20878

Default Surcharge:  Four periods, four different reasons given as reasonable excuse.  None is appropriate for satisfying grounds of reasonable excuse.  Appeal refused.

EDINBURGH TRIBUNAL CENTRE

	HEAVENLY INVESTMENTS LTD	Appellant(s)

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

			Tribunal:	 (Chairman):  Mrs G Pritchard, BL., MBA., WS

Sitting in Edinburgh on Tuesday 11 November 2008

for the Appellant(s)	Heard on Papers Only

for the Respondents	Mr Russell Harrison

© CROWN COPYRIGHT 2008.

DECISION

This appeal is against the imposition of default surcharges for the periods 04/07 at 10% and 07/07, 10/07 and 01/08 all at 15%.

No appearance was made by the Appellant who asked for the matter to be considered on the papers.  He had submitted that he wished the surcharges to be mitigated as he had a shortage of funds due to an unsuccessful attempt to expand from his existing business in Aberdeen to Edinburgh.

Mr Russell Harrison appeared for HMRC (Customs).  He submitted that in terms of S71(1)(a) of the Value Added Tax Act 1994 insufficiency of funds was expressly excluded as a reasonable excuse for non payment of Vat.

S71(1)(a) states:
An insufficiency of funds to pay any VAT due is not a reasonable excuse.

Findings in Fact and reasons for Decision
1.	The Appellant is Heavenly Investments Ltd, a Company which runs a number of pizza restaurants, and pizza delivery services in Aberdeen, trading as “Heavenly Pizzas”.
2.	The main director is James Cummings.
3.	The 04/07 return and payment was due on 31.05.07.  Part payment was received on 08.06.07 amounting to £15,762.10.  The balance of £7,000 was paid on 06.08.07. 
The surcharge arose due to the Appellant’s cheque being returned by the Bank.  Mr Cummings suggested in a letter to Customs dated 27.07.07 that he would enquire of his bank why this happened but he has not produced any information to assist in this Tribunal.  The same letter enclosed the cheque for the outstanding balance of £7,000.  This suggests the payment of £15,762.10 was made by cheque.  In his letter to Customs of 1 April 2008 Mr Michael McCloskey on behalf of the Appellant suggests the payment of £15,762.10 was a CHAPS payment made on 08.06.07 and was only one day late.  I find this at odds with Mr Cumming’s own understanding.  In any event either payment was not timeous.  I find therefore the default surcharge was correctly applied in that quarter.
4.	The 07.07 return showed Vat due of £14,157.18 due on 31.08.07.  Payment of £4,878.70 was paid on 19.03.08 and the balance some time later.  Mr Cummings had in the course of that quarter embarked on the intended expansion to Edinburgh spending £101,000 on establishing the business.
However he effectively made use of tax collected from his customers to fund his business expansion which cannot be treated as a reasonable excuse.  I therefore find the default surcharge was correctly applied in that quarter.
5.	The 10.07 return showed Vat due of £25,863.31 due on 30.11.07.  Payment of £12,000 was made on 26.02.08, and the balance on 19.03.08.  The reason given for this delay was that Mr Cummings had sold his house and paid £25,000 of the proceeds into his business bank account intended to meet his Vat obligation.  However, when the £25,000 was paid into his bank account his bank reduced his overdraft facility from £100,000 to £75,000.  He was apparently short of funds as a result.  No bank accounts have been produced.  A letter from the bank stated that the overdraft limit was scheduled to reduce to £75,000 on 30.11.07.  The letter suggested that the overdraft was intended to be reduced by the £25,000 payment.
I therefore find the Appellant does not have a reasonable excuse for the non payment of Vat for the 10.07 quarter and the default surcharge was correctly applied.
6.	In respect of the 01.08 return an agreement was reached with the Debt Management Unit (DMU).  The Vat due was £21,612.88.  Part payment of £12,000 was made on 07.03.08 but was late.  In the letter to Customs of 01.04.08 Mr McCloskey on behalf on the Appellant suggests a different part payment, but in any event there was a delay.  So far as the balance was concerned the agreement with the DMU for instalment payments in no way relieves the liability to a default surcharge as was made very clear to the Appellant as it was suggested the default surcharge be added to the instalment payments.  Agreement to instalment payments therefore is not a reasonable excuse and the default surcharge was properly applied in that quarter

Decision
I refuse the appeal.

No expenses are found due to or by either party.

Reasons
It is clear from the above findings there has been a catalogue of errors and delays on the part of the Appellant.  He clearly runs a successful business dealing mainly in cash and short term credit payments for his supplies of pizzas from which he does not set aside his likely Vat liability having received the Vat from his customers.  It is the statutory duty of all service traders to account for Vat promptly.  

Reasonable excuse is acceptable as a ground when it involves compassionate reasons of illness or death, loss of key personnel, or a sudden unexpected cash crisis.  In this case the nearest to that is the excuse for the 10.07 quarter relating to the bank overdraft.  Had the exact amount of the tax liability been deposited I might have given the Appellant’s claim some more consideration.  The bank’s letter does not as suggested in some of the correspondence “admit a misunderstanding”.  It only refers to “the misunderstanding” but clearly affirms the required overdraft reduction by 30.11.07 from £100,000 to £75,000, which the payment in of £25,000 very neatly fits.

The Appellant gave no details of how much had been realised out of the sale of his house, the reason for the sale or what happened to the remainder of any proceeds.

He clearly had Vat debt.  He clearly already received all the Vat from his customers.  In each case I have looked at the circumstances and have not found a reasonable excuse.

MRS G PRITCHARD, BL., MBA., WS

CHAIRMAN

RELEASE:  21 NOVEMBER 2008

EDN/08/103