20893

VAT – misdeclaration penalty – reasonable excuse – mitigation - validity of assessment – appeals dismissed.

MANCHESTER TRIBUNAL CENTRE

RICHARD SADLER
T/A WARMFIELD GROUP
		Appellant

-and-

             HER MAJESTY’S COMMISSIONERS OF
             REVENUE AND CUSTOMS
			Respondents

Tribunal: Richard Barlow (Chairman)
      Alban Holden (Member)						

Sitting in public in Manchester on 25 September 2008.

Mr John Fisher of VAT Support for the Appellant

Mr Richard Chapman counsel, instructed by the Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2008

DECISION

1.	The appellant appeals against an assessment for £86,625 issued in respect of the period ending April 2004 and a penalty under section 63 of the VAT Act 1994 in the sum of £11,044 being a misdeclaration penalty in respect of the sum assessed.  The penalty was originally £12,993 being 15% of the assessed sum but that was mitigated by a 15% reduction allowed by the Commissioners under section 70 of the Act to reflect the appellant’s good compliance record in the three years before the penalty was imposed.

2.	£82,250 of the assessment arose from a single transaction in relation to the sale of land in respect of which the appellant had exercised an option to tax.  The land was bought in the tax period ending April 2004 and the appellant claimed input tax in respect of the purchase.  He failed to account for the output tax on a corresponding sale of the land at the same value.  He had made a profit indirectly relating to the same transaction by way of consultancy fees.

3.	The appellant’s business is mainly the purchase and sale of land and he told us his turnover is expected to be £22million in his next financial year.  The turnover largely arises from five or six transactions a year of the type giving rise to this appeal, though the appellant also receives consultancy fees.

4.	The appellant does not dispute he had a liability to pay £86,625 but he asserts that £82,250 of that assessed sum had been the subject of a voluntary declaration and so the assessment should only have been for £4,375.  The voluntary declaration the appellant claims to have submitted also included some small amounts relating to earlier periods which is why it is not for £82,250 and is for £82,635.

5.	A correction for the smaller amounts included in the voluntary declaration the appellant claims to have made could have been made on a VAT return and it is the £82,250 which meant that he was required to make such a declaration.

6.	It is possible that the output tax of £82,250 should have been accounted for in the return for the period ending July 2004 as the sale of the land was at a reduced price compared with the sum initially invoiced and a credit note was issued and the invoice for £82,250 was possibly issued in the period ending July 2004 though we note that on the purported voluntary disclosure the appellant has declared that sum in the April 2004 period.

7.	We are quite satisfied that if the assessment is valid it was properly issued in respect of period ending April 2004 in exercise of best judgment by the Commissioners.

8.	The appellant’s argument about the validity of the assessment is, as we have mentioned, really a question depending first on whether the voluntary disclosure was validly made.  It is unclear whether making a voluntary disclosure precludes the issue of an assessment for the same amount but we do not need to decide that question unless a voluntary disclosure was validly made, so we will address that question first.

9.	The appellant was told by his accountant, in a letter dated 23 March 2005, that he had not accounted for the output tax of £82,250 and that it should be “declared to the VAT office” on form 652.  The form 652 that was produced to us is dated 19 May 2005.

10.	Regulation 35 of the VAT Regulations 1995 provides the procedure for making voluntary disclosures.  It requires a person who is correcting an error not covered by regulation 34 (which deals with smaller errors) to “correct it in such manner and within such time as the Commissioners may require”.        

11.	Form 652 states in two places on its face that the form must be submitted to “the Local Vat Office (not the VAT Central Unit)”.  That fact was also implied by the accountant’s letter we have already referred to.  The VAT return envelopes also make it clear that they should only be used for returns and not for other correspondence.  The appellant’s evidence was that his secretary posted the form 652 with the VAT return or, as he later said, possibly in a separate envelope but certainly to the VAT Central Unit.  We accept on the balance of probabilities it was so posted.

12.	However, that does not amount to correcting it in the manner required and so there was no valid voluntary disclosure in this case and the assessment is valid whatever the position might be if there had been a valid voluntary disclosure and an assessment at the same time.

13.	We were asked to hold that the misdeclaration penalty should be further mitigated or that there was a reasonable excuse for the original error.  The mitigation already allowed was, as we have mentioned, for general good compliance.

14.	The appellant’s case so far as reasonable excuse and mitigation are concerned is the same, namely that the transaction was complex and that he merely overlooked the need to account for output tax on it.  We note that he had not overlooked the opportunity to claim input tax in respect of it and we can see no basis for either mitigation or reasonable excuse.  The transaction was not complex as far as VAT was concerned.  The appellant was able to deal with the adjustment of the price for the land by a credit note and the issue of a new invoice and there was nothing complex about accounting for tax on the new invoice by recording it in the records in just the same way as any other invoice.  Given that the appellant only conducts a few transactions a year and given the obvious need for care in accounting for these large transactions, we have no hesitation in upholding the penalty as mitigated by the Commissioners without further mitigation.  We find there was no reasonable excuse.

15.	The appeals are dismissed.  Mr Chapman did not ask for an award of costs and we make no order.

Richard Barlow
CHAIRMAN

Release date: 11 December 2008

MAN/07/1106
MAN/07/0985