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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Ultra Sport Europe Ltd (Directors Retirement Benefits Scheme) v Revenue & Customs [2007] UKVAT V20194 (07 June 2007) URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20194.html Cite as: [2007] UKVAT V20194

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20194

MISDECLARATION PENALTY — Appellant failed to declare output tax on a property transaction — Respondents identified the error — misdeclaration penalty imposed mitigated by 25 per cent for unblemished VAT record and prompt payment — Appellant contended that it should be reduced to nil — the circumstances did not justify reduction to nil — applying rationale of Tribunal decisions in Mark Ltd and Moulding Ltd original penalty mitigated by 50 per cent — Appeal allowed in part

MANCHESTER TRIBUNAL CENTRE

ULTRA SPORT EUROPE LTD Appellant

DIRECTORS RETIREMENT BENEFITS SCHEME

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

Sitting in public in Birmingham on 31 May 2007

The Appellant did not appear and was not represented

Kim Tilling, advocate, HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

The Appeal

1. The Appellant was appealing against a misdeclaration penalty in the sum of £4,725 dated 29 December 2006 reduced on review by 25 per cent to £3,543.
2. The Appellant requested for the Appeal to be heard in its absence. The Appellant submitted written representations. The Appellant carried on a business as an administrator of self administered pension schemes. The Appeal related to one of the pension schemes administered by the Appellant.

Background

3. In July 2006 the Respondents carried out a pre-credibility audit of the 04/06 VAT return for PandaHire Ltd. The audit uncovered an invoice dated 14 February 2006 issued by the Appellant for the sale of a property known as Acton House situated in Long Eaton, Nottinghamshire. The sale price was £180,000 with VAT thereon in the sum of £31,500.
4. The Respondents discovered that the Appellant had not declared the output tax due on the sale of Acton House in its 03/06 return. On 17 August 2006 Ms Davies of the Respondents contacted the Appellant regarding the sale of Acton House. The Appellant accepted that it had issued the invoice but failed to declare the output tax due to an oversight. Ms Davies advised that an assessment would be issued for the outstanding VAT plus interest, and that a penalty may also be applied.
5. The Respondents issued an assessment for the outstanding VAT plus interest totalling £32,064.90 dated 17 August 2006. On the 6 September 2006 the Appellant paid the assessment.
6. On 29 December 2006 the Respondents issued an assessment for a misdeclaration penalty in the sum of £4,725. On the 9 January 2007 the Appellant requested a review of the penalty. On the 8 February 2007 the Respondents carried out a review, reducing the penalty by 25 per cent to £3,543 which reflected the Appellant's hitherto good compliance record and prompt payment of the assessment dated 17 August 2006. The Respondents did not, however, consider that the complexity of the Appellant's VAT returns to be a relevant consideration. The Appellant's 03/06 return revealed three sales entries. At the request of the Appellant the Respondents undertook a further review on 21 February 2007. The Respondents confirmed their decision on review to impose a penalty of £3,543.

The Appellant's Representations

7. The Appellant set out its representations in a letter to the Tribunal dated 11 May 2007. The letter confirmed the background to the issue of the misdeclaration penalty. The Appellant stated that in August 2006 after completing the VAT return for the period ending 30 June 2006 the Appellant realised that the VAT from the sale of Acton House had not been declared or paid. The Appellant contacted the Nottingham VAT Office and spoke to Ms Sowter who confirmed that the Appellant would have to pay the outstanding VAT due in the sum of £31,500 plus interest. According to the Appellant Ms Sowter did not advise it about the imposition of a penalty.
8. The Appellant denied that the failure to declare had been an oversight. The failure was as result of the VAT returns for the pension scheme becoming increasingly complex due to the number of transactions on the scheme bank account.
9. The Appellant considered that the imposition of the penalty was unnecessarily harsh given that the assessment was promptly paid and its previous exemplary VAT record. The Appellant requested waiver of the penalty.

