Teji v Revenue and Customs [2006] UKVAT V19426 (17 January 2006)
19426
PRACTICE – out of time appeal – illness preventing Appellant from making returns on time – while still capable of working she could still have appealed surcharges
DEFAULT SURCHARGE – effect of long-term illness – reasonable excuse accepted for periods during which illness prevented the Appellant from making returns
LONDON TRIBUNAL CENTRE
USHA DEVI TEJI Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY'S
REVENUE AND CUSTOMS Respondents
Tribunal: DR JOHN F AVERY JONES CBE (Chairman)
Sitting in public in London on 11 January 2006
Stephen Pinning, the Appellant's husband, for the Appellant
Jonathan Holl, Senior Officer, HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2006
DECISION
- This is an application by Miss Usha Teji for leave to appeal out of time and, if leave is given, an appeal against default surcharges for the periods set out below. The reason why both have been listed together seems to have been a computer error by the Tribunal. The Appellant was represented by her husband, Mr Stephen Pinning, and Customs was represented by Mr Jonathan Holl.
- I find the following facts:
(1) The Appellant was formerly a practising barrister. Since 1995, following the birth of a child she has suffered from endometriosis, a gynaecological complaint which causes extreme pain and requires regular surgery. Mr Pinning gave dates in 1998 and in every year since 2000 that she has been admitted for surgery and she is currently expecting to have to do so again. In addition, she has suffered from a depressive illness. A medical certificate from Dr Jonathan Riddell dated 4 June 2004 states that she has been unable to work full-time since 1998 and that she was at the time of the certificate under the care of a consultant psychiatrist. She had to give up work completely in April 2001.
(2) Her VAT returns and payments were late in every period from 01/95 to 11/98 (15 periods); in periods 05/99, 08/00, 11/00, 05/01, and every period from 11/01 to 08/04 (12 periods).
(3) Customs have accepted that the Appellant had a reasonable excuse for the defaults in periods 08/98, 11/98, 05/99, and 08/00.
(4) As a barrister the Appellant is on the cash basis and the returns for periods subsequent to her giving up work are caused by receipts for work done earlier.
(5) Mr Pinning appealed on the Appellant's behalf on 20 June 2005 against surcharges for a list of relevant periods 04/97 to 08/04 (17 periods), of which 10/97 seems to be missed out. Of these, a reasonable excuse for 05/99 is accepted by Customs.
(6) Mr Pinning told me (and I accept) that he was unaware of defaults in periods before those that he has appealed, and would have appealed them if he had known. While there is no appeal before me on earlier periods I have included details of them in order to give the full picture. He was unaware of any problem relating to VAT returns until a Customs officer visited their home to collect outstanding tax and penalties, which I infer was in about May 2004 (her chambers' administrator gave Customs her home address in May 2004 and Mr Pinning's letter to Customs of 10 November 2004 says that he first discovered that there was a problem with VAT returns in May 2004). He found that the Appellant had put all VAT correspondence in a draw unopened.
(7) I set out the date the return was received for each of the relevant periods (with the periods not appealed in square brackets): 04/97 return 4 March 1999 (21 months), payments 22 July 1997, 19 June 1998, 12 March 1999; 07/97 return 4 March 1999 (18 months), payment 12 March 1999; [10/97 return and payment 13 January 1998 (1 month)]; 01/98 return 4 March 1999 (12 months), payment 19 June 1998; 04/98 return 4 March 1999 (9 months), payments 4 March 1999 and 12 March 1999; [11/00 return and payment 10 January 2001 (10 days)]; [05/01 return and payment 16 July 2001 (16 days)]; 11/01 return and payment 16 January 2002 (16 days); 02/02 return and payment 7 June 2002 (2 months); 05/02 return and payment 31 July 2002 (1 month); 08/02 to 05/04 returns all 10 August 2004, payments all later; 08/04 return and payment 19 November 2004.
(8) The Appellant completed the returns up to 05/02 herself, and Mr Pinning completed them on her behalf for subsequent periods.
