[2012] UKFTT 130 (TC)
TC01825
Appeal number:
TC/2011/05194
Permission
to appeal out of time – appeal against VAT default surcharge – cause of cash
flow problems amounting to reasonable excuse – appeal allowed
FIRST-TIER TRIBUNAL
TAX
IAN
GREER T/A
RAINBOW
SIGNS AND
MAINTENANCE
Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
J. BLEWITT (JUDGE)
Sitting in public at Belfast on 15 November 2011
Mr Greer, the Appellant was
unrepresented
Mr Donnelly, instructed by the
General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal against the VAT default surcharge for the period 11/10 in the sum
of £984.26.
2. The
first issue before the Tribunal was whether to allow the appeal which was made
out of time to proceed. Mr Donnelly, on behalf of HMRC indicated that there was
no objection to the appeal being made out of time and consequently the Tribunal
proceeded to hear the appeal.
3. The
sole issue for the Tribunal to determine is whether there was a reasonable
excuse for the default.
4. The
facts were agreed; the Appellant’s VAT return was received on 24 December 2010
and the due date for payment for the period 11/10 was 7 January 2011. The
Appellant’s VAT liability was £19,685.33; £10,000 was paid on 7 January 2011
and received by HMRC on 11 January 2011 and the remainder was paid on 17
January 2011 and received by HMRC on 19 January 2011.
5. The
Appellant appealed against the default surcharge on 4 July 2011. The ground
relied upon were that the surcharge was calculated on the full amount of VAT
due on 7 January 2011, however as £10,000 was paid on that date, the surcharge
should have been calculated on the balance outstanding. In the alternative, the
Appellant submitted that the surcharge should not have been imposed as the full
liability was paid before the Appellant received the surcharge notification.
6. During
the hearing Mr Greer clarified the reason for the late payments; the company
has a steady and significant monthly turnover. During the VAT quarter relevant
to this appeal, two specific and valued customers were late in making payments.
Mr Greer explained that the companies who owed monies to the Appellant had been
invoiced and contacted regarding the outstanding sums, which were expected
prior to the date on which the Appellant’s liability was due to be paid.
7. Mr
Greer explained that one of the Appellant’s largest customers was KFC, with
which the Appellant trades with 76 shops and had been a valued customer for
approximately 25 years. Another customer was the Henderson Group Spa, another
large company which provides the Appellant Company with a significant
proportion of its income. Mr Greer stated that both customers had been late in
making payments which had been due and expected prior to 7 January 2011 and
that as soon as the income was received, the Appellant made its VAT payment.
8. Mr
Donnelly, on behalf of HMRC submitted that insufficiency of funds as relied
upon by the Appellant cannot amount to a reasonable excuse, it being
specifically excluded by Section 71(1) of the Value Added Tax
Act 1994. However, it was accepted by Mr Donnelly that, depending on the
particular facts, the case of J B Steptoe (Lon.
89/745Z) may apply, in which it was recognised that whilst insufficiency of
funds cannot per se constitute a reasonable excuse, the reason for the insufficiency
may be regarded as such; as per HHJ Medd O.B.E., Q.C.:
“...but it
seems to me that it was conduct of a sort that a small trader was entitled to
expect would not happen. It is not something that can be regarded as a normal
hazard...If he had brought pressure to bear on the Council he would probably
have received no further orders and the bulk of his livelihood would have
disappeared. It seems to me, therefore, that this is one of those rare cases
where the taxpayer may legitimately put forward as the reason why he should be
excused the unexpected and continuing conduct of the person...”
9. The
Tribunal accepted the evidence of Mr Greer, who presented as an honest and
credible witness, and found as a fact that his account was accurate.
10. The Tribunal
considered the fact that Mr Greer had not contacted HMRC to make a “Time To Pay
Arrangement” but accepted his evidence that there had been no reason to doubt
that the invoices would not be paid prior to the due date. The Tribunal found
as a fact that the payments made by Mr Greer on 7th and 17th
January, so soon after the due date, corroborated its finding that the monies
owed to the Appellant had been due over the period with which this appeal is
concerned.
11. The Tribunal
found as a fact that the reason for the Appellant’s shortage of funds which led
to the inability to meet its tax obligations by the due date was a result of
the unanticipated and unforeseeable non-payment of monies owed by two of the
Appellant’s largest customers; which until the point of non payment, as far as
the Appellant had been concerned, gave the Appellant Company a large degree of
certainty as to income it could expect.
12. The Tribunal
also accepted Mr Greer’s evidence that in chasing the two customers for
payment, he was careful to balance the need for the invoices to be paid,
against the volume of work provided by the two companies and his very real
concerns that such work would be lost if he made repeated demands of the
companies. On the particular facts of this case, the Tribunal found as a fact
that the events which befell Mr Greer could not be described as normal hazards
of his business and that this was one of the few cases which fell within the
exception as set out in Steptoe.
13. The Tribunal
found that there was a reasonable excuse for the default.
14. The appeal is
allowed.
15. 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.
TRIBUNAL JUDGE
RELEASE DATE: 23 November 2011
