VAT Late Payment Reasonable Excuse Held: No Reasonable Excuse

[2010] UKFTT 563 (TC)

TC00814

Appeal number:TC/2009/14607

VAT — late payment — reasonable excuse — held: no reasonable excuse

FIRST-TIER TRIBUNAL

TAX

FINCH AND PARTNERS LIMITED

Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMSRespondents

TRIBUNAL:Ms Rachel Perez (Judge)

Mrs Janet Wilkins (Member)

Sitting in public at Holborn Bars, London on 26th January 2010

Having heard Mr Adam Bent of the appellant for the appellant and Mrs Gloria Orimoloye of HMRC for the respondent, and having considered the appellant’s post-hearing submissions and evidence dated 20th February 2010, 19th July 2010 and 19th August 2010 and HMRC’s post-hearing submissions dated 3rd February 2010 and 13th August 2010, the tribunal issued a decision notice and further directions on 23rd August 2010.

DECISION

Having considered, in addition, the appellant’s submission and evidence of 26th August 2010 in reply to those directions, and HMRC’s submission dated 4th October 2010

The tribunal decided—

(1)with Mrs Orimoloye’s consent, to extend time for appealing;

(2)that £59,951.97 of the total VAT shown on the amended return for the period 11/08 was not received until 9th January 2009 and was therefore late;

(3)that that amount of £59,951.97 was not despatched at such a time and in such a manner that it was reasonable to expect that it would be received by HMRC by 7th January 2009 and that there is no reasonable excuse for that amount not having been so despatched;

(4)that the surcharge is therefore upheld to the extent that it relates to late payment of that amount of £59,951.97; but

(5)that the remainder of the surcharge is, if and to the extent still before us, set aside.

The appeal is dismissed to the extent mentioned at (4) above, and is otherwise allowed.

FULL FINDINGS AND REASONS

History of proceedings

We list, at the annex hereto, documents issued and received after the hearing of 26th January 2010.

Appeal

This was an appeal against a surcharge of £42,853.79. It was imposed under section 59(4) of the Value Added Tax Act 1994. It was imposed on the ground of late payment of £428,537.97 VAT for the period 11/08. The return for that period showed an amount of VAT payable to HMRC of £446,889.16. It was common ground that the due date for payment of the amount shown on the return was 7th January 2009 (it was an electronic payment so benefited from the 7-day concession). HMRC accepted that £18,351.19 of that £446,889.16 was paid by the due date (it appeared from page 41 of HMRC’s bundle to be a credit already held on the account). It was common ground that the remainder (£428,537.97) of the £446,889.16 shown on the return was paid on 9th January 2009.
The total amount of £446,889.16 shown on the return (page 30) included an amount of £368,586.57. The appellant had contended to HMRC, and again in his appeal notice, that that amount was subject to the reverse charge legislation. (It was, he said, VAT due from Aviva in relation to the supply of the services of actors for an advertising campaign run by Aviva.) But, by the time of the hearing before us, the total amount shown on the return for 11/08 still included that amount of £368,586.57. HMRC had not, by the time of the hearing before us, withdrawn so much of the surcharge as related to that £368,586.57.
By the time of the hearing before us, the reverse charge point had, regrettably, not been resolved between the parties. But Mr Bent maintained that the amount of £368,586.57 was subject to the reverse charge legislation. He submitted that, in any event, there was a reasonable excuse for any late payment of that amount.
We adjourned the hearing. We issued directions for further submissions as to the reverse charge point. Further directions, submissions and evidence followed (see annex hereto). We then issued on 23rd August 2010 a decision on the reverse charge point. The document containing that decision also contained directions.