- From these facts I infer that the Appellant's illness was the cause of the late returns and payments of VAT, and prevented her from making returns at all after period 05/02.
- The periods of default fall into four phases: (1) before a date in 1998 (which I shall take to be July when she was first admitted to hospital) while she was working full-time; (2) from July 1998 to April 2001 when she was working part-time; (3) after April 2001 up to and including 05/02 when she was not able to work at all but she did complete returns by July 2002; and (4) from 08/02 when she was unable to complete any returns and Mr Pinning completed them on her behalf. In phase (1) returns were late by about 21, 18, 1, 12, and 9 months (the 1 month period not being under appeal), all of which (except the period not under appeal) resulted in the returns being completed after she had ceased to work full-time; in phase (2) there is only one return which was 10 days late and which is not under appeal; in phase (3) returns were late by 16 days (not under appeal), 16 days, 2 months and 1 month; in phase (4) she was unable to complete any returns and Mr Pinning completed them all on her behalf with commendable speed on 10 August 2004 after finding out that there was a problem in May 2004.
- Mr Pinning contends that in view of the Appellant's physical and mental illnesses I should allow her to appeal out of time and allow her appeal against all the surcharges.
- Mr Holl contends that as a barrister the Appellant should have been able to put in an appeal on time, particularly in the periods when she was still working. A reasonable excuse must be exhausted over time and a reasonable businessman would have done something about the defaults at an early stage, particularly as returns on a cash basis are straightforward to complete.
Leave to appeal out of time
- I deal first with whether the Appellant should be permitted to appeal out of time. Mr Holl relied on Designspeedy Limited v Customs and Excise Commissioners (2003) VAT Decision 18309 (I should mention that some words are inadvertently missing in Designspeedy from the quotation from Wans (sic) Chinese Takeaway v Customs and Excise Commissioners (1997) VAT decision 14829 which changes the sense; the full quotation is substituted below):
- In order to establish the principles which we should apply to the exercise of the direction given to us by Rule 19(1) we take into account the guidance given by Lord Donaldson MR in Norwich & Peterborough Building Society. At page 454G he stated
'Once the time for appealing has elapsed, the respondent who was successful in the court below is entitled to regard the judgment in his favour as being final. If he is to be deprived of this entitlement, it can only be on the basis of a discretionary balancing exercise, however blameless may be the delay on the part of the would-be appellant.'
Lord Donaldson MR goes on to say that the elements of the equation are –
'…(1) the length of the delay; (2) the reasons for the delay; (3) the chances of the appeal succeeding if an extension of time is granted; and (4) the degree of prejudice to the respondent if the application is granted.'
- In Wans Chinese Takeaway the Chairman Dr A N Brice commented on page 8 at paragraph 25 as follows
'From those decisions of the higher courts I derive the following principles. First, the normal rule is that time limits must be observed and the discretion to extend must be sparingly exercised. If the normal rule is to be departed from then a discretionary balancing exercise must be undertaken, even if the applicant is blameless. This exercise must be conducted in two stages. In stage one the tribunal must be satisfied that the party seeking an extension of time has shown good reason for the tribunal to exercise its discretion and the party seeking the extension must give a satisfactory explanation for the delay. At stage one the tribunal is entitled and bound to take into account any matters which appear relevant to the issues of good reason and satisfactory explanation notwithstanding that the same matters might also arise at stage two. If the tribunal is not satisfied at the end of stage one then the application must be refused. If the tribunal is satisfied at the end of stage one it must go on, at stage two, to consider all the circumstances including: the length of the delay; the chances of the appeal succeeding if an extension of time is granted; the fact that an appellant should not normally be denied an adjudication of his claim on its merits because of a procedural default unless that causes prejudice to the respondent for which an award of costs could not compensate; and the hardship to the appellant if the application is not granted.'"
