20899

Value Added Tax  -  Default Surcharge  -  Late payment resulting from unexplained systems error following the take-over of the Appellant company and the operation of payment systems by a new consultant accountant  -  Appeal allowed

LONDON TRIBUNAL CENTRE

	SECURITY SHREDDING SOLUTIONS LIMITED	           Appellant

- and -

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

Tribunal: HOWARD M NOWLAN (Chairman)
              MRS NORAH CLARKE (Member)

Sitting in public in Cardiff on 6 November 2008

Mr. S. Burton, consultant accountant to PHS Group PLC on behalf of the Appellant

Mrs. Crinnion of the Solicitor's Office of HMRC on behalf of the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	This was a default surcharge appeal in respect of the very significant sum of £23,275.92, charged at the 15% rate, charged because the Appellant's VAT liability for the period 03/08 was paid 22 days late.

2.	The Appellant company had been subject to default surcharges on nine precious occasions, most of them involving a charge at the 15% rate. The history, however, had had nothing to do with the default involved in the present appeal, because the company had been acquired by PHS Group PLC, along with two other companies that were also acquired, all on 4 April 2008. We were told that the feature that all three acquisitions were completed on 4 April resulted from the fact that all the various different vendors wished to effect their sales before the removal of the effective 10% rate of tax on "business asset" gains for capital gains purposes. 

3.	The result of the acquisition was that the directors of the Appellant company all of course resigned on the sale, so that the purchaser had to take over the management of the Appellant company, and the other two companies acquired, and in the case of the Appellant, the purchaser had to arrange for the payment of the VAT liability for the period 03/08 by 30 April, or by 7 May were the payment to be made electronically. 

4.	In view of the amount of work involved in commencing to manage the three companies acquired, PHS Group PLC had re-engaged the services of Mr. Salmon, an experienced accountant who they had used in the past, and it was Mr. Salmon who was principally responsible for ensuring that the three newly acquired companies were brought within the management and administrative structure of PHS Group PLC. Mr. Salmon only commenced his engagement in March. One of his first tasks was to go to the Appellant's premises and obtain (principally from the Appellant's outside accountants) the figures for the Appellant's VAT liability for the period 03/08.    

5.	Although Mr. Salmon had had some difficulty in compiling the figures, and had not found the Appellant's systems particularly satisfactory, he managed to complete the VAT return and signed in on 30 March and brought it back to the PHS Group offices with a view to filing it and arranging payment. The practice in the PHS Group PLC was for the parent company to make all payments on behalf of subsidiaries and then reflect the payment by way of an intra-company charge for the amount paid on behalf of the relevant subsidiary, notwithstanding that in early April 2008 the three new companies had not been brought within the parent company's group registration for VAT purposes. With a view thus to arranging payment, Mr. Salmon asked colleagues how to ensure that the parent company made an electronic payment to satisfy the Appellant's VAT liability for the period and was told that he should fill in a particular form and pass it to a particular individual who was responsible for making such payments. Something went wrong with the administration on this first occasion on which Mr. Salmon sought to procure the making of a payment because although he completed the form and put it in the "in basket" or on the desk of the relevant individual responsible for making payments, the form somehow disappeared, the payment was not made and the individual responsible for making payments said that she had not received the form. As soon as PHS Group and Mr. Salmon were notified that payment had not been made, they immediately made payment by a CHAPS transfer, and appealed against the surcharge. 

6.	Whilst we accept that innocent and understandable mistakes will generally not provide a reasonable excuse for the late payment of VAT, we consider that in this case the fact that Mr. Salmon had only recently been engaged by the PHS Group and had never before had to action a payment by that company's finance department and the fact that Mr. Salmon and PHS Group were also grappling with the administrative difficulties of coordinating the systems of the three new acquisition with those of the parent company do provide a reasonable excuse for the entirely innocent late payment of the VAT. Our decision is in no way based on the fact that it would be unfair for the new parent company to suffer from the 15% rate of surcharge applicable to the Appellant and from the Appellant's own notably poor record in paying its VAT on time, but we do note that it is the very fact of the acquisition that is likely in this case to turn a poor payer into an efficient and prompt payer. It would accordingly seem slightly perverse for the hand-over difficulties that have occasioned the mistake and the late payment in this case to result in a very large penalty on the Appellant, and in substance on its new parent company, largely on account of payment failures in the past that the acquisition should put an end to. 

MR HOWARD M NOWLAN
CHAIRMAN
  RELEASED: 15 December 2008

LON/2008/1981