Misdeclaration penalty under s.63 VATA – Central Assessment paid – Appellant claimed a cheque for understated VAT sent – not received by the Commissioners – no reasonable excuse – appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

 
 	
	 VENETTI CLOTHING CO.LTD 	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

							
				Tribunal:  	Mrs. E. Gilliland (Chairman)
 Mr. J.T.B. Strangward

Sitting in public at Birmingham 4 November 2003.
Mr Cheema, a director of the Appellant for the Appellant.
Mr B Haley of the Solicitor’s office of HM Customs and Excise for the Respondents.

	© CROWN COPYRIGHT 2003

                                                                DECISION
1.	This is an appeal by Venetti Clothing Co Ltd (the Appellant) against a misdeclaration penalty in the sum of £3,736 imposed by the Commissioners  in respect of the accounting period ending 31 December 1999 under the provisions of s.63 of the Value Added Tax Act 1994 (the Act). 
2.	Mr Cheema, a director of the Appellant, has presented its case to the tribunal. Mr Haley of the Solicitors Office of HM Customs and Excise has represented the Commissioners.
3.	Section 63 of the act provides:
(1)	  In any case where, for a prescribed accounting period – 
(a)	a return is made which understates  a person’s liability to VAT or overstates his entitlement to VAT credit, or
(b) an assessment is made which understates a person’s liability to VAT and, at the end of the period of 30 days beginning on the date of the assessment, he has not undertaken all such steps as are reasonable to draw the understatement to the attention of the Commissioners, and the circumstances are as set out in sub-section (2) below, the person concerned shall be liable, subject to subsections (10) and (11) below, to a penalty equal to 15% of the VAT which would have been lost if the inaccuracy had not been discovered.
(2)	The circumstances referred to in sub-section (1) above are that the VAT for the period concerned would have been lost if the inaccuracy had not been discovered equals or exceeds whichever is the lesser of £1,000,000 or 30% of the relevant amount for that period.
(10)	Conduct falling within sub-section (1) above shall not give rise to liability to a penalty under this section if:
(a)	the person concerned satisfies the Commissioners or on appeal, a tribunal that there is a reasonable excuse for the conduct, or 
(b)	at the time when he had no reason to believe that enquiries were being made by the Commissioners into his affairs, so far as they relate to VAT, the person concerned furnished to the Commissioners  full information with respect to the inaccuracy  concerned.
(11)	Where by reason of conduct falling within sub-section (1) above – 
(a)	a person is convicted of an offence (whether under this Act or otherwise), or
(b)	a person is assessed to a penalty under Section 60,
that conduct shall not also give rise to liability to a penalty under this section.

4	The circumstances in this case are that as has been acknowledged by Mr Cheema the Appellant’s return and payment of VAT for the period 12/99 was not submitted by the due date of 31 January 2000 and accordingly an assessment was issued centrally by the Commissioners on 11 February 2000. It is agreed that this was duly paid to the Commissioners on 2 March 2000 as assessed  in the sum of £9,894.00. The evidence on oath of Mr Cheema is that he personally posted a cheque for £24,907.92 representing the VAT shortfall on 6 March 2000 i.e. within 30 days  of receiving the assessment as required under the provisions of s. 63(1)(b) of the Act.  He said he remembered this since it was for such a large amount. When pressed by the Commissioners’ representative as to why the assessment had been paid if the return was imminent i.e. a few days later, he said that he imagined it was because the return had not been finished. The case for the Commissioners is that that cheque was not received by them and that it was not until the following July that the position was rectified by an additional assessment. This was subsequent to a control visit. Mr Cheema could not give an explanation as to why it had not been noted by the Appellant through its book-keepers or accountants that a cheque for such a large amount had not been accounted for. He explained that he himself had not been involved in the day to day  accounting of the Appellant; that they had been troubled by break-ins with cheque books taken and thus did not have a cheque stub; and that the accounts for submission to the Companies Registry were late. He produced bank statements to show that at the relevant time the Appellant was in funds and that there was no need for it to make any withholding of tax. Mr Cheema has requested the tribunal to conclude that in the circumstances there was a reasonable excuse and that the penalty should not be imposed.
5	We accept and find that the Commissioners did not receive any cheque. The understated amount of £24,907 reached the misdeclaration test set out in s. 63(2) of the Act, giving rise to liability to a penalty of 15%. The Commissioners have not accepted that there has been any reasonable excuse or mitigation and accordingly that is the penalty appealed against. We do not accept that there was a build up of circumstances in connection with the Appellant’s accounting procedures that led to the non-presentation of the cheque and the additional funds in the Appellant’s account not being noted until the whole issue became live again at the time of the control visit in the subsequent year. We do not consider that in all the circumstances of this case the reasons given on the Appellant’s behalf, viewed objectively, amount to a reasonable excuse. The Appellant left it until almost the expiry of the 30 day period from the date of the assessment before sending a cheque for the balance of the VAT but no reasonable explanation has been provided as to why it did not make the appropriate return and pay the tax by the due date. The Appellant is in our view liable to a civil penalty.
6	In connection with the powers of the tribunal to mitigate against liability, we have considered how far the Appellant is to blame for the default. Mr Cheema has said that the Appellant had sufficient funds available to make payment of any tax liability but insufficiency of funds is not a factor, which the tribunal is entitled to take into account under s. 70(1). If insufficiency of funds is not a valid excuse for non payment, sufficiency of funds can hardly be a mitigating factor. In our view the Appellant’s accounting procedures were at fault in not ascertaining that there was still VAT due in respect of the December 1999 accounting period, bearing in mind that subsequent returns were submitted and tax paid.
7	The appeal is dismissed. We make no direction as to costs.

Mrs E Gilliland
Chairman
Release Date:

MAN/02/0774