- I ask myself the stage 1 question whether the Appellant has shown good reason to exercise my discretion in her favour and has given a satisfactory explanation for the delay. In period (1) she was obviously struggling to keep working, resulting in returns being many months late, none of which was completed while she was still working full-time. In spite of this I do not consider that she has given a satisfactory explanation for the delay. While I appreciate the difficulties she must have been facing, and I have accepted that the reason why she could not complete the returns on time was medical, the fact is that she could work full-time as a barrister. I consider that there is a difference between being able to do returns, which involves collecting material for the three-month period, and appealing against surcharges for not doing the returns, which merely involves filling in a form. Even if, for medical reasons, she could not manage to do the returns, she must, if she could practice as a barrister, have been able to appreciate the effect of an assessment to a surcharge, the necessity for appealing, and must have been able to fill in an appeal form. It is possible that if I had more medical evidence I might have taken a different view but I must decide the application on the material before me. I am not therefore satisfied about the stage 1 test.
- I need not consider phase (2) which is not under appeal but, if it had been, I would have treated it in the same way as phase (1).
- In phase (3) she was not able to work but she did manage to complete the returns without very much delay (16 days (not under appeal), 16 days, 2 months and 1 month). Making returns is far more difficult than appealing and I see no reason why the answer should be different from that for phase (1).
- In phase (4) I have no doubt that she has shown good reason for me to exercise my discretion in her favour and has given a satisfactory explanation for the delay. If she was medically incapable of completing the returns at all she was incapable of appealing the surcharges imposed for not completing the returns. I am therefore satisfied about stage 1 and go on to consider stage 2: "all the circumstances including: the length of the delay; the chances of the appeal succeeding if an extension of time is granted; the fact that an appellant should not normally be denied an adjudication of his claim on its merits because of a procedural default unless that causes prejudice to the respondent for which an award of costs could not compensate; and the hardship to the appellant if the application is not granted." I consider that she has a god chance of her appeal succeeding, that the balance of prejudice favours the Appellant, and that she would suffer hardship if her application is not granted.
- Accordingly I allow her to appeal out of time for periods within phase (4) only.
Appeal against the surcharges
- I turn to consider her appeal against the surcharges for the periods in phase (4). The standard for a reasonable excuse is that of the reasonable conscientious businessman who accepts the need to comply with VAT requirements. It is not that of a wholly objective reasonable businessman but rather one who finds himself in the same situation as the particular taxpayer. Thus if the taxpayer suddenly falls ill just before the return is due, one asks what a reasonable conscientious businessman would have done in the same circumstances, to which the answer is likely to be that he could have done nothing, in which case the taxpayer has a reasonable excuse. In the case of long-term illness the reasonable conscientious businessman would normally be able to find someone else to do the return (assuming that there are no employees capable of doing it), in which case the reasonable excuse that may have existed at the start of the sudden illness will become exhausted. But that implies that the taxpayer with the long-term illness is capable of arranging this, which would not be the case if, for example, he were in a coma.
- During phase (4) the Appellant was incapable of working or making the returns. I find that a reasonable conscientious businessman with her medical condition would not have been able to make returns at all, let alone on time, and would not have been capable of engaging someone else to do them (and there was nobody whose duty it was to do them). Mr Pinning was clearly capable of doing them but he was not aware that there was a problem. Mr Holl argued that the Appellant was capable of engaging someone else to do the returns earlier in which case the later defaults would never have occurred, but I have to decide the case on these periods on the basis that she did not do so earlier. While in normal circumstances a reasonable excuse becomes exhausted over time, I do not consider that it does become exhausted while the Appellant's illness prevents her from making returns or instructing someone else to do so. There is nothing she, or the reasonable conscientious businessman in her position, can do about it. I therefore find that she has a reasonable excuse for the defaults in phase (4).
- Mr Holl made the helpful suggestions that she should deregister or go onto annual returns and it is pity that this was not done earlier. If receipts are still coming in no doubt Mr Pinning will consider these options.
- Accordingly I find that the Appellant has a reasonable excuse for the defaults in periods 08/02 to 08/04 (9 periods) and allow the appeal to that extent only.
JOHN F AVERY JONES
CHAIRMAN
RELEASE DATE: 17 January 2006
LON/2005/0718
