[2009] UKFTT 33 (TC)

   TC00002

Default surcharge/ poor performance of financial controller/late payment by 2 substantial customers/clawback by bank on factored payments/ overdraft facility reduced/concession by Respondents at hearing for rescheduling of 2 Vat payments –appeal dismissed 

LONDON TRIBUNAL CENTRE

	TOUCH LOGISTICS LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	ELSIE GILLILAND (Chairman)
						CAROLINE de ALBUQUERQUE

Sitting in public in London on 28 January 2009

Sarah McManus, accountant, for the Appellant

Jonathan Holl, Advocate of the Solicitor’s Office of Her Majesty’s Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	This appeal was against decisions of the Respondents with respect to 3 default surcharges arising in the accounting periods 09/07 (£2495.12), 12/07 (£7406.82) and 03/08 (£13605.90) being a reasonable excuse appeal as defined by rule 2 of the Value Added Tax Tribunals Rules 1986.
2.	The Appellant operates within the mobile IT industry providing a cross-country repair service under maintenance contracts to some major companies and organisations. The oral evidence of Gareth John Piper, a director, was that the Appellant had had rapid growth from commencement of trading in 2004 but profit margins were tight. He said that it was only in the last 3 years that it had achieved profitability.
3.	The Appellant’s representative attributed the problems in the Appellant meeting its VAT liabilities, first, to an inadequate performance by the Financial Controller employed in early 2007; secondly, to delays in payment by customers UKN Group Limited (UKN) and Fujitsu Services Limited (Fujitsu); and, thirdly, to restrictions enforced by its bankers who had supplied a 100% factoring arrangement (with pre-payment at 90% against sales invoices) but who put into effect a clawback provision and reduced an overdraft facility over a period of time during 2008 to nil.
4.	It is provided by s71 of the Value Added Tax Act 1994 (the Act) that neither an insufficiency of funds nor reliance placed on any other person to perform a task is to constitute a reasonable excuse. In C&E Commissioners v JB Steptoe CA[1992] STC 757 and in a number of subsequent cases late payment or non-payment by a major customer for work done has been held in limited circumstances to constitute a reasonable excuse for an insufficiency of funds.
5.	In the instant case we do not accept that a reasonable excuse is established by any shortcomings of the Financial Controller who was employed between January 2007 and January 2008.  For the period 09/07 there were no apparent financial difficulties. The returns and payments were part of his responsibility and delays and inaccuracies in these were attributable to him though the directors had overall management. The fact that he was an employee does not take him outside the definition of “any other person”. See s71 (b) of the Act and Profile Security Services Ltd. v C&E Commissioners QB [1996] STC808.
6.	The Appellant experienced cashflow difficulties. The problem with UKN arose in January 2008 from a dispute (subsequently resolved by mediation) during which payment of £101,538.00 was withheld and this led to the difficulty experienced by the Appellant in making payment of VAT due for 12/07. The issue with Fujitsu arose due to its own cashflow situation and first hit the Appellant in mid-March 2008. Weekly payments in the region of £100,000.00 each were not received and the debt grew substantially though a later payment in full was received. The Appellant’s bankers concern as to risk led them to operate clawback and reduce the permitted overdraft during 2008. However we are satisfied that the total percentage of turnover represented by these 2 companies was not significant as is demonstrated by the VAT returns; we note that in a letter to the Appellant from the Respondents dated 1 July 2008 the UKN debt was calculated by them at  4.5% of declared outputs. The Appellant did not produce clear evidence as to its cash flow position at the time payment of VAT was due for the period 03/08 but on the basis of the return and the amount of liability it is our view that the overdue sums did not amount to the substantial proportion of business income to be found in a Steptoe situation but constituted a normal hazard of trade experienced by a considerable number of businesses. Accordingly there is no reasonable excuse established in respect of any of the periods under s71 (a) of the Act.
7.	However in his final submissions the Appellant’s representative proposed that 2 payments made by the Appellant before 30 April 2008 and shown in the payments column of the schedule before us namely 10/03/08 and 11/04/08 should be taken into account in respect of the 03/08 return which, Counsel stated, would have the effect of reducing the surcharge for 03/08 from £13605.90 to £3285.90. We do not raise any objection to this concession in the method of allocating these payments. However this is not to be regarded as a reasonable excuse for the period 03/08.
8.	Subject to the above adjustment in figures, the appeal is dismissed in respect of all 3 periods. 
9.	We make no direction on costs.

ELSIE GILLILAND
CHAIRMAN

RELEASED: 25 March 2009

LON 2008/1748