20745

VALUE ADDED TAX – default surcharge – reasonable excuse – whether  delay due to previous accountant refusing to hand papers to new accountant - whether reliance on another – whether reasonable excuse – no – appeal dismissed – VATA 1994 s 59(7)(b) and 71(1)(b) 

LONDON TRIBUNAL CENTRE

NADEEM KHOKHAR
Trading as
EXPRESSO BAR LTD 
Appellant

 - and -   	

THE COMMISSIONERS FOR HER MAJESTY’S 
REVENUE AND CUSTOMS 
Respondents

Tribunal: DR A N BRICE

Sitting in London on 4 June 2008 

Mr Nadeem Khokhar, the director of Expresso Bar Ltd, for the Appellant   

Pauline Crinnion, Advocate, of the Office of the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The appeal
1.	Mr Nadeem Khokhar is the sole director of Expresso Bar Ltd.  Expresso Bar Ltd is the registered person for value added tax purposes and so should be the Appellant in this appeal. However, Mr Khokhar appealed in his own name and that is why his name appears as the appellant in this appeal. However, I will refer to Expresso Bar Ltd as the Appellant. The appeal is against a default surcharge penalty of £269.70. The penalty was imposed by the Commissioners for Her Majesty’s Revenue and Customs (Customs) because the return and tax due for the accounting period ending on 30 November 2007, which should have been received by Customs by 31 December 2007, were not received until 10 January 2008.  

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 penalty is imposed for the second and subsequent defaults. The penalty is a percentage of the tax paid late, being 2% for the second default, 5% for the third, 10% for the fourth and 15% for 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. Section 71(1)(b) provides that, where reliance is placed on any other person to perform any task, neither the fact of that reliance, nor any dilatoriness or inaccuracy on the part of the person relied upon, is a reasonable excuse.

The evidence
3.	A bundle of documents was produced by Customs. Oral evidence was given by Mr Khokhar. 

The facts
4.	From the evidence before me I find the following facts. 

The Appellant and its value added tax returns 
5.	The Appellant operates an expresso bar at Platform 2, Teddington Railway Station, Teddington, Middlesex and was registered for value added tax on 27 September 2004.  The business is a franchise. The business was Mr Khokhar’s first business and he worked full time in it. He instructed a firm of chartered accountants in North Harrow to prepare the value added tax returns. The value added tax returns were sent to the Appellant at its business address. At the end of each month Mr Khokhar would calculate the royalties due to the franchisor by reference to the till receipts and he would send the franchisor a cheque for the royalties. At the end of the accounting quarter he would also send the value added tax return, the till receipts and the expenses invoices to the chartered accountants who prepared and signed the returns. When the returns had been prepared the accountants would ask Mr Khokhar for a cheque for the value added tax and Mr Khokhar would write a cheque and give it to the accountants. 

6.	On 23 March 2005 Mr Khokhar spoke to Customs to say that he had recently changed his accountant and that the return for the accounting period ending on 28 February 2005 would be submitted no later than 31 May 2005 and that the return for the accounting period ending on 31 May 2005 would be sent in time. However, thereafter the Appellant rendered its value added tax returns late on a number of  occasions as:

Accounting period	Due date	Date received	Rate of surcharge	Amount 
Ending
28.02.05		31.03.05	31.05.05
					14.06.05
					13.02.06	0%			£0.00
31.05.05		30.06.05	04.07.05
13.02.06	0%			£0.00
31.08.05		30.09.05	03.11.05
					08.11.05	2%			£0.00
30.11.05		31.12.05	23.01.06
					13.02.06	5%			£0.00
28.02.06		31.03.06	02.05.06
					17.05.06	10%			£88.28
31.05.06		30.06.06	18.07.06
					21.07.06
					17.08.06	15%			£192.51
31.08.06		30.09.06	09.10.06
					03.11.06	15%			£267.45
28.02.07		31.03.07	05.04.07
					12.04.07	15%			£179.14

7.	The notices about the assessment of the surcharge penalties were sent to the Appellant at its business address. Mr Khokhar gave all these documents to the chartered accountants and paid the penalties. 

