20954

DEFAULT SURCHARGE – reasonable excuse – electronic payment instruction given to bank less than three working days before extended deadline for payment –– did the Appellant satisfy burden of proof –no–- VATA 1994 s 59(7)

LONDON TRIBUNAL CENTRE

	WOLFE WARE LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	Nicholas Aleksander (Chairman)
					Mr J G Robinson      

Sitting in public in London on 14 January 2009

Mr P Wolfe, director, for the Appellant

Mr J Holl, advocate, instructed by the Solicitor for HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2009

DECISION

The Appeal
1.	This appeal relates to default surcharges for the periods 02/08 and 05/08.
2.	The Appellant, Wolfe Ware Limited was represented by its director, Mr P Wolfe.  Customs was represented by Mr J Holl.  The tribunal gave its decision at the conclusion the hearing of the appeal, and issued a direction recording that decision under Rule 30(8) of the Value Added Tax Tribunals Rules 1986 ("the Rules").  The tribunal has subsequently received a letter from the Appellant expressing dissatisfaction with the appeal process.  We have treated his letter as a request for a reasoned decision and have therefore issued this Decision which sets out the reasons for our determination.
3.	A bundle of documents was produced to the Tribunal by Customs at the hearing. Included in the bundle was a witness statement of Frances Sutton.  Ms Sutton is an officer of Customs based at the VAT Central Unit in Southend-on-Sea and is familiar with the procedures relating to the receipt of electronic payments.  Under Rule 21 of the Rules, a party can serve a witness statement within 21 days of the date of notification of the Notice of Appeal.  If the other party does not object to the witness statement, then it is admissible as evidence of any fact stated therein as if such evidence had been given orally at the hearing.  We noted that this witness statement was dated 12 December 2008 and was therefore too late to be introduced in evidence under Rule 21, as this was more than 21 days after the date of the Notice of Appeal.   We drew this to the attention of the parties, and asked Mr Holl to show Mr Wolfe the text of Rule 21 (which he did).  We asked Mr Wolfe whether he had received a copy of the witness statement in the post under cover of Customs' letter of 17 December 2008 and Mr Wolfe confirmed that he had.  We then asked Mr Wolfe whether he wanted to object to the statement being introduced in evidence and he told us that he did not object.  We therefore accepted the statement in evidence under Rule 28.  The statement, amongst other things, describes the BACS automated payment system, and we note that the description of BACS in the statement is consistent with the tribunal's experience and understanding of the BACS system. 
The background facts
4.	This appeal relates to default surcharges for the late payment of VAT for the periods 02/08 and 05/08.  It is the practice of Customs to allow traders additional time to pay their VAT if the payment is made by electronic means.  If electronic payment is made, the trader has an additional seven calendar days for the payment to be received by Customs (but if the seventh day is a weekend or public holiday, the payment must be received by the preceding working day).   As the Appellant pays its VAT electronically, it was entitled to the seven day extension to the due dates, and the extended due dates for these periods were 7 April 2008 and 7 July 2008 respectively.
5.	Mr Wolfe instructed his bank to make the electronic payments on Friday 4 April 2008 and Friday 4 July 2008 respectively.  He told us that the bank withdrew the amounts of VAT from his account on that day.
6.	The evidence of Ms Sutton is that Customs' account at the Bank of England was not credited with these payments until 8 April 2008 and 8 July 2008 respectively, and extracts from Customs' bank statement showing these payments are exhibited to her statement.  This is one day after the extended due date for payment in each case.
7.	Ms Sutton's evidence is consistent with our understanding of the BACS system, which operates a three working day clearing cycle.  On the first working day (in this case Friday 4 April and Friday 4 July) the instructions are input into the BACS system.  On the second working day (in this case Monday 7 April and Monday 7 July), the various banks involved in making and receiving payments under BACS undertake data processing to allocate the payments and receipts between their customers.  Ms Sutton's statement exhibits copies of the "In Credit Clearing Sterling Listings" provided to Customs by the Bank of England (as banker to Customs) dated 7 April and 7 July respectively, which shows the BACS payments that are due to clear the following working day.  These listings included the payments from the Appellant.  On the third working day (in this case Tuesday 8 April and Tuesday 8 July), the various banks involved in making and receiving payments under BACS set-off the balances that are due between them, and settle the net amounts across their respective accounts at the Bank of England.  Ms Sutton's statement exhibits copies of Customs' bank statements for 8 April and 8 July respectively, and these show the payments from the Appellant as having been credited that day.  In the light of this evidence, we find that the payments of VAT were received by Customs on Tuesday 8 April and Tuesday 8 July respectively.
8.	Mr Wolfe questioned in correspondence why Customs did not participate in the Faster Payments Service which allows for same day clearing of electronic transmission of funds.  The answer given in the correspondence from Customs to the Appellant is that if same day clearance is required, payments need to be made via CHAPS, the same day electronic payment system.  It is a matter of public record that the Faster Payments Service only commenced at the end of May 2008, and would therefore not have been available to the Appellant for the 02/08 period.  We have no evidence as to whether HSBC (the Appellant's bankers) had rolled out the Faster Payments Service to their customers by 4 July 2008, but even if they had, payment of VAT could not be made under this service as the Bank of England (Customs' banker) does not participate in it.  Why the Bank of England does not participate in the Faster Payments Service for its customers is a matter of conjecture, but it might be connected with the fact that it is withdrawing from the provision of commercial banking services to the government and other commercial customers, and during the course of 2009 Customs will be moving its banking business to the Royal Bank of Scotland and Citibank.
9.	Mr Wolfe noted that when he gave his bank instructions to remit the VAT on 4 April and 4 July, the funds were withdrawn from the Appellant's bank account on that day.  He therefore questioned what had happened to that money.  Again, this must be a matter of some conjecture, but from the tribunal's own understanding of the BACS clearance process, it is likely that the funds were held by the Appellant's bankers in some kind of suspense account pending clearing of the BACS payments on 8 April and 8 July respectively.  The evidence before the tribunal (which is consistent with our understanding of the BACS system, and which we accept) is that Customs' bank account was only credited with the Appellant's payments on 8 April and 8 July.
The legislation
10.	Section 59 of the Value Added Tax Act 1994 provides that where a value added tax return, or the tax due, is not received by Customs by the due date the taxable person is in default. A surcharge is imposed for the second and subsequent defaults. The amount of the surcharge is a percentage of the tax paid late. However, section 59(7) provides that a taxable person is not liable to a surcharge if he satisfies the Tribunal either (a) that the return and tax was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by Customs within the appropriate time limit or (b) that there was a reasonable excuse for the delay.
11.	As the Appellant had chosen to make its VAT payments by BACS (and not CHAPS) the payments were subject to a three working day clearing cycle.  It is not possible for a payment to be received via BACS by Customs on a Monday where the taxpayer only gives instructions to his bank to make the payment on the preceding Friday.  The Appellant has therefore not satisfied this tribunal that the tax was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the extended time limit.  Nor has the Appellant advanced any reason why it had a reasonable excuse for the delay.
Our decision
12.	Our decision on the issues for determination in the appeal is that the Appellant did not have a reasonable excuse for the late payment of VAT for the periods 02/08 or 05/08.  This means that the appeal is dismissed.
13.	Mr Holl made no application for costs and we make no order.

Nicholas Aleksander

CHAIRMAN
RELEASE DATE: 18 February 2009

LON/2008/2026