[2011] UKFTT 413 (TC)
TC01266
Appeal number
TC/2010/4390
VAT
–default surcharge -whether surcharge notice served on taxpayer -section 98
VATA –whether reasonable excuse -whether surcharge proportionate
FIRST-TIER TRIBUNAL
TAX
IMPOSSIBLE
TV LIMITED Appellant
-
and -
THE COMMISSIONERS
FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
CHARLES HELLIER
HARVEY
ADAMS
Sitting in public at Holborn
Bars, London on 31 March 2011
The Appellant was not represented
Steve Braeger for the Respondents
© CROWN COPYRIGHT
2011
DECISION
The Absence of the Appellant
1. The
Appellant was not represented when the hearing started. The Appellant’s
representatives, Calder & Co had written to the tribunal on 28 February
2011 acknowledging receipt of the notice of the hearing and indicating (on the
understanding that their letters to HMRC and the Tribunal administration would
be placed before the tribunal hearing the appeal) that the Appellant would not
be represented at the hearing,.
2. We
were satisfied that in these circumstances the Appellant had received notice of
the hearing and that it was just to proceed in the absence of a representative
for the Appellant.
Background
3. The
Appellant appeals against a default surcharge of £3,044.05 imposed at the rate
of 5% in respect of the period ending 31 December 2009 (the 12/09 period).
4. The
Appellant did not dispute that (i) it had been late in paying the VAT due for
the 09/08 and 03/09 periods (ii) that the VAT return for 09/09 had been received
late, and (iii) it had paid the VAT due for the 12/09 period, the period of the
appeal, late.
The relevant law
5. Section
59 VATA 1994 provides for liability to default surcharges if a taxpayer is late
in paying the VAT for a period or submits his VAT return late. A default
surcharge may be assessed under that section only if such a default occurs in
relation to a VAT period within a “surcharge period”. If a taxpayer defaults
HMRC may serve a “surcharge liability notice” on him. That notice will creat
(and specify) the surcharge period, which commences when HMRC serves the
surcharge liability notice on the taxpayer, and ends 12 months after the end of
the period of default. If a taxpayer defaults within the surcharge then HMRC
may serve another notice on him (a surcharge liability extension notice)
extending the surcharge period to 12 months after the end of the period of the
subsequent default.
6. If
once a surcharge period has been created or extended, a taxpayer defaults in respect
of a period ending within the surcharge period then subsection (5) imposes a
liability to a default surcharge of 2%, 5%, 10%, or15%, of the outstanding VAT
of the period depending on whether the default is the first, second, third, or
fourth or subsequent default in the surcharge period (although defaults
relating to late delivery of a VAT return do not cause the rate of surcharge to
increase).
7. Subsection
(7) provides (a) that if a payment or a VAT return is despatched at such a time
and in such a manner that it would be reasonable to expect that it would be
received in time, there is no default, and (b) that if there is a reasonable
excuse for a default it is effectively to be ignored.
8. Section
98 VATA provides that any “notice…to be served on ..any person for the purposes
of this Act may be served…by sending it by post in a letter addressed to that
person or his representative at the last or usual residence or place of
business of that person or representative.”
9. In
Enersys Holding UK Limited 2010 UKFTT 20(TC) the tribunal found that a
default surcharge levied under section 59 should be set aside because the
surcharge was disproportionate. We shall return to this issue later.
The Facts
10. We drew the
following facts from the documentary evidence before us.
11. The Appellant’s
business address was initially 11 Marlborough Place. In March 2008 it moved to Frederick
Terrace. Late in 2008 or in the first part of 2009 it opened additional offices
at 3 Market Mews.
12. VAT returns for
the periods ending on and after March 2008 (after the move to Frederick Terrace)
appear to have been sent to Marlborough Place. Returns submitted by the
Appellant for the periods from June 2008 to December 2009 were, with the
exception of that for 12/08, prepared and signed by Calder & Co using a
copy of the return for 06/07 with the address amended to Frederick Terrace (but
without amendment of the post code) and the relevant period appropriately
amended. The 12/08 return however was signed by Peter Scott of the Appellant
and was an unamended return bearing the Marlborough Place address.
13. Calder & Co
say in their letter of 28 May 2010 that the change to Frederick Terrace in
March 2008 was notified to the VAT office. In his submissions Mr Braeger says
that “there is no record, other then the manuscript amendments to the [VAT]
returns submitted, of the Appellant having notified a change of address prior
to July 2009.” We make no finding on this issue.
14. Mr Braeger told
us that in December 2008 post sent to Marlborough Place had been returned to
HMRC. It appeared that HMRC had been told of the Frederick Terrace address for on
7 May 2009 they wrote to the Appellant at that address asking for formal
revised details of its place of business. After some delay the Appellant
replied in July 2009 giving its place of business as Market Mews.
