20740

Failure to register timeously:  Penalty calculated on future turnover.  Actual turnover less.  Co-operation of Appellant, prompt accounting once problem recognised; HMRC allowed 50% of penalty mitigation.  Decision to increase mitigation to 70%.

EDINBURGH TRIBUNAL CENTRE

	WILLIAM WHYTE BRYDON	Appellant

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

			Tribunal:	 (Chairman):  Mrs G Pritchard, BL., MBA., WS

Sitting in Edinburgh on Thursday 3 July 2008

for the Appellant		HEARD ON PAPERS ONLY

for the Respondents	Mr Russell Harrison

© CROWN COPYRIGHT 2008.

DECISION

This is an appeal against the imposition of a penalty for failure to register under S67(1) Value Added Tax Act 1994 (VATA 1994).

The Appellant submitted written reasons for his appeal and was not required to attend.  HMRC was represented by Mr Russell Harrison.  HMRC produced a bundle of documents 1-62 which may be referred to.  If so such production will be treated as repeated here.

From the evidence I find as follows:-

1.	On April 2006 the Appellant exceeded the VAT threshold but was unaware of this.
2.	His accountants advised him in July and HMRC on 20 August 2007 of this event.  They sent to HMRC a VAT 1 form requesting a completion date for the first return of 31 October 2007.  They also advised a deregistration might be requested but this has not occurred though the Appellant has completed two Nil returns recently.
3.	The VAT 1 provided a figure of £100,000 as the likely turnover from the date of application 19.08.07 for the succeeding 12 months.
4.	The first Period for VAT purposes is 01.06.06 – 31.10.07 which return showed an output tax liability of approximately £88,000 a significantly lower figure than the anticipated figure of £100,000.
5.	In order to calculate the penalty HMRC used the dates 01.06.06 (start) to 20.08.07 (VAT Voluntary Disclosure) a different accounting period from the return.
6.	By letter dated 6.11.07 HMRC requested the Appellant to provide his net VAT liability FOR THAT PERIOD failing which they would use the VAT 1 suggested turnover.  They pointed out his liability to penalty might be less using actual figures.  The Appellant did not reply specifically to that letter.
7.	On 9 April 2008 HMRC proceeded to the appropriate calculation of penalty using the VAT 1 figure of £100,000 bringing out a VAT figure of £18198.77.  This was NOT the figure paid which was contained in the VAT return for a much longer period.  But it was the one used for calculating the penalty at 10%.  The sum of the penalty is statutory for a declaration within 18 months of the date of failure.
8.	The penalty therefore was £1819.87 and was immediately mitigated by 25% for voluntary disclosure.
9.	The Appellant protested and the penalty was mitigated by a further 25% for a prompt return for the period to 31.10.07.  However the ACTUAL net VAT liability for the penalty period was still not identified by the Appellant which would have reduced the sum on which the penalty was calculated.

Decision and reasons
I mitigate the penalty by a further 20%.

Reasons
In light of knowledge of the actual figures being lower than the anticipated figure for the financial year from 20.08.07, I consider this reasonable.  In a new business it is reasonable to hope the turnover will improve.  I believe the figure was overstated innocently given the statement by the accountants that their client was likely to deregister.  The immediate attention given to the VAT 1, the return and payment indicate the Appellant’s wish to be a careful and sensible businessman but he has lacked proper attention to detail so some penalty is appropriate.  I am not therefore prepared to reduce it to nil as requested.  He can of course still raise the matter of the actual figures if he wishes as the correspondence with HMRC is I understand still open.

MRS G PRITCHARD, BL., MBA., WS

CHAIRMAN

RELEASE:  14 JULY 2008

EDN/08/86