[2013] UKFTT 213 (TC)
TC02627
Appeal number: TC/2011/05540
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VAT – default surcharges
–reasonable excuse – appeal dismissed
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FIRST-TIER TRIBUNAL
TAX CHAMBER
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PRIME & CO
(a partnership comprising Andrew Stevenson and
Elizabeth Stevenson)
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Appellants
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-and-
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THE
COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS
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Respondents
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TRIBUNAL:
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JUDGE KEVIN POOLE
TERENCE BAYLISS
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Sitting in public in Birmingham on 7 December 2012
Andrew Stevenson, partner in
the Appellant firm, for the Appellants
Harry Jones, Presenting Officer
of HM Revenue and Customs, for the Respondents
©
CROWN COPYRIGHT 2013
DECISION
Introduction
1.
This appeal relates to default surcharges totalling £6,761.69 imposed in
respect of late payment of VAT for the periods 02/08 to 11/10 inclusive.
2.
The Appellants claim to have a reasonable excuse for the defaults, based
on an insufficiency of funds attributable to events outside their control,
namely two burglaries at their business premises and a long history of
incompetence, mismanagement and unlawful acts on the part of HMRC and its
predecessor body HMCE. In this decision, “HMRC” refers to both bodies.
The facts
3.
The history of the Appellants’ VAT default record is long. The defaults
originally arose as a result of burglaries at their business premises in 1993.
An account of the history of matters up to September 2000 was contained in a
decision of the VAT and Duties Tribunal released on 5 April 2001 (VATD No.
17166). In that decision, the VAT and Duties Tribunal allowed the Appellants’
appeal against a large number of VAT default surcharges for periods up to
05/99.
4.
In the 2001 decision, it was made clear that a very significant part of
the reason for the Appellants’ defaults was the unhelpful, uncooperative and, at
times, incompetent action of HMRC. There were difficulties in establishing the
correct state of the Appellants’ VAT account with HMRC due to the destruction
of the Appellants’ records and HMRC’s inability or unwillingness to provide
full and accurate information. The actions of the bailiffs of HMRC’s Debt
Management Unit were particularly highlighted, the Tribunal observing that
“most if not all of the distraints were for greater amounts than have turned
out to be due at the times when they were distrained for”.
5.
The Appellants’ VAT problems led to a number of other difficulties.
Because they were unable to piece together their VAT account, they were unable
to produce audited accounts for either the Law Society or their bankers. Their
overdraft facilities were badly affected. They had to meet business expenses
(including making payments to HMRC’s bailiffs which were subsequently found to
have been excessive) using personal credit cards and premature encashment of
personal investments. Long term personal financial planning for retirement was
completely undermined.
6.
Following the Tribunal decision in April 2001, it was agreed that the
Appellants’ VAT account should be revised again on the basis of that decision,
in order to provide a firm agreed starting point going forward. In spite of
extensive correspondence, it was not possible to reach agreement. We note
however that by 2002 the parties were only some £2,000 apart and therefore we
do not see why it should not have been possible to produce audited accounts
with an appropriate reserve or contingency to cover the difference, which would
have unlocked the bank problems.
7.
In fact arguments over the draft VAT account carried on. The Appellants
had been able to file their VAT returns and pay on time, by and large, from
2001 up to 2007. Mr Stevenson explained they had only managed this by expanding
the business and using the corresponding increasing cash flow to keep up – just
– with the current VAT liabilities.
8.
Mr Stevenson said it was only when the recession started to bite in 2008
that this tactic failed. Levels of work dropped off and from period 02/08 the
Appellants were unable to pay their VAT due to the cumulative effect of the
previous 15 years’ financial damage, ultimately attributable to HMRC’s
mistakes, incompetence and worse over the intervening period. He relies on the
principle enunciated in HMCE v Steptoe [1992] STC 757 (Court of Appeal).
9.
There is no dispute as to the calculations underlying the surcharges
which HMRC say is due or the lateness of the payments. The sole issue is
whether the Appellants have a reasonable excuse for the delays.
10.
The defaults in question were for periods 02/08 up to 11/10, resulting
in total surcharges of £6,761.69.
The law
11.
We do not set out the legislation in full as there is no dispute between
the parties as to its content or effect.
12.
The relevant part of section 59 Value Added Tax Act 1994 (“VATA 94”)
provides as follows:
“(7) If a person who, apart from this subsection, would be
liable to a surcharge under subsection (4) above satisfies the Commissioners
or, on appeal, a tribunal that, in the case of a default which is material to
the surcharge –
(a) the return or, as the case
may be, the VAT shown on the return was despatched at such a time and in such a
manner that it was reasonable to expect that it would be received by the
Commissioners within the appropriate time limit, or
(b) there is a reasonable excuse
for the return or VAT not having been so dispatched,
he shall not be liable to the
surcharge….”
13.
The sole issue is whether, in the light of section 71(1)(a) VATA 1994,
the Appellants are able to satisfy this Tribunal that there is a reasonable
excuse for the late payment of the VAT. Section 71(1)(a) provides as follows:
“(1) For the purposes of any provision of sections 59 to 70 which
refers to a reasonable excuse for any conduct –
(a) an insufficiency of funds to
pay any VAT due is not a reasonable excuse…”
14.
This provision was considered in Steptoe and the following gloss
was placed upon it:
“If the exercise of reasonable foresight and due diligence
and a proper regard for the fact that the tax would become due on a particular
date would not have avoided the insufficiency of funds which led to the
taxpayer’s default, then the taxpayer might well have reasonable excuse for
non-payment, but that excuse would be exhausted by the date on which such
foresight, diligence and regard would have overcome the insufficiency of
funds.”
Discussion and conclusion
15.
We note that the burden lies on the Appellants to satisfy the Tribunal
that they have a reasonable excuse for the late payments.
16.
In a situation where the Appellants had been able to make the
appropriate payments of VAT broadly on time over the period from 2001 to 2007,
it will be extremely hard for them to establish that they have a reasonable
excuse, largely referable back to the events before 2001, for a new chain of
defaults commencing at the start of 2008.
17.
We acknowledge that HMRC did not perform well after the 2001 decision.
However the only outstanding issue with HMRC during that period was the
agreement of a running account – on which the parties were only some £2,000
apart as early as 2002. On that basis, we see no reason why the Appellants
should not have been able to prepare audited accounts, even with such a
provision, in order to unlock bank facilities at a much earlier stage.
18.
Therefore whilst we have a great deal of sympathy for the Appellants on
account of their earlier treatment at the hands of HMRC, we do not find it
possible to satisfy ourselves that the necessary causal link has been
established between those earlier events and the defaults which started in
early 2008. If follows that we do not consider the Appellants have a
reasonable excuse for the defaults and the surcharges must therefore be upheld.
19.
The appeal is dismissed.
20.
This document contains full findings of fact and reasons for the
decision. Any party dissatisfied with this decision has a right to apply for
permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. The parties are referred to “Guidance to accompany a Decision from
the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this
decision notice.
KEVIN POOLE
TRIBUNAL JUDGE
RELEASE DATE: 4 April 2013
