20234

VAT – default surcharge – reasonable excuse – late payment – unsigned cheque – attempt by Appellant to remedy by supplying replacement cheque – payment made after due date – whether surcharge proportionate – appeal dismissed

LONDON TRIBUNAL CENTRE

	CUTTING ENTERTAINMENT LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	JOHN CLARK (Chairman)
					CAROLINE S DE ALBUQUERQUE

Sitting in public in London on 20 June 2007

The Appellant did not appear and was not represented

Pauline Crinnion, advocate, instructed by the Acting Solicitor for Her Majesty’s Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	This is a default surcharge appeal. Although we would normally deal with this by means of a short form decision, we think it appropriate in the light of what happened on the day of the hearing to issue a decision in fuller form.
2.	Ms Myra Hickey, who is the Appellant’s Company Secretary, attended the Tribunal centre on the morning of the hearing. She was introduced to Mrs Crinnion in the hearing room. Ms Hickey became distressed; it appeared that she had not been expecting the case to be dealt with in surroundings similar to a court. She indicated to Mrs Crinnion that she felt as if she was being treated as a criminal and said that she would leave and simply pay the fine. Mrs Crinnion attempted to persuade her to stay, but Ms Hickey insisted on leaving.
3.	We were informed of this after Ms Hickey’s departure. We would have liked to have the chance to give her some explanation of the way in which the Tribunal works. As she did not feel able to stay, we will ask one of the Tribunal’s officers to send to her with this decision a letter setting out what we would have wished to tell her. We are disappointed that Ms Hickey did not take the opportunity to give us her own account of the circumstances leading to the appeal.
4.	We decided that as Ms Hickey was no longer present and as the appeal had not officially been withdrawn, we should exercise our power under Rule 26(2) of the VAT Tribunal Rules 1986 to hear the appeal in her (and therefore the Appellant’s) absence.
5.	For the period 06/06, the Appellant rendered its return and payment on 25 August 2006. The due date for both was 31 July. A Surcharge Liability Notice was issued on 11 August 2006. The tax assessed as shown on the return when submitted was less than the amount shown in the notice.
6.	For the period 12/06, Ms Hickey completed the return showing a net liability of £25478.61. The return was dated 25 January 2007, allowing sufficient time before the due date. Although she did not tick the box indicating that she was enclosing a payment, she did send a cheque for that amount.
7.	At some time after 25 January, Ms Hickey left for a holiday abroad. When she returned from her holiday on 7 February, she was informed by her bank that the cheque had not been drawn in accordance with the mandate; it had not been signed.
8.	Without waiting to hear from the Respondents (referred to in this decision as “Customs”), Ms Hickey immediately despatched a duplicate cheque. This was received by Customs on 12 February. The Appellant’s bank statement showed that the amount had been debited from its bank account on 14 February 2007. When she subsequently heard from Customs, Ms Hickey wrote back explaining that a duplicate cheque had already been sent. She indicated that she wished to appeal against the surcharge. In their response, Customs’ Reconsideration Team confirmed the surcharge. Customs did not accept that the Appellant had a reasonable excuse; omitting to sign the cheque was classed as a genuine mistake, and unfortunately for surcharge purposes this was not accepted as a reasonable excuse.
9.	In the Notice of Appeal sent on the Appellant’s behalf, Ms Hickey set out her grounds of appeal:
(1)	It was a genuine mistake which was rectified before [Customs] wrote to the company: (she cited a letter and copy travel documents sent with the Notice);
(2)	Natural justice was that the punishment should fit the crime, and as this was a genuine mistake which was rectified as soon as possible, before any requirement by [Customs], the punishment was extremely severe.
10.	Having explained the background, Mrs Crinnion put Customs’ case. As the payment had arrived late, and a Surcharge Liability Notice had previously been served on the Appellant, there was a default within the surcharge period. Under section 59(5)(a) of the Value Added Tax Act 1994 the rate of surcharge for the default was 2 per cent, as this was the first accounting period of default during the surcharge period. Under section 59(7) a person who would otherwise be liable to a surcharge may be relieved of liability to the surcharge if that person can satisfy Customs or, on appeal, a tribunal that there was a reasonable excuse for the VAT payment not having been despatched at such a time and in such a manner that it was reasonable to expect that it would be received by Customs within the appropriate time limit.
11.	In relation to reasonable excuse, Mrs Crinnion explained that there was direct authority on the effect of failure to sign a cheque. This was the case of Personal Parking Ltd (2007 VAT Decision 20181). The Chairman, Sir Stephen Oliver QC, referred at paragraph 6 to the trader’s choice to make payment by cheque, and said: “It was for it to submit a properly signed cheque. Customs cannot, in my view, be held responsible for Mr Foreman’s failure to sign the cheque.”
12.	In relation to Ms Hickey’s other argument on the severity of the punishment, Mrs Crinnion cited the decision of the Tribunal in Greengate Furniture Ltd (2003 VAT Decision 18280). This concluded that the default surcharge regime, although harsh in some circumstances, did not infringe the principle of proportionality.
13.	As there was no reasonable excuse for the default, and the default surcharge regime could not be criticised on the grounds of proportionality, Mrs Crinnion submitted that the appeal should be dismissed.
Conclusions
14.	As Mrs Crinnion argued, the scope for establishing reasonable excuse in default surcharge cases is limited. The system is designed to ensure compliance with the obligations to render returns and make payments to Customs within the time limits. Although Ms Hickey took steps to remedy the mistake as soon as she became aware of it, which was before any communication from Customs, this was well after the time when the payment should have reached Customs. Although the mistake was genuine, it had the effect of delaying the payment of the VAT due from the Appellant to Customs for period 12/06. We consider that the unfortunate and genuine nature of the mistake does not render it a reasonable excuse for the purposes of section 59(7) of the Value Added Tax Act 1994. Although the circumstances in Personal Parking Ltd were a little different, we respectfully agree with the Chairman’s conclusion that the responsibility to submit a properly signed cheque is entirely that of the trader.
15.	On the question of the severity of the surcharge, we have some sympathy with Ms Hickey’s position because of her steps to remedy the position immediately she became aware of it. However, as confirmed by Greengate Furniture, the regime is strict and without any power for the Tribunal to mitigate surcharges to take account of the trader’s conduct. Although Ms Hickey described the surcharge as a fine, it is more accurately described as a penalty for late payment, as mentioned in Greengate. Where VAT is paid late, surcharge at the relevant rate becomes payable, irrespective of how long or short the interval is between the due date and the actual date of payment. Unless there is a reasonable excuse, liability to the surcharge is inevitable.
16.	Thus, despite Ms Hickey’s attempt to deal with the outstanding payment as promptly as she was able to do in the circumstances, we have to dismiss this appeal.

JOHN CLARK

CHAIRMAN
RELEASE DATE: 3 July 2007

LON/2007/0673