The return for the period ending on 31 November 2007 
8.	On 23 October 2007 Mr Khokhar telephoned Customs to say that he was not happy with his accountant and had hired a new one. The return for the accounting period ending on 31 November 2007 was due on 31 December 2007. On 4 January 2008 Mr Khokhar telephoned Customs to ask for a duplicate return for the period ending on 30 November 2007 and asked if he would get a penalty if he was late; he was told that he would get a 15% penalty as he had been late before. Mr Khokhar mentioned that he had changed his accountant. 

9.	The return for the period ending on 30 November 2007 was signed by Mr Khokhar and was received by Customs on 10 January 2008. A default surcharge penalty was imposed at the rate of 15% and it is against that penalty that the Appellant appeals. 

10.	On 14 February 2008 Mr Khokhar wrote to Customs to appeal against the default surcharge penalty. That letter contained the following paragraph:

“ Due to me changing accountants, my old accountant became very bitter and kept refusing to hand over the accounts to my new accountant. I then had no option but to threaten him by reporting him to the accountants Ombudsman. Only by doing this he decided to hand over the accounts to my business thus allowing my new accountant to calculate the VAT.” 

11.	On 29 February 2008 Customs replied and asked for evidence of the difficulties experienced with the previous accountants, evidence of the date of the transfer to the new accountant, a copy of the Appellant’s bank statements for the relevant period and evidence of any overdraft facility. The Appellant replied on 8 March 2008 but did not supply any documents in response to Customs’ request.   

The arguments 
12.	For the Appellant Mr Khokhar argued that he was not told that the surcharge penalties were fines but he accepted that he had paid them. He argued that when he realised what was happening he decided to change his accountant. However, the original accountant refused to hand over the documents to the new accountant and the matter was outside his control. For Customs Mrs Crinnion relied upon section 71(1)(b) of the 1994 Act and argued that reliance upon another person could not be a reasonable excuse. 

Reasons for Decision
13.	What I have to decide is whether the Appellant has satisfied me that it had a reasonable excuse for the delay in sending the value added tax return, and the tax, which was due on 31 December 2007 and which arrived on 10 January 2008. The Appellant’s case is that the reason for the delay was that his previous accountant would not hand the relevant papers over to his new accountant. 

14.	The burden of proof in this appeal is on the Appellant to satisfy the Tribunal about the facts upon which it seeks to rely. In spite of being requested by Customs on 29 February 2008 to produce documentary evidence to support its claim, the Appellant has produced no documents to support its case. Further, the oral evidence of Mr Khokhar was somewhat confused. Mr Khokhar’s evidence about the date he instructed his new accountant was unclear. First he said it was in September 2007, then that it was in the last week of September or the first week of October, then it was “about Christmas”, and then that the handover had been in January. He also said that when he received the return he had given it to the previous accountant who had all the papers. From this evidence I am unable to find any fact about the date when the new accountant was instructed. 

15.	Returning to the facts I have found, the relevant facts are that in the normal course the value added tax return was sent to the Appellant at its business address and at the end of the accounting quarter Mr Khokhar sent to his previous accountant the value added tax return with the till receipts and the expenses invoices and the previous accountants prepared the return. If the previous accountants had the return and all the papers relevant to the return due on 31 December 2007 then these documents must have been sent by Mr Khokhar after the end of November 2007 when the accounting period ended. This appears to be inconsistent with the statement made to Customs on 23 October 2007 that a new accountant “had been hired” and is also inconsistent with the oral evidence that the new accountant had been instructed in September or October 2007. 

16.	I would also have expected there to be some documents to support the Appellant’s claim that a new accountant had been instructed and that the previous accountant had refused to hand the papers to him but there was none. 

17.	On the evidence before me I am unable to find that, as a matter of fact, the reason for the delay was that the previous accountant would not hand the relevant papers over to the new accountant. However, even if I had made such a finding, then I would have gone on to conclude that the Appellant’s reliance upon the previous accountant, and the dilatoriness of the previous accountant in handing over the papers, could not be a reasonable excuse under the provisions of section 71(1)(b). 

Decision
18.	My decision is that the Appellant has not satisfied the Tribunal that there was a reasonable excuse for the delay in sending the value added tax return and the tax which was due on 31 December 2007.

18.	That means that the appeal must be dismissed. 

DR NUALA BRICE

CHAIRMAN

RELEASE DATE: 17 July 2008

LON/2008/0982
16.07.08