19810                 
Misdeclaration penalty - error discovered on routine inspection nearly 2 years after invoice issued - Appellant did not take steps had intended to rectify the position - no reasonable excuse - 30% mitigation allowed appropriate - appeal dismissed 

MANCHESTER TRIBUNAL CENTRE

                       			     MANYEE UK LIMITED                                                Appellant

                                                        		    and

                            THE COMMISSIONERS for
                     		HER MAJESTY’S REVENUE AND CUSTOMS                      Respondents

              
                                         Tribunal: Elsie Gilliland (Chairman)

                                                                                          
Sitting in public at Manchester on 2 October 2006

Alex Kwok Man Wan for the Appellant

Bernard Haley Advocate of the Solicitors Office of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	 The appeal heard by the tribunal was that of Manyee UK Limited  (the Appellant) against a decision of Customs set out in their letter to the Appellant dated 21 March 2006 and upheld on a reconsideration on 16 May 2006 to assess the Appellant to a misdeclaration penalty  in the sum of £5597.00 in respect of the period 05/04. The total tax on which the penalty was imposed was £53,307.00 and Customs had allowed a mitigation of 30%. Alex Kwok Man Wan the secretary and project manager of the Appellant attended to put its case and produced a statement and a Vat report summary for the period 1 April 2004 to 31 May 2004 in respect of its client Elements Oriental Southport Ltd.(Oriental).

2.	 Mr. Wan explained that the Appellant had been managing a substantial project under contract with Oriental. Payments were to be made by instalments on invoices from the Appellant and these would provide for the sums due to the sub-contractor Caber Developments Limited (Caber) which was doing the work of shop-fitting and building at Oriental’s premises. An invoice which was the 3rd was issued by the Appellant on 13 April 2004 to Oriental in the sum of £304613.81 with Vat of £53307.42 to a total of £357921.23.   It became clear that Oriental could not pay the whole of this sum and  paid only £28000.00 of it to the Appellant as a Vat inclusive figure. As a result of negotiations Oriental and Caber were in future to deal with the instalments and payments direct and Mr Wan was aware of this.

3.	Mr Wan was quite frank about what he should have done but had not done. At that stage he should have arranged for the Appellant to prepare a credit against the invoice issued. It was not until a routine Vat inspection of the Appellant’s books and records on 8 February 2006 that the problem was discovered and a process put in hand to regularise the situation. Oriental had not sought to claim input tax twice that is on the Appellant’s and Caber’s invoices;  the Appellant had not accounted for Vat but Caber had;  an adjustment for the Vat inclusive amount paid for the Appellant’s fees was made. A credit invoice was issued on 16 February 2006. Mr Wan submitted that no tax had been lost and the matter had been satisfactorily resolved. He considered it unreasonable for Customs to have imposed a penalty albeit mitigated.

4. 	The circumstances in which a misdeclaration penalty may be imposed are specifically where a misdeclaration on a Vat return equals or exceeds 30% of the total of the output tax  and input tax which should have been declared for that period or £1million. Customs found no reasonable excuse for the misdeclaration and thus the penalty was imposed. They did accept that there were mitigating factors and thus allowed a 30% reduction in the penalty.

5. 	It is for the tribunal to consider the circumstances and evidence from an objective standpoint. Mr. Wan had said that the intention was that the invoice was to be put on hold and the necessary adjustment made by way of credit. It follows from this that the Appellant was not then intending to account for the Vat charged on the invoice though Oriental could claim input tax as it was an invoice that had already been issued. I am satisfied that Mr. Wan merely made a mistake and forgot to take the steps which he had proposed to take to rectify the position. This does not constitute a reasonable excuse. A penalty is therefore properly chargeable.

6. 	I have considered also the level of the mitigation allowed by Customs. The officer had based this on the cooperation of the Appellant when the error was discovered and a good compliance record. I do not find any factors to lead me to increase the degree of the mitigation. Nearly 2 years had elapsed before the discovery of the fault. During that period one would have expected occasions when in normal bookkeeping procedures or the preparation of company accounts it could have been discovered. Mr. Wan has said that tax was not lost. That is not a reason for mitigation which a tribunal is entitled to take into account, (s.70(4)(b) Value Added Tax Act 1994.)

7. 	I dismiss the appeal.

8. 	Customs did not seek costs and I make no direction as to costs.

ELSIE GILLILAND
CHAIRMAN
Release Date: 17 October 2006

MAN/2006/0405