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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Baynes v Revenue & Customs [2008] UKVAT V20764 (07 August 2008) URL: http://www.bailii.org/uk/cases/UKVAT/2008/V20764.html Cite as: [2008] UKVAT V20764

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20764

DEFAULT SURCHARGE – errors made in entering data into new computer system – one payment returned and reason for return not investigated - whether reasonable excuse for delay in Customs' receiving second payment – no – appeal dismissed - VATA 1994 Ss 59(7) and 71(1)(b)

LONDON TRIBUNAL CENTRE

T G BAYNES

Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS

Respondents

Tribunal: DR A N BRICE

MR R K BATTERSBY

Sitting in London on 30 July 2008

N Chandhury Counsel, instructed by 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. T G Baynes (the Appellant) appeals against a default surcharge penalty of £5,501. The penalty was imposed by the Commissioners for Her Majesty's Revenue and Customs (Customs) because the tax for the accounting period ending on 31 October 2007 was not received by the due date. Because the payment was made electronically, the due date was 7 December 2007.

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 by the due date the taxable person is in default. A surcharge is imposed for the second and subsequent defaults. The amount of the surcharge is a percentage of the tax paid late and the percentage for the second default is 2%. However, section 59(7) provides that a taxable person is not liable to a surcharge if he satisfies the Tribunal either (a) that the return and tax was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by Customs within the appropriate time limit or (b) that there was a reasonable excuse for the delay. Section 71(1)(b) provides that, where reliance is placed on another 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. We heard oral evidence from Mrs Elaine Margaret Wells, the accounts manager of the Appellant. Mrs Wells had signed a witness statement to which was exhibited copies of the relevant bank entries. We found Mrs Wells to be a reliable witness and accept her evidence.

The facts

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

The Appellant and its business

5. The Appellant is a firm of solicitors and estate agents. Mrs Wells has been employed by the Appellant in the accounts department for twenty-one years. She was deputy manager until February 1999 when she became accounts manager. Prior to the events the subject of this appeal, and with one possible exception in 2004, the Appellant always rendered its returns and paid the value added tax due on time. The tax was paid by electronic payments despatched from the Appellant's bank (Barclays Bank) to the Bank of England for the account of Customs.

The installation of the Business Master system

6. In January or February 2007 Barclays Bank informed the Appellant of a change in the way in which electronic payments were to be sent. The Appellant would effect the payments itself by using a Business Master system. The system was designed to allow the Appellant to send BACS and CHAPS payments without troubling the local branch of Barclays Bank. The payment procedures would all be effected electronically online.
7. In July and August 2007 a new Business Master system provided by Barclays Bank was installed by the Appellant. A trainer from Barclays Bank came to show the staff of the Appellant (including Mrs Wells) how to undertake a BACS payment. During the installation the Appellant had to enter the sort code, account number and address details of each bank that received BACS payments from the Appellant. These receiving banks included the Bank of England, which received the value added tax payments, and some others. After these details had been entered into the system they did not have to be repeated on the occasion of each payment. When a payment was made the details were accessed from the system and used for each payment. Mrs Wells was responsible for the entering of this data and her work was authorised (or checked) by the trainer from Barclays Bank and another member of the Appellant's staff.
8. Mrs Wells accepted that she had made a "genuine and silly mistake" when entering the data relating to the value added tax payments. Instead of entering the sort code and account number of the Bank of England (which was of course the receiving bank for the payments of value added tax) she entered the sort code and account number of the Appellant's office account. She correctly entered the Bank of England's address.

The return and tax due on 31 August 2007

9. In the accounting period ending on 31 July 2007 the return was due on 31 August 2007 and the tax of £268,408.64 was due on 7 September 2007 if paid electronically. This was the first time that Mrs Wells had used the new Business Master system. The return was received by Customs in time. On Thursday 6 September 2007 Mrs Wells sent the payment of £268,408.64 and the money left the account of the Appellant that day. Mrs Wells was then unaware of the error which had been made during the entering of the data in July and assumed that the payment would be received by Customs in time.
10. On Monday 10 September 2007 the payment was returned to the Appellant's bank account by the Bank of England. Mrs Wells was on sick leave that day with a broken foot and was unaware that the payment had been returned until the managing partner of the Appellant informed her. She returned to the office on Tuesday 11 September 2007 and telephoned her local Customs office and said that she would effect a same-day telegraphic transfer to ensure that the payment was made as soon as possible. She was told that this was fine and not to worry. She re-sent the money the same day and it was received by Customs on the same day (11 September 2007).
11. Mrs Wells did not then appreciate that the payment had been returned because of the error in the information she had entered when the system was installed. At the time she did not investigate the reason for the error because her department was extremely busy; because Customs had told her not to worry; and because she was advised to rest at home with her broken foot for some weeks.
12. A surcharge liability notice was issued to the Appellant on 3 October 2007 which stated that the Appellant might be liable to a surcharge if it was in default in respect of an accounting period ending before 31 July 2008. No penalty was imposed as that was the first default. Mrs Wells returned to work on 8 October 2007. When she returned to work she had a lot to catch up on and the problem with the value added tax payment slipped her mind.

