20504

Default Surcharge – Insufficiency of funds – Trader had hotel business and contract catering business – Contract catering business ended completely following client’s termination of contract – Client’s late payment caused cashflow shortage of greater amount than total VAT due – Whether reasonable excuse for non-payment by due date – Yes – Appeal allowed

LONDON TRIBUNAL CENTRE

	THE OLD TOLLGATE RESTAURANT LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	SIR STEPHEN OLIVER QC (Chairman)
						SHAHWAR SADEQUE MBCS

Sitting in public in London on 28 November 2007

P Sargent, director, for the Appellant

Simon Chambers for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	The Old Tollgate Restaurant Ltd (“Tollgate”) appeals against a default surcharge (2%) of £1,613 for the 02/07 period. 

2.	The VAT, due on 31 March 2007 was paid by three amounts, on 18 April, 23 May and 21 June.  

3.	The background to the appeal is this.  For twenty-two years Tollgate had been conducting a hotel business with a turnover of £1.8 million.  The contract catering service provided by Tollgate to “Rio Tinto” accounted for a turnover of £400,000.  The profit from the contract catering side of the business was the same as the profit from the hotel side of the business.  

4.	In late 2006 Rio Tinto decided to put out the catering contract, hitherto enjoyed by Tollgate, for tender.  The existing arrangements had been that Rio Tinto Zinc paid to Tollgate, by banker’s order, the sum of £30,000 a month plus a balancing amount to cover the total amount due for the quarter.

5.	At the start of 2007, while the tendering for new contracts was taking place, Rio Tinto started to get behind in their payments to Tollgate. Tollgate lost the catering contract.  By the due date for the payment at the end of March 2007 there was a substantial shortfall in the amount due from Rio Tinto.  This consisted of £85,000 less than the total amount that Tollgate would ordinarily have expected to have received from Rio Tinto by the end of March 2007.  The bank statements of Tollgate show the £85,000 outstanding as having been credited by 5 April.  Whether that money was available to enable Tollgate to complete payment of the tax of £80,686  electronically by 6 or 7 April, we do not know.  We assume it was not.

6.	HMRC point out that the total receipts of Tollgate from both sides of its business more than exceeded the £80,686 of VAT for which it was accountable at the end of March.  There should have been no insufficiency of funds.  

7.	Mr P Sargent, a director of Tollgate, explained that, at the due date for payment, there were simply no funds available to meet the VAT.  Had they had overdraft facilities of a sufficient amount, they would have used the overdraft.  Tollgate’s case, shortly stated, is that on account of Rio Tinto’s late payment for catering facilities for the period leading up to 31 March 2007, there was a cashflow shortage of greater amount than the VAT due for the 02/07 period.  

8.	We accept that the explanation given for Tollgate amounts to a reasonable excuse.  The insufficiency of funds was attributable to Rio Tinto’s late payments associated with Tollgate’s loss of Rio Tinto as its single customer for its contract catering business.  The cashflow attributable to the hotel business appears to have remained static.  But that cashflow could not be relied upon to meet the VAT due at the end of March 2007.  The cancellation of the Rio Tinto catering contract and its late payment of fees to Tollgate appears to us to have been sufficiently unforeseen events and ones that could not have been avoided.  We conclude therefore that there was a reasonable excuse for the insufficiency of funds.  Tollgate has therefore established to our satisfaction that it has a reasonable excuse for the default for the 02/07 period.

9.	We allow the appeal.

SIR STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 13 December 2007

LON 2007/1055