20713

VAT Default Surcharge – Reasonable excuse – Taxpayer’s accountant submitting return electronically – Received by HMRC at 1.42am on the day after due date – Direct debit to Appellant’s account effected three days later – Whether evidence to support earlier submission or reasonable excuse – Held - No

LONDON TRIBUNAL CENTRE

	GEOFFREY JOHN CLARKE & SHARON JOY CLARKE	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	CHARLES HELLIER (Chairman)
						MRS R S JOHNSON

Sitting in public in London on 5 March 2008

The Appellant in person

Gloria Orimoloye, instructed by the solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	The Appellants appeal against a default surcharge assessed by the Respondents in respect of the period 04/07 (the quarter sending 30 April 2007). The surcharge was assessed at 5% of the late paid VAT for the period.

2.	Section 59 VAT Act 1994 provides that if a person is in default in making payment of VAT or delivering a return then a surcharge may be assessed if :

(i)	there was a default for a previous quarter
(ii)	in respect of that default the Commissioners served a surcharge liability notice specifying a surcharge liability period ending 12 months after the end of that quarter (or so extending a previous surcharge liability period) and 
(iii)	the subsequent default is in respect of a period falling within that (extended) surcharge liability period.

Mr Clarke did not dispute that these three conditions had been satisfied: the Appellants had been late in making payment in respect of the 01/06 quarter and a surcharge liability notice had been served specifying a period ending on 31 January 2007.  There had been a further default within that period and the surcharge liability period had been extended by a further notice so that it ended on 31 October 2007.  The 04/07 quarter fell within that period.

3.	Section 59(1) provides that a person is in default in respect of a quarter if either:

(a)	by the time set by regulations for the furnishing of the VAT return, the return has not been received by the Commissioners; or
(b)	the return has been received but the VAT shown as payable on that return has not been paid by the time the return was due.

Section 59(7), however, provides that a person is not to be regarded as being in default if the tribunal is satisfied either:-

(i)	that the return or the payment (as the case may be) “was despatched at such a time and in such a manner that it was reasonable to expect that it would be received” in time, or
(ii)	there is a reasonable excuse for the return or the VAT due not having so despatched.

But section 71 provides that an insufficiency of funds or the more reliance on another person or that person’s dilatoriness or inaccuracy cannot be a reasonable excuse.

4.	Regulation 25 of the VAT Regulations 1993 provides that a return must generally be made by the last day of the month after the end of the VAT period.  But paragraph (4L) provides that additional time may be allowed for making a return if the payment of the VAT on the return is made electronically.  The Regulation also provides for the return to be made by approved electronic means.  The additional time is as the Commissioners may direct.  In their publications the Commissioners indicate a period of an additional 7 calendar days.

5.	Regulation 40(4) also allows the Commissioners to direct that additional time may be allowed for electronic payments and permits different times for different means of payment. HMRC’s publication “Terms and Conditions Incentives for paying by an approved electronic method” indicates that if payment is made by Direct Debit the payment “will not be collected for a further three working days after the extended due date for receipt of the VAT Online Return”.  We find this to be a direction made under regulation 40(4) that for payments made by direct debit, the time by which the payments must be received is three working days after the 7 calendar days after the end of the month following the relevant quarter.

6.	The Appellants submitted their VAT returns by approved electronic means and paid by direct debit. The direct debits were instigated by the Commissioners following receipt of the return.

7.	For the 04/07 period the Respondents say that the return was received by them at 1.42am on 8 June 2007.  They say therefore that it was 1 hour 42 minutes late and therefore the Appellant was in default.  The receipt of the return instigated a direct debit instruction and three working days after 8 June 2007 i.e. on 13 June 2007 – and one day after the doubly extended due date – the VAT was received.  Thus they say that the Appellant was in default in respect of payment for the period too.

8.	The Appellants retain a bookkeeper, Kay Taylor, to submit their VAT returns.  Following the receipt of the 04/07 surcharge assessment she wrote to HMRC to say that she submitted the return online in the evening of 7 June 2007.  She said she had some initial difficulties accessing the website but persevered and eventually got on to the website at about 10.45pm, entered the details and clicked “submit”.  She “assumed that the site was busy and that it would go through fairly soon – it still had not come up when I went to bed, but I awoke in the early hours so checked and it had gone through – apparently not until 01.42.04 hours on 8 June.  Since as far as I am aware once the submit button has been pressed it is not possible to recall the return and start again I don’t know what else I could have done.”

