20037

Failure to file VAT  returns - Appeal against misdeclaration penalty for reasonable cause - Appeal dismissed

BELFAST TRIBUNAL CENTRE

	ANNETTE MURPHY T/A ALTERED IMAGES	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	IAN W HUDDLESTON (Chairman)
						MISS PATRICIA GORDON					

Sitting in public in Belfast on 27 October 2006

Mr Richard Ruddell (Accountant), for the Appellant 

Mr F Phillips, BL, instructed by the Solicitors Office of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

	Appeal

1.	This is an Appeal against the upholding, on review, of a misdeclaration penalty.  The original misdeclaration penalty applied was £3,887 but, on review, a 20% reduction by way of mitigation was applied leaving a balance of £3,106, due and owing to Customs on foot of the Penalty Notice served on the Appellant.  The Appellant appealed, seeking further mitigation or cancellation of the penalty, on the grounds set out below.

	Facts

2.	The Appellant’s case for reasonable cause rested on the fact that her previous accountant (a Mr. F.D. Nixon) had been relied upon to submit all proper VAT returns for the period from the date of her VAT registration on 01 April 2001 to 31 December 2003.  At that point the Appellant appointed a new accountant, Messrs. Ruddle & Co., who, assuming that all previous returns had been completed and lodged with HMRC, completed a return for the VAT period 01.01.04 to 31.05.04.  It was after the 01 April 2004 return was lodged that a VAT assessment was raised for under declared VAT of £25,891, together with a misdeclaration penalty of £3,883 (the penalty being that which was subsequently reduced to £3,106 on review).

	Grounds of Appeal

3.	Evidence was given to the Tribunal regarding the Appellant’s reliance on her former accountant and her belief that the VAT records of the business had been properly maintained and all returns made on her behalf.  It was also put before the Tribunal that during the relevant period the Appellant had been undergoing an acrimonious divorce, running her business at the same time as trying to raise four children.  It was suggested that these personal difficulties justified an increased reliance on her former accountant.

4.	After the discovery of the issue, all VAT was paid in full and the Appellant subsequently de-registered on the basis that her business, although continuing, was continuing at a much reduced level.

	Decision

5.	Section 63 of the Value Added Tax Act 1994 provides the mechanism for the calculation and the application of penalties in cases of misdeclaration or neglect.  Whilst the Tribunal accepted entirely that the Appellant had acted in good faith in her reliance upon her former accountant, it was nonetheless clear to the Tribunal that a misdeclaration penalty notice was appropriate on the facts of this case.  That penalty notice had been already reviewed by the Respondents and had been reduced by 20%, to its current level of £3,106.  The question for the Tribunal, therefore, was whether the circumstances of the case justified the exercise of the Tribunal’s discretion (given to it by Section 70(2) VATA 1994) to cancel or further reduce the penalty.

6.	Whilst the Tribunal had sympathy for the Appellant’s position, nonetheless it did feel constrained in the exercise of that discretion by virtue of the provisions of Section 70(4), which made it clear (per sub-section (4)(c)) that the Tribunal should not take into account

“the fact that the person liable to the penalty …………… has acted in good faith.”

It seemed very clear to the Tribunal that Mrs. Murphy had relied on her former accountant, that reliance, albeit in good faith, was not something which constituted a reasonable excuse and, accordingly, her Appeal would be dismissed.

7.	No order as to costs.

IAN HUDDLESTON
CHAIRMAN

RELEASED:  6  March  2007

LON/2006/543