15. On 14 November
2008 HMRC, following the late receipt of payment for 09/09, sent a surcharge
notice addressed to the Appellant at Marlborough Place. The notice specified a surcharge
period which lasted to 30 September 2009
16. On 15 May 2009,
following the late receipt of Vat for the 03/09 period, a Surcharge Liability
Extension Notice (“SLEN”) was sent to the Appellant addressed to it at Marlborough Place. This notice made clear that if a previous notice had not been served it
took effect as an initial surcharge notice. It extended the surcharge period so
that it finished on 31 March 2010.
17. The Appellant
paid the VAT for 09/09 by three electronic payments made on the same day and on
time. The VAT return for this period was dated 23 October 2009 and was received
by HMRC on 17 November 2009
18. On 13 November
2009, following the late receipt of the VAT return for 09/09, HMRC sent a SLEN
to Market Mews. It extended the surcharge period so that it ended on 30
September 2010. It also made clear that if a period had not been created one
was to be created by service of the notice.
19. The VAT due for
12/09 was paid electronically in four instalments, one on 5 February, and three
on 12 February.
The Appellant’s arguments
20. In their letters
to the tribunal and HMRC Calder & Co make the following points:
(1)
The delayed 12/09 payments arose as a result of the Appellant having
online banking problems when he came to arrange payment. The only time the
Appellant made large payments was when it paid VAT. There were problems over
the maximum amounts which could be sent by electronic banking. It would be
unfair to impose a surcharge when its difficulties arose only in this
connection.
(2)
The 09/09 payment were made on time and the 09/09 VAT return “was sent
on 23 October 2009 and hence, in the normal course, should have been received
prior to the due date”. They suggest that in the intervening period “perhaps
the delay was also partly caused by postal strikes at the time”.
(3)
The Appellant did not receive two surcharge liability notices (of 14
November 2008 and 15 May 2009) which created and extended the surcharge
liability period and warned of the possible liability for surcharge if there
was a further default. They had not been received because they were addressed
to premises from which the Appellant had moved (VAT returns for completion by
the Appellant had likewise been sent by HMRC to a previous address).
(4)
Given the lack of notification and the banking difficulties the
Appellant had a reasonable excuse for its default in the 12/09 period
(5)
If the Appellant did not have a reasonable excuse and the surcharge was
due under the plain words of the Act, then the charge in this case was
disproportionate: a penalty of £3,044.55 for between two and four days delay
was plainly unfair and should be set aside.
The Respondents’ arguments
21. Mr Braeger made
comprehensive, detailed and helpful submissions. He said:
(1)
Given that the 12/08 return, sent by HMRC to MP, was completed and
submitted on its original form by Mr Scott on behalf of the Appellant, it was
reasonable to suppose that it must have been forwarded to the Appellant’s new
address. It was thus also reasonable to suppose that the surcharge notice and
SLEN of 14 November 2008 and 15 May 2009 had been forwarded to the Appellant at
Frederick Terrace, and thus had been received by the Appellant.
(2)
That conclusion was bolstered by the fact that the 09/09 SLEN of 13
November 2009 had been addressed to Market Mews and must have been received by
it. That notice indicated that a previous surcharge period was being extended.
The Appellant made no fuss at this time, that suggested that they knew that a surcharge
period had been created and that the earlier notices had been received.
(3)
In any event the Appellant must have known that in relation to the 12/09
period it was potentially liable to a surcharge. It could not claim ignorance.
(4)
The Appellant had used electronic means to make payment before the
payment it attempted to make for 12/09. It must have been aware that there were
payment limits.
(5)
In the circumstances the surcharge was not plainly unfair.
Discussion
(a) Service of Notices
22. A surcharge may
be levied only if a surcharge period has been created. It can be created only
if HMRC serve notice on the taxpayer. If the letters of 14 November 2008 and 15
May 2009 were not served on the taxpayer then the surcharge period could have
come into existence only by virtue of the notice which was served on the Appellant
on 13 November 2009. Were that the case the surcharge liability could be only at
2% because the default for 12/09 would be the first default in the period
created by that notice.
23. We start by
considering the effect of section 98 VATA. If the address to which these
letters were sent was the “last or usual” address of the Appellant, then the
notices would be deemed by section 98 to have been validly served.
24. We accept that
by 14 November 2008 the Appellant had moved to Frederick Terrace. Marlborough Place was therefore not its “usual address” at that time.
