20055

VAT — PENALTIES  —  default surcharge  —  Appellant requesting payment of VAT by instalments  —  finance manager of Appellant unable to attend to submission of VAT return and payment of tax by reason of family illness  —  Appellant in funds to pay tax by due date  —  found by tribunal that return submitted and tax paid late by reason of awaiting response to request for payment by instalments and not by reason of unanticipated absence of manager  —  no reasonable excuse shown  —  appeal dismissed  

MANCHESTER TRIBUNAL CENTRE

 
 	
					ECHO-U LTD	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: Michael Johnson (Chairman)
     Kathleen Ramm FCA

Sitting in public in North Shields, Tyne and Wear on 24 January 2007

David Blakey, director, and Stephen Potts, finance manager, for the Appellant

Bernard Haley, of the Solicitor’s office of H M Revenue & Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	1.	This appeal concerns a default surcharge imposed in respect of the Appellant’s VAT accounting period ending 03/06.  The Appellant is seeking to have that surcharge set aside pursuant to s 59(7) of the Value Added Tax Act 1994 (“the Act”).

2.	David Blakey and Stephen Potts, representing the Appellant, informed us that the amount of the surcharge in dispute was £1,818.  However the bundle of papers handed to us by Bernard Haley, representing the Respondents (“HMRC”) appears to indicate that the correct amount of the surcharge is £1,859.28.  That represents 5 per cent of the value added tax shown as due in the Appellant’s return for its period 03/06.

3.	Both the return and the tax due were admittedly received late by HMRC.  According to the papers provided to us, it appeared that the main reason for the late payment of the tax might have been by reason of the unexpected non-payment to the Appellant of money due from its principal debtor, so that the circumstances might have an apparent similarity to the facts of the case of Commissioners of Customs and Excise v J B Steptoe [1992] STC 757.  The bundle shows (page 15) that Mr Potts was familiar with that case.

4.	However, we were told at the hearing by Mr Blakey and Mr Potts, and we find, that the principal debtor was aware prior to the due date for payment of the tax of the Appellant’s need to pay the tax by the due date, ie 30 April 2006.  That being so, the debtor took pains to make sure that the Appellant was in funds to pay the tax by then.  We find that the Appellant was in funds to pay the tax in April 2006, and could have paid the tax by the due date without problem.  The present is not, therefore, a Steptoe-type case.

5.	Anticipating that the debtor might have trouble making the payment to the Appellant, Mr Potts contacted HMRC to discuss payment of the tax by instalments.  He told the tribunal that he had two conversations with an agent of HMRC during the week commencing 16 April 2006 about that possibility.  He said that he expected to hear back from HMRC, but did not.

6.	In the week commencing 23 April 2006, Mr Potts’ father suffered a collapse and had to undergo surgery for a brain tumour.  At that stage, the uncompleted VAT return was resting in Mr Potts’ inbox for his attention.  Understandably, Mr Potts, who was responsible for the Appellant’s VAT return, took time off from his duties with the Appellant.  He returned to his desk on Monday, 8 May 2006, at which time he again telephoned HMRC in an attempt to further the matter of payment by instalments.

7.	The position, therefore, was that the Appellant had allowed the due date to pass without completing and submitting its VAT return for the 03/06 quarter, and it had not paid its tax by the due date, even though it was in funds to do so, on the basis that it was awaiting an indication from HMRC as to whether payment by instalments would be acceptable.

8.	The case for the Appellant is that the return would have been submitted and the tax paid by the end of April but for the illness of Mr Potts’ father, and that, having regard to the absence from his desk of Mr Potts, the Appellant has a reasonable excuse for its lateness in doing so.  

9.	Not having been given permission to pay by instalments, the Appellant paid its tax in full and submitted its return.  The return was dated 15 May 2006 and it was received on or about 18 May 2006.  The cheque for the tax was dated 15 May 2006 and it was presented for payment on or about 23 May 2006.

10.	For HMRC, Mr Haley submitted that the illness of Mr Potts’ father could not affect the Appellant’s liability for not having submitted its return and paid its tax by the due date.  The amount of the tax, he said, was available to the Appellant to be paid by the due date.  He therefore submitted that there was no reason why the tax should not have been paid in time.  The real reason, he submitted, for the lateness of the return and the tax was that the Appellant was keeping its options open – ideally, it would have liked to have paid by instalments.  But no permission to pay by instalments had been given, and it could not be predicated that it would be given.

11.	For the Appellant, Mr Blakey said that the Appellant always paid its creditors if it could, and it wanted to pay the tax due to HMRC.  Had HMRC responded to Mr Potts’ request to pay by instalments and had declined the request, the return would have been completed and the tax sent off at once, to arrive by the due date.  However there had been no response to the request, and when the illness of Mr Potts’ father happened, he was not in a position to ensure that the return was sent and the tax paid by the due date.  He attended to both these matters on his return, but by then the due date had passed.

12.	We think that at first sight the Appellant’s case that it has a reasonable excuse for its lateness is not unattractive.  However the argument conceals a flaw, which is that the Appellant should not have treated itself as entitled to withhold its return and the tax due pending the receipt of a response from HMRC as to the request for payment by instalments.  

13.	We think that, in the final days of April 2006, the Appellant would have had to send off its return and the tax to meet its legal obligations if by then nothing further had been heard from HMRC.  The Appellant was not entitled to refrain from doing so because HMRC might agree to payment by instalments.  If this were not so, every taxpayer could withhold his tax return and payment in the hope that HMRC would agree to payment by instalments.

14.	We find that the real reason why the return was not sent in time and why the tax remained unpaid was this hope that payment by instalments would be acceptable.  We do not think that Mr Potts’ absence from his desk properly accounts for the non-submission and the non-payment.  Mr Blakey told us that the Appellant was always keen to pay its creditors, and we accept this.  We think that, had the Appellant wanted to fulfil its obligations, apart from the hope of payment by instalments, Mr Potts would have told Mr Blakey to arrange for the return to be submitted and the tax paid by the end of the week commencing 23 April 2006, and that that would have been done.  

15.	In other words, the traumatic circumstances of Mr Potts’ absence are not, we find, the true excuse for the lateness of the Appellant.  We conclude that it was the Appellant’s hope that payment by instalments might still be acceptable that explains the non-submission and non-payment.  That does not, in our opinion, amount to a reasonable excuse, for the reasons we give in paragraph 13 above.

16.	Accordingly we have decided to dismiss the appeal.  The surcharge must stand.   There will be no award of costs.

MICHAEL JOHNSON
CHAIRMAN
Release Date:  20  February  2007
MAN/2006/0683