20572

DEFAULT SURCHARGE – tax was due on 7 May which was a bank holiday – electronic payment of tax initiated without regard to bank holiday – tax received one day late -  whether reasonable excuse – no – appeal dismissed – VATA 1994 S59(7)(b) 

LONDON TRIBUNAL CENTRE

THAMESVIEW ESTATE AGENTS LIMITED
Appellant

 - and -   	

THE COMMISSIONERS FOR HER MAJESTY’S 
REVENUE AND CUSTOMS 
Respondents

Tribunal: DR A N BRICE
 MRS R A WATTS DAVIES MHCIMA FCIPD 

Sitting in London on 28 November 2007

Mr Jeff Doble, Chartered Surveyor and Director of the Appellant, for the Appellant 

Mr Jonathan Holl, Advocate in the Office of the Solicitor of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The appeal
1.	Thamesview Estate Agents Limited (the Appellant) appeals against a default surcharge penalty of  £10,299. The penalty was imposed by the Commissioners for Her Majesty’s Revenue and Customs (Customs) because the tax due for the accounting period ending on 30 March 2007 was not received in time. 

2.	After the hearing of the appeal on 28 November 2007 the Appellant sent an email to the Tribunal on 29 November with a copy of a letter which it had sent to Customs on 29 November 2007. Later the Appellant sent to the Tribunal a copy of a letter it had sent to Customs on 17 December 2007. The Appellant was asked if he wished the Tribunal to consider the matters mentioned in these letters and it replied on 22 January 2008 to say that it did. Customs were asked if they wished to comment on these letters but by the date of the signing of this Decision no comment had been received. In the event we decided that we did not need to hear from Customs on these matters which are dealt with in this Decision. 

The legislation
3.	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 is imposed for the second and 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 in 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
4.	A number of documents were produced by the Appellant including copy returns for the accounting periods ending on 30 September 2006 and 31 December 2006, copy bank statements, a note about bank balances as at 3 May 2007, and a copy letter from Barclays Bank dated 20 November 2007. A bundle of documents was produced by Customs. We heard oral evidence from Mr Jeff Doble, Chartered Surveyor and Director of the Appellant, who also represented the Appellant at the hearing. 

The facts
5.	From the evidence before us we find the following facts. 

6.	There was no evidence before us that the Appellant had been in default before the accounting period ending on 31 December 2006.

7.	The return for the accounting period ending on 30 September 2006 showed tax due of £631,295.86. This was paid in time and the return was received  by Customs in time.  In the accounting period ending on 31 December 2006 the return was due on 31 January 2007 and the tax was due on 7 February 2007 by means of electronic payment. The return was received in time and showed tax due of £637,891.66. However, in making the payment the Appellant’s accounts manager took the figures from the previous return and paid the sum of £631,295.86 instead of the sum of £637,891.66. Customs took up the matter with the Appellant and the balance due was paid on 19 March 2007. Because not all the tax had been paid by the due date the Appellant was in default and on 7 March 2007 Customs sent the Appellant a Surcharge Liability Notice. No penalty was imposed because this was the first default.   

8.	In the accounting period ending on 30 March 2007 the return was due on 30 April 2007 and the tax was due on 7 May 2007 if paid electronically. 7 May 2007 was a Monday and a bank holiday. The Appellant’s accounts manager mis-counted the days and initiated the payment knowing that it would take three days. The Appellant’s system failed to recognise that 7 May was a bank holiday and the payment arrived on 8 May which was one day late.  The penalty was imposed at the rate of 2% of the tax paid late. Shortly after the imposition of the penalty the accounts manager left the Appellant. We are satisfied that the Appellant had adequate funds with its bank on 7 May to meet the payment.  

9.	The Appellant’s notice of appeal stated that the ground of appeal was that the two errors in the accounting periods ending on 31 December 2006 and 30 March 2007 were both careless but innocent mistakes.