25. If “last “in
section 98 means “last known” then since Marlborough Place appears to have been
the last place of business known to HMRC until some time in December 2008, the
notice of 14 November would have been validly served, but since by 7 May 2009
HMRC knew of the Frederick Terrace address, the Marlborough Place address was
not at that time the last known address and section 98 would not deem the
notice sent on 15 May to have been validly served.
26. However, section
98 does not say “last known” but “last”. This suggests to us the address at
which the person actually had a place of business most recently before the
sending of the letter, rather than the place last known to the sender. The last
actual place of business at the time of these letters was Frederick Terrace. We
therefore conclude that section 98 does not deem the notices to have been
validly served.
27. But in our view
if by reason of the notices having being despatched by HMRC they were received
by the Appellant, then as a matter of construction of section 59 it is right to
say that the notices were in fact served on the Appellant.
28. We accept Mr
Braeger’s argument that since the 12/08 VAT return must have been received by
the Appellant it is likely that other mail addressed to Marlborough Place was
forwarded to the Appellant to Frederick Terrace. We accept that this is not
certain and that some mail may not have been redirected, but on balance it is
likely that business mail would be redirected, and more likely than not that at
least the letter of 14 November was received. We agree that some marginal
additional support is given by the fact that the Appellant made no fuss about
the 09/09 notice.
29. We note that the
only evidence we had that the letters had not been received was Calder &
Co’s statement to that effect. Had we had evidence from the Appellant that, for
example, they kept a post book and religiously entered each day’s post in it,
but that it did not register the receipt of the letters, our view would have
been very different. But our job is to decide on the basis of the evidence
presented to us, and we had no evidence other than Calder & Co’s statement
of what had we suppose been told to them, and no way of questioning the person
who had told it to them.
30. We therefore
conclude that the 14 November 2008 notice created a surcharge period which
ended on 30 September 2009.
The 09/09 delayed VAT return
31. If the 09/09
return was despatched at such time and in such a manner that it would be
reasonable to expect that the return would have been received on time, then the
late receipt of the return may effectively be ignored.
32. Calder & Co
do not make it clear in their letter whether they posted the VAT return
themselves or whether they sent it to the Appellant for it to send on with
payment. If the latter the question arises as to what the Appellant did with
the return. They suggest that “part” of the reason for the delay might be that
there had been a postal strike. They supply no evidence that there was such a
strike. We cannot find that it was likely that there was a postal strike
without some evidence of that fact.
33. In these
circumstances we cannot conclude that the evidence shows that it was reasonable
to expect the return to have been received on time. Accordingly we find that
there was a default in respect of this period which cannot be ignored.
The correct rate of surcharge for the 12/09 period
34. Whether or not
the 15 May letter was received, the surcharge period was in any event extended
by the notice of 13 November 2009 which was received and properly sent as the
result of the late receipt of the 09/09 VAT return. As a result a surcharge
period was created which spanned the period of the defaults for 03/09 and 12/09.
As a result, sine there were two defaults in the timely payment of VAT the
correct surcharge liability percentage is 5%.
Reasonable Excuse for the 12/09 default.
35. Since we have
concluded that it is likely that the Appellant had received the 14 November
2008 letter, we find that no exculpation can be maintained on the basis that
the Appellant did not have warning of the charge. In any event we would be very
wary of holding that a lack of knowledge of the possibility of a surcharge
provided an excuse for a default.
36. The only
circumstance which remains potentially capable of providing a reasonable excuse
is the Appellant’s difficulties in arranging online payment. However we were
given no detail of these difficulties. We were not told whether they were
solely the result of lack of knowledge about limits on online payments ( and if
so why the Appellant was able to circumvent them later by making several payments
on the same day) or the result of computer or telephone line failure. We do not
find that certain unspecified difficulties constitute a reasonable excuse.
Proportionality
37. In Enersys
the tribunal concluded that a surcharge should be set aside because it was not
harsh but plainly unfair. The tribunal in that case concluded that the
surcharge was beyond that which any court unconstrained by statute would have
imposed in the circumstances.
38. It does not seem
to us that the surcharge in this case falls within that category. From the Appellant’s
VAT return it looks as if the surcharge might amount to some 1% of its turnover
and a larger proportion of its profit for the year. That is in respect of a
third late payment. The delay was of only a few days but the evidence did not
suggest it arose without some culpability. Whilst the surcharge may be on the
harsh side, it is not plainly unfair: a penalty can justifiably be set to have
some bite, otherwise it may not achieve its purpose.
39. We conclude that
the surcharge in this case was not disproportionate.
Conclusion
40. We dismiss the
Appeal.
Rights to Appeal
41. 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.
TRIBUNAL JUDGE
RELEASE DATE: 24 JUNE 2011
