19228
VAT — default surcharge — company changing to annual accounting scheme — initial period fixed by HMRC at 10 months — notwithstanding company notified of 10 month accounting period trader assumed return would not be required until 12 months had elapsed —situation exacerbated by accountant having arranged for mail to be redirected following removal — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
PEDEGOG LIMITED	Appellant

- and -

HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

			Tribunal:	David Demack (Chairman)

Sitting in public in Manchester on 24 August 2005

Mr R Billing for the Appellant 

Mr C Owen of the Acting Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2005

DECISION

1.	This is a reasonable excuse appeal by Pedegog Limited (“Pedegog”) against an assessment to default surcharge of £2,065.90 notified on 17 January 2005.  That followed a default in relation to the accounting period ended on 30 September 2004.  The surcharge was calculated at the rate of 15 per cent of the tax due in the period as Pedegog had defaulted in five earlier periods in a single liability period.
2.	Pedegog’s case was presented by Mr Roger Billing, and Her Majesty’s Revenue and Customs (“HMRC”) case by Mr Christopher Owen of their Solicitor’s Office.  Both parties produced documents.
3.	From the evidence, I find that Mr Billing, who is responsible for Pedegog’s accounts, decided in December 2003 that it should join the VAT annual accounting scheme.  By letter of 29 January 2004, HM Customs and Excise confirmed that it was authorised to do so, and that its first accounting period would run from 1 December 2003 to 30 September 2004.  Consequently, it was required to render its VAT return for that period by 30 November 2004.
4.	When Mr Billing made those arrangements, he was living at Belgrave House, Belgrave Drive, Sheffield.  He sold that house in 2004, completion of the sale taking place on 10 August.  He had intended to move into a house in Petworth Drive, but his purchase of it was aborted due to certain planning and other problems.  To solve his temporary lack of accommodation, he moved into a holiday cottage in Penistone.  He arranged with Royal Mail for his and Pedegog’s post temporarily to be re-directed to a P.O. Box, having previously arranged for it permanently to be re-directed to Petworth Drive.  He stayed at Penistone only for a matter of weeks before moving to France to live in a house he had bought earlier in the year.  The temporary re-direction of mail was terminated before he left Penistone: the permanent re-direction remained in place.  
5.	He then arranged for further temporary re-direction to a P.O. Box (whether the same one as previously or a different one did not emerge in evidence).  His instructions appear to have confused the Royal Mail. Some of his mail was delivered to Belgrave Drive, some to the P.O. Box, and some to Petworth Drive.  It became apparent to Mr Billing that not all mail was being delivered to the P.O. Box in or around October 2004, but it was not until December 2004 that he claimed to have “discovered” that mail was being delivered to Petworth Drive.  He then made arrangements with the estate agents acting for the vendor of the Petworth Drive property (which remained unsold and was vacant) for mail delivered there to be collected and handed to him.  The mail so collected included the VAT return for Pedegog.  
6.	Pedegog’s return was received by HMRC on 13 January 2005.
7.	In Mr Billing’s submission, those events constituted a reasonable excuse for Pedegog’s failure to make its return and pay the tax due by 30 November 2004.  He maintained that, since Pedegog joined the annual accounting scheme with effect from the beginning of December 2003, it was reasonable for him to assume that its accounting year would end in November 2004, and its return would have to be made by 31 January 2005.  Consequently he took no steps before December 2004 to see whether HMRC had sent a return for completion.  He relied on Customs’ Notice 732/03 where, at paragraph 3.3 it says, “Your annual accounting year will end on the last day of the month, normally 12 months after you begin using the scheme”.  
8.	Mr Owen contended that HMRC had been given no notice of any change of address for Pedegog, and a trader had a positive duty to notify them that he had not received a return.  And since Mr Billing had made permanent arrangements for re-delivery of mail to Petworth Drive, he had only himself to blame for not having received its VAT return.  The fault was plainly that of Mr Billing, and could not in the particular circumstances be attributed to the Royal Mail.
9.	As Mr Billing acknowledged having received Customs’ letter of 29 January 2004 informing Pedegog that its first return under the annual accounting scheme would be due for the period ended 30 September 2004, I am unable to accept that it was reasonable for him to assume that its accounting year would end on 30 November 2004.  That being the case, for the reasons advanced by Mr Owen, I hold that Pedegog does not have a reasonable excuse for its default in relation to the period ended on 30 September 2004.  I dismiss the appeal.

DAVID DEMACK 
CHAIRMAN
Release Date: 25 August 2005
MAN/05/0319