20031

Value added tax – default surcharge – decision on facts

LONDON TRIBUNAL CENTRE

	RAY MACKINLAY GILLON	Appellant

-	and –

	 THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS                                                  

Respondents

				Tribunal:	Dr. David Williams (Chairman)
						Mrs R S Johnson (Member) 

Sitting in public in London on 23 August 2006

The Appellant appeared in person 

Mr Webb, officer of Revenue and Customs, for the Respondents  

© CROWN COPYRIGHT 2007

DECISION

1	The Appellant is appealing against a decision of the Respondents (“HMRC”) to impose default surcharges on him for failure to make timely returns and payments in respect of value added tax return quarters up to and including the value added tax period ended on 31 October 2005. 

2	At the oral hearing of the appeal, the tribunal was told that HMRC had accepted the Appellant’s explanation for the delay in the quarter ending on 30 April 2005. The explanation offered included difficulties caused to the Appellant that were directly due to the death of the Appellant’s accountant. Mr Webb also confirmed that there was no default for the quarter ending on 31 July 2005. The tribunal is therefore only concerned with the default surcharge imposed by HMRC for the quarter ending in October 2005. 

3	The Appellant accepted that he had defaulted in respect of value added tax return quarters up to and including that ending on 31 January 2005. Penalties were imposed, and he had not appealed. The penalty imposed for the quarter ending in January 2005 was 10 per cent. The Appellant emphasised that he had not defaulted in the following quarter. He was concerned that the Value Added Tax Office had issued him with a default surcharge for the quarter ending in April 2005 also, despite the fact that he had not defaulted. However, that surcharge had been cancelled and was not before the tribunal. The tribunal accept that there was no default in respect of the quarter to 30 April 2006.  The position to July 2005 was therefore that the Appellant accepted that there had been defaults up to the quarter ending in January 2005, and HMRC accepted either that there had been no default, or that there was a reasonable excuse for the default for the following two quarters.

4	The appellant maintained his appeal against the quarter ending in October 2005. The tribunal chairman explained the nature of its jurisdiction in hearing his appeal, and that the tribunal had no discretion about the level of penalties imposed under the legislation. The tribunal could consider only if there was good cause for a default. The tribunal noted that the return for the quarter ending in October 2005 was one day late, and that payment of the value added tax due was received in full but was several weeks late. The penalty was £7,460.08, set at the 10 per cent rate. 

5	The Appellant described to the tribunal his activities during the period before and during the time that the return and payment were due. These included a series of business trips to other parts of Europe. He also had continuing trouble as a result of the death of his accountant and the delays of the accountant’s estate in releasing his papers back to him. And there had been problems with bookkeeping. He also contested some details of the written case put before the tribunal by HMRC about the delays in full payment.

6	For HMRC, Mr Webb asked the tribunal to confirm the surcharge and that the appeal be dismissed. However, having heard from the Appellant and having seen some of the evidence he produced, Mr Webb accepted that some of the figures shown to the tribunal and him during the hearing did raise questions that should be considered about the Appellant’s account of his attempts to make full payment in a timely way. He accepted that there were also issues to be considered about an offset between the payment due for the quarter in dispute and an overpayment for another earlier quarter, and he could not deal with that properly on the papers before him. He gave the tribunal an undertaking that he would look into the matter when he returned to his office and would notify the tribunal of any additional matters that should be put before it in respect of the October 2005 quarter.

7	The tribunal adjourned briefly to discuss the position. It formed the view that although on the information before it the surcharge should be confirmed, there were sufficient doubts behind the submissions from both parties (and not only that of the Appellant) that the matter should be adjourned for a short period for them both to come forward with any other relevant evidence. 

8	The tribunal informed the parties of this view, and adjourned the hearing part heard. It agreed with the parties that it would reconsider the matter after giving both parties one month to produce any further directly relevant evidence and any submissions on that evidence. It was also agreed with the parties that the tribunal would consider and decide the matter after that time had expired without a further oral hearing.

9	Shortly after the time limit had expired, the tribunal received further information from the Appellant. This included information from his bank about the audit trail it had followed for him of the payments of value added tax for the October 2005 quarter. The tribunal accepted and considered that further evidence although technically out of time. It received no direct reply from HMRC. 

10	As the tribunal had not heard from HMRC, it directed that the new information from the Appellant be put to HMRC for comment. It has then allowed a reasonable further period for any response to that letter but has received none. As Mr Webb gave an undertaking that he would inform the tribunal of any further information on the official file directly relevant to the appeal, the tribunal accepts that there is none. And in the absence of any reply from HMRC it accepts the Appellant’s more recent information as unchallenged.

11	The Appellant accepted in his letter received on 2 October 2006 that the actions taken by his bank did not accord fully with the impression he had formed at the time, and which he had related to the tribunal, at the hearing. This raised issues of concern to the Appellant about the way his bank handled the transaction. It shows an attempt was made to pay the value added tax to HMRC at the right time by a particular route. But the evidence also shows that the attempt failed and that the payment was not made at that time. The actual payment of value added tax was fully made only some weeks later, as HMRC had shown the tribunal at the hearing. The Appellant also rehearsed other issues complicating his business at the time and making it more difficult to pay since then. These rehearsed matters, including the continuing problems caused by the death of the accountant, were matters already put before the tribunal. 

12	The tribunal indicated at the hearing that it has no discretion over the level of any surcharge. As in all similar cases, the percentage surcharge to be imposed in any quarter reflects the total value added tax due and any previous history of surcharges. In this case the percentage imposed by law was 10 per cent because of previous failures. The tribunal noted that HMRC accepted that good cause existed for the default by the Appellant in an earlier quarter in 2005. 

13	Turning to the issue under appeal, the default in making the return late for the October 2005 quarter was marginal and could be accepted as having good cause against the context of the Appellant’s problems with those keeping his books and the aftermath of the death of his accountant and also his business travels at the time. 

14	The tribunal is unable to take the same view about the failure to make full payment at the correct time. The tribunal had formed the view on the evidence before it at the hearing that the Appellant’s appeal failed on this issue. But it did not regard the matter as clear-cut and it was prepared in the particular circumstances to consider further evidence after the hearing. Having taken into account the further evidence produced, the tribunal is not satisfied that the Appellant has shown good cause for the delay in making full payment of the value added tax due until some time after the end of the period. It therefore has no option but to dismiss the appeal. 

15	As the decision of the tribunal is given after the hearing, and after consideration of the further evidence and representations of the Appellant received since the hearing, it has recorded its reasons for this decision in full. 

DR DAVID WILLIAMS
CHAIRMAN

RELEASED:  26 February  2007

LON/06/532