[2010] UKFTT 378 (TC)

TC00660

Appeal number: TC/2010/02801

VAT – default surcharge – reasonable excuse

FIRST-TIER TRIBUNAL

TAX 

	CRANE LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: 	Charles Hellier (Judge)									Julian Stafford (Member)		

Sitting in public in Norwich on 8 June 2010

Mr S Hobbs, financial controller of the Appellant for the Appellant

Mrs Gloria Orimiloye for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	Crane Ltd appeals against a default surcharge imposed by HMRC under section 59A VATA 1994 in respect of its failure to make a payment on account of VAT in the 11/09 period (the period ending on 30 November 2009) on time. The payment was made one day late.
2.	The surcharge was initially assessed at 5% of £257,525. The latter amount was the payment on account of VAT due to be paid by the company under the provisions of sections 28 VATA on 30 November 2009, being the second instalment in respect of the 11/09 period. The surcharge percentage was later reduced to 2% and the surcharge itself therefore to just over £5,000.
3.	The appellant did not dispute the delay in payment, that a surcharge liability notice had been served which created a surcharge period into which the 11/09 period fell, or that the required rate of surcharge under section 59A(5) was 2%.
4.	The appellant submitted: (a) that it had a reasonable excuse for the late payment of the instalment, and (b) that the amount of the surcharge was unreasonable or disproportionate in the circumstances.
5.	The appellant made the payment of £257,525 by CHAPS on 1 December 2009. The tribunal considered whether a seven day extension of the due date for electronic payment should be applied; it concluded that it should not. Regulation 40 (4) VAT Regulations 1995 empowers HMRC to give directions extending the due date in cases of electronic payment. That power is exercised in the publication of notices and on the back of VAT returns indicating that if electronic payment is made, the due date is extended by seven days. But in the notice to make instalment payments served upon the appellant, HMRC indicated that this extension did not apply. That seems to us to be a clear amendment to the general direction and given within the powers of regulation 40.
Discussion
(a) reasonable excuse
6.	Mr Hobbs explained that the delay in making the payment had been an administrative oversight. The member of the appellant's staff entrusted with making the payments had forgotten to give instructions for payment. She had been in post for three months and made the previous payments on time. Most of the payments she made were driven by the invoices received; the VAT payment was not and she had overlooked it. The error was discovered the next day and put right immediately. Systems had been put in place to prevent a recurrence.
7.	Section 71 VATA prevents the mere reliance upon another person or the dilatoriness or inaccuracy of that person being a reasonable excuse. A reasonable excuse can however extend to the reasons (other than dilatoriness or inaccuracy) for a particular person's failure to act.
8.	We were unable to view the failure to make the payment as a reasonable excuse. Indeed as Mr Hobbs effectively conceded there was no real excuse other than forgetting.
(b) the size of the surcharge
9.	The rate of the surcharge is set by section 59A (5). No power is given by that section to the tribunal to adjust or mitigate the rate of surcharge. If there is a relevant default to for which there is no reasonable excuse the level of surcharge is set by statute. The surcharge is properly completed in accordance with the statute.
10.	Mr Hobbs argues that the rate of surcharge is unjust as a disproportionate penalty. In this case it represents an interest charge of about 700% of the tax delayed -- given the one-day delay. That, he says, is unreasonably high.
11.	In Enersys Holdings UK Ltd TC00335 , the tribunal found that  a 5% penalty of £131,881 in respect of one day's delay in payment was, in the circumstances of that case, disproportionate. In those circumstances it discharged the penalty. We are aware that leave has been given to HMRC to appeal this decision to the Upper Tribunal.
12.	In our view the 2% surcharge in this case is not disproportionate. A £5,000 penalty for a delay in making a £257,000 VAT payment does not seem to us to be wholly unfair even though it may be harsh. Judged against the purpose of a regime which is intended to encourage the timely submission of VAT returns and payment of VAT and to penalise late submission, rather than to compensate the State for the interest cost of the late payment or to recover the funding benefit of late payment of the taxpayer, a penalty of £5000, even for one days’ delay, does not seem to us to be wholly outside the realms of what is necessary to achieve that object in this particular case.
Disposal
13.	We therefore dismiss the appeal.
Leave to Appeal against this decision
14.	The Appellant may apply for permission to appeal against this decision. The procedure for so doing is set out in the notice which accompanies this decision and which to that extent but save as noted below forms part of it. 
15.	It would have been possible to adjourn the release of a final decision on this appeal pending the decision of the upper tribunal in Enersys. It might well be that the Upper Tribunal's decision could have a bearing upon the nature of what is disproportionate and the approach to be adopted by a tribunal in a case where it is alleged that the surcharge is disproportionate. However given our conclusions on proportionality it seemed to us that the fairest course was to dismiss the appeal but to direct in accordance with regulation 5(3)(a) of the tribunal's regulations that the period in which the appellant is permitted to bring an application for leave to appeal against this decision be extended from the normal 56 days given by regulation 39(2) until 28 days after the release of the decision of the Upper Tribunal in Enersys. If following the release of that decision the appellant sought leave to appeal within that extended period, and it was satisfied that the Enersys decision would affect the conclusion this tribunal should have reached, then it would be open to the tribunal, if satisfied that there was an error of law in the decision, to review this decision in the light of that case and (possibly after a further hearing) to provide a new decision if such were necessary in the circumstances, rather than remitting the appeal to the Upper Tribunal.

CHARLES HELLIER
TRIBUNAL JUDGE
RELEASE DATE: 12 August 2010