18721

Input Tax:  repayment due but delayed, repayment supplement agreed but payment also delayed, whether interest due,  s 78, 79 and 84 VATA 1974

EDINBURGH TRIBUNAL CENTRE

	DARREN R DAVIDSON	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	       Respondents

			Tribunal:  T GORDON COUTTS, QC (Chairman)

Sitting in Edinburgh on Monday the 9th day of August 2004.

for the Appellants		Charles K Rumbles, VAT Consultant

for the Respondents	Mrs L Hall Shepherd & Wedderburn, WS

© CROWN COPYRIGHT 2004.

DECISION

INTRODUCTORY
This appeal concerns the refusal of the Commissioners to pay interest on a sum due to the Appellant, which sum had been enhanced by a repayment supplement.   Parties agreed the facts as undernoted.

AGREED FACTS	
The Appellant carries on a removal and containerised storage business of household good from premises at Traquair Road, Innerleithen.
The Appellant submitted his first VAT return for the period ended 31 January 2002 which brought out the following
(1)	Output tax - £1,610.74
(2)	Input tax - £20,350.89
(3)	Net VAT repayable by the Commissioners - £18,740.15
On 19 March 2002 an Officer of the Commissioners visited the Appellant’s Accountant to verify the amounts declared on the Appellant’s VAT return for period ending 31 January 2002 and in particular the amount of input tax reclaimed for the said period.
On 26 April 202 the Commissioners wrote to the Appellant advising that the input tax allowable for the period ending 31 January 2002 would be revised to £4,978.84 thus reducing the amount repayable to the Appellant to £3,368.10.
The amount disallowed by the Commissioners totalled £15,372.05.
The Appellant contested the Commissioners decision to disallow the input tax reclaimed amounting to £15,372.05 and an internal reconsideration was undertaken by the Commissioners.
On 5 September 2003 the Commissioners wrote to the Appellant’s representative confirming that the sum of £10,500 would be repaid to the Appellant.
Following further representations on behalf of the Appellant, on 27 November 2003 the Commissioners wrote to the Appellant’s representative to confirm that the balance of input tax claimed amounting to £4,873 would now be repaid to the Appellant.
Repayment was made to the Appellant as follows:-
(a)	9 October 2003 - £10,500
(2)	4 December 2003 - £4,873
On 20 January 2004, the Appellant’s representative requested a repayment supplement of 5% of the amount claimed pursuant to Section 79 of the VAT Act 1994 (“the Act”) on the Appellant’s behalf on the basis of the Commissioners delay in repaying the tax due to the Appellant.
On 26 February 2004, an Officer of the Commissioners wrote to the Appellant’s representative confirming that the Appellant was entitled to a repayment supplement in the sum of £768.60 based on a delay in repaying a portion of the Appellant’s repayment claim (totalling £15,372.05) assessed at 5% thereon.
On 3 March 2004, the Appellant’s representative acknowledged the Commissioners decision to authorise a repayment supplement and in addition sought interest pursuant to Section 78 of the Act in respect of the delayed payment of the sum of £15,372.05.
On 15 March 2004, the Commissioners wrote to the Appellant’s representative refusing the request for interest pursuant to Section 78 of the Act on the basis that a repayment supplement had been paid.

The Statutory Provisions; VATA 1974	
	Section 78:  Interest in certain cases of official error
	(1)	Where, due to an error on part of the 				Commissioners a person has…..
		(d)	suffered delay in receiving payment of an 			amount due to him from them in 					connection with VAT, then, if and to the 				extent that they would not be liable to do 			so apart from this section, they shall pay 			interest to him on that amount for the 				applicable period, but subject to the 				following provisions of this section.

	(2)	Nothing in subsection (1) above requires the 			Commissioners to pay interest –

		(a)	on any amount which falls to be increased 			by, a supplement under section 79;  or

		(b)	where an amount is increased under that 			section, on so much of the increased 				amount as represents the supplement

	Section 79:  Repayment supplement in respect of 	certain delayed payments or refunds

	(1)	in any case where –

		(a)	a person is entitled to a VAT credit,…

	and the conditions mentioned in subjection (2) below are 	satisfied, the amount which, apart from this sect ion, 	would be due by way of that payment or refund shall be 	increased by the addition of a supplement equal to 5 per 	cent of that amount or £50, whichever is the greater.

