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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Claude Fenton (Holdings) Ltd v Revenue & Customs [2008] UKVAT V20558 (30 January 2008) URL: http://www.bailii.org/uk/cases/UKVAT/2008/V20558.html Cite as: [2008] UKVAT V20558

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20558

Value Added Tax - Default Surcharge BACS payment made one date late because Appellant failed to note in counting the 3 days that the payment might take that one day was a bank holiday - Change of accounting software and pressure on staff and staff illnesses - Appeal dismissed

LONDON TRIBUNAL CENTRE

CLAUDE FENTON (HOLDINGS) LIMITED Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: HOWARD M. NOWLAN (Chairman)

SANDI C. O'NEIL

Sitting in public in London on 16 January 2008

Peter Ladanyi of VAT Consultants on behalf of the Appellant

Jonathan Holl of the Solicitor's Office of HMRC on behalf of the Respondents

© CROWN COPYRIGHT 2008


 


DECISION

Introduction

1. This was a somewhat unfortunate case where the Appellant suffered a significant Default Surcharge of £10,005 (computed at the 2% rate, i.e. the lowest rate actually to incur a penalty following one other default that attracted no penalty) by being one day late in paying its VAT. The final date for electronic payment was 7 May 2007, and payment was made by a BACS transfer on 8 May.
2. Two related factors were advanced and contended to provide a reasonable excuse for the late payment. One was a fairly extensive history of misfortunes, geared to problems in changing from one computerised accounting system to another, along with resultant stress on key staff and staff illnesses. The other was the simple fact that when the VAT return was signed off on 2 May, a Wednesday, the individual responsible for both signing the return and initiating the payment failed to spot that a BACS payment initiated on the following day, Thursday 3 May, would be unlikely to be paid by 7 May because Monday 7 May was the May-day bank holiday. Albeit that the payment was made within the normal three day period, the bank holiday meant that the payment was not received until Tuesday 8 May.
3. We sympathise with the company because it is particularly unfortunate to suffer a default surcharge of a significant amount when a payment is simply one day late. We feel bound to conclude however that as the return had been completed and signed on 2 May, the only real cause of the late payment was the failure to spot that Monday 7 May was a bank holiday. Very experienced accounting and finance staff in a substantial company can be assumed to know how long a BACS payment takes to make, and to know that had a small charge been incurred and a CHAPS payment been made on either Thursday or Friday, 3 and 4 May, payment would certainly have been received by HMRC before 7 May.

The facts in more detail and the evidence

4. Extensive evidence was given to us by Tony Harper, the Director responsible for the Commercial and Accounting activities of the medium size group of construction and scaffolding companies. We were told that the group's turnover was in the region of £25 million a year; and that 8 people were employed in the group accounting function. All VAT was dealt with by one representative member of the group, and with one historic exception of no significance, the group had had a first class compliance record.
5. Problems started to arise from April 2006 when the group began to adopt a new computerised accounting system. These problems were aggravated by the fact that Mr. Harper's immediate "No 2", Mr. Willis, who had worked for the company for 17 years, was diagnosed in September 2006 with deep vein thrombosis, which piled more work on to his own principal assistant, Mr. Taylor. Mr. Taylor had been with the group for 23 years and had traditionally dealt with all VAT filings and payments. As a result of the additional work and all the problems associated with the change of accounting procedures, Mr. Taylor's own work began to suffer from about September 2006 and in January 2007 Mr. Taylor was signed off work with depression. The group thus had to enlist support in dealing with its accounting matters both from its own outside accounting firm, and from temporary staff. None of these arrangements proved satisfactory, particularly because the two people taken on on a temporary basis both left as soon as they found permanent employment elsewhere. These problems were aggravated because the group did not know when Mr. Taylor would return, as he obtained a succession of notes from his doctor, signing him off work for four weeks at a time.
6. The VAT return for the VAT period 12/06 (ending on 31 December 2006), and the payment of the VAT for that period was dealt with on time. When the time came for completing the return for the period 03/07, for which the return was due on 30 April 2007 or by 7 May if the accompanying payment was made electronically, in the absence of Mr. Taylor, Mr. Willis oversaw the preparation of the VAT return. The return was completed and signed on Wednesday 2 May, and a BACS payment was initiated on Thursday 3 May. The BACS payment took the normal three banking days to be cleared, and since Monday 7 May was the May day bank holiday, 8 May was the third banking day and it was on that day that the payment was received b y HMRC.
7. As we indicated in our introductory remarks, it was asserted that the company's "reasonable excuse" for late payment consisted of a mixture of all the accounting problems, the problems associated with staff illness and individuals performing responsibilities that were generally undertaken by others, and secondly the simple mistake concerning the fact that because Monday 7 May was a bank holiday, there was not time to make a BACS payment on or before 7 May when the payment instruction was only given on 3 May.

Our Decision

8. We sympathise with the Appellant for all the accounting and staff illness problems that it had, and we also recognise that it is hard to suffer a £10,000 penalty because a trivial mistake was made concerning the counting of three banking days, so that the payment that could have been made in due time was in fact made one day late.
9. The question for us however cannot be influenced by the fact that the payment was only one day late, because we must just consider the question of whether the company had a reasonable excuse for the late payment. We conclude that the company did not have such a reasonable excuse. Whatever the software problems, and the staff illness problems, the relevant VAT return was completed and signed on 2 May. On that day or indeed the following day, the company, with an experienced accountant available to deal with the initiation of payment and an accounts staff of at least 6 other people, knew that a BACS payment would take, or at least might well take, three banking days in which to clear; everyone knew that 7 May was a bank holiday, and it is inconceivable that the company did not know that by paying a trivial fee of £20, it could have made a CHAPS payment on either the Thursday or on the Friday morning, both of which would have been effected on the same day, so that payment would have been received before 7 May.
10. We therefore dismiss this appeal. We would add that the point that strikes us as hard in this case is not so much our reluctance to accept that a minor and unfortunate slip on the part of the people responsible for making the payment was a "reasonable excuse", but rather the totally disproportionate cost imposed on the Appellant for merely being one day late in making payment. No argument was addressed to us under the Human Rights Act, and on the issue of whether the relevant VAT legislation may be flawed because it contains no discretion or safety valve to preclude the imposition of such disproportionate penalties in circumstances such as these. That feature nevertheless strikes us as the feature that makes this case seem unfair.

HOWARD M. NOWLAN

CHAIRMAN

RELEASED: 30 January 2008

LON/2007/1319