Facts Found

10. There was a conflict between the Appellant's and Respondents' accounts of the events leading up to the imposition of the penalty. The Appellant stated that it first raised the issue of the non-payment of VAT on the sale of Acton House with the Respondents. Conversely the Respondents stated that they brought the VAT debt to the attention of the Appellant following their pre-credibility audit of PandaHire Limited. In view of this conflict I required Miss Tilling to make enquiries of the Respondents' records of phone calls. Miss Tilling advised me that the only phone call recorded in August 2006 was the one made by Ms Davies to the Appellant on 17 August 2006. In those circumstances I find that it was the Respondents which brought the VAT debt to the attention of the Appellant.
11. I have examined the Appellant's VAT returns for the periods 03/06 and 06/06 which revealed four and three sales entries respectively. I find from the VAT returns that the Appellant's VAT affairs were not particularly complex.
12. The Appellant submitted that the Respondents did not warn it about the imposition of the penalty. The Respondents relied on the notes of Ms Davies' conversation where she recorded that the Appellant was warned about the possibility of a penalty. Also the notice of assessment contained a reference to a misdeclaration penalty. I find that the reference to the penalty on the notice was not obvious and the significance of it would not be appreciated by a person unfamiliar with the intricacies of VAT. I have, however, no reason to question the accuracy of Ms Davies' notes. In those circumstances I find that the Appellant was informed about the possibility of a penalty but probably did not appreciate the consequences of what was being said to it.
13. The Appellant pleaded that its directors were not VAT experts and would not be aware of the specific legal provisions dealing with VAT.
14. It was common ground between the parties that the Appellant had hitherto an unblemished VAT record and that it promptly paid the outstanding VAT plus interest when served with the assessment.

Reasons for My Decision

15. The Appellant understated its liability to pay VAT in its 03/06 return. The size of the understatement (£31,500) exceeded 30 per cent of the gross amount of VAT for that period. Under section 63(1) of the VATA 1994 the Appellant was, therefore, liable to pay a misdeclaration penalty of £4,725 representing 15 per cent of the VAT which would have been lost if the inaccuracy had not been discovered.
16. Under section 63(10) the Appellant can avoid the penalty if it can demonstrate on the balance of probabilities that it had a reasonable excuse or that it furnished the Respondents with full particulars of the error at a time when it had no reason to believe that enquiries were being made in its tax affairs by the Respondents.
17. Reasonable excuse is strictly construed and relates generally to situations beyond the control of the tax payer. Ignorance of the law relating to VAT cannot amount to a reasonable excuse. I am satisfied on the facts found that the Appellant does not have a reasonable excuse. Equally the Appellant cannot rely upon the other limb of section 63(10) because it was the Respondents that first highlighted the error.
18. Under section 70 of VATA 1994 the Respondents and the Tribunal have powers to reduce the penalty to such amount (including nil) as they think proper. The power to mitigate the penalty is wider than the concept of reasonable excuse. However, section 70(4) excludes specific matters from constituting mitigation. They are insufficiency of funds, no significant loss of VAT, and acting in good faith.
19. The Appellant's unblemished VAT record and its prompt payment of the VAT debt are matters that can amount to mitigation. The Respondents have already taken these matters into account by exercising their discretion to reduce the penalty by 25 per cent. The question, therefore, is whether a 25 per cent discount is sufficient to reflect the mitigating factors. The Appellant has submitted that the penalty should be reduced to nil.
20. I am not persuaded by the Appellant's submission. The Appellant made a substantial error in the context of its overall VAT liability. The VAT related to a single transaction which should have been identified. The Appellant has not put forward a cogent reason why it did not include the VAT in its 03/06 return. However, its unblemished VAT record is powerful mitigation. De Voil Indirect Tax Service cites two Tribunal decisions Robert S Mark Ltd v Commissioners of Customs and Excise (1995) Decision No. 14346 and R Moulding (Plant) Ltd v Commissioners of Customs and Excise (1997) 15102 where the Tribunal had regard to the taxpayers unblemished record. In Robert S Mark Ltd the Tribunal reduced the penalty by 50 per cent, whilst in R Moulding (Plant) Ltd the reduction was 70 per cent. Having weighed up all the factors in this case I consider that a reduction of 50 per cent of the original penalty is appropriate.

Decision

21. I, therefore, allow the Appeal in part by mitigating the original penalty of £4,725 by 50 per cent which leaves a penalty in the sum of £2,362.50. I make no order for costs.

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 7 June 2007

MAN/07/0250