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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Juppon Trading Ltd v Revenue & Customs [2009] UKFTT 98 (TC) (13 May 2009) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00066.html Cite as: [2009] UKFTT 98 (TC) |
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[2009] UKFTT 98 (TC)
TC00066
Appeal number: LON/09/0124
VAT – default surcharge – assessment not valid if based on incorrect specified percentage – assessment capable of amendment if specified percentage prima facie correct at time of issue – whether reasonable excuse- no – appeal dismissed
FIRST-TIER TRIBUNAL
TAX
JUPPON TRADING LTD Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY'S
REVENUE AND CUSTOMS (VAT) Respondents
TRIBUNAL: Barbara Mosedale (Chairman)
Lynneth Salisbury (Member)
Sitting in public in London on 1 April 2009
Mr Paul Bentley Director of the Appellant
Mr Jonathan Holl instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2009
DECISION
Introduction
The facts
(1) Appellant was in default for paying its VAT late (under the Value Added Tax Act 1994 ("VATA 94") s59) for period 01/06 and was issued with a surcharge liability notice;
(2) It was in default again for paying its VAT late for period 07/06 and was issued with a surcharge liability notice extension. It was notified that it was liable to a 2% penalty but that HMRC were choosing to waive it;
(3) It was in default again for paying its VAT late for period 01/07 and was issued with a surcharge liability notice extension. It was notified that it was liable to a 5% penalty but that HMRC were choosing to waive it;
(4) It was in default again for period 04/07 in that both VAT was paid late and the return submitted late but HMRC issued only a surcharge liability notice extension and did not assess a penalty. HMRC's explanation was that they overlooked the late VAT payment under a misapprehension that a payment for a different quarter related to this one;
(5) The VAT was paid on time for period 10/07 but the return was 10 months late. HMRC issued an estimated assessment but this was for a lower figure than the VAT that had been paid and was ultimately shown on the return as owing. So for period 10/07 no penalty was either due or assessed;
(6) Again for period 01/08 the VAT was paid on time but the return was made many months late. As the return was not received, HMRC issued an estimated assessment. This was for a greater figure than the VAT that had been paid and so a penalty was assessed – though only for £30. Ultimately when the return was filed in September 2008 it was apparent that the full amount of VAT due as shown on the return had been paid on time and the assessment was amended by letter from HMRC to nil.
(7) The return was late again for period 07/08. This time, in addition, £9,618.85 of the total VAT liability of £11,594.86 was paid late. The taxpayer was originally assessed to a 15% penalty based on assessed tax (as the return was late) resulting in a penalty of £1,585.83. Once the return was submitted this was recalculated to be a penalty of £1,482.91. Later it was reduced to 10% leading to a reduction to £961.88. This is the penalty under appeal.
The issues
Whether assessment void – the law
"(4) Subject to subsections (7) to (10) below, if a taxable person on whom a surcharge liability notice has been served –
(a) is in default in respect of a prescribed accounting period ending within the surcharge period specified in (or extended by) that notice, and
(b) has outstanding VAT for that prescribed accounting period
he shall be liable to a surcharge equal to whichever is the greater of the following, namely, the specified percentage of his outstanding VAT for that prescribed accounting period and £30.
(5) Subject to subsections (7) to (10) below, the specified percentage referred to in subsection (4) above shall be determined in relation to a prescribed accounting period by reference to the number of such periods in respect of which the taxable person is in default during the surcharge period and for which he has outstanding VAT so that—
(a) in relation to the first such prescribed accounting period, the specified percentage is 2 per cent.;
(b) in relation to the second such period, the specified percentage is 5 per cent.;
(c) in relation to the third such period, the specified percentage is 10 per cent.; and
(d) in relation to each such period after the third, the specified percentage is 15 per cent."
"Ground 2: Decision
We think that the argument for Dow Chemicals is correct on this point. The Commissioners are wrong because Dow Chemicals was not in law liable to a 5 per cent surcharge in relation to the 11/94 period or to a 10 per cent surcharge in relation to the 03/95 period. The assessments purporting to make Dow Chemicals so liable were both wholly invalid and so could not be reduced either in pursuance of section 76(9) or, more accurately we think, in exercise of the Commissioners' inherent power to reduce assessments. Our conclusion is based on three propositions.