The arguments
10.	At the hearing Mr Doble for the Appellant argued that the Appellant had a very good record and paid a lot of tax. All payments had been on time before December 2006. He had not been aware of the risk of a penalty as the accounts manager had kept the issue of the surcharge liability notice to herself. The penalty was disproportionate and unfair bearing in mind that the delay had been of only one day. For Customs Mr Holl argued that a careless mistake, even if innocent, could not be a reasonable excuse. There had been a default in the accounting period ending on 31 December 2006 because part of the tax had been paid late and the Appellant had been informed of the regime by means of the surcharge liability notice. Section 71(1)(b) prevented the reliance on the accounts manager from being a reasonable excuse. He relied upon the Tribunal decision in Greengate Furniture Limited v Commissioners of Customs and Excise [2003] V&DR 178 for the principle that the default surcharge regime was not disproportionate. 

11.	On 29 November the Appellant wrote to Customs to say that when it received the surcharge liability notice on 8 March 2007 it checked that the return had been sent on time and “dismissed the notice as nonsensical”. Nine days later it had received a telephone call asking for the minor error on the return to be corrected which it was. There was no mention of the “jeopardy” that the Appellant was in and no connection was made with the earlier correspondence. The Appellant argued that it was left unaware of the risks and was not afforded an opportunity to amend its process. It was a relatively simple matter to ensure that it did not expose itself to the surcharge which had subsequently been levied on it. On 17 December 2007 the Appellant wrote to Customs to say that it admitted that both defaults were mistakes but it was unaware that it was at risk. The surcharge liability notice did not attract the attention it deserved because the Appellant was not in default and the payment had been received in time.  In its letter to the Tribunal dated 22 January 2008 the Appellant argued that the timing of the actions of Customs contributed significantly to the Appellant being unaware that it was at risk of a surcharge.

Reasons for decision
12.	In our view a careless mistake cannot be a reasonable excuse. Also, section 71(1)(b) specifically provides that dilatoriness or inaccuracy by a person relied upon to perform a task cannot be a reasonable excuse. Accordingly, the fact that the careless error was committed by the Appellant’s accounts manager on whom the Appellant relied cannot be a reasonable excuse.   

13.	We have considered Mr Doble’s argument that the penalty seems excessive for a delay of only one day. However, in Greengate the question as to whether a default surcharge penalty was disproportionate was argued before the Tribunal who had the advantage of hearing Counsel (instructed by the Treasury Solicitor) as Advocate to the Tribunal. In Greengate the returns and tax were late on four occasions by 6, 12, 4 and 8 days respectively. The surcharges were at the rates of 2%, 5%, 10% and 15% respectively. These rates were equivalent to annual interest rates of 122%, 152%, 912% and 684% respectively. In its decision the Tribunal fully reviewed both the European and our national legislation, and the European and national authorities. The Tribunal concluded, at paragraph 111, that the authorities made it clear that the legislature had a wide margin of appreciation when framing implementation policies in the area of taxation. The appeal was dismissed. The Tribunal also expressed the view, in paragraph 113, that there might be cases where a surcharge was “not merely harsh but plainly unfair” within the test in International Transport Roth GmbH v Home Secretary [2002] 3 WLR 344 at paragraph 26 and so could not be permitted but concluded that the surcharge in Greengate was not such a surcharge. We are of the view that the surcharge in this appeal is not such a surcharge either; the Appellant had been warned about the surcharge regime. 

14.	We have also considered the later arguments put forward by the Appellant in correspondence after the hearing but in our view these do not amount to a reasonable excuse. There is no doubt that the surcharge liability notice was received by the Appellant and in our view it was not reasonable for the Appellant to have “dismissed it as nonsensical”. The fact is that too little tax had been sent with the return for the accounting period ending on 31 December 2006 and that fact was also notified to the Appellant so that the error could be corrected. The Appellant had been notified that it was at risk. Even if the Appellant had not fully appreciated the situation that would not constitute a reasonable excuse for the default in May which occurred through a mis-counting of days. That default could have been avoided by a more careful approach. 

Decision     
15.	Our decision is that the Appellant did not have a reasonable excuse for the delay in paying the tax for the accounting period ending on 30 March  2007. 

16.	That means that the appeal is dismissed. 

DR NUALA BRICE
CHAIRMAN
RELEASE DATE: 22 February 2008

LON/2007/1352/15.02.08