Overstated amount of £368,586.57

In that decision issued on 23rd August 2010, we decided that the amount of £368,586.57 was indeed subject to the reverse charge legislation. We decided therefore, in that decision, that the VAT return for 11/08 overstated the VAT due by that amount. But there remained the questions of what amount was late, and whether there was a reasonable excuse. We stayed those questions, pending amendment of that return to remove from it the overstated amount of £368,586.57.
The appellant, in response to our directions issued on 23rd August 2010, submitted to HMRC amended figures for inclusion in that return. The amended figures he submitted reduced the amount of VAT due for 11/08 by the previously overstated amount of £368,586.57. HMRC told us in their letter of 4th October that they have reduced the appellant’s 11/08 return by that amount.
HMRC say in their letter of 4th October 2010 that the return now shows a VAT amount payable of £78,303.16. They accept that £18,351.19 of that was paid on time. They say that this leaves “£59,951.97 as the only matter under appeal for the 11/08 period of default at the rate of 10%”. They say that they have approved a postal order made out to the appellant for the sum of £36,858.60.
By our calculations, the return should, after deduction of the overstated £368,586.57, show an amount of VAT payable of £78,302.59 (and not £78,303.16 as stated by HMRC). It appears that HMRC have arrived at the slightly higher figure of £78,303.16 by rounding down the £368,586.57 so that only £368,586 has been deducted from the original VAT of £446,889.16 shown on the return (page 30).
However, we must consider the appeal based on what is actually shown on the return (section 59(1)(b) of the Value Added Tax Act 1994). If it is the figure as amended by HMRC that counts as what is “shown on the return”, then the amount shown on the return is £78,303.16. It is not expedient to request further submissions in respect of the minimal difference of 57 pence. We think the best way of achieving finality in these proceedings is to accept that the amount shown on the return is as stated by HMRC. We have therefore considered the appeal on the basis that £78,303.16 is the amount of VAT now shown on the return.
Now that the amount shown on the return no longer includes the amount of £368,586.57, it is common ground, and we find, that that £368,586.57 was not paid late in being paid on 9th January.
We were not persuaded however that it was safe merely to assume that the appeal had lapsed to the extent that it challenged so much of the surcharge as related to that amount of £368,586.57. The surcharge notice at page 31 shows a surcharge of £42,853.79. That is the amount expressed in the appeal notice to be under appeal. That surcharge was calculated as 10% of £428,537.97 (in other words, the amount by reference to which the surcharge was calculated included the overstated amount of £368,586.57). It was not clear from HMRC’s letter dated 4th October 2010 that they were formally withdrawing so much of the surcharge as related to the (now deleted) amount of £368,586.57.
In order to achieve a certain outcome therefore, we have allowed the appeal to the extent that the surcharge does not relate to the amount of £59,951.97 (which is the amount we find below was paid late).

£59,951.97

Amount paid late

It was common ground that so much of the VAT as was not subject to the reverse charge legislation was due by 7th January 2009.
We are grateful to Mrs Orimoloye for reminding us, in her submission of 4th October, that HMRC accept that £18,351.19 of the amount still shown on the amended return was paid on time. (This acceptance was reflected in the amount of surcharge under appeal - surcharge notice 16.01.09, page 31.)
In view of that, we find that the amount paid late was not the total of the non-reverse charge amount (to which we referred in our previous directions as £78,302.59 but which we now find was £78,303.16). The amount paid late is instead only the amount of £78,303.16 minus the amount of £18,351.19 which was paid on time. This gives a reduced figure of £59,951.97.
It is common ground, and we find, that that amount of £59,951.97 was received after the due date by HMRC.
We must therefore uphold the surcharge so far as relating to £59,951.97, unless the appellant is assisted by section 59(7) of the Valued Added Tax Act 1994.

Section 59(7)

We find that the appellant is not assisted by section 59(7), for the following reasons.
In the following discussion, it should be remembered that the amount paid late is £59,951.97 and not the £78,302.59 to which Mr Bent referred in oral evidence. He overlooked, in addressing us, that £18,351.19 of what he thought was paid late was not in fact paid late because of the credit in that amount on the appellant’s account. It should be remembered too that we have slightly adjusted the amount of £78,302.59 to find that the amount now shown on the return is £78,303.16. The £18,351.19 paid on time is therefore deducted from £78,303.16 and not from £78,302.59. This resulted in £59,951.97 paid late, as we found above. All references below to an amount paid late should therefore be taken as references to £59,951.97 and not to the higher figures mentioned in evidence.
Section 59(7) of the Value Added Tax Act 1994 provides, so far as relevant—

“(7) If a person who, apart from this subsection, would be liable to a surcharge under subsection (4) above satisfies…a tribunal that, in the case of a default which is material to the surcharge—

(a)…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…VAT not having been so despatched,

he shall not be liable to the surcharge….”.