The said conditions were satisfied.

	Section 84:  Further provision relating to appeals 	(8)  Where on appeal it is found -
		…
		(b)	that the whole or part of any VAT credit 				due to the Appellant has not been paid,
			so much of that amount as is found not to 			be due or not	to have been paid shall be 			repaid (or, as the case may be, paid) with 			interest at such rate as the tribunal may 				determine.

Contentions for the Appellant
The statutory provisions do not preclude the payment of interest even if a repayment supplement has been made.  A repayment supplement is a credit which is statutorily due and is not a matter of discretion.   Interest, however, is.   The taxpayer has suffered excessive delay in the first instance of 19 months after the end of his accounting period and in the second instance 21 months as agreed.   The provisions are not mutually exclusive.

Contentions for the Respondents
The plain words of the Statute exclude, in the present circumstances, payment of interest upon a repayment supplement.   Support for that contention can be found in the dicta, albeit Obiter, in M B Champion No 13307;  North East Media Development Trust Ltd (14416); and The Leisure Two Partnership (16876).    Insofar as Decision 18413, National Galleries of Scotland, conflicts it was wrongly decided.  It is also incorrect to hold as appeared to have been done in Bank Austria Trade Services Gesellschaft MBH (16918) that repayment supplement is the converse of the surcharges imposed on defaulting taxpayers.   The regimes are different and there is no reason why they should not be.  Policy might demand that the authorities are not subjected to penalties which are commensurate with those imposed on taxpayers.

DECISION
The unfortunate circumstances in the present appeal are that there has been excessive delay not only in payment to input tax due but even en of the statutory supplement.  Nevertheless the Commissioners have not offered any ex gratia settlement to acknowledge that as set out  in paragraph 3.4 of Customs Notice 700/58.   That reads “we will usually make an ex gratia payment to make good any serious disadvantages suffered if your repayment is delayed to an exceptional extent and the repayment supplement is less than the interest which you might otherwise have earned.”  I was not provided with any precise calculation on the comparison between the two but in any event there would appear to be to be nothing objectionable in principle, if Statute did not preclude it, from interest being paid both on the principal sum and on a repayment supplement particularly if payment of that supplement is further delayed.

Unfortunately the present case does not concern an appeal.   Had there been an appeal on the quantification of the tax due, which there could well have been but for the internal resolution of the matter, interest would have been payable at a rate at the Tribunal’s discretion in terms of Section 84(8) VATA on all sums due.

That was what happened in Bank Austria Trade Services Gesellschaft a Decision in which the reasoning appears to this Tribunal, unsurprisingly, to be sound.   Had the circumstances been the same then the Tribunal would and could have awarded interest both on the repayment and the supplement for the reasons given in that Decision.  However this is not such an appeal and Section 84(8) cannot be invoked.

That the Commissioners can provide either a repayment supplement or interest was noted in the Leisure Two Partnership.   That Decision at paragraph 26 did, however, appear to add somewhat to the Statute by stating that the interest already awarded should be repaid.   Its jurisdiction to so to order seems doubtful. 

Of the other two cases cited neither are directly in point.   This Tribunal however would agree with the observation in North East Media Development Trust Limited (14416), paragraph 17, where it was indicated that there was nothing offensive in the notion that the Commissioners should pay interest upon interest.    Accordingly but for the provisions of the Statute above quoted there would be no reason why interest should not be payable on a repayment supplement and indeed in the view of the Tribunal it is payable if there is a settled appeal.

The situation is thus anomalous and it is offensive when a statutory supplement is withheld and there is nothing offensive in the notion that interest should be payable in such circumstances.  No doubt it is in recognition of that injustice that the ex gratia concession above referred to has been made, although even that concession does not take full account of the principle that interest is due if there is an unlawful withholding of money.

In all the circumstances however the plain words of the Statute Section 78(2) have with regret to prevail in the circumstances of this case.  The only way around the difficulty would appear to be to have lodged an appeal and thereby invoke Section 84(8).

The Commissioners made no motion for expenses in the event 

of their succeeding.   It would not have been granted viewing the whole circumstances of the case and accordingly no expenses in the matter are found due to or by either party.

T GORDON COUTTS, QC

CHAIRMAN

RELEASE 13 AUGUST 2004.

EDN/04/40