Tanfern Ltd v Customs and Excise [2005] UKVAT V19008 (1 April 2005)

19008
DEFAULT SURCHARGE – Reasonable excuse – Christmas shut-down blamed for non-payment – Whether reasonable excuse – No – Appeal dismissed

LONDON TRIBUNAL CENTRE

	         TANFERN LTD	Appellant

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:        STEPHEN OLIVER  (Chairman)
					             R S SURI		 

Sitting in public in London on 16 March 2005

The Appellant did not appear

Phillip Webb for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	Tanfern Ltd appeals against two default surcharges.  The first, at 15% and amounting to £1,379, relates to the one month period of November 2003.  The second, at 15% and amounting to £539.90, relates to the January 2004 period.  

2.	Tanfern Ltd was duly notified of the hearing date by letter from the Tribunal of 6 December 2004.  A letter from Tanfern dated 10 March 2005, and signed by Bryan L Griffiths, (received on 14 March 2005) states that –

“I am writing to advise you that I am unable to attend the hearing scheduled for 16 March and that the Tribunal will have to hear the case in my absence.”

3.	In the light of the above letter, we decided to proceed under Rule 26(2) of the Tribunals Rules and hear the appeals.  

4.	The Notice of Appeal states, as the grounds of appeal –

“That three unreasonable penalties have been levied for the late clearance of a cheque.”

A letter of 11 May 2004, referred to in evidence for the Commissioners, and signed by Mr Griffiths states:

“I am writing in response to your Demand Notice for Immediate Payment.  I would draw your attention to a telephone conversation we had with your office regarding your Notice of Unpaid Cheque, when we advised you that this was due entirely to the Christmas shut-down.”

5.	The explanation given by Tanfern for the “Unpaid Cheque” does not indicate whether it relates solely to the November 2003 period or to the January 2004 period as well.  

6.	On 24 May 2004 the Commissioners responded to Tanfern’s letter of 11 May.  The letter explains why the Commissioners do not accept Tanfern’s explanation as a reasonable excuse within the terms of the law.  The letter acknowledges that Mr Griffiths had telephoned the Southampton Debt Management Unit on 19 January 2004 and that he had explained that due to the office being closed over the Christmas period incoming funds were delayed.  The comment by the Commissioners to that explanation was that Christmas is a foreseeable event and that it is the responsibility of the directors of the company in question to ensure that sufficient funds are available in the bank account on the due date to meet the VAT payment.

7.	Without more we are unable to accept that the reason put forward by Tanfern does amount to a reasonable excuse. We agree with the Commissioners that Christmas is a foreseeable event.  The trader, Tanfern, should have ensured that there were available funds to meet the VAT payment obligations. This is all the more significant because Tanfern makes monthly returns.  The only inference that we can draw is that Tanfern was short of funds on the dates for payment in relation to the November 2003 and January 2004 periods.  Shortage of funds is not a reasonable excuse : see VAT Act 1994 section 71(1)(a).  On those grounds therefore we dismiss the appeal.

8.	We turn now to Tanfern’s contention that the penalties were unreasonable having been levied for the late clearance of a cheque.  This is something that we cannot take into account in determining the appeal.  The regime is tough.  It is laid down by Act of Parliament and we are given no discretion to mitigate it.  We refer to an explanation given in Greengate Furniture Ltd (2003) VAT Dec 18280.  In that decision the following comment is made:

“96.	It is clear that the system of penalties is necessary to ensure compliance and that, given that some 12%-14% of the 1.7 million registered traders still default in any one year, a system of surcharges is necessary based on the automatic assessment of penalties in giving fact situations.  A tax based penalty in which the percentage depends on the number of defaults is a logical system which takes account of two important aspects of the gravity of the infringement – the amount of tax involved and the compliance record of the trader.”

We cannot, therefore, take into account the alleged unreasonableness of the penalty in determining Tanfern’s opinion.

9.	Appeal dismissed.

STEPHEN OLIVER QC
CHAIRMAN
RELEASED: 1 April 2005

LON/04/1167