[2011] UKFTT 256 (TC)

TC01120

Appeal number: TC/2009/15501

DEFAULT SURCHARGE – Reasonable excuse – Cash payment of tax due made over the counter at Bank of England – Handed over before the due date – Whether received by due date – Whether reasonable expectation it would be received by due date – Appeal allowed

FIRST-TIER TRIBUNAL
TAX CHAMBER

	DINGLE CLARK	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: SIR STEPHEN OLIVER (Judge)
						JOHN AGBOOLA FCCA

Sitting in public in London on 24 June 2010

The Appellant in person

Pauline Crinnion  for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	Mr Dingle Clark, a barrister, appeals against a default surcharge of £456.89 for the period ending 08/09.  
2.	The due date for payment was 7 October 2009.  On 6 October Mr Clark attended the Bank of England’s cash counter and handed over the counter – 
(i)	currency notes issued by the Bank of England equal to the tax and 
(ii)	a bank giro credit slip provided by HMRC which included the printed words “Bank of England – Head Office – collection re Account (VAT) – Account, Commissioners of Customs and Excise VAT.”

This was signed by Mr Clark and dated 6 October and it specified the notes and coins making up the total tax due.  The cashier stamped the slip and the counterfoil with the date and the words “Bank of England – Banking Services Counter.”
3.	HMRC say that the return and the payment were received on 9 October.  Their accounts did not record receipt until then.
4.	We should mention that on 8 July 2009 HMRC had changed their bank from the Bank of England.  This information had been listed on HMRC’s website.
5.	VAT Act s.59(1) states:
“If, by the last day on which a taxable person is required in accordance with regulations under this Act to furnish a return for a prescribed accounting period – 
(a)	the Commissioners have not received that return 
(b)	…, then that person shall be regarded … as being in default”.

By section 59(2)(b) a surcharge liability notice may be served on a taxpayer equal to the specified percentage of his outstanding VAT for that period.  Section 59(6) states that a person’s outstanding VAT for a period refers to “so much of the VAT for which he is so liable or has not been paid by that date” (i.e. the last day on which he is required to make a payment for that period).

6.	On the basis that 7 October 2009 was “the last day” what amount had been “paid by that day”?  HMRC say that the whole of the tax due for the 08/09 period was unpaid on 7 October.  Mr Clark says that no tax was due on 7 October because the entire amount had been paid by then.
7.	A bank giro credit is basically a paper slip addressed to a bank branch instructing it to credit a specified sum of money to a named account at that bank branch.  The credit slip is not a payment instrument; to effect payment it must be accompanied by cash or a cheque. 
8.	Following the hearing we directed that Mr Clark should satisfy us on two matters if we could consider discharging the surcharge assessment.  These were – 
“(i)	had the Bank of England ceased to be HMRC’s bank for purposes of clearing bank giro credits by 6 October 2009?
(ii)	if so, was the Bank of England, on 5 and 6 October, clearing bank giro credits within the one day period prescribed by the “Payment Services Directive”?

9.	In August 2010 Mr Clark lodged a skeleton argument containing information.  This came to our attention only recently.  In that skeleton argument he says, among other things, that his understanding of the change of bank account by HMRC did not have the effect of stopping HMRC from receiving payments using their Bank of England account: the HMRC website had indicated that payments made to the Bank of England after January 2010 might be returned.  Secondly, the skeleton argument states that the Payment Services Directive was not material to the present issue.  It covered cheque payments but had nothing to do with cash payments for immediate value.

10.	On the basis of that information Mr Clark contends that from the moment the money had been handed over it was held by the Bank of England as agent for HMRC which could draw on it immediately.  This, he says in the skeleton, was his belief.  The conclusion to the skeleton argument reads as follows:
“The Appellant clearly believed that HMRC had received the money on time.  That was a reasonable belief as the Appellant had paid the sum in cash (so the Appellant received no advantage in retaining the money).  Indeed it is not disputed that the Appellant had made payment on time but HMRC say it is not received in time.  Accordingly, even if the Tribunal finds in favour of HMRC, it should exercise its discretion under section 59(7) in favour of the Appellant and set aside the surcharge on the basis that the Appellant reasonably believed it would be received by HMRC on time.”
Section 59(7)(a) affords a “reasonable excuse” defence to a surcharge where the VAT due “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.”
11.	We have received no reasoned rebuttal to Mr Clark’s skeleton argument. A review letter from Poole of 16 December 2009 appears to address the reasonable excuse argument in the following terms:
“In your grounds of appeal you conclude that “if a sum paid in cash directly into HMRC bank account on or before the due date then the sum is paid notwithstanding that HMRC internal records show it is paid after the due date”.  However, you have incurred multiple default surcharges as a result of your business decision to pay HMRC by a method that is recorded by HMRC as an electronic payment and therefore takes up the three working days to clear.  
You had been previously notified that your chosen payment method incurs problems, you refer in your letter of 3 November 2008, to the fact that “It would appear the problem is that HMRC records are not capable of showing that there has been a direct cash credit to HMRC account on time”.   It is not clear why you have persisted with the method of payment.  If you prefer using cash payment to the Bank of England and clearly encounter problems, it would be advisable to make the transaction at least three days prior to the due date”.
12.	We cannot conclude with certainty that Mr Clark’s method of payment did not result in the tax being received by the due date.  We know that HMRC’s records take three days to show that the payment of the tax has been received, even where the taxpayer has used the method chosen by Mr Clark; that does not however displace the possible conclusion that receipt took place when the cash was handed over.  Therefore, in all the circumstances and notwithstanding that HMRC may have asserted otherwise on previous occasions, we are satisfied that Mr Clark had a reasonable expectation, backed up by his understanding of the banking law and practice, that the payment effected by him on 6 October would be received by HMRC by the due date (7 October 2009).
13.	For those reasons we think that Mr Clark has established a reasonable excuse within section 59(7)(a) and we therefore allow the appeal.
14.	Appeal 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.

SIR STEPHEN OLIVER

RELEASE DATE: 19 April 2011