard extensive argument on the question of whether the inability of the tribunal to mitigate default surcharges meant that those surcharges were incompatible with the Community Law principle of proportionality.  If they were it would have been the duty of the tribunal to disapply them (paragraph 75).  The tribunal found that the system was not so strict as to be devoid of reasonable foundation or not merely harsh but plainly unfair, and thus did not disapply the provisions.  We are content to follow the tribunal’s reasoning in Greengate

16.	We therefore dismiss the appeal.

CHARLES HELLIER
CHAIRMAN

RELEASED: 30 April 2008

LON 2007/1899