19365

Default Surcharge – Reasonable Excuse – Staff changes – whether reasonable excuse – No.

LONDON TRIBUNAL CENTRE

	TRICOOL ENGINEERING LIMITED	Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	Respondents

Tribunal: 	CHARLES HELLIER
                     				        ELIZABETH MACLEOD CIPM

Sitting in public in London on 9 November 2005.

A.T. Forest, Director,  for the Appellant 

Simon Chambers for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	Tricool Engineering Limited appeals against a 5% default surcharge of £5,988.31 imposed for the period 02/05. The due date for payment was 7 April 2005, and payment was received by the Respondents on 8 April 2005.

2.	We should say at the outset that we found Mr Forest who appears before us for the Appellant to be honest candid and reasonable. We were grateful for the measured and clear way in which he presented his case and the open and honest way in which he answered Mr Chambers’ questions.

3.	The Appellant is a manufacturing company operating in Fareham. It was acquired by Mr Forest and a colleague of his in 2003. Mr Forest was a director of the company at all material times. He worked for the company part-time and was present the company’s offices for 2 or 3 days each week. The company had two directors; the other director did not deal with financial matters, which were principally Mr Forest’s responsibility.

4.	When Mr Forest and his colleague acquired the company in 2003, it had a Financial Controller who was a qualified accountant. He retired soon after the acquisition. He was replaced in early 2004 by a temporary accountant who left on about 21 January 2004 on about one week’s notice. The temporary accountant had been responsible for the preparation of the VAT returns for the periods 08/04 (to 31 August 2004) and 11/04 (to 31 November 2004). Both returns had been submitted late. The 11/04 return should have been submitted by 31 December 2004 and the relevant VAT paid by 7 January 2005: the return was not submitted until 11 January and the VAT not received until 11 January. The temporary accountant had left on or about 21 January 2005.

5.	A surcharge liability notice had been served on the Appellant following the late submission of the 08/04 return, and on the late submission of the 11/04 return a penalty of 2% had been imposed pursuant to section 59(5)(a) VATA 1994. Mr Forest accepted that that penalty had been properly imposed.

6.	The company recruited a new accountant in early February 2005. He is a qualified ACMA accountant. Initially he was engaged from an agency but became a full time employee shortly after starting to work for the company. He was given the position of Financial Controller. Mr Forest supervised him more closely in the early period of his work for the company. The responsibility for ensuring the preparation and submission of the VAT return for 02/05- the period to 28 February 2005 - which was due for submission on or before 31 March 2005 fell principally to the new Financial Controller. This was in the period in which he was getting his feet under the table.

7.	At the relevant time the company had five accounts staff apart from the Financial Controller and Mr Forest. One of those staff, the cashier, would complete the information for, and complete the entries on, the VAT return. The return would then be submitted to Mr Forest for signature. The cashier would have been aware of the obligation to submit VAT returns; she may not have been aware of the precise date by which they had to be submitted but the process of preparing them would have been part of her diary.

8.	Mr Forest freely and fairly accepted that he had a reasonable knowledge of VAT formalities and that he had ultimate responsibility for the timeous submission of VAT returns and payment of VAT. The duties were not factored into his diary but he was on the company’s premises for 3 days in each week and was aware of the time limits.

9.	Mr Forest also accepted that he and other directors were aware of the late payments and submission for 08/04 and 11/04, and that he had seen although may not have appreciated the full significance of the default surcharge notice which warned of the potential future surcharges. Fairly he said that the ramping up of the surcharge percentage had caught him out.

10.	The 02/05 return was due for submission on 31 March 2005. Mr Forest had signed it on 4 April. He recognised that it was late then and that the VAT was due 3 days alter, by 7 April 2005. Had it been paid by that date no surcharge would have been exigible. Mr Forest normally instructed the bank by email to make the relevant payments. He accepted that on this occasion he probably had not given the bank sufficient time and that that was probably a mistake on his part.

11.	Mr Forest accepted that the condition for the imposition of the surcharge were satisfied, but in view of the fact that the payment was only one day late felt the imposition of the surcharge was unfairly harsh in the circumstances.

Our Decision

12.	Our jurisdiction in this matter extends only to the questions of:

(i)	whether the conditions in the legislation for the imposition of the surcharge are satisfied; and

(ii)	whether the company has a reasonable excuse for the return, or the VAT, not having been despatched such as to remove the liability to the surcharge which would otherwise accrue.

	We have no jurisdiction as to the amount of the surcharge (which is prescribed by section 59(5) VATA) and no ability to mitigate it. Neither do we have any jurisdiction to review the administrative actions of HMRC in relation to any surcharge, and their fairness or otherwise.

13.	So far as the matters within our jurisdiction are concerned we find that the conditions in the legislation for the imposition of the surcharge were satisfied, and for the reasons which follow, that the company did not have a reasonable excuse for its failures.

14.	Section 71(1)(b) VATA 1994 provides that:

“where reliance is placed on any other person to perform a task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse.”

The company relied upon Mr Forest and the Financial Controller to prepare and submit the VAT return and pay the VAT. We believe that section 71(1)(b) prevents the company from relying upon their failure as a reasonable excuse for its failure. Further in the circumstances where the company through Mr Forest knew of its obligations, and given the absence of any real excuse for its failure to perform them, the company does not have a reasonable excuse which would absolve it from liability for the surcharge.

The rigid mechanics of the legislation as a result of which there is no possibility for the surcharge to be mitigated in circumstances like this when the VAT was paid only one day late may seem harsh or unyielding, but they are what has been decided by the legislature. Although we sympathise with Mr Forest we cannot vary or remove the surcharge.

15.	For these reasons we dismiss the appeal.

CHARLES HELLIER
CHAIRMAN

RELEASED: 7 December 2005

LON/05/743

££Tricool Engineering Ltd v Revenue and Customs [2005] UKVAT V19365 (07 December 2005)