[2011] UKFTT 305 (TC)

TC01166

Appeal number:  TC/11/01894

Value Added Tax – Value Added Tax Act 1994, Sections 59 and 71 – default surcharge - whether Christmas and New Year closure of business and family bereavement amounted to a reasonable excuse – Appeal dismissed.

FIRST-TIER TRIBUNAL

TAX 

	NORTH COOLING LIMITED	Appellants

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL JUDGE:	W Ruthven Gemmell, WS	

Sitting in public in Edinburgh on Monday 11 April 2011

Jamal Jabir and Graeme Yorkston for the Appellants

Alan Donnachie, for the Respondents 

© CROWN COPYRIGHT 2011

DECISION
The Appeal
1.	This is an appeal against the imposition of a default surcharge penalty in an amount of £667.95 being 15% of the £4,453.14 due for the period ending on 30 November 2010 (11/10) which was imposed due to the late payment of the liability shown on the return.
2.	Payment was due electronically on or before 7 January 2011 and was received on 12 January 2011.
3.	Mr Jabir and Mr Yorkston gave evidence for the Appellants and Mr Donnachie for the Respondents and were credible.
Legislation
4.	Value Added Tax Act 1994 provides:- 
Section 59 The default surcharge
(1) Subject to subsection (1A) below if, by the last day on which a taxable person is required in accordance with regulations under this Act to furnish a return for a prescribed accounting period—
(a) the Commissioners have not received that return, or
(b) the Commissioners have received that return but have not received the amount of VAT shown on the return as payable by him in respect of that period,
then that person shall be regarded for the purposes of this section as being in default in respect of that period.
(1A) A person shall not be regarded for the purposes of this section as being in default in respect of any prescribed accounting period if that period is one in respect of which he is required by virtue of any order under section 28 to make any payment on account of VAT.
(2) Subject to subsections (9) and (10) below, subsection (4) below applies in any case where—
(a) a taxable person is in default in respect of a prescribed accounting period; and
(b) the Commissioners serve notice on the taxable person (a “surcharge liability notice”) specifying as a surcharge period for the purposes of this section a period ending on the first anniversary of the last day of the period referred to in paragraph (a) above and beginning, subject to subsection (3) below, on the date of the notice.
(3) If a surcharge liability notice is served by reason of a default in respect of a prescribed accounting period and that period ends at or before the expiry of an existing surcharge period already notified to the taxable person concerned, the surcharge period specified in that notice shall be expressed as a continuation of the existing surcharge period and, accordingly, for the purposes of this section, that existing period and its extension shall be regarded as a single surcharge period.
(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.
(6) For the purposes of subsections (4) and (5) above a person has outstanding VAT for a prescribed accounting period if some or all of the VAT for which he is liable in respect of that period has not been paid by the last day on which he is required (as mentioned in subsection (1) above) to make a return for that period; and the reference in subsection (4) above to a person’s outstanding VAT for a prescribed accounting period is to so much of the VAT for which he is so liable as has not been paid by that day.
(7) If a person who, apart from this subsection, would be liable to a surcharge under subsection (4) above satisfies the Commissioners or, on appeal, a tribunal that, in the case of a default which is material to the surcharge—
(a) the return or, as the case may be, the VAT shown on the return was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the Commissioners within the appropriate time limit, or
(b) there is a reasonable excuse for the return or VAT not having been so despatched,
he shall not be liable to the surcharge and for the purposes of the preceding provisions of this section he shall be treated as not having been in default in respect of the prescribed accounting period in question (and, accordingly, any surcharge liability notice the service of which depended upon that default shall be deemed not to have been served).

Section 71 Construction of sections 59 to 70
(1) For the purpose of any provision of sections 59 to 70 which refers to a reasonable excuse for any conduct—
(a) an insufficiency of funds to pay any VAT due is not a reasonable excuse; and
(b) where reliance is placed on any other 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.
(2) In relation to a prescribed accounting period, any reference in sections 59 to 69 to credit for input tax includes a reference to any sum which, in a return for that period, is claimed as a deduction from VAT due.