The return and tax due on 30 April 2006

13. In the accounting period ending on 31 October 2007 the return was due on 30 November 2007 and the tax of £275.055.26 was due on 7 December 2007 if paid electronically. The return was received in time. On Thursday 6 December 2007 Mrs Wells sent the payment of £275,055.26 in the same way as she had sent the payment for the previous return. The money left the account of the Appellant on 6 December 2007. Mrs Wells was still unaware of the error which had been made during the entering of the data and assumed that the payment would be received by Customs in time.
14. Mrs Wells was on leave from Monday 10 December 2007, returning on 17 December 2007. However, she logged in to the Appellant's system while away and noticed that on Monday 10 December 2007 the value added tax payment was returned to the Appellant's bank account by the Bank of England. She immediately arranged for a same-day telegraphic transfer and the payment was received by Customs the same day (10 December 2007).
15. On 4 January 2008 Customs notified the Appellant that a surcharge of £5,501 was imposed at the rate of 2% of the tax paid late. It is against that surcharge that the Appellant appeals. After receipt of the notice of surcharge Mrs Wells contacted Barclays Bank and made her own investigations. She then realised the mistake that she had made in July 2007 when entering the data relating to the receiving bank for the value added tax payments.

The arguments

16. For the Appellant Mr Chandhury argued that the Appellant had a very good record of paying its value added tax on time and had a reasonable excuse for the late payment the subject of the penalty. The Appellant had been using a new system for making electronic payments which was only three months old at the time of the first payment. New systems always had teething troubles. The data had been entered when a Barclays Bank trainer had been present and the trainer and another member of staff had authorised the entry. Both the Appellant and Mrs Wells had acted conscientiously. When the value added tax payments were returned to the Appellant they had been re-sent to Customs immediately. The Appellant had not benefited from the delay as the payments had left its bank account when first sent and the Appellant had offered to pay to Customs a sum to represent interest on the amount delayed.
17. For Customs Mr Holl argued that the tax had not been despatched to Customs "at such a time or in such a manner" that it was reasonable to expect that it would be received by Customs within the appropriate time limit and there was no reasonable excuse for the delay. Mrs Wells had made an error when entering the data about the receiving bank for the value added tax payments but that could not be a reasonable excuse. To the extent that the Appellant had relied upon the trainer from Barclays Bank to check the erroneous entry of data that was reliance upon another and section 71(1)(b) provided that that could not be a reasonable excuse.

Reasons for decision

18. In our view the two reasons for the delay in the payment of the tax which was due on 7 December 2007 were, first, that incorrect entries were made into the Business Master system by Mrs Wells in July 2007 and, secondly, that Mrs Wells failed to correct those entries in October 2007 after the first payment was returned. We do not consider that those actions were the actions of a conscientious business person nor did they demonstrate the exercise of reasonable foresight, or of due diligence, or a proper regard for the fact that the tax was due on particular dates. We accept that Mrs Wells was normally a conscientious employee of the Appellant and she impressed us by her evidence. However, she accepted that the entries she made in July 2007 were incorrect by virtue of a "genuine and silly mistake" and such an error cannot be a reasonable excuse. Also in our view a vigilant business person would have established the cause of the returned first payment in September 2007 and would have corrected the relevant data accordingly. If that had been done, the payment due on 7 December 2007 would have been received by Customs on time and would not have been returned to the Appellant.

Decision

19. Our decision is that the Appellant did not have a reasonable excuse for paying the tax due on 7 December 2007 on 10 December 2007.
20. That means that the appeal is dismissed

DR NUALA BRICE

CHAIRMAN

RELEASE DATE: 7 August 2008

LON/2008/0624

21. .08.08