9.	We did not hear evidence from Kay Taylor but Mr Clarke told us that if she told him something then he believed her.  He found her truthful and she was adamant about her account of what had happened.

10.	Miss Curtis of HMRC’s Reconsideration Team wrote to Mr Clarke on 20 July 2007 in response to a letter describing the problems.  She said that she had contacted the HMRC e-VAT team and been told that the Appellants’ account was logged into at 1.39am on 8 June 2007, the return submitted and received at 1.42am; and that once the submit button is clicked the return is received immediately and it would not be possible for there to be a three hour delay.

11.	Mrs Orimoloye provided us with a witness statement from Kevin Sweeney an officer of HMRC who had been working in the E-Customer Support team.  He explains that he provided Miss Curtis with the information recorded at paragraph 10 above, having obtained that information by interrogating the system audit records.  A printout from those records was attached.

12.	Mr Clarke challenges HMRC’s systems.  He says that they cannot be and are not infallible.  He refers to the well publicised problem HMRC had with the filing of direct tax returns online earlier this year, and to delays in relation to 07/07 and 10/07 in HMRC taking direct debit payments from the Appellants’ account; the 07/07 return was filed online and on time and funds should have been debited on 12 September.  He checked with his bank on that date and the direct debit had not gone through.  He telephoned the VAT helpline.  He was told the direct debit should have gone through.  But it did not go through until 13 September.  Something similar happened in relation to 10/07.  Even HMRC could be wrong.

Discussion

13.	We must base our decision on the facts as we find them on the evidence before us.  We must find the facts on the balance of probability: we must determine what in our judgment and on that evidence is more likely to have happened.

14.	The evidence available to us to do this is all second hand.  We heard no oral evidence: we could not ask questions of Kay Taylor to get a feel for the strength of her evidence – we could not ask why she was up at 1.40 in the morning or when she usually did the returns.  The answers to such questions may have made her statements clearly believable or clearly unbelievable.  We could not ask Mr Sweeney how often the computer went wrong, whether there were problems with the website on 7 June, or whether the audit interrogation was properly performed.

15.	With those constraints in mind we conclude as follows:-

(1)	The 04/07 return was first received by HMRC on 8 June.  There was no indication in Kay Taylor’s letter that it was received before then even if she had attempted to send it before then.  The only evidence as to receipt was that surrounding 1.42 on 8 June.  

(2)	The VAT was received on 13 June.

(3)	On balance it is likely that Kay Taylor failed properly to submit the return before midnight on 7 June. It is possible that she prepared the return before midnight but on balance we find that by oversight or mistake failed to submit it before midnight.  In coming to this conclusion we took into account that we had no explanation for what prompted her actions at 1.40am.

(4)	While we accept that Kay Taylor may have had problems getting into HMRC’s website earlier that evening there was no evidence that it was not available between 10.45 and midnight.  We conclude that it is likely that it was available and that the return could have been submitted in that time.  It seems to us likely that, once on the site, clicking the submit button would deliver the return immediately.

16.	We therefore find that the Appellant was in default in respect of the 04/07 period.

17.	We also conclude that the Appellant had no reasonable excuse for its default.  We concluded that on balance it was Kay Taylor’s oversight or mistake which resulted in the failure properly to submit the return before midnight. That is a reason which can properly be characterised on the dilatoriness or inaccuracy of a person who is relied upon, and which therefore cannot be a reasonable excuse.  Had we concluded that the website was out of action between 10.45 and midnight that might well have founded a reasonable excuse but it did not.  We were not convinced that the problems with other systems operated by HMRC made it more likely that this system was not working.  (Mrs Orimoloye asked us whether we would consider that a taxpayer could have a reasonable expectation that the website would be available for 24 hours each day.  The material produced by HMRC and shown to us did not contain any caveat that might induce a trader to doubt that proposition; many commercial websites are available for 24 hours a day.  Whilst a failure for 5 or 10 minutes might be expected, we thought it would be reasonable to expect the site to be accessible otherwise.)

18.	We therefore dismiss the appeal.  Our decision was unanimous.

19.	As a footnote we would like to say a word about Mr Clarke’s concerns about the late direct debit payment for 07/07 and 10/07.  This is not part of our decision.  Had surcharge assessments been raised for those periods, and on the basis that the returns were properly submitted on time, and had they been appealed, we would have held that the Appellant would have had a reasonable excuse for late payment.  A failure by HMRC to take the direct debit on time would in our view be a reasonable excuse which would not be outlawed by section 71.

CHARLES HELLIER
CHAIRMAN

RELEASED: 18 June 2008

LON 2007/1666