Kingslodge Developments Ltd v Revenue and Customs [2006] UKVAT V19446 (02 February 2006)

19446
	VAT — PENALTIES — default surchage — cheque made out for wrong amount — shortfall in amount of tax sent with VAT return — a comparison between the cheque and the figures in the VAT return would have shown cheque to be incorrect — lack of due care — no reasonable excuse made out — surcharge justified at rate of 15 per cent having regard to previous defaults — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

KINGSLODGE DEVELOPMENTS LIMITED	Appellant

- and -

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal:	Michael Johnson (Chairman)
Warren Snowdon

Sitting in public in North Shields, Tyne and Wear on 10 January 2006

The Appellant was not represented

Bernard Haley of the Solicitor's office of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	Kingslodge Developments Ltd (“the company”) is appealing against a default surcharge of £1,500 imposed in respect of its VAT accounting quarter 04/05, on the ground that a reasonable excuse exists for the company not having paid by the due date the tax which has given rise to the surcharge.

2.	No-one attended on behalf of the company to present the appeal, but having considered a bundle of relevant documents, handed to us by Mr Haley, who represented Her Majesty’s Revenue and Customs (“HMRC”), we determined that the tribunal should proceed to hear the appeal, as we are empowered to do by rule 26(2) of the Value Added Tax Tribunals Rules 1986 (as amended).

3.	The tax due to be paid to HMRC in respect of the company’s accounting quarter 04/05 was £123,066.85.  Instead, the company paid £113,066.85, a shortfall of £10,000.  The Notice of Appeal indicates that this underpayment was an error.  The payment was made by a cheque enclosed with the company’s VAT return for the quarter in question.  

4.	We have studied the papers before us, including in particular the correspondence received by HMRC from the company, and can find no explanation for the underpayment.  It appears to us that the company paid inadequate attention to the drawing of the cheque.  We say this because it is clear from the figures entered in the company’s VAT return that the amount payable was £123,066.85.  All that the company needed to do to appreciate that the cheque was for the wrong amount was to compare the cheque with the return before sending them both to HMRC.

5.	We conclude that there was a lack of diligence on the part of the person or persons concerned to marry the contents of the return with the cheque drawn to pay the tax.  The required comparison between one and the other, to verify that the cheque was for the right amount, does not appear to have taken place.  This in our view shows lack of due care.  Such lack of care does not in our judgment amount to a reasonable excuse.  

6.	The company also complains at the rate of the surcharge, namely 15 per cent.   This reflects the fact that, as shown by the Schedule of Defaults at the beginning of the bundle of documents before the tribunal, there had been various occasions on which the company’s VAT returns had been received late, or tax due remained unpaid by the due dates, or both.  A succession of Surcharge Liability Notice Extensions had been served on the company, and by 2003 surcharges had already been levied at the rates of 2 per cent, 5 per cent or 10 per cent of the tax payable.  From the company’s accounting quarter 01/03 onwards, surcharges moved to the rate of 15 per cent.

7.	Since then, the company’s VAT returns have been received late in respect of every accounting quarter, down to the quarter with which the tribunal is concerned, namely 04/05.  The company maintains that its returns have been made on time, but the bundle shows this to be incorrect.  These defaults have resulted in the applicable surcharge percentage rate remaining at 15.

8.	In our judgment, therefore, no reasonable excuse has been made out in this appeal, and we decide that the surcharge was due and was justifiably calculated at 15 per cent of the shortfall of £10,000.  We accordingly dismiss this appeal.

MICHAEL S JOHNSON 
CHAIRMAN
Release Date: 2 February 2006
MAN/05/0616