20256

DEFAULT SURCHARGE – Reasonable excuse – No evidence that Appellant misled – Insufficiency of funds – Nothing beyond normal pattern of trading – Appeal dismissed

LONDON TRIBUNAL CENTRE

	THE OFFICE CAFÉ COMPANY LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	THEODORE WALLACE (Chairman)
						MRS E M McLEOD CIPM

Sitting in public in London on 11 July 2007

Gaurav Gandhi, financial controller, for the Appellant 

Jonathan Holl, advocate, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	This was an appeal against a surcharge of 10 per cent for the period ending 31 December 2006, the penalty being £1,255.10.

2.	The return itself was on time but the VAT was late, being paid in two instalments.

3.	The grounds of appeal were (1) that the Appellant had been misled by the VAT office in conversations when it was told that the surcharge would not be applied; (2) that 10 per cent had been applied on the first surcharge; (3) that the penalty was very high.

4.	No evidence was produced that the Appellant had been misled.  On the two previous defaults no surcharge had been applied because the surcharges would have been 2% and 5% and the assessments would have been less than £400.  A notice dated 17 November 2006 stated that a further default in the period to 30 September 2007 would make the Appellant liable to a 10 per cent surcharge.

5.	An earlier letter from Customs dated 5 June 2006 agreed to arrears for period 03/06 being paid by instalments.  That letter contained the following statement:

“Acceptance of this arrangement does not prevent or cancel the recording of defaults, liability to surcharge, and interest where applicable.”

6.	We do not accept that the Appellant was misled although the letters on the occasion of the two previous defaults may have been misunderstood.  The letter of 5 June 2006 stated expressly that the time to pay agreement did not cancel the default.  That of 17 November 2006 warned of the 10 per cent rate.

7.	The penalty may be high however it was fixed by Parliament.
8.	Mr Ghandi said that the Appellant had experienced cashflow difficulties through rapid expansion and losses but was now breaking even.  The Appellant buys coffee machines and sells or leases them to clients.  Leasing produces a cashflow problem since the suppliers have to be paid in 30 days but the Appellant is not paid for 60 days.  A letter dated 28 February 2007 said that the Appellant had not been paid in January 2007 for £26,000 included in the December 2006 return.

9.	He said that the Appellant is now factoring bills but the bank will not factor leasing transactions.  The Appellant has also signed up for Annual Accounting.

10.	An insufficiency of funds is expressly excluded for reasonable excuse under the default surcharge régime.  Although the underlying cause may in unforeseen circumstances give rise to a reasonable excuse, there was no evidence of anything going beyond the Appellant’s normal trading pattern and initial under capitalisation.

11.	A reasonable excuse has not been established.  The appeal is dismissed. 

THEODORE WALLACE
CHAIRMAN

RELEASED: 17 July 2007

LON 2007/710