The first of these propositions is that each liability occasioned by each default is separate. A liability resulting from a second default in a surcharge period is distinct from a liability resulting from a third default. To use the words of Macpherson of Cluny J in Commissioners of Customs and Excise v Medway Draughting and Technical Services Limited [1989] STC 346 at p 351j, each "penalty" imposed by section 59, is "quite separate". Subsection (4) read in conjunction with subsection (5) contains a set of graduated liabilities each of which depends on a different set of circumstances. For example, a separate and distinct liability arises on account of the second default for a prescribed accounting period falling within a surcharge period. In that situation the liability is "to a surcharge equal to the greater of the specified percentage of his outstanding VAT for that prescribed accounting period and £30"; the specified percentage is found in subsection (5) and depends on the number of other defaults during the surcharge period. If the assessment is based on the wrong liability, for example because the number of other defaults is wrong, it will be ineffective.
The second proposition is that only properly notified defaults for a prescribed accounting period count; (and they drop out of account if a reasonable excuse defence is sustained). For purposes of the liability to surcharge imposed by subsection (4) a default in question must have satisfied the two requirements set out in subsection (2). There must have been a default in respect of a prescribed accounting period (see paragraph (a)) and the Commissioners must have served a notice specifying a surcharge period or an extended surcharge period being "the period ending with the first anniversary of the last day of the period referred to in paragraph (a) above" (paragraph (b)). In other words it is not enough for the Commissioners simply to point to a default, whether admitted by the taxpayer or not; there has to be a valid SLN or SLNE that specifically relates to that default. Without the notice, the taxpayer would have no opportunity to appeal on grounds for reasonable excuse or otherwise.
The third proposition is that while the Commissioners and the tribunal have power to reduce an assessment, this power exists where the assessment is excessive because, for example, it is based on an overstatement of the outstanding VAT; but the power does not exist where the assessment is ineffective because the liability is of the wrong type, for example it assesses a third default liability where it ought to have assessed a second default liability. The Commissioners have an inherent power to reduce an assessment; this is recognised by section 76(9) which reads as follows:
"(9) If an amount is an assessed and notified to any person under this section, then unless, or except to the extent that, the assessment is withdrawn or reduced, that amount should be recoverable as if it were VAT due from him."
The tribunal has power to reduce a surcharge assessment on appeal (and so reduce it to the amount that is appropriate under section 59); this is recognised by section 84(6) which reads as follows:-
"(6) Without prejudice to section 70, nothing in section 83(q) shall be taken to confer on a tribunal any power to vary an amount assessed by way of penalty, interest or surcharge except in so far as it is necessary to reduce it to the amount which is appropriate ."
But in neither instance can the power be exercised where the assessment itself is ineffective and so void ab initio. (This is different from the position that obtains where a taxable person establishes the defence of reasonable excuse under section 59(7); the subsection itself appears to contemplate that the specified percentages for subsequent defaults will be adjusted accordingly.)"
(1) To be valid, an assessment to a surcharge liability under s59 must be based on the correct specified percentage. This we will refer to as first proposition from Ground 2 of the Dow Chemical judgment;
(2) The defaults which 'count' towards calculating the correct specified percentage for a later default are only those which are properly notified. This is the second proposition referred to in Ground 2 of the Dow Chemical judgment.
(3) HMRC do have power to amend an assessment to a default surcharge but this power cannot be exercised to make an invalid or void assessment effective: in other words only an assessment valid at the time it was issued can be later reduced. This it seems to us is a summary of the third proposition.
Whether assessment void – decision on the facts
(1) 07/06 – 2% - default notified but not assessed;
(2) 01/07 – 5% - default notified but not assessed;
(3) 04/07 – default not notified;
(4) 01/08 – 10% - default assessed but assessment was later withdrawn when return submitted showing no VAT outstanding.
Whether taxpayer had a reasonable excuse
Barbara Mosedale
TRIBUNAL JUDGE
RELEASE DATE: 13 May 2009