20014

Value Added Tax – Failure to pay tax due on time – Reasonable excuse for delay – Insufficiency of funds – Taxpayer awaiting payment from government agency to pay tax – Payment late – Taxpayer consequently unable to pay tax by due date – Whether taxpayer has reasonable excuse for late payment of tax – s.59 VATA 1994

LONDON TRIBUNAL CENTRE

	POLLECOFF SOLICITORS LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	DR KAMEEL KHAN (Chairman)
						MRS E M MacLEOD CIPM

Sitting in public in London on 24 January 2007

Mr P Pollecoff, Solicitor, for the Appellant 

Mr P Webb, Advocate HMRC, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	The Appellant, Pollecoff Solicitors Limited, appeal against a default surcharge imposed for the period 04/06 in the amount of £5,140.50.  The VAT return was received on 1 June 2006 and payment made on 15 June 2006, the due date being 7 June 2006.  

2.	The relevant facts of this case are briefly stated. The Appellant are a firm of solicitors involved mainly in publicly funded criminal work. They had expected to be paid a large cheque, in excess of £120,000 (the exact figure is never known until paid) and that cheque was paid late by Her Majesty’s Court Service (HMCS) National Taxing Team with the actual remittance being made by their paying agent, Liberata UK Ltd. The legal work had been completed in January, the invoice sent by the Appellant in March and the terms of payment being 5 days after the invoice has been approved. However, the payment is never actually made within 5 days since the bill has to be taxed before payment. The first cheque given for payment was dated 1 June 2006 and was lost in the post.  A second cheque was issued in June in replacement for the lost cheque.  Both cheques were for approximately £152,000.  If the first cheque which was lost has arrived by the 2 or 3 June and cashed by the Appellant then the cheque which the Appellant had sent to HMRC as payment for their due VAT would have been honoured and payment would have been made by the due date.  However, since the replacement cheque took some days to reach the Appellant and be cashed, the VAT payment was made late and a surcharge imposed for late payment.

3.	The Appellant have said that they were meant to be paid within 5 days and the HMCS delayed in instructing Liberata to pay, who in turn created further delay in sending out the misplaced cheque.  HMRC argue that there is no certainty about payment since the letter of Completion of Determination from HMCS (dated 25 May 2006) indicates that:

“Your firm should receive payment in the sum of £152,250.22 from our paying agents, Liberata, within five working days of their receipt of the authority for payment.”

This means that since there is no timescale for the authorisation of payment they cannot accept the inference that the funds would have been released to the Appellant prior to the due date. Further, HMRC point out that from the financial accounts provided by the Appellant, the VAT payable represented less than 13% of total income received for the period by the Appellant and there was sufficient funds to pay the VAT due by the due date (total funds received in 3 month period to due date was approximately £282,000 and VAT due was £34,000).  HMRC further state that lack of funds or reliance in a third party is not a reasonable excuse (s.59 VATA 1994).

4.	We outline below our views.

	An insufficiency of funds or the dilatoriness of a third party is not a reasonable excuse and such is laid down by the law.  The Tribunal was, however, looking at the reason put forward by the Appellant for such dilatoriness or insufficiency of funds to see if the circumstances giving rise to such were unforeseeable.  In this case, we believe the circumstances giving rise to the late payment were foreseeable and the Appellant should have made alternative arrangements for paying the VAT.  The Appellant knew, from the past, that while payments may take only five days to be made the authorisation for payment could take several months. There was degree of uncertainty surrounding the authorisation to pay and turnaround of outstanding invoices by HMCS.  Once the authorisation was given, however, payment was fairly swift. It is possible for things to go wrong with such fine deadlines, as happened in this case.  It was not unforeseeable that the payment or authorisation could be delayed or the cheque posted late. We have sympathy that the cheque was lost and the Appellant was inconvenienced.  

5.	In terms of the percentage of turnover represented by the VAT due, we feel that since the VAT represented 13% of turnover, other funds were available to pay the VAT due.  In this matter, one can distinguish the case of Customs and Excise Commissioners v Steptoe [1992] STC 757 a case where there was persistent and prolonged delay by a London Borough in paying the invoices of one of its contractors where invoices for the Borough represented 95% of his turnover. In that case, the heavy reliance on the payment together with the late payment provided a reasonable excuse.  

6.	In this case, there was reliance on HMCS for payment but there were other sources of work and income sufficient to meet the outstanding VAT liability in the quarter in question. We understand that the Appellant wished to make their payment of VAT on time.  However, taxpayers must have in place arrangements to meet such liabilities and given the uncertainty surrounding the authorisation of payment and the fact that the payment could be delayed, it would perhaps have been sensible for the Appellant to have arranged for a cash accounting scheme for payment.

7.	In the circumstances, the appeal would be dismissed, and the surcharge would remain.

DR KAMEEL KHAN
CHAIRMAN

RELEASED: 14 February 2007

LON/06/1153