20357

DEFAULT SURCHARGE – Reasonable excuse – Partnership – Illness of partner – Other partner unaware that return due – No reasonable excuse for default – No unavoidable event depriving Appellants of means to pay later returns – Appeal dismissed

LONDON TRIBUNAL CENTRE

	MR & MRS BRUNSWICK T/A THE BULL INN	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	THEODORE WALLACE (Chairman)
						MRS E M McLEOD, CIPM

Sitting in public in London on 11 July 2007

The Appellants appeared in person

Jonathan Holl, advocate, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	This was an appeal against a surcharge of £1,224.61 for late payment for period 10/06 and further surcharges for periods 01/07 and 04/07. The latter were not covered by the notice of appeal but we agreed to hear them.

2.	The Appellants accepted that all the payments were late. When the 10/06 payment was due the Appellants had the money but Mrs Brunswick who handled the accounts and returns was ill. When the other two payments were due the Appellants had a cash problem.

3.	The Appellants registered for VAT from 30 July 2002 having taken on the lease of the pub which was run down. They have put substantial money into improvements and the business has expanded to a turnover of £350,000 annually.

4.	Prior to 10/06, defaults were recorded for 10/03, 04/04, 07/04, 10/04, 07/05 and 10/05.

5.	The accounts and VAT are handled solely by Mrs Brunswick who uses a Sage 50 accounts package.

6.	Mr Brunswick is a chef by training and runs the kitchen. Mrs Brunswick is the front of house manager apart from handling the accounts. Mr Brunswick orders supplies and sets prices for food and drink.  Mrs Brunswick does the daily cashing up, entering sales onto the computer. Mr Brunswick is wholly unfamiliar with the computer.

7.	Mrs Brunswick did not inform her husband of the previous default surcharges incurred and he was unaware that they had been paid.  He did not know when VAT returns were due and did not know that the Appellant was in a surcharge period.

8.	The latest possible date for despatch of the 10/06 return was 29 November 2006.  Mrs Brunswick had the necessary material on the computer and the funds were available.

9.	She experienced ongoing back problems with her sacrum since she was eighteen.  She had been prescribed painkillers but had not seen a specialist.

10.	In November 2006 she suffered more severe back problems than before but continued working.  On 25 November she developed influenza.  This was a Saturday.  She had shivers and hot and cold flushes.  Her mother collected her from the pub in Wokingham and took her home to Fleet.

11.	Mr Brunswick was unaware that the VAT return was due in a few days.  Early in the following week, he asked a retired bank official for help with the computer but he could not work out how the computer functioned.  In any event they were not addressing the VAT problem because Mrs Brunswick had still not drawn her husband’s attention to the VAT return.

12.	Mrs Brunswick returned from her mother on 9 December 2006.  She wrote to Customs that she sent the return and payment on 15 December.  Customs recorded it as received on 22 December.

13.	This was an unusual case.  If Mrs Brunswick had been a sole trader we would have accepted her illness as a reasonable excuse.  The fact is however that there were two partners.  The division of work with Mrs Brunswick handling the accounts was perfectly sensible.  We accept that Mr Brunswick did not know how to operate the computer : that itself is not a matter for criticism.

14.	However we consider that Mr Brunswick’s total lack of knowledge as to the partnership’s VAT position was not reasonable.  He knew that they were registered for VAT because he said that he included VAT when working out the prices charged for food. He apparently sought to wash his hands of any responsibility for VAT.

15.	Mrs Brunswick readily admitted that she had not told him about the surcharges.  When the return should have been sent, she was clearly feeling very poorly with severe back pain and influenza.  However she sent no message from her mother’s house to warn her husband that the VAT return was due.  It may be that since the previous three returns were on time, she had forgotten that there was still the risk of a 15 per cent surcharge on the return due in November.  However the return was still due.  If she had warned her husband, he could have contacted the VAT office and no doubt would have been advised to make an estimated return with a payment.

16.	We have considerable sympathy for the Appellants’ position since Mrs Brunswick’s illness must have caused other problems in running the business, if only cashing up and paying other bills.  Nevertheless we cannot accept that it was reasonable for Mr Brunswick to leave himself in a state of total ignorance as to the VAT position or for Mrs Brunswick to leave him in such a state of ignorance.  We formed the view that Mr Brunswick was not unintelligent.  He wrote a number of clear letters and spoke articulately at the hearing.  He and his wife run a successful small business.  We do not accept that the Appellant partners have established a reasonable excuse for the first default.

17.	We now turn to the later defaults.  Mrs Brunswick was fully recovered when the 01/07 return was due, however the Appellant did not have the cash until a week later.  Mere shortage of funds is not a reasonable excuse.  No cause of the shortage was identified except the sharp increase in licensing costs and the sharp rise in utility bills.  Most purchases were cash on delivery, but there were no credit sales all being cash or by credit card.  We were told that there is a five day delay in receiving the money for credit card purchases.  Turnover over Christmas and the New Year was no higher than a year earlier.

18.	The Appellant showed no unforeseeable or unavoidable event depriving them of the means to pay the VAT due either for 01/07 or 04/07.  Trading was difficult but so it was for many small businesses.

19.	It appears that Mrs Brunswick was ill again when the 04/07 return was due.  That however was not the cause of the default.  Mr Brunswick was by then fully aware that VAT returns had to be made.  The problem again was insufficiency of  funds which is not itself an excuse.

20.	The Appellants complained about the severity of the surcharges and the serious effect on their business.  The surcharges are under an Act of Parliament which is specifically intended to penalise late payments unless there is a reasonable excuse.  They were unfortunate in that one more return in time would have taken them out of the surcharge régime.  However that is the régime.

21.	The appeals are dismissed.

THEODORE WALLACE
CHAIRMAN

RELEASED: 28 September 2007

LON 2007/0765