19026
DEFAULT SURCHARGE – Legality – Reasonable excuse – Appellant paid VAT through BACS system one day late – Payment received by Commissioners late – Whether default surcharge an excessive penalty for such a short delay – No – Appellant claimed that because computerized communication has broken down on correct date for payment it had waited until the next day and then activated the BACS payment – Whether reasonable excuse – No evidence
LONDON TRIBUNAL CENTRE
GUNLAB LTD Appellant
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: STEPHEN OLIVER QC (Chairman)
M M HOSSAIN FCA, FCIB
Sitting in public in London on 6 April 2005
J Morris, accountant, for the Appellant
P Crinnion for the Respondents
© CROWN COPYRIGHT 2005
DECISION
- Gunlab Ltd appeals against a default surcharge, at 15%, for the 6/04 period. The return was sent in on the due date, i.e. 31 July 2004. The tax on the return (£45,492) was received by the Commissioners on 9 August 2004, i.e. two days after the due date (which under the BACS arrangements should have been on 6 August 2004).
- The default surcharge assessment for £6,823.73 was issued on 18 August 2004. On 25 August 2004 Gunlab wrote to the Commissioners as follows:
"We wish to appeal against the surcharge notice dated 13 August 2004. … the VAT returns were received on 30 July, but the payment was not recorded as received until 11 August. A BACS payment was sent from this office on Thursday 5 August to clear on the third working day. As Saturday 7 August was a non-banking day, the first day the money was able to clear into your bank account was Monday 9 August. …"
On 29 November 2004 the Commissioners responded informing Gunlab that they did not accept that the return and the tax due for the 6/04 period was sent in time to be received by the due date, i.e. 6 August 2004.
- On 25 November a Notice of Appeal was lodged with this Tribunal by Gunlab Ltd. The Grounds of Appeal are as follows:
"While making a series of BACS payments our ISDN phone service, provided by BT, failed. This meant that only two out of some 30 payments were processed before the 4.00pm BACS payment deadline. The remaining payments were made the next day (Thursday 5 August), but did not clear into HM Customs bank until the Monday, 9 August 2004 because of the weekend in between. The intermittent ISDN fault later developed into a permanent one, with multiple BT attendances at our offices".
The case was listed for hearing on 6 April 2005. On 29 March the Commissioners wrote to Gunlab stating that all the information in the Commissioners' hands would be passed to the chairman for consideration and that Gunlab should, however, attend the hearing "and you may provide further information on the day if you wish".
- Mr J Morris, an accountant working with Gunlab, gave evidence for Gunlab and presented their case. The case for Gunlab essentially was that a 15% surcharge amounting to £6,824 was harsh and excessive having regard to the fact that the tax had been despatched through the BACS system only one day late. Mr Morris conceded that Gunlab was familiar with the default surcharge regime. This indeed was self-evident from the list of defaults that we saw. We cannot accept Gunlab's primary ground of appeal. We fully recognized that payment was despatched one day late with the result that it reached the Customs later than the seven day extension period granted to those who use the BACS system. But VAT Act 1994 section 59(1) is quite explicit on this. Because the Commissioners did not receive the amount of VAT shown due on the return by the required date, the person in question (i.e. Gunlab) is made liable for the default surcharge in respect of the relevant period, i.e. 6/04. Section 59(5) prescribes the amount of the default surcharge and, because this was the third relevant default in the surcharge period, the specified percentage is 15%. The VAT and Duties Tribunal is given no discretion by the Act to mitigate the default surcharge. It is no part of our function or authority to reduce the amount of the surcharge if we regard it as harsh or unreasonable. That was the decision of Parliament in the first place when introducing the default surcharge regime. We have to dismiss the primary ground for appeal as a defence to the default surcharge.
- We turn now to the other point made by Gunlab in their grounds of appeal. Essentially that was that when they tried to make payment on 4 August (which would have been in time to meet the BACS requirements). The ISDN phone service, provided by BT, had apparently failed. We had no evidence to substantiate this other than the second hand account of Mr Morris, who had not himself been operating the terminal to activate the alleged BACS payment to the Commissioners on 4 August. The only evidence he produced was a BT bill date 7 December 2004 showing that, on 13 October, certain calls had had to be diverted through another line. That evidence does not satisfy us that the system had broken down at the critical moment on 4 September. What our attitude would have been had we been provided with hard evidence to the effect that Gunlab had actually tried to activate payment in time on 4 August but been frustrated in doing so by a fault on the line, we cannot say without such evidence. We were not told whether Gunlab took the matter up with BT at the time. We understand that Gunlab did not make any claim against BT nor did they notify the Commissioners' helpline that payment was delayed on account of fault outside their control. The only thing Mr Morris was prepared to say was that nothing was done because Gunlab was confident that, as the payment was only a day late, the Commissioners would not impose a default surcharge. It is possible that the computer system used by Gunlab to make BACS payments will still have recorded the failure of the system to activate a payment order in favour of the Commissioners made on 4 August. It is possible that other evidence may be available, e.g. a witness statement from the person at Gunlab who was actually trying to make the payment through the BACS system on 4 August. No such evidence was available to us. We cannot base our decision on speculation. Consequently we are not able to accept that Gunlab had a reasonable excuse on account of an unavoidable and unforeseeable event, namely the breakdown of the ISDN phone service.
- For those reasons we are driven to conclude that Gunlab has not established a reasonable excuse. We therefore dismiss the appeal.
STEPHEN OLIVER QC
CHAIRMAN
RELEASED: 11 April 2005
LON/04/2275