Section 59(7)(a) – time and manner of despatch

Mr Bent told us that he had waited to pay all of the VAT (the £446,889.16 originally shown on the return) until the part of it (£368,586.57) awaited from Aviva had arrived in the appellant’s account. It was not disputed, and we accept, that the £368,586.57 arrived from Aviva at 23.03 on 7th January 2009 (evidenced by a Coutts transaction narrative before us).
Mr Bent told us in oral evidence that “we set [the BACS payment] up straight away when [the £368,586.57] came in [from Aviva]”. He said he could not remember what time this was done. The appellant had previously stated, in the notice of appeal, that the payment of £446,889.16 to HMRC (which it was common ground was a BACS payment) was not initiated until 8th January 2009.
The £368,586.57 came in from Aviva with less than an hour to go before midnight on the 7th. In view of that, Mr Bent did not in our judgment intend to contradict the 8th January date in the notice of appeal by his oral evidence that the payment of £446,889.16 was set up “straight away”. In any event, Mr Bent did not dispute that that payment was not initiated at such a time or in such a manner as to be reasonably expected to reach HMRC by 7th January.
We find, in view of the above, that the payment was initiated on 8th January. Some of the amount included in that payment is not now shown on the return and so was not due by 7th January. And some of it was already in effect paid, as mentioned above. The remainder is £59,951.97. We conclude that that amount was not despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the due date of 7th January 2009.

Section 59(7)(b) – reasonable excuse

Mr Bent told us that the appellant could have paid earlier so much of the £446,889.16 as was not awaited from Aviva (that is, £78,302.59). It was clear that, by “earlier”, he meant by 7th January 2009. We accept that evidence.
But he said, which we also accept, that the appellant chose not to set up the payment earlier than it did because the appellant would still have been in default because of the £368,586.57 awaited from Aviva. Mr Bent told us that HMRC had told the appellant this. He said he had not realised that the default would, for the purposes of the surcharge, relate only to the amount outstanding, so that the amount of surcharge would be reduced.
Exactly what HMRC had told him about this was challenged in cross-examination and in submissions. But in any event, Mr Bent told us, and we find, that HMRC made the statement mentioned at paragraph 27 above after the 7th January.
More importantly, even if the appellant reasonably believed, before the VAT was due, that the surcharge would be calculated by reference to the total VAT regardless of the amount outstanding, such a belief is immaterial in our judgment. It was not a belief that the due date had changed, and so was not a belief that payment after 7th January would not be late. In choosing to pay the £78,302.59 after 7th January therefore, the appellant chose, we find, to pay it late. It is not in our judgment a reasonable excuse to choose to pay late merely because of a belief that that choice would not increase the punishment, in other words, because of a belief that thesurcharge wouldnot be reduced if only part of the VAT was paid on time.
Indeed, Mr Bent did not appear to suggest otherwise. He said “I do accept that the £80k was down to us” (he used “£80k” as short-hand for £78,302.59). He asked us to calculate the surcharge by reference only to that amount.
We found earlier in this decision that the amount now shown on the return is not £78,302.59 but £78,303.16. And we found that £18,351.19 of that was paid on time, leaving an amount paid late of £59,951.97.
In view of paragraphs 26 to 30 above, we find that there was no reasonable excuse for late payment of the £59,951.97.

Amount of surcharge upheld

The percentage to be applied for the purposes of calculating the surcharge (section 59(4) and (5)) was not in dispute.
We therefore uphold so much of the surcharge as relates to late payment of £59,951.97.
This document contains full findings of fact and reasons for the decision contained in it. Any party dissatisfied with the decision contained in this document has a right to apply for permission to appeal against the decision contained in this document 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 the decision contained in this document 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.

MISS RACHEL PEREZ

TRIBUNAL JUDGE

MRS JANET WILKINS

TRIBUNAL MEMBER

RELEASE DATE: 10 November 2010

Annex to decision in

Finch and Partners Limited

TC/200914607

History of proceedings

(1)Tribunal first directions issued 27th January 2010[1]

(2)HMRC first submission 3rd February 2010

(3)Appellant first submission 20th February 2010

(4)Tribunal second directions issued 11th March 2010[2]

(5)Tribunal third directions issued 28th June 2010[3]

(6)Appellant second submission 19th July 2010 plus 7 enclosures –

Letter 15.8.08 from Liz Brion of Grant Thornton
Letter 15.8.08 from Simon Simpson of Grant Thornton
Services agreement with first actor
Services agreement with second actor
Services agreement with third actor
Services agreement with fourth actor
VAT schedule showing currency conversions and VAT calculations in relation to the four services agreements

(7)HMRC second submission 13th August 2010

(8)Appellant third submission 19th August 2010

(9)Tribunal fourth directions & first decision issued 23rd August 2010 [4]

(10)Appellant fourth submission 26th August 2010 (misdated 19th August) together with letters to HMRC giving amended figures for VAT returns

(11)HMRC third submission 4th October 2010