19147

DEFAULT SURCHARGE – Reasonable excuse – Late payment – Unexpected illness of sole cheque signatory – Appellant claimed to be unaware of availability to it of BACS and CHAPS facilities for making payment within extended period – Whether reasonable excuse – No – Appeal dismissed 

LONDON TRIBUNAL CENTRE

	MARDEN MANAGEMENT LTD	Appellant

-	and –

	HER MAJESTY’S  REVENUE AND CUSTOMS 	Respondents

				Tribunal:	STEPHEN OLIVER QC (Chairman)
						ROSALIND RUDD 

Sitting in public in London on 8 June 2005

C J Blakeney, director, for the Appellant 

Jonathan Holl for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	Marden Management Ltd (“MM”) appeals against a 2% default surcharge of £755.05 relating to the 6/04 period.  The return and payment were due in on 30 July 2004 and were received by the Commissioners on 6 August.

2.	MM was represented by its director, Mr C J Blakeney.  Mr Blakeney gave evidence.  Its business, he said, was providing staff for agricultural businesses.  He explained the circumstances to which the default surcharge related.  

3.	The return had been completed and the cheque made out, though not signed, on Wednesday 28 July by MM’s accounts administrator.  Mr Blakeney was the only person authorized to sign cheques.  He had expected to sign the cheque and send it and the return to the Commissioners on the Thursday or Friday of that week.  Mr Blakeney was taken ill on the night of Wednesday/Thursday and did not return to the office until Monday 2 August.  The return and the cheque were posted to the Commissioners on 2 August.  

4.	In the morning of Monday 2 August, Mr Blakeney told us, Jane Wilcox (assistant to Mr Blakeney) had telephoned the VAT office. Mr Blakeney’s understanding of the telephone conversation was that late payment would be accepted and that no surcharge would be imposed.  Mr Blakeney had understood that Jane Wilcox had not told the person with whom that telephone conversation was held that MM was within the surcharge regime.  

5.	MM had entered the surcharge regime (and received a surcharge liability notice) because of a late return and payment for the 12/03 period.  

6.	Following receipt of the default surcharge assessment for the 6/04 period Mr Blakeney wrote, on 30 September, to the Commissioners explaining the circumstances in the terms set out above.  The Commissioners replied on 20 October stating that they had no record of the alleged telephone conversation and commenting that Mr Blakeney’s letter had not asserted that they (MM) had been “informed at any time that a surcharge would not be issued”.  The Commissioners’ letter went on to say that a bank giro, a BACS or a CHAPS payment could, on 2 August when Mr Blakeney got back to work, have been made; the VAT Guide, it was pointed out, refers to the extra seven days given for payment and return to reach the Commissioners when payments were made electronically.  Mr Blakeney responded on 3 November  saying that it had been his understanding of the telephone conversation that a surcharge would not be incurred.  He pointed out that, as he understood the position, “BACS and CHAPS payment would not have speeded up the process as it takes seven days from the date of application to receiving the activation in numbers”.  To that the Commissioners observed (in a letter of 10 November) that he could have gone to the bank to make a BACS or CHAPS payment and, had he done so on 2 August, payment would have been received on time.

7.	Mr Blakeney explained in evidence that MM now has a second cheque signatory and, in any event, all VAT payments are now made by BACS.  

8.	It seems to us that there are two issues here.  First, did MM have a reasonable excuse for the delay resulting from the failure to post the return and the cheque in time for them to reach the Commissioners by the due date, i.e. the end of July 2004?  Second, did MM have a reasonable excuse for failing to make payment by BACS or CHAPS within the extended seven day period?  

9.	The cause of the failure to get the return and payment to the Commissioners by the end of July was Mr Blakeney’s illness.  The illness was, we accept, sudden and unexpected.  But was the failure reasonably avoidable?  We approach this by asking whether the reasonable competent businessman carrying on a comparable business to that of MM would have had a back-up in place to deal with unexpected situations of this sort.  MM, to judge from the two VAT returns that we have seen, has had a turnover in the region of £800,000 a year.

10.	We know from what Mr Blakeney told us that there were two cheques signatories until 2002 when a fellow director left.  We would have expected to find that some other person than Mr Blakeney was authorized to sign cheques.  But even if Mr Blakeney were the only signatory, should someone have taken steps to get the cheque to him on the Thursday or the Friday of the last week of July for signature, or at least have alerted him to the problem?  Mr Blakeney suggested that Jane Wilcox was not in a position to have done so.  He had, he said, telephoned the office on the Friday but had not discussed the VAT return; in any case, he said, Jane Wilcox would not have known the contents of the VAT file.  We accept that, so far as it goes.  But we note that Jane Wilcox was not new to VAT and MM’s compliance difficulties.  Letters from her to the Commissioners dated 21 November 2002 and 30 January 2003 related to alleged defaults for the 9/02 and the 12/02 periods.  Further letters from her to the Commissioners of 28 April and 20 May 2003 referred to the means by which payment of VAT arrears for the 3/03 period might be made.  Our conclusion on this point is that someone ought to have checked that the 6/04 return and payment were being sent in time; if that person was not Mr Blakeney, then Jane Wilcox (or someone in her position) ought to have been able to have done so and to have made the necessary arrangements for getting the cheque signed.  

11.	Moving on to the second question, we note that all was not lost by Monday 2 August when Mr Blakeney return to the office.  There is no note of any telephone conversation between Jane Wilcox and the person at the VAT office.  We accept that a conversation took place.  We are satisfied that no mention was made in the course of the conversation of MM being in the surcharge regime.  If it had been mentioned, it is we think inconceivable that the person at the VAT office would have said anything that could have given the impression that no default surcharge would be imposed.  Moreover, we think, Jane Wilcox should have known that MM was then in the default surcharge regime, either because of her past experience or because Mr Blakeney should have told her before she made the telephone call.  MM through Mr Blakeney should not therefore have inferred that no default surcharge consequence would arise as the result of the failure to post the return and the cheque until Monday 2 August.  The reasonable competent businessman in Mr Blakeney’s shoes should we think have taken active step to get the payment to the Commissioners within the extended seven day period by making arrangements with MM’s bank, over the counter, to effect payment by BACS or CHAPS.

12.	For those reasons we are not satisfied that MM has shown a reasonable excuse for the default.  We therefore dismiss the appeal.

STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 30 June 2005

LON/04/1919