The Facts and Submissions
5.	The Appellants were in a default position for the period 11/08 which had a payment due date of 31 December 2008.  This was the first default and was caused by the late submission of the return and payment.
6.	A Surcharge Liability Notice was served on the Appellants on 16 January 2009 setting out the details of the default stating that the Appellants may be liable for a surcharge if they were in default in respect of the prescribed accounting period ending within the surcharge period which ran from the date of the notice until 30 November 2009.
7.	The notice explained what a default is, what would happen if there was a further default and how the surcharge was calculated.  In particular, it stated that the rate of surcharge would increase progressively starting at 2% for the first payment default, increasing to 5%, 10% and 15% for further payment defaults in the surcharge period.
8.	Further defaults took place in the periods ended 02/09, 05/09, 08/09, 11/09, 02/10, 08/10 and 11/10 which resulted in further Surcharge Liability Notices being issued.  Each notice set out the explanation of what constituted a default and what would happen in the event of a default and of the rate charged. 
9.	No actual amount of tax was payable for the periods 11/08, 02/09, 05/09, 08/09, 11/09 and 08/10 because either the amounts were below the level at which the Respondents made a charge or an exception agreement had been reached with the Respondents.
10.	Notwithstanding that no tax was payable, by letter dated 16 November 2009 the Respondents confirmed that the extension periods for 05/09 and 08/09 had been withdrawn but that the period had now been extended to 28 February 2010 and that the applicable rate was 5% of any outstanding tax.
11.	For the tax quarter 11/10, the payment due on 31 December 2010 was received on 12 January 2011 and this is the subject of the Appeal.  The return for this period was received by the Respondents on 27 December 2010.
12.	At that time the surcharge rate was 15% as stated in a Notice of Assessment of Surcharge and Surcharge Liability Notice Extension issued on 15 October 2010.
13.	The Respondents issued a review letter on 24 February 2011 maintaining the surcharge of 14 January 2011 and stating that the Respondents did not accept that the Applicants had a reasonable excuse for the default.
14.	The Appellants’ submissions leading up to the Appeal were that their office was closed for Christmas and New Year 2010/2011 and that they were unaware that payments were to be made online.  No mention was made in a letter of 27 January 2011 of a family bereavement which, in evidence, was stated took place on 17 or 18 January.
15.	At the Hearing, the Appellants stated that one of their directors, but not both, had been distracted at this time by a family bereavement being the death of Mr Jabir’s wife’s aunt who had been a close family member.
16.	The aunt had died on 17 or 18 January 2011, some five days after the late payment had been made.
17.	Mr Jabir stated that he had been involved in a number of visits during the aunt’s illness to a hospital in Larbert.  No evidence was produced as to Mr Yorkston’s involvement in these unfortunate events. 
18.	In evidence, Mr Jabir and Mr Yorkston stated that whereas they had been unable to obtain any further loans for the Appellants from the Appellants’ bank, they had been able to obtain finance for another of their companies from another bank.
19.	The Respondents, who were unaware of the issue of the bereavement until the Hearing, say it is the responsibility of the tax payer to ensure that VAT returns and payments of any tax due are received by HMRC on or before each relevant due date and that the closure of a business for Christmas and New Year was a planned event and was not exceptional and alternative arrangements should have been made.
20.	The Respondents say that the return was received on 27 December 2010 proving that there was a capability to ensure that that was received by the due date of 7 January 2011 and so, similarly, contingency plans should have been put in place to ensure that the payment had been received by the due date.
21.	The Appellants say that the combination of Mr Jabir’s family bereavement, the closure of the business during Christmas and New Year, together with the seasonal nature of selling refrigeration and air conditioning systems in Scotland, and the impact of the recession and the Appellants’ delay in receiving payments from their own customers amount to a reasonable excuse .
Findings
22.	The Tribunal, based on the evidence, found that, notwithstanding the difficult circumstances surrounding the impact of the recession, the Appellants’ delay in receiving payments from their own suppliers together with the seasonal nature of their business did not constitute a reasonable excuse.
23.	Whereas the Tribunal were sympathetic to Mr Jabir’s bereavement and the difficult circumstances experienced in relation to his wife’s aunt at or around this time it was still possible for the Appellants to ensure the return was received on time and, in any event, there was no evidence why Mr Graeme Yorkston could not have dealt with the payment whilst Mr Jabir was distracted.  Accordingly, these factors also do not constitute a reasonable excuse.
24.	The Appeal is accordingly refused. 
25.	This document contains full findings of fact and reasons for the decision.  Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.  The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

W RUTHVEN GEMMELL
TRIBUNAL JUDGE

RELEASE DATE:  27 APRIL 2011