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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Lesjofors Springs (UK) Ltd v Revenue & Customs [2008] UKVAT V20632 (28 March 2008) URL: http://www.bailii.org/uk/cases/UKVAT/2008/V20632.html Cite as: [2008] UKVAT V20632

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20632

Default surcharge - Appellant part of multi-national group - problems arising with computer system - no reasonable excuse - appeal dismissed

MANCHESTER TRIBUNAL CENTRE

LESJOFORS SPRINGS (UK) LTD. Appellant

-and-

THE COMMISSIONERS FOR Respondents

HER MAJESTY'S REVENUE AND CUSTOMS

Tribunal: Elsie Gilliland (Chairman)

Sitting in public in Manchester on 30 January 2008

Robert Glynn, UK director, for the Appellant

Kim Tilling, Advocate, of the Solicitors Office of HM Revenue and Customs for the Respondents

DECISION

1. The appeal heard by the tribunal was that of Lesjofors Springs (UK) Ltd. against a decision of Customs with respect to a surcharge assessment dated 18 May 2007 in relation to the accounting period 1 January 2007 to 31 March 2007 (03/07) in the sum of £6,573.27. The due date for the payment of VAT was 30 April 2007; the return was received on 10 May 2007; and the tax paid on the return was £328,663.55.
2. This was subsequent to a surcharge liability notice dated 16 February 2007 and the appeal was taken as an appeal also relating to the previous period namely 1 October 2006 to 31 December 2006 (12/06) in respect of which the surcharge liability notice was issued. The due date for that period had been 31 January 2007; the return had been received on 21 February 2007; and the tax figure was £198,322.08.
3. A Notice of Appeal signed by Alison Baron and dated 23 October 2007 was delivered to the tribunal centre and the grounds of appeal set out therein were as follows:

"The Inland Revenue VAT guidelines allow for a surcharge to be waived on the grounds that the company involved did not intend to defraud. It also allows on notice 700/50 point 4.3 regarding factors

that could have been forseen which led to the delay and giving sufficient priority to completing the Vat return (sic). We appeal on the above grounds."

4. The case for the Appellant was presented by Robert Glynn UK Director of the Appellant who had been with the company since 1990 with the assistance of Ms Baron the Financial Controller who had been with them for over 10 years and who was responsible for the completion of VAT returns and payment. Kim Tilling appeared for Customs.
5. The tribunal was told that the business of the Appellant is in all kinds of springs. It is part of a multi-national group and has a turnover of £70m to £80 million. Its operation is distribution rather than manufacturing.
6. It was submitted that there was no intention to pay late but two fundamental events relating to the computer system had affected the position. First, a business (one of two acquired in 2006 by the Swedish owners of the Appellant) was to be put on the group computer system. This meant that the financial controller was called upon to deal with its accounts to the neglect of those of the Appellant leading to the first of the late VAT payments.
7. Secondly, in 2004 there was a move within the multi-national for all manufacturing plants and sales companies to use the same computer system namely Movex by Intentia. There were flaws, work was required on software and there had been meetings with Customs. An update to the system was instigated in December 2006 and the latest version also installed. It was not anticipated that this would cause problems but in fact Ms Baron found irregularities when completing the VAT return 03/07 and had to refer back to Sweden. There was a wait of a few days and then all EEC purchases for the quarter had to be retrospectively adjusted. The delay in submitting the return and payment had been caused because of the need to rectify the problem and submit correct figures.
8. Mr. Glynn referred me to some tribunal decisions. In Alexander Designs Ltd. LON/88/816 and Alert Security Supplies Ltd. MAN/94/425 delay resulting from the installation of a computer was held to constitute a reasonable excuse and in the latter there were branches in different areas. Reference had been made in the Notice of Appeal to Customs Notice 700/50/04 Default Surcharge and particularly to 4.3 which sets out some factors which would be taken into account when establishing a reasonable excuse, for instance, foreseeability. In 4.2 computer breakdown just before or during the preparation of a return could show circumstances where there might be a reasonable excuse.
9. I have noted the decisions and the provisions in the guidelines. The tribunal does not have the power to mitigate. It is necessary to look at the circumstances giving rise to the defaults. In a number of tribunal decisions problems associated with computer systems have been held not to constitute a reasonable excuse. A taxpayer is to use reasonable foresight and show a proper regard for tax being due. In relation to the first period 12/06 difficulties were experienced in incorporating the business acquired into the existing computer system. The Appellant recognised that its own VAT return would be late as it was by some three weeks. A decision was taken to work on the problems over the time required and in doing so priority was not given to the payment of VAT. I do not accept that there was a reasonable excuse for the default in this period
10. In respect of the second period 03/07 there was an update to the computer system. To my mind in view of the problems which had been experienced with the system and which had occurred over a long period it could have been foreseen that there might be difficulties in incorporating the changes to the system and I do not consider that sufficient time was allowed for any difficulties to be identified and figures rectified to meet the known due date for the submission of the VAT return and payment of the tax.
11. The Appellant was aware of the guidelines of Customs in notice 700/50. These indicated that there would be taken into account by Customs whether help or advice had been sought from them before the due date of the return with payment of a reasonable estimate, and, as Miss Tilling pointed out, adjustment by voluntary disclosure on the next return. These steps were not taken. There was no reasonable excuse for the default in this period.
12. The appeal is dismissed.
13. Customs did not seek costs and I make no direction on costs.

MAN/07/1257

Elsie Gilliland

CHAIRMAN

Release date